U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2011
o
Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________ to ______________
For the Period Ended September 30, 2011
Commission file number 000-27727
SaviCorp
(Name of Small Business Issuer in Its Charter)
Nevada |
91-1766174 |
(State of Incorporation) |
(IRS Employer Identification No.) |
2530 S. Birch Street
Santa Ana, CA 92707
(Address of Principal Executive Offices)
(877) 611-7284
Issuer's Telephone Number
Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x
No o
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
No x
As of December 30, 2014 there were 5,985,760,962 shares of issuer’s
common stock outstanding
Transitional Small Business Disclosure Format (check one):
Yes o
No x
SAVI MEDIA GROUP, INC.
Quarterly Report on Form 10-Q for the
Quarterly Period Ending September 30,
2011
Table of Contents
PART I. FINANCIAL INFORMATION |
|
|
|
Item 1. Unaudited Condensed Financial Statements |
|
|
|
Balance Sheets: |
|
September 30, 2011 and December 31, 2010 |
3 |
|
|
Statements of Operations: |
|
For the three and nine months ended September 30, 2011 and 2010 |
4 |
|
|
Statement of Stockholders’ Deficit |
|
For the period from December 31, 2009 to September 30, 2011 |
5 |
|
|
Statements of Cash Flows: |
|
For the nine months ended September 30, 2011 and 2010 |
6 |
|
|
Notes to Unaudited Financial Statements |
7 |
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
25 |
|
|
Item 3. Controls and Procedures |
30 |
|
|
PART II. OTHER INFORMATION |
|
|
|
Item 1. Legal Proceedings |
30 |
|
|
Item 2. Changes in Securities |
31 |
|
|
Item 3. Defaults Upon Senior Securities |
32 |
|
|
Item 4. Submission of Matters to a Vote of Security Holders |
32 |
|
|
Item 5. Other Information |
32 |
|
|
Item 6. Exhibits |
32 |
|
|
SIGNATURES |
33 |
PART I. FINANCIAL INFORMATION
SaviCorp
BALANCE SHEETS
September 30, 2011 and December 31, 2010
| |
September 30, 2011 | | |
December 31, 2010 | |
| |
(unaudited) | | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 2,750 | | |
$ | 6,381 | |
Accounts Receivable | |
| 2,585 | | |
| – | |
Undeposited Funds | |
| 31,437 | | |
| | |
Inventory | |
| 158,638 | | |
| – | |
Prepaid expenses | |
| 41,668 | | |
| 8,333 | |
| |
| | | |
| | |
Total assets | |
$ | 237,078 | | |
$ | 14,714 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Convertible debt, net of unamortized discount of $0 and $0, in default | |
$ | 597,440 | | |
$ | 3,082,440 | |
Related party convertible debt, net of unamortized discount of $0 and $0, in default | |
| 204,302 | | |
| 204,302 | |
Notes payable, in default | |
| 10,778 | | |
| 10,778 | |
Notes payable, related party, in default | |
| 15,000 | | |
| 15,000 | |
Accounts payable and accrued liabilities | |
| 1,435,237 | | |
| 5,424,269 | |
Related party accounts payable | |
| 313,415 | | |
| 167,829 | |
Accounts payable assumed in recapitalization | |
| 159,295 | | |
| 159,295 | |
Derivative liabilities - embedded derivatives | |
| 11,269,350 | | |
| 21,196,771 | |
Derivative liabilities - warrants | |
| 13,821,446 | | |
| 56,229,420 | |
| |
| | | |
| | |
Total current liabilities | |
| 27,826,263 | | |
| 86,490,104 | |
| |
| | | |
| | |
Commitments and contingencies | |
| – | | |
| – | |
| |
| | | |
| | |
Stockholders' deficit: | |
| | | |
| | |
Series A convertible preferred stock; $0.001 par value, 10,000,000 shares authorized, 6,762,733 and 9,956,483 issued and outstanding at September 30, 2011 and December 31, 2010, respectively | |
| 6,763 | | |
| 9,956 | |
Series B convertible preferred stock; $0.001 par value, 10,000,000 shares authorized, none issued and outstanding | |
| – | | |
| – | |
Series C convertible preferred stock; $0.001 par value,10,000,000 shares authorized, 6,354,942 and 7,887,275 issued and outstanding at September 30, 2011 and December 31, 2010, respectively | |
| 6,355 | | |
| 7,887 | |
Common stock: $0.001 par value, 6,000,000,000 shares authorized, 3,444,784,939 and 2,313,878,188 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively | |
| 3,344,785 | | |
| 2,313,878 | |
Change in accounting principle | |
| 658,128 | | |
| 658,128 | |
Stock payable | |
| 1,981,768 | | |
| 705,000 | |
Additional paid-in capital | |
| 263,544,090 | | |
| 251,848,925 | |
Accumulated Deficit | |
| (297,131,074 | ) | |
| (342,019,164 | ) |
| |
| | | |
| | |
Total stockholders' deficit | |
| (27,589,185 | ) | |
| (86,475,390 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 237,078 | | |
$ | 14,714 | |
The accompanying notes are an integral part
of the unaudited financial statements
SaviCorp
STATEMENTS OF OPERATIONS
For the 3 and 9 Months Ended September 30, 2011 and 2010
(unaudited)
| |
For the three months ended: | | |
For the nine months ended: | |
| |
September 30, 2011 | | |
September 30, 2010 | | |
September 30, 2011 | | |
September 30, 2010 | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | 9,710 | | |
| – | | |
$ | 52,977 | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Costs of Goods Sold | |
| 5,536 | | |
| – | | |
| 47,787 | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Gross Profit | |
| 4,174 | | |
| – | | |
| 5,190 | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative expenses | |
$ | 1,331,511 | | |
$ | 284,666 | | |
$ | 4,096,983 | | |
$ | 1,071,533 | |
Research and development | |
| – | | |
| 19,653 | | |
| – | | |
| 72,812 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
$ | (1,327,337 | ) | |
$ | (304,319 | ) | |
$ | (4,091,793 | ) | |
$ | (1,144,345 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expenses): | |
| | | |
| | | |
| | | |
| | |
Gain on settlement | |
| 3,477,100 | | |
| – | | |
| 3,477,100 | | |
| – | |
Change in fair value of financial instruments | |
| (10,255,003 | ) | |
| (37,995,311 | ) | |
| 46,099,950 | | |
| (68,003,117 | ) |
Interest expense | |
| (55,498 | ) | |
| (115,700 | ) | |
| (297,034 | ) | |
| (1,021,572 | ) |
Registration rights expense | |
| – | | |
| (146,333 | ) | |
| (300,133 | ) | |
| (444,600 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total other income and (expenses), net | |
| (6,833,401 | ) | |
| (38,257,344 | ) | |
| 48,979,883 | | |
| (69,469,289 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net profit (loss) | |
$ | (8,160,738 | ) | |
$ | (38,561,663 | ) | |
$ | 44,888,090 | | |
$ | (70,613,634 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 3,169,269,545 | | |
| 2,118,872,577 | | |
| 2,668,656,921 | | |
| 2,094,880,125 | |
Weighted average shares outstanding-diluted | |
| 3,169,269,545 | | |
| 2,118,872,577 | | |
| 4,849,733,958 | | |
| 2,094,880,125 | |
| |
| | | |
| | | |
| | | |
| | |
Net profit (loss) per common share - basic | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | 0.02 | | |
$ | (0.03 | ) |
Net profit (loss) per common share - diluted | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | 0.01 | | |
$ | (0.03 | ) |
The accompanying notes are an integral part
of the unaudited financial statements
SaviCorp
STATEMENT OF STOCKHOLDERS' DEFICIT
For the Periods Ending December 31, 2010 and September 30, 2011
| |
Preferred
Stock A | | |
Preferred
Stock B | | |
Preferred
Stock C | | |
Common Stock | | |
Change in Accounting | | |
Additional Paid-In | | |
Deferred | | |
Stock | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Principle | | |
Capital | | |
Compensation | | |
Payable | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at December
31, 2009 | |
| 9,347,500 | | |
$ | 9,348 | | |
| – | | |
$ | – | | |
| 8,647,775 | | |
$ | 8,648 | | |
| 2,092,104,264 | | |
$ | 2,092,104 | | |
$ | 658,128 | | |
$ | 251,130,841 | | |
$ | – | | |
$ | 345,000 | | |
$ | (265,053,329 | ) | |
$ | (10,809,260 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common and preferred stock
issued in exchange for consulting services | |
| 1,055,000 | | |
| 1,055 | | |
| – | | |
| – | | |
| 436,000 | | |
| 436 | | |
| 1,000,000 | | |
| 1,000 | | |
| – | | |
| 234,429 | | |
| – | | |
| – | | |
| – | | |
| 236,920 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common and preferred stock
issued for cash under Regulation D offering | |
| 45,000 | | |
| 45 | | |
| – | | |
| – | | |
| 1,381,000 | | |
| 1,381 | | |
| 213,922,220 | | |
| 213,922 | | |
| – | | |
| 695,393 | | |
| – | | |
| – | | |
| – | | |
| 910,741 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of common to Preferred
A | |
| 1,508,983 | | |
| 1,508 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (150,898,300 | ) | |
| (150,898 | ) | |
| – | | |
| 149,390 | | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Preferred C
to common | |
| – | | |
| – | | |
| – | | |
| – | | |
| (1,577,500 | ) | |
| (1,578 | ) | |
| 157,750,000 | | |
| 157,750 | | |
| – | | |
| (156,172 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants Issued for consulting
services | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 137,000 | | |
| – | | |
| – | | |
| – | | |
| 137,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Imputed interest on related
party debt | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 15,044 | | |
| – | | |
| – | | |
| – | | |
| 15,044 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred A and Preferred
C stock loaned to Company | |
| (2,000,000 | ) | |
| (2,000 | ) | |
| – | | |
| – | | |
| (1,000,000 | ) | |
| (1,000 | ) | |
| – | | |
| – | | |
| – | | |
| (357,000 | ) | |
| | | |
| 360,000 | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (76,965,835 | ) | |
| (76,965,835 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2010 | |
| 9,956,483 | | |
$ | 9,956 | | |
| – | | |
$ | – | | |
| 7,887,275 | | |
$ | 7,887 | | |
| 2,313,878,184 | | |
$ | 2,313,878 | | |
| 658,128 | | |
| 251,848,925 | | |
$ | – | | |
$ | 705,000 | | |
| (342,019,164 | ) | |
$ | (86,475,390 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued in exchange
for consulting services | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 225,149,579 | | |
| 225,151 | | |
| – | | |
| 2,744,071 | | |
| – | | |
| – | | |
| – | | |
| 2,969,222 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common and preferred stock
issued for cash under Regulation D offering | |
| – | | |
| – | | |
| – | | |
| – | | |
| 20,000 | | |
| 20 | | |
| 459,563,478 | | |
| 459,563 | | |
| – | | |
| 1,083,960 | | |
| – | | |
| – | | |
| – | | |
| 1,543,543 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Preferred A
to common | |
| (693,750 | ) | |
| (693 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| 69,375,000 | | |
| 69,375 | | |
| – | | |
| (68,682 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Preferred C
to common | |
| – | | |
| – | | |
| – | | |
| – | | |
| (1,052,333 | ) | |
| (1,052 | ) | |
| 105,233,300 | | |
| 105,233 | | |
| – | | |
| (104,181 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Settlement of Cornell Debt and cancellation
of Preferred A shares | |
| (4,000,000 | ) | |
| (4,000 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 9,466,292 | | |
| – | | |
| – | | |
| – | | |
| 9,462,292 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of Common and Preferred
A in exchange for Preferred C | |
| 1,500,000 | | |
| 1,500 | | |
| – | | |
| – | | |
| (2,500,000 | ) | |
| (2,500 | ) | |
| 100,000,000 | | |
| 100,000 | | |
| – | | |
| (99,000 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Imputed interest on related
party debt | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 23,058 | | |
| – | | |
| – | | |
| – | | |
| 23,058 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common, Preferred A and Preferred
C stock repaid/loaned to Company (net) | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2,000,000 | | |
| 2,000 | | |
| 71,585,394 | | |
| 71,585 | | |
| – | | |
| (1,350,353 | ) | |
| | | |
| 1,276,768 | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 44,888,090 | | |
| 44,888,090 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at September 30,
2011 (unaudited) | |
| 6,762,733 | | |
$ | 6,763 | | |
| – | | |
$ | – | | |
| 6,354,942 | | |
$ | 6,355 | | |
| 3,344,784,935 | | |
$ | 3,344,785 | | |
$ | 658,128 | | |
$ | 263,544,090 | | |
$ | – | | |
$ | 1,981,768 | | |
$ | (297,131,074 | ) | |
$ | (27,589,185 | ) |
The
accompanying notes are an integral part of the unaudited financial statements
SaviCorp
STATEMENTS OF CASH FLOWS
For the 9 months Ended September 30, 2011 and 2010
(Unaudited)
| |
For the nine months ended: | |
| |
September 30, 2011 | | |
September 30, 2010 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | 44,888,090 | | |
$ | (70,613,634 | ) |
Adjustments to reconcile net income to net cash used by operating activities: | |
| | | |
| | |
Compensatory common and preferred stock issuances | |
| 2,969,222 | | |
| 373,920 | |
Interest imputed on non-interest bearing note from a stockholder | |
| 23,058 | | |
| 9,689 | |
Interest expense recognized on issuance and through
accretion of discount on debt | |
| – | | |
| 694,843 | |
Change in fair value of derivatives | |
| (46,099,950 | ) | |
| 68,003,117 | |
(Gain) Loss on extinguishment of debt | |
| (3,477,100 | ) | |
| – | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Changes in inventory | |
| (158,638 | ) | |
| – | |
Changes in accounts receivable | |
| (2,585 | ) | |
| – | |
Changes in pre-paid assets | |
| (33,335 | ) | |
| (20,833 | ) |
Changes in other current assets | |
| (31,437 | ) | |
| – | |
Accrued registration rights expense | |
| 300,133 | | |
| 444,600 | |
Changes in related party accounts payable | |
| 145,587 | | |
| 189,550 | |
Changes in accounts payable and accrued liabilities | |
| 479,781 | | |
| 407,686 | |
Net cash used by operating activities | |
| (997,174 | ) | |
| (511,062 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Net cash used in investing activities | |
| – | | |
| – | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Net Payments on convertible debt | |
| (550,000 | ) | |
| – | |
Proceeds from sale of common and preferred stock | |
| 1,543,543 | | |
| 514,950 | |
Net cash provided by financing activities | |
| 993,543 | | |
| 514,950 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (3,631 | ) | |
| 3,888 | |
Cash and cash equivalents at beginning of period | |
| 6,381 | | |
| – | |
Cash and cash equivalents at end of period | |
$ | 2,750 | | |
$ | 3,888 | |
The accompanying notes are an integral part
of the unaudited financial statements
SAVICORP
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2011 and September
30, 2010 (unaudited)
1. |
Organization and Significant Accounting Policies |
SaviCorp (the "Company")
is a Nevada Corporation that has acquired rights to "blow-by gas and crankcase engine emission reduction technology"
which it intends to develop and market on a commercial basis. The technology is a relatively simple gasoline and diesel engine
emission reduction device that the Company intends to sell to its customers for effective and efficient emission reduction and
engine efficiency for implementation in both new and presently operating automobiles.
The Company was originally incorporated
as Energy Resource Management, Inc. on August 13, 2002 and subsequently adopted name changes to Redwood Energy Group, Inc. and
SaVi Media Group, Inc., upon completion of a recapitalization on August 26, 2002. The re-capitalization occurred when the Company
acquired the non-operating public shell of Gene-Cell, Inc. Gene-Cell Inc. had no significant assets or operations at the date of
acquisition and the Company assumed all liabilities that remained from its prior discontinued operation as a biopharmaceutical
research company. The historical financial statements presented herein are those of SaVi Media Group, Inc. and its predecessors,
Redwood Energy Group, Inc. and Energy Resource Management, Inc.
The non-operating public shell
used to recapitalize the Company was originally incorporated as Becniel and subsequently adopted name changes to Tzaar Corporation,
Gene-Cell, Inc., Redwood Energy Group, Inc., Redwood Entertainment Group, Inc., SaVi Media Group, Inc., and finally its current
name SaviCorp.
Significant Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could
differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.
Cash and Cash Equivalents
The Company considers all highly
liquid short-term investments with an original maturity of three months or less when purchased, to be cash equivalents. The Company
had $3,888 as of September 30, 2010 and $2,750 as of September 30, 2011 and $31,437 in undeposited funds on September 30, 2011.
Concentration of Credit
Risk
Cash and cash equivalents are
the primary financial instruments that subject the Company to concentrations of credit risk. The Company maintains its cash deposits
with major financial institutions selected based upon management’s assessment of the financial stability. Balances periodically
exceed the $100,000 federal depository insurance limit; however, the Company has not experienced any losses on deposits.
Inventory
Inventories are stated at the
lower of cost, computed using the first-in, first-out method, or market. If the cost of the inventories exceeds their market value,
provisions are made currently for the difference between the cost and the market value.
Furniture and Equipment
Furniture and equipment is recorded
at cost. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective
accounts, and any resulting gains or losses are included in the results of operations. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets. Repairs and maintenance costs are expensed as incurred.
Impairment Of Long-Lived Assets
The Company evaluates the recoverability
of long-lived assets when events and circumstances indicate that such assets might be impaired and determines impairment by comparing
the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Impairments
are charged to operations in the period to which events and circumstances indicate that such assets might be impaired.
Intangible Assets
Intangible assets are amortized
using the straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically
and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.
Income Taxes
The Company uses the liability
method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on
future years of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end.
The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value.
Stock-Based Compensation
The
Company adopted FASB guidance on stock based compensation on January 1, 2006. Under FASB ASC 718-10-30-2, all share-based payments
to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative. Stock and stock options issued for services and compensation totaled $373,920
and $2,969,222 for the periods ended September 30, 2010 and 2011, respectively.
Valuation of Derivatives
The Company evaluates its convertible
instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify
as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting
treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In
the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as
other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion
date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become
subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification
date. We analyzed the derivative financial instruments (the Convertible Notes), in accordance with ASC 815. The objective is to
provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This
determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual
method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument
is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot
be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument
or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any,
must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice
models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company
utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets
(or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.
The derivative liabilities result
in a reduction of the initial carrying amount (as unamortized discount) of the Convertible Note. This derivative liability is marked-to-market
each quarter with the change in fair value recorded in the income statement. Unamortized discount is amortized to interest expense
using the effective interest method over the life of the Convertible Note. If the Note is converted or the warrants are exercised,
the derivative liability is released and recorded as additional paid in capital.
Profit/Loss Per Share
Basic and diluted net profit
or loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during each period.
Potentially dilutive options, warrants and convertible preferred stock that were outstanding during 2010 were not considered in
the calculation of diluted earnings per share because the Company's net loss rendered their impact anti-dilutive. Accordingly,
basic and diluted loss per share is identical for the year ended December 31, 2010. See Note 11 for a discussion of potentially
dilutive instruments.
Fair Value of Financial Instruments
The Company includes fair value
information in the notes to financial statements when the fair value of its financial instruments is different from the book value.
When the book value approximates fair value, no additional disclosure is made.
New Accounting Pronouncements
In January 2010, the FASB issued
ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This
ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including
a description of the reasons for the transfers. Further, this ASU requires additional disclosures for the activity in
Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The adoption of this ASU did not have a material impact on our financial statements.
In February 2010, the FASB issued
ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements. Under this ASU,
a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been
evaluated. This ASU is effective upon the issuance of this ASU. The adoption of this ASU did not have a material impact on our
financial statements.
In April 2010, the FASB issued
ASU No. 2010-18 regarding improving comparability by eliminating diversity in practice about the treatment of modifications of
loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and Debt Securities Acquired with Deteriorated
Credit Quality (“Subtopic 310-30”). Furthermore, the amendments clarify guidance about maintaining the integrity of
a pool as the unit of accounting for acquired loans with credit deterioration. Loans accounted for individually under
Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled
Debt Restructurings by Creditors. The amendments in this Update are effective for modifications of loans accounted for
within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The
amendments are to be applied prospectively. Early adoption is permitted. The adoption of this ASU did not have a material impact
on our financial statements.
In April 2011, the FASB issued
ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”.
This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance,
the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR,
certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning
on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year
of adoption. The Company does not expect that the guidance effective in future periods will have a material impact on its financial
statements.
In May 2011, the FASB issued
ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance
amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in
the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description
of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes
in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest
and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure
of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure
of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on
January 1, 2012. The Company is currently evaluating ASU 2011-04 and has not yet determined the impact that adoption will have
on its financial statements.
In June 2011, the FASB issued
ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual
reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on January 1, 2012. This
guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’
equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately
on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in
financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive
income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected
to have a material impact on the Company’s financial position or results of operations.
In September 2011, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles – Goodwill and Other
(Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing
an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should
calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events
and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events
and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining
whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU
are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early
adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011,
if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of
this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
2. |
Going Concern Considerations |
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. In 2010 and 2011, the Company had limited operations
and resources. The Company has accumulated net losses of $297,131,074 for the period from inception, August 13, 2002, to September
30, 2011. At September 30, 2011, the Company is in a negative working capital position of $27,589,185 and has a stockholders' deficit
of $27,589,185. Additionally, as of September 30, 2011 the Company faced substantial challenges to future success as follows:
|
· |
The Company is delinquent on critical liabilities such as payments to key consultants. |
|
· |
The Company was in default of its registration rights agreement with the investor in its long-term debt. Such default and the Company’s inability to fund its ongoing operations increase the likelihood that the investor could seize its assets to partially satisfy the debt or find another operator of those assets. |
Such matters raise substantial
doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
The goals of the Company will
require a significant amount of capital and there can be no assurances that the Company will be able to raise adequate short-term
capital to sustain its current operations in the development stage, or that the Company can raise adequate long-term capital from
private placement of its common stock or private debt to emerge from the development stage. There can also be no assurances that
the Company will ever attain profitability. The Company's long-term viability as a going concern is dependent upon certain key
factors, including:
|
· |
The Company's ability to obtain adequate sources of funding to sustain it during the development stage. |
|
· |
The ability of the Company to successfully produce and market its gasoline and diesel engine emission reduction device in a manner that will allow it to ultimately achieve adequate profitability and positive cash flows to sustain its operations. |
In order to address its ability
to continue as a going concern, implement its business plan and fulfill commitments made in connection with its agreement for acquisition
of patent rights (See Note 3), the Company hopes to raise additional capital from sale of its common stock. Sources of funding
may not be available on terms that are acceptable to the Company and its stockholders, or may include terms that will result in
substantial dilution to existing stockholders.
3. |
Agreement for Acquisition of Patent Rights |
On March 31, 2003, the Company
entered into a letter of intent to acquire 20% of SaVi Group, the name under which Serge Monros was conducting business in the
ownership of numerous patents he had developed. The acquisition of 20% of SaVi Group was completed in the second quarter of 2004
upon the Company's payment of $38,500 in cash and the issuance of 4,000 shares of the Company's common stock to Serge Monros.
Subsequent to the acquisition,
the Company changed its name from Redwood Entertainment Group, Inc. to SaVi Media Group, Inc. Serge Monros changed the name of
the entity in which he holds the patents to His Divine Vehicle, Inc. (“HDVI”). Further discussions between the Company
and Serge Monros led to a September 1, 2004 agreement (the "Agreement") under which the Company acquired 100% of the
rights to various patents (the "Patents") owned by Serge Monros. The Agreement was amended and modified on December 30,
2004 and again on April 6, 2005. The most important patented technology, for which the Company acquired rights, was technology
to produce a relatively simple gasoline and diesel engine emission reduction device that the Company intends to sell to manufacturers
of new vehicles and owners of presently operating automobiles.
The Company does not have the
records of the amounts spent in the development of the Patents and is unaware of the amounts expended.
Under the terms of the Agreement
as amended, the Company acquired the Patents rights for the following consideration:
|
· |
5,000,000 shares of Series A preferred stock to both Serge Monros, who owned the patents, and Mario Procopio, the Company's founder and Chief Executive Officer. The Series A preferred stock is convertible to and holds voting rights of 100 to 1 of those attributable to common stock. These shares are to remain in escrow for three years, and, accordingly, they will not be converted to common stock during that period. |
|
· |
5,000,000 shares of common stock to both Serge Monros and Mario Procopio. |
|
· |
Three-year stock options to acquire 125,000,000 shares of the Company's common stock at $0.00025 per share to both Serge Monros and Mario Procopio. This provision of the agreement was reached in April 2005. The options to Serge Monros are considered part of the cost of the patent rights under the Agreement. The Options to Mario Procopio will be recognized as compensation expense of $31,250,000 in the second quarter of 2005. |
The Agreement represents a three
year relationship that may be renegotiated or rescinded at the end of that term if the use of the Patents does not produce revenue
equal to costs associated with the Agreement or modified annual cost, whichever is less. The Agreement does not define the terms
"Costs associated with the Agreement" or "Modified Annual Costs". Regardless of performance, the Agreement
is eligible for renewal and/or modification on September 1, 2007.
In the event the Agreement is
rescinded, the Patents and related technology will be returned to Serge Monros. Further, under the terms of the Agreement, the
Company is required to build a $5,000,000 research and development lab and a manufacturing plant and Serge Monros will also own
those assets, free and clear, in the event the Agreement is rescinded or the Company dissolved.
The Agreement contains two commitments
by the Company as follows:
|
· |
Serge Monros and Mario Procopio each are to receive monthly compensation of $10,000 per month, depending on revenues and the raising of capital, but not less than $3,000 per month. |
|
· |
Contingent consideration to Serge Monros of $75,000,000 in cash or in the form of stock options the exercise of which will provide net proceeds to Serge Monrosof $75,000,000 over the next ten years. If options are issued, they will bear an exercise price of $0.00025 per share. This provision of the agreement is specifically tied to the performance of the Company and its ability to pay either in cash or stock options. |
The Company recorded Patents
at cost to Serge Monros because the Agreement resulted in the control of the Company by Serge Monros and Mario Procopio. Further,
due to the fact that most costs incurred by Serge Monros in developing the patents represented research and development costs that
were immediately expensed, the basis of the Patents has been limited to $38,500, the actual cash paid to Serge Monros under the
initial agreement to acquire 20% of SaVi Group. In 2006, The Company recorded a $38,500 impairment allowance that reduced the patents
to a zero carrying value since it is clear the Company will not meet the requirements of the Agreement, and will likely lose any
rights it has to such patents.
The Series A convertible preferred
stock and the stock options issued under the Agreement could have a very significant future dilutive effect on stockholders.
HDV, an affiliate of Mr. Monros,
manufactures the “DynoValve” and “DynoValve Pro” products and then sells them to the Company for resale
pursuant to the Product Licensing Agreement entered into on November 15, 2008, as amended on December 16, 2009. Under the Product
Licensing Agreement, the price at which HDV sells the products to the Company is subject to change at any time upon written notice.
The Company may determine the prices that it charges to its customers. The Product Licensing Agreement is non-exclusive and automatically
renews on an annual basis provided certain sales volumes are achieved and the Company is otherwise not in breach. HDV may, after
an applicable cure period, terminate the Product Licensing Agreement earlier if it believes that the Company is deficient in meeting
its responsibilities. HDV may amend the Product Licensing Agreement at any time by giving notice to the Company, unless the Company
objects within ten days of such notice.
As consideration for HDV entering
into the Product Licensing Agreement, the Company agreed to issue to Mr. Monros and HDV, if and when available, an aggregate of
500 Million shares of Common Stock, 5 Million shares of Series A Preferred Stock and 5 Million shares of Series C Preferred Stock.
4. |
Accounts Payable and Accrued Liabilities |
Accounts Payable and Accrued
Liabilities at September 30, 2011 and December 31, 2010, consisted of the following:
| |
September 30, 2011 | | |
December 31, 2010 | |
| |
| | |
| |
Trade accounts payable | |
$ | 300,514 | | |
$ | 246,697 | |
| |
| | | |
| | |
| |
| | | |
| | |
Accrued wages payable | |
| 1,015,909 | | |
| 858,920 | |
Accrued registration rights penalties | |
| – | | |
| 2,880,782 | |
Accrued interest expense | |
| 118,814 | | |
| 1,437,870 | |
| |
| | | |
| | |
| |
$ | 1,435,237 | | |
$ | 5,424,269 | |
5. |
Accounts Payable and Accrued Liabilities – Related Party |
At September 30, 2011 and December
31, 2010, accounts payable and accrued liabilities to a related party of $313,415 and $167,829 respectively, represents amounts
due to His Divine Vehicle, Inc., ("HDV", a company owned by the Company’s CEO who is also a major stockholder).
The amounts due HDV are primarily related to inventory purchases and actual and estimated operations and research and development
activities that were paid by HDV on behalf of the Company.
6. |
Accounts Payable Assumed in Recapitalization |
Accounts payable assumed in
recapitalization, represents the liabilities of the public shell, at the time, Gene-Cell, Inc. that the Company assumed as part
of the recapitalization. This balance is comprised of liabilities for legal fees and trade payables incurred by Gene-Cell, Inc.
(See Note 1).
Cornell:
On July 10, 2006, we entered
into a Securities Purchase Agreement with Cornell Capital Partners L.P. providing for the sale by us to Cornell of our 10% secured
convertible debentures in the aggregate principal amount of $2,970,000 of which $1,670,000 was advanced immediately. We entered
into an amended and restated securities purchase agreement with Cornell on August 17, 2006. The second installment of $200,000
was advanced on August 17, 2006. The third installment of $600,000 was advanced on September 1, 2006. The last installment of $500,000
would be advanced two business days prior to a registration statement being declared effective by the SEC. In addition, Cornell
issued a note payable of $15,000 on April 2, 2007 that on default became convertible. The Company was in default on all debt to
Cornell as of December 31, 2010. A portion of the funds advanced were used to pay off the existing convertible debenture and other
advances made by Golden Gate Investors totaling $1,016,942. Following is an analysis of the proceeds received and related fees
and expenses paid with such proceeds.
Gross amount received – contractual balance | |
$ | 2,485,000 | |
Less commissions paid | |
| (247,000 | ) |
Less legal fees | |
| (108,960 | ) |
Less structuring fee | |
| (10,000 | ) |
| |
| | |
Net proceeds | |
$ | 2,119,040 | |
Following is an analysis of
convertible debt due Cornell at September 30, 2011 and December 31, 2010:
| |
September 30, 2011 | | |
December 31, 2010 | |
| |
| | |
| |
Contractual balance, in default | |
$ | – | | |
$ | 2,485,000 | |
Less unamortized discount | |
| – | | |
| – | |
| |
| | | |
| | |
Convertible debt | |
$ | – | | |
$ | 2,485,000 | |
The secured convertible debentures
bear interest at 10% and mature two years from the date of issuance. Holders may convert, at any time, any amount outstanding under
the secured convertible debentures into shares of the Company’s common stock at a conversion price per share equal to $0.013
beginning the earlier of (i) the first business day of the month immediately following the month in which a registration statement
is first declared effective or (ii) November 1, 2006, and continuing on the first business day of each calendar month thereafter,
we are required to make a mandatory redemption payment of $225,000 and accrued and unpaid interest, which payment can be made in
cash or in restricted shares of our common stock.
The Company has the option,
at its sole discretion, to settle the monthly mandatory redemption amount by (i) paying the investor cash in an amount equal to
115% of the monthly mandatory redemption amount, or (ii) issuing to the investor the number of shares of the Company’s common
stock equal to the monthly mandatory redemption amount divided by $0.007, which is known as the redemption conversion price, provided,
however, that in order the Company to issue shares upon payment of the monthly mandatory redemption amount (A) this registration
statement is effective, (B) no event of default shall have occurred, and (C) the closing bid price for our common stock shall be
greater than the redemption conversion price as of the trading day immediately prior to the redemption date. However, in the event
that (A) this registration statement is effective, (B) no event of default shall have occurred, and (C) the closing bid price for
our common stock is less than the redemption conversion price but is greater than $0.003, which is known as the default conversion
price, we shall have the option to settle the monthly mandatory redemption amount by issuing to the investor the number of shares
of common stock equal to the monthly mandatory redemption amount divided by the default conversion price.
In the event that certain events
of default, such as failure to pay principal or interest when due, failure to issue common stock upon conversion or the delisting
or lack of quotation of our common stock, the redemption conversion price will be reduced to the default conversion price. The
investor has contractually agreed to restrict its ability to convert the debentures and receive shares of the Company’s common
stock such that the number of shares of common stock held by it and its affiliates after such conversion does not exceed 4.9% of
the then issued and outstanding shares of common stock.
The Company has the right, at
its option, with three business days advance written notice, to redeem a portion or all amounts outstanding under the secured convertible
debentures prior to the maturity date provided that the closing bid price of the Company’s common stock, is less than $0.013
at the time of the redemption. In the event of a redemption, the Company is obligated to pay an amount equal to the principal amount
being redeemed plus a 15% redemption premium, and accrued interest.
In connection with the securities
purchase agreement dated July 10, 2006, as amended, the Company granted the investor registration rights. Under the terms of the
registration rights the Company was obligated to use its best efforts to cause the registration statement to be declared effective
no later than December 7, 2006 and to insure that the registration statement remains in effect until the earlier of (i) all of
the shares of common stock issuable upon conversion of the Debentures have been sold or (ii) July 10, 2008.
The Company defaulted on its
obligations under the registration rights agreement because the Registration Statement was not declared effective by December 7,
2006. Accordingly, we are required to pay to Cornell, as liquidated damages, for each month that the registration statement has
not been filed or declared effective, as the case may be, either a cash amount or shares of our common stock equal to 2% of the
liquidated value of the secured convertible debentures. Under FASB EITF 00-19-02, the registration rights liability is separated
from the derivative liability and shown on the balance sheet at December 31, 2010 at $2,880,782.
In connection with the securities
purchase agreement dated July 10, 2006, the Company executed a security agreement in favor of the investor granting them a first
priority security interest in all of the Company’s goods, inventory, contractual rights and general intangibles, receivables,
documents, instruments, chattel paper, and intellectual property. The security agreement states that if an event of default occurs
under the secured convertible debentures or security agreement, the investors have the right to take possession of the collateral,
to operate our business using the collateral, and have the right to assign, sell, lease or otherwise dispose of and deliver all
or any part of the collateral, at public or private sale or otherwise to satisfy our obligations under these agreements.
On or about July 28, 2011, the
Company entered into a Repayment Agreement (the “Repayment Agreement”) with YA Global Investments, L.P., a Cayman Islands
exempt limited partnership formerly known as Cornell Capital Partners, L.P. (“YA Global”).
Pursuant to the terms of the
Repayment Agreement, all of the Company’s obligations under the Financing Documents have been terminated in full. Without
limitation, all amounts otherwise due under the Debentures are deemed satisfied in full, the Prior Warrants are deemed cancelled,
and any and all security interests granted by the Company in favor of YA Global pursuant to the Financing Documents have been extinguished,
including the release of 4,000,000 shares of Series A Preferred Stock held in escrow. In exchange for the foregoing, the Company
delivered to YA Global: (i) a one-time cash payment of US$550,000; and (ii) new warrants to purchase up to 25,000,000 shares of
Common Stock at an exercise price of $0.0119 (the “Current Warrants”). The Current Warrants expire on or about July
28, 2014. A copy of the Repayment Agreement and Current Warrants have been attached as exhibits to the Form 8-K filed August 2,
2011 and are hereby incorporated in their entirety by reference. The Company recorded a gain on settlement of $3,477,100 based
on the value of the liabilities released and the value of the consideration paid.
DS Enterprises:
On December 15, 2009, the Company
converted accounts payable due to DS Enterprises, Inc. into a convertible promissory note. The note bears interest at 8%, matured
on April 15, 2010, and converts into common shares at the conversion rate of $0.003 (reset to $0.0005) subject to anti-dilution
protection.
Gross accounts payable converted | |
$ | 526,094 | |
Plus accrued interest | |
| 71,346 | |
Net due | |
$ | 597,440 | |
Following is an analysis of
convertible debt due DS Enterprises at September 30, 2011 and December 31, 2010:
Contractual balance |
|
$ |
597,440 |
|
Less unamortized discount |
|
|
- |
|
|
|
|
|
|
Convertible debt |
|
$ |
597,440 |
|
This note is considered a derivative
instrument due to the anti-dilution protection related to the conversion feature. The Company recorded a derivative liability upon
issuance which resulted in the note discount ($597,440 at issuance) and a loss on modification recorded as interest expense in
the amount of $344,157. The Company also recorded $79,945 in interest expense upon the conversion of accounts payable to notes
payable.
His Divine Vehicle - Related
Party:
On December 15, 2009, the Company
converted $204,302 of accounts payable due to His Divine Vehicle, Inc. into a convertible promissory note. The note bears interest
at 8%, matured on April 15, 2010, and converts into common shares at the conversion rate of $0.003 (reset to $0.0005) subject to
anti-dilution protection.
Following is an analysis of
convertible debt - related party at September 30, 2011 and December 31, 2010:
Contractual balance |
|
$ |
204,302 |
|
Less unamortized discount |
|
|
- |
|
|
|
|
|
|
Convertible debt |
|
$ |
204,302 |
|
This note is considered a derivative
instrument due to the anti-dilution protection related to the conversion feature. The Company recorded a derivative liability upon
issuance which resulted in the note discount ($204,302 at issuance) and a loss on modification recorded as interest expense in
the amount of $131,967 in 2009.
In connection with the Herrera
Settlement Agreement, the Company issued promissory notes to former officers who made payments on behalf of the company. The Notes
were issued on November 15, 2008, bear interest of 12% and are due in one year from the date of issuance. The total due as of December
31, 2010 and September 30, 2011 includes $10,778 due to former officers who made payments or waived fees as part of the Herrera
Settlement Agreement and the $15,000 due to Mr. Monros and Mr. Sweeney recorded as related party debt to Mr. Monros and Mr. Sweeney.
9. |
Commitments and Contingencies |
Legal Proceedings
From time to time, we may become
party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.
On or about July 28, 2011, SaviCorp,
a Nevada corporation, formerly known as Savi Media Group, Inc. (the “Company”) entered into a Repayment Agreement (the
“Repayment Agreement”) with YA Global Investments, L.P., a Cayman Islands exempt limited partnership formerly known
as Cornell Capital Partners, L.P. (“YA Global”).
On or about July 10, 2006, the
Company and YA Global, then known as Cornell Capital Partners, L.P., entered into a Securities Purchase Agreement which was subsequently
amended and restated on August 17, 2006 (collectively the “SPA”) wherein the Company issued and sold to YA Global secured
convertible debentures in the aggregate amount of approximately US$2,485,000 (collectively, the “Debentures”) and certain
warrants (collectively the “Prior Warrants” and with the Debentures, the “Securities”) to purchase an aggregate
of 2,900,000,000 shares of the Company’s common stock, par value $0.001 (the “Common Stock”).
In connection with the SPA,
the Company and YA Global entered into ancillary agreements, including a Security Agreement, an Insider Pledge and Escrow Agreement,
a Registration Rights Agreement, and other related documents (the SPA and such ancillary agreements are collectively referred to
hereinafter as “Financing Documents”). Copies of the Financing Documents have been attached to the Company’s
prior filings with the United States Securities and Exchange Commission (the “SEC”) and are hereby incorporated in
their entirety by reference.
Pursuant to the terms of the
Repayment Agreement, all of the Company’s obligations under the Financing Documents have been terminated in full. Without
limitation, all amounts otherwise due under the Debentures are deemed satisfied in full, the Prior Warrants are deemed cancelled,
and any and all security interests granted by the Company in favor of YA Global pursuant to the Financing Documents have been extinguished,
including the release of 4,000,000 shares of Series A Preferred Stock held in escrow. In exchange for the foregoing, the Company
delivered to YA Global: (i) a one-time cash payment of US$550,000; and (ii) new warrants to purchase up to 25,000,000 shares of
Common Stock at an exercise price of $0.0119 (the “Current Warrants”). The Current Warrants expire on or about July
28, 2014. A copy of the Repayment Agreement and Current Warrants have been attached as exhibits to the Form 8-K filed August 2,
2011 and are hereby incorporated in their entirety by reference.
The Company received a letter
from the Securities and Exchange Commission, Los Angeles Regional Office, dated May 9, 2011. The letter informed us that the SEC
had entered into a “formal order of investigation” into “Savi Media Group, Inc.” The letter included a
“Subpoena DucesTecum,” meaning the Company was given a prescribed period of time to produce all requested documents
and information contained in the subpoena. An index of the source of all such produced information and an authentication declaration
were also to be supplied. The stated purpose of the investigation is a fact-finding inquiry to assist the SEC staff in determining
if the Company has violated federal securities laws. The SEC states there is no implication of negativity or guilt at this stage
of the investigation.
The Company initially hired
the Los Angeles law firm of Troy Gould to represent us in the matter of this investigation. As of the date of this filing, the
Company believes it has provided all requested material to the SEC. Updates on the investigation will be supplied by supplemental
filings hereto.
Status of prior private investment;
$530,232 was raised privately in 2006 (cash for shares), $0 in 2007 (although HDV sold $13,000 of its shares), $1,000 in 2008 (although
HDV sold $453,750 of its shares), $442,000 in 2009, $879,550 in 2010, $1,930,828 in 2011, $342,000 in the first calendar quarter
of 2012 and $100,000 in the 2nd quarter of 2012. There is concern that these private placement securities sales were not made in
compliance with applicable law (lack of material disclosure and/or failure to file securities sales notices as required by federal
law).
In 2006, the Company issued
shares for services valued at $611,768. There were issued shares for services valued at $1,416,060 in 2007; shares for services
valued at $7,875 in 2008 and shares for services valued at $74,400 in 2009. We have no plans to offer rescission for these share
issuances.
The Company offered rescission
to many of the 2011 investors in late 2011 (“2011 rescission offer”). The legal sustainability of these rescission
offers is also being looked at by Counsel. The results of our 2011 rescission offer, in terms of rescission offers accepted by
shareholders, were very encouraging. The Company had three rescission offer accepted and refunded $8,000 plus interest.
Generally, the Company believes
it has good relationships with their shareholders. Our plan is to offer rescission to most shareholders obtaining privately offered
shares from us since January 1, 2006 through 2011. The Company has pledged to use our best efforts, in good faith, to honor any
accepted rescission offer. However, there is no assurance that rescission offer acceptances will not have a material effect on
our finances or that we will be able to re-pay those electing to rescind in a complete and timely manner.
The Company received a letter
dated June 7, 2013 with a Civil Complaint titled Arnold Lamarr Weese, et al v. SaviCorp filed in the Northern District of West
Virginia. In addition to SaviCorp, Serge Monros and Craig Waldrop are being sued individually. Settlement discussions failed and
Plaintiff's counsel began service of Process. The Company and Mr. Monros have hired Shustak and Partners to defend the claim. The
defendants have sued for breach of contract, fraud, vicarious liability, and unlawful sale by an unregistered broker. The lawsuit
attempts to hold the Company and Mr. Monros responsible for alleged improprieties of Waldrop. The Company is negotiating a settlement
and expects to reach a settlement to release the Company and Mr. Monros of any alleged liability by the end of 2014.
Lease Commitments
The Company is currently leasing
office space and adjacent research and development space on an annual basis from CEE, LLC, for $110,000 per year.
Common Stock
Following is a description of
transactions affecting common stock for the year ended December 31, 2010 and the period ended September 30, 2011.
Year Ended December 31, 2010
In January 2010, the Board of
Directors authorized the issuance of 1,000,000 common shares to accredited and non-accredited investors for total proceeds of $3,000.
In February 2010, the Board
of Directors authorized the issuance of 1,500,000 common shares to accredited and non-accredited investors for total proceeds of
$1,500.
In March 2010, the Board of
Directors authorized the issuance of 400,000 common shares to accredited and non-accredited investors for total proceeds of $2,000.
In May 2010, the Board of Directors
authorized the issuance of 375,000 common shares to accredited and non-accredited investors for total proceeds of $3,000.
In June 2010, the Board of Directors
authorized the issuance of 52,858,334 common shares to accredited and non-accredited investors for total proceeds of $94,200.
In July 2010, the Board of Directors
authorized the issuance of 8,706,862 common shares to accredited and non-accredited investors for total proceeds of $110,000.
In August 2010, the Board of
Directors authorized the issuance of 26,499,999 common shares to accredited and non-accredited investors for total proceeds of
$100,000.
In September 2010, the Board
of Directors authorized the issuance of 36,483,333 common shares to accredited and non-accredited investors for total proceeds
of $132,250. The Board of Directors also authorized the issuance of 1,000,000 common shares for services rendered by independent
contractors issuances based on the market value of the stock.
In October 2010, the Board of
Directors authorized the issuance of 14,740,000 common shares to accredited and non-accredited investors for total proceeds of
$118,600.
In November 2010, the Board
of Directors authorized the issuance of 11,050,000 common shares to accredited and non-accredited investors for total proceeds
of $64,000.
In December 2010, the Board
of Directors authorized the issuance of 60,308,696 common shares to accredited and non-accredited investors for total proceeds
of $203,192.
Throughout the year, 1,557,500
Preferred C shares were converted to 157,750,000 common shares and 150,898,300 common shares were converted to Preferred A shares.
Period Ended September 30, 2011
In January 2011, the Board of
Directors authorized the issuance of 12,550,000 common shares to accredited and non-accredited investors for total proceeds of
$41,500.
In February 2011, the Board
of Directors authorized the issuance of 82,525,000 common shares to accredited and non-accredited investors for total proceeds
of $411,500.
In March 2011, the Board of
Directors authorized the issuance of 6,562,858 common shares to accredited and non-accredited investors for total proceeds of $41,100.
In April 2011, the Board of
Directors authorized the issuance of 2,642,857 common shares to accredited and non-accredited investors for total proceeds of $12,100.
In May 2011, the Board of Directors
authorized the issuance of 7,766,667 common shares to accredited and non-accredited investors for total proceeds of $24,000.
In June 2011, the Board of Directors
authorized the issuance of 58,155,555 common shares to accredited and non-accredited investors for total proceeds of $185,000.
In July 2011, the Board of Directors
authorized the issuance of 209,160,541 common shares to accredited and non-accredited investors for total proceeds of $696,343.
In July, 2011 His Divine Vehicle
revised its licensing agreement to issue 1,500,000 Preferred A shares and 100,000,000 common shares in exchange for 2,500,000 Preferred
C shares.
In August 2011, the Board of
Directors authorized the issuance of 52,200,000 common shares to accredited and non-accredited investors for total proceeds of
$68,000.
In September 2011, the Board
of Directors authorized the issuance of 28,000,000 common shares to accredited and non-accredited investors for total proceeds
of $44,000.
Throughout the period, the Board
of Directors also authorized the issuance of 225,149,579 common shares for services rendered by independent contractors based on
the market value of the stock for total stock based compensation expense of $2,969,222.
Throughout the period, 693,750
Preferred A shares were converted to 69,375,000 common shares and 1,052,333 Preferred C shares were converted to 105,233,300 common
shares.
In May, 2011, the Company borrowed
128,414,606 common shares from directors of the Company.
In July, 2011, 2,500,000 Preferred
C shares were converted to 1,500,000 Preferred A shares and 100,000,000 common shares.
In August, 2011, the Company
repaid 200,000,000 common shares that were loaned to the Company.
Stock Options
Gene-Cell, Inc., the company,
used in the recapitalization (See Note 1) periodically issued incentive stock options to key employees, officers, and directors
to provide additional incentives to promote the success of the Company's business and to enhance the ability to attract and retain
the services of qualified persons. The Board of Directors approved the issuance of all stock options. The exercise price of an
option granted was determined by the fair market value of the stock on the date of grant. Reverse stock splits by the Company resulted
in the reduction of outstanding options to less than 115 shares with exercise prices that are so high that the exercise of the
options will never be practical. Expiration dates range from March, 2008 through July, 2012.
During April 2005, the Company
granted a total of 250,000,000 options to Mario Procopio and Serge Monros as additional consideration for the assignment of the
patent and services provided to us. The options were granted on April 6, 2005, are exercisable starting July 6, 2005, and expire
on April 6, 2008. The options are exercisable at the rate of $250 for every one million shares of common stock ($0.00025 per share).
These options represent all outstanding options of the Company at December 31, 2006 and 2005. The options to Serge Monros were
considered as part of the acquisition of patent rights. The options issued to Mario Procopio were valued at estimated market value
of $31,250,000 and charged to compensation expense. On August 24, 2007, Serge Monros exercised 50,000,000 options for total consideration
of $12,500. No proceeds were actually received as the consideration received was a credit to amounts owed to Serge Monros. In February
2008, as part of the settlement, Mario Procopio returned 125,000,000 options. The remaining 75,000,000 options held by Serge Monros
expired unexercised.
Incentive Stock Plan
During the year ended December
31, 2005 the 2005 Incentive Stock Plan was adopted by the Company’s Board of Directors and approved by the stockholders in
August 2005. The 2005 Plan provides for the issuance of up to 25,000,000 shares and/or options. The primary purpose of the 2005
Incentive Stock Plan is to attract and retain the best available personnel for us in order to promote the success of our business
and to facilitate the ownership of our stock by employees. The 2005 Incentive Stock Plan is administered by our Board of Directors.
Under the 2005 Incentive Stock Plan, key employees, officers, directors and consultants are entitled to receive awards. The 2005
Incentive Stock Plan permits the granting of incentive stock options, non-qualified stock options and shares of common stock with
the purchase price, vesting and expiration terms set by the Board of Directors. No options have been issued under the Plan at September
30, 2011.
Stock Warrants
Gene Cell, Inc. and Redwood
Entertainment Group, Inc. periodically issued incentive stock options to key employees, officers, and directors to provide additional
incentives to promote the success of the Company's business and to enhance the ability to attract and retain the services of qualified
persons. The Board of Directors approved the issuance of all stock options. The exercise price of an option granted was determined
by the fair market value of the stock on the date of grant. Reverse stock splits by the Company resulted in the reduction of outstanding
options to less than 115 shares with exercise prices that are so high that the exercise of the options will never be practical.
The options expire from April 2011 to July 2012.
Preferred Stock
During the year ended December
31, 2005, the Company set preferences for its Series A, B and C preferred stock. The Company is authorized to issue 40,000,000
shares of preferred stock, $0.01 par value per share. At December 31, 2006 the Company had 10,000,000 shares of series A preferred
stock issued and outstanding and 4,915,275 shares of series C preferred stock issued and outstanding. The Company’s preferred
stock may be issued in series, and shall have such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions providing for the issuance of such stock adopted from time to
time by the board of directors.
The Series A and Series C preferred
stock provides for conversion on the basis of 100 shares of common stock for each share of preferred stock converted, with conversion
at the option of the holder or mandatory conversion upon restructure of the common stock and holders of the series A preferred
stock vote their shares on an as-converted basis. Holders of the Series A preferred stock participates on distribution and liquidation
on an equal basis with the holders of common stock.
The Series B preferred stock
provides for conversion on the basis of 10,000 shares of common stock for each share of preferred stock converted, with conversion
at the option of the holder or mandatory conversion upon restructure of the common stock and holders of the Series A preferred
stock vote their shares on an as-converted basis. Holders of the Series B preferred stock participates on distribution and liquidation
on an equal basis with the holders of common stock.
Following is a description of
transactions affecting preferred stock for the year ended December 31, 2010 and the period ended September 30, 2011.
Year Ended December 31, 2010
In January 2010, the Board of
Directors authorized the issuance of 45,000 Preferred A shares and 156,000 Preferred C shares to accredited and non-accredited
investors for total proceeds of $18,500. The Board of Directors also authorized the issuance of 1,055,000 Preferred A shares and
336,000 Preferred C shares for services rendered by independent contractors valued at an aggregate of $166,920 based on the market
value of the underlying common stock.
In January, 2010 His Divine
Vehicle loaned 2,000,000 Preferred A shares and the 1,000,000 Preferred C shares to the Company. The Company booked stock payable
equal to the market value of the underlying common stock.
In February 2010, the Board
of Directors authorized the issuance of 1,000,000 Preferred C shares to accredited and non-accredited investors for total proceeds
of $100,000.
In March 2010, the Board of
Directors authorized the issuance of 200,000 Preferred C shares to accredited and non-accredited investors for total proceeds of
$30,000. The Board of Directors also authorized the issuance of 100,000 Preferred C shares for services rendered by independent
contractors valued at an aggregate of $60,000 based on the market value of the underlying common stock.
In August 2010, the Board of
Directors authorized the issuance of 25,000 Preferred C shares to accredited and non-accredited investors for total proceeds of
$10,000.
Throughout the year, 1,557,500
Preferred C shares were converted to 157,750,000 common shares and 150,898,300 common shares were converted to Preferred A shares.
Period Ended September 30, 2011
In January 2011, the Board of
Directors authorized the issuance of 20,000 Preferred C shares to accredited and non-accredited investors for total proceeds of
$20,000.
In July 2011, 4,000,000 Preferred
A shares were cancelled out of escrow as part of the settlement with Cornell Partners.
In July, 2011 His Divine Vehicle
revised its licensing agreement to issue 1,500,000 Preferred A shares and 100,000,000 common shares in exchange for 2,500,000 Preferred
C shares.
In August, 2011, the Company
repaid 2,000,000 Preferred C shares that were loaned to the Company.
Throughout the year, 693,750
Preferred A shares were converted to 69,375,000 common shares and 1,052,333 Preferred C shares were converted to 105,233,300 common
shares.
Potentially Dilutive Equity
Instruments
An analysis of potentially dilutive
equity instruments at September 30, 2011
Warrants issued in connection with Cornell settlement | |
| 535,500,000 | |
Series A Preferred Stock convertible to common stock on a 100 for 1 basis | |
| 676,273,300 | |
Series C Preferred Stock convertible to common stock on a 100 for 1 basis | |
| 635,494,200 | |
| |
| | |
Total | |
| 1,847,267,500 | |
Other Equity Transactions
Year Ended December 31, 2010
Interest was imputed on non-interest
bearing related party debt in the amount of $15,044 and credited to additional paid in capital.
Period Ended September 30, 2011
Interest was imputed on non-interest
bearing related party debt in the amount of $23,058 and credited to additional paid in capital.
11. |
Related Party Transactions |
The Company engaged in various
related party transactions involving the issuance of shares of the Company's common stock during the year ended December 31, 2010
and the period ended September 30, 2011.
During 2007, 2008, 2009 2010
and 2011 His Divine Vehicle, Inc. ("HDV") incurred costs on behalf of the Company. At September 30, 2011, the Company
owes HDV $313,415 and Serge Monros $415,000 in accrued wages. At December 31, 2010, the Company owed HDV $167,829 and Serge Monros
$312,000 in accrued wages.
HDV, an affiliate of Mr. Monros,
manufactures the “DynoValve” and “DynoValve Pro” products and then sells them to the Company for resale
pursuant to the Product Licensing Agreement entered into on November 15, 2008. As consideration for HDV entering into the Product
Licensing Agreement, the Company agreed to issue to Mr. Monros and HDV, if and when available, an aggregate of 500 Million shares
of Common Stock, 5 Million shares of Series A Preferred Stock and 5 Million shares of Series C Preferred Stock. HDV loaned 1,000,000
Preferred A shares to the Company in 2008. As additional consideration for the Licensing Agreement, HDV waived $332,786 owed to
it by the company and Mr. Monros waived $306,000 in accrued wages. The excess value of the shares issued (common and preferred)
over the debt waived was expensed to research and development. In July, 2011, the stock consideration paid for the licensing agreement
was modified to increase the common shares by 100,000,000, increase the Series A Preferred Stock by 1,500,000 and reduce the Series
C Preferred Stock by 2,500,000.
In 2009, HDV incurred $73,806
in expenses on behalf of the company and received no compensation. This amounts were booked to additional paid in capital.
The Board of Directors authorized
the issuance of an aggregate of 300,000,000 common shares and 2,500,000 Preferred C shares in exchange for services rendered by
His Divine Vehicle. His Divine Vehicle subsequently loaned back the 300,000,000 common shares and the 2,500,000 Preferred C shares.
On December 15, 2009, the Company
converted $204,302 of accounts payable due to His Divine Vehicle, Inc. into a convertible promissory note. The note bears interest
at 8%, matured on April 15, 2010, and converts into common shares at the conversion rate of $0.003 (reset to $0.0005) subject to
anti-dilution protection.
In January, 2010 His Divine
Vehicle loaned 2,000,000 Preferred A shares and the 1,000,000 Preferred C shares to the Company.
12. |
Change in Accounting Principle for Registration Payment Arrangements. |
In December 2006, the Financial
Accounting Standards Board (“FASB”) issued FASB Staff Position on No. EITF 00-19-2, Accounting for Registration Payment
Arrangements (“FSP EITF 00-19-2”). FSP EITF 00-19-2 provides that the contingent obligation to make future payments
or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance
with Statement of Financial Accounting Standards (“FAS”) No. 5, Accounting for Contingencies , which provides that
loss contingencies should be recognized as liabilities if they are probable and reasonably estimable. Subsequent to the adoption
of FSP EITF 00-19-2, any changes in the carrying amount of the contingent liability will result in a gain or loss that will be
recognized in the statement of operations in the period the changes occur. The guidance in FSP EITF 00-19-2 is effective immediately
for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified
subsequent to the date of issuance of FSP EITF 00-19-2. For registration payment arrangements and financial instruments subject
to those arrangements that were entered into prior to the issuance of FSP EITF 00-19-2, this guidance is effective for our financial
statements issued for the year beginning January 1, 2007, and interim periods within that year.
On January 1, 2007, we adopted
the provisions of FSP EITF 00-19-2 to account for the registration payment arrangement associated with our July 2006 financing
(the “July 2006 Registration Payment Arrangement”). As of January 1, 2007 and December 31, 2007, management determined
that it was probable that we would have payment obligation under the July 2006 Registration Payment Arrangement; therefore, the
Company accrued a contingent obligation of $340,860 as required under the provisions of FSP EITF 00-19-2. In addition, the compound
embedded derivative liability associated with the July 2006 Financing was adjusted to eliminate the registration payment arrangement
and the comparative financial statements of prior periods and as of December 31, 2006 have been adjusted to apply the new method
retrospectively. The cumulative effect of this change in accounting principle adjusted retained earnings as of December 31, 2006
by $658,129. The following financial statement line items for the twelve months ended December 31, 2006 were affected by the change
in accounting principle. In addition, under EITF 00-19, the Company would not book the contingent registration rights payment payable.
| |
As of | |
| |
December 31, 2006 | |
Under EITF 00-19 | |
| | |
Income Statement Impacts | |
| | |
Change in value of CED | |
| 2,871,934 | |
Amortization of Discount | |
| 117,504 | |
Balance Sheet Impacts | |
| | |
Discount on Note | |
| 1,764,136 | |
Derivative Liability | |
| 3,459,979 | |
| |
| | |
Under EITF 00-19-02 | |
| | |
Income Statement Impacts | |
| | |
Change in value of CED | |
| 2,302,219 | |
Amortization of Discount | |
| 112,211 | |
Balance Sheet Impacts | |
| | |
Discount on Note | |
| 1,730,720 | |
Derivative Liability | |
| 2,768,435 | |
The net impact to the balance
sheet is $658,128 and shows in the equity section of the balance sheets.
13. Fair Value of Financial Instruments.
The Company’s financial
instruments consist of cash and cash equivalents, accounts payable, accrued liabilities and convertible debt. The estimated fair
value of cash, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these
instruments.
The Company utilizes various
types of financing to fund its business needs, including convertible debt with warrants attached. The Company reviews its warrants
and conversion features of securities issued as to whether they are freestanding or contain an embedded derivative and, if so,
whether they are classified as a liability at each reporting period until the amount is settled and reclassified into equity with
changes in fair value recognized in current earnings. At December 31, 2007, the Company had convertible debt and warrants to purchase
common stock, the fair values of which are classified as a liability. Some of these units have embedded conversion features that
are treated as a discount on the notes. Such financial instruments are initially recorded at fair value and amortized to interest
expense over the life of the debt using the effective interest method.
Inputs used in the valuation
to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level one — Quoted market
prices in active markets for identical assets or liabilities;
Level two — Inputs other
than level one inputs that are either directly or indirectly observable; and
Level three — Unobservable
inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that
a market participant would use.
Determining which category an
asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each
quarter. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated
with the convertible debt and warrants to purchase common stock (discussed above). The Company classifies the fair value of these
convertible notes and warrants under level three.
Based on ASC Topic 815 and related
guidance, the Company concluded the convertible notes and common stock purchase warrants are required to be accounted for as derivatives
as of the issue date due to a reset feature on the conversion/exercise price. At the date of issuance the convertible subordinated
financing, warrant derivative liabilities were measured at fair value using either quoted market prices of financial instruments
with similar characteristics or other valuation techniques. The Company records the fair value of these derivatives on its balance
sheet at fair value with changes in the values of these derivatives reflected in the consolidated statements of operations as “Gain
(loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815-10
and are disclosed on the balance sheet under Derivative Liabilities.
The following table summarizes
the convertible debt and warrant liabilities activity for the period December 31, 2010 to September 30, 2011:
Description | |
Convertible Notes | | |
Warrant Liabilities | | |
Total | |
Fair value at December 31, 2010 | |
$ | 21,196,771 | | |
$ | 56,229,420 | | |
$ | 77,426,191 | |
Change in Fair Value/Settlement | |
| (9,927,421 | ) | |
| (42,407,974 | ) | |
| (52,335,395 | ) |
Fair value at September 30, 2011 | |
$ | 11,269,350 | | |
$ | 13,821,446 | | |
$ | 25,090,796 | |
For the period ended September
30, 2011, net derivative income was $46,099,950.
The lattice methodology was
used to value the convertible notes and warrants issued, with the following assumptions.
Assumptions | |
September 30, 2011 | | |
December 31, 2010 | |
Dividend yield | |
| 0.00% | | |
| 0.00% | |
Risk-free rate for term | |
| 0.02%-0.25% | | |
| 0.05%-0.61% | |
Volatility | |
| 128% | | |
| 237% | |
Maturity dates | |
| 0.0-2.83 years | | |
| 0.0-0.47 years | |
Stock Price | |
| 0.0100 | | |
| 0.0215 | |
The Cornell 7/28/11 warrants
(initial 25,000,000 warrants with exercise prices of $0.0119 and an expiration date of 7/28/14 reset to 595,000,000 warrants at
$0.0005) had a term remaining of 2.83 years at 9/30/11.
14. |
Non-Cash Investing and Financing Transactions and Supplemental Disclosure of Cash Flow Information |
During the period ended September
30, 2011 and the year ended December 31, 2010, the Company engaged in various non-cash investing and financing activities as follows:
| |
September 30, 2011 | | |
September 30, 2010 | |
Preferred Stock Loaned/Common Stock Payable | |
$ | 1,350,353 | | |
$ | 360,000 | |
Conversion of Preferred Stock into Common Stock | |
$ | 274,608 | | |
$ | 47,649 | |
During the period ended September
30, 2011 and the period ended September 30, 2010, the Company made no cash interest payments or income tax payments.
Stock Issuances:
Since September 30, 2011, the
Board of Directors authorized the issuance of an aggregate of 1,029,341,266 shares of its common stock, 21,851,666 shares of its
Preferred A shares, 63,806 shares of its Preferred B shares and 4,588,500 of its Preferred C shares to accredited and non-accredited
investors for total proceeds of $3,167,750. In addition, the Board of Directors has authorized the issuance of an aggregate of
1,160,510,112 shares of its common stock, 1,951,667 shares of its Preferred A shares, 52,500 shares of its Preferred B shares and
60,000 of its Preferred C shares to accredited and non-accredited investors for services rendered valued at an aggregate of $5,413,167.
No sales commissions were paid in connection with these issuances and all investors reviewed or had access to all of the Company’s
filing pursuant to the Securities Exchange Act of 1934, as amended.
Legal Proceedings:
On or about July 10, 2006, the
Company and YA Global, then known as Cornell Capital Partners, L.P., entered into a Securities Purchase Agreement which was subsequently
amended and restated on August 17, 2006 (collectively the “SPA”) wherein the Company issued and sold to YA Global secured
convertible debentures in the aggregate amount of approximately US$2,485,000 (collectively, the “Debentures”) and certain
warrants (collectively the “Prior Warrants” and with the Debentures, the “Securities”) to purchase an aggregate
of 2,900,000,000 shares of the Company’s common stock, par value $0.001 (the “Common Stock”).
In connection with the SPA,
the Company and YA Global entered into ancillary agreements, including a Security Agreement, an Insider Pledge and Escrow Agreement,
a Registration Rights Agreement, and other related documents (the SPA and such ancillary agreements are collectively referred to
hereinafter as “Financing Documents”). Copies of the Financing Documents have been attached to the Company’s
prior filings with the United States Securities and Exchange Commission (the “SEC”) and are hereby incorporated in
their entirety by reference.
On July 28, 2011, the Company
and Cornell reached a settlement for this debt under the terms of a Repayment Agreement. Pursuant to the terms of the Repayment
Agreement, all of the Company’s obligations under the Financing Documents have been terminated in full. Without limitation,
all amounts otherwise due under the Debentures are deemed satisfied in full, the Prior Warrants are deemed cancelled, and any and
all security interests granted by the Company in favor of YA Global pursuant to the Financing Documents have been extinguished,
including the release of 4,000,000 shares of Series A Preferred Stock held in escrow. In exchange for the foregoing, the Company
delivered to YA Global: (i) a one-time cash payment of US$550,000; and (ii) new warrants to purchase up to 25,000,000 shares of
Common Stock at an exercise price of $0.0119 (the “Current Warrants”). The Current Warrants expire on or about July
28, 2014. A copy of the Repayment Agreement and Current Warrants have been attached as exhibits to the Form 8-K filed August 2,
2011 and are hereby incorporated in their entirety by reference.
The Company received a letter
from the Securities and Exchange Commission, Los Angeles Regional Office, dated May 9, 2011. The letter informed us that the SEC
had entered into a “formal order of investigation” into “Savi Media Group, Inc.” The letter included a
“Subpoena DucesTecum,” meaning the Company was given a prescribed period of time to produce all requested documents
and information contained in the subpoena. An index of the source of all such produced information and an authentication declaration
were also to be supplied. The stated purpose of the investigation is a fact-finding inquiry to assist the SEC staff in determining
if the Company has violated federal securities laws. The SEC states there is no implication of negativity or guilt at this stage
of the investigation.
We hired the Los Angeles law
firm of Troy Gould to represent us in the matter of this investigation. As of the date of this filing, we believe we have provided
all requested material to the SEC.
Status of prior private investment;
$0 in 2007 (although HDV sold $13,000 of its shares), $1,000 in 2008 (although HDV sold $453,750 of its shares), $442,000 in 2009,
$879,550 in 2010, $1,930,828 in 2011, $342,000 in the first calendar quarter of 2012 and $100,000 in the 2nd quarter of 2012. There
is concern that these private placement securities sales were not made in compliance with applicable law (lack of material disclosure
and/or failure to file securities sales notices as required by federal law).
In 2006, the Company issued
shares for services valued at $611,768. There were issued shares for services valued at $1,416,060 in 2007; shares for services
valued at $7,875 in 2008 and shares for services valued at $74,400 in 2009. We have no plans to offer rescission for these share
issuances.
We offered rescission to many
of the 2011 investors in late 2011 (“2011 rescission offer”). The legal sustainability of these rescission offers is
also being looked at by Counsel. The results of our 2011 rescission offer, in terms of rescission offers accepted by shareholders,
were very encouraging. We had three rescission offers accepted and refunded $8,000 plus interest.
The Company received a letter
dated June 7, 2013 with a Civil Complaint titled Arnold Lamarr Weese, et al v. SaviCorp filed in the Northern District of West
Virginia. In addition to SaviCorp, Serge Monros and Craig Waldrop are being sued individually. Settlement discussions failed and
Plaintiff's counsel began service of Process. The Company and Mr. Monros have hired Shustak and Partners to defend the claim. The
defendants have sued for breach of contract, fraud, vicarious liability, and unlawful sale by an unregistered broker. The lawsuit
attempts to hold the Company and Mr. Monros responsible for alleged improprieties of Waldrop. The Company intends on reaching a
settlement to release the Company and Mr. Monros of any alleged liability by the end of 2014.
Licensing Events:
Mr. Monros has continued the
process of preparing patent applications for the other versions of the DynoValve products & related IP. In March, 2013, the
Company entered into a five (5) year Master Distribution Agreement with His Divine Vehicle to sell the DynoValve and DynoValve
Pro in various international territories. The consideration for the agreement was guaranteeing a minimum annual volume, payment
for the DynoValves acquired and a three percent (3%) royalty payment.
Major Contracts:
In 2013, the Company has entered
into a 5 year licensing agreement with Dyno Green Tech, LLC ("DGT") to sell the DynoValve products in the licensed territories
(UAE, Dubai, Malaysia, India, and Africa). DGT has ordered 3,000 DynoValves as of 9/30/13. The DynoValves were shipped in the third
quarter of 2013. In order for them to fulfill and maintain this 5 year licensing agreement, they are required to purchase 500 additional
DynoValves per quarter for a total of $3,000,000 over a 5 year span.
In 2014, the Company entered into a 5 year licensing
agreement with Beijing FlyingGlob Environmental Technology Limited Company, a company established in the People’s Republic
of China. According to the terms of the Agreement, FlyingGlob will promote, distribute and sell SaviCorp's signature line of DynoValve®
automotive products within its exclusive territory, which is defined as the People's Republic of China and the Special Administrative
Regions of Hong Kong and Macau.
FlyingGlob entered into the distribution agreement,
which establishes a minimum annual purchase volume of 500,000 DynoValve® units during the first year. In support of this requirement,
FlyingGlob is to purchase an initial order of 50,000 units at a price of $8.25 million. During the final four years of the contract,
FlyingGlob has agreed to a minimum purchase of 5.5 million units, for a total minimum order of 6 million units during the five-year
term of the agreement. The successful distribution and sale of the 6 million units is estimated to produce revenues of approximately
$679.5 million. In addition, the agreement provides for a $30 million licensing fee to be paid by FlyingGlob that may be paid over
the term of the agreement.
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with the unaudited condensed consolidated financial statements and notes thereto set forth in Item 1 of this Quarterly
Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions, which could cause actual results to differ materially from Management’s expectations. Factors
that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations
in pricing for products that may be distributed by the Company and services offered by competitors, as well as general conditions
of the marketplace.
Overview
In 2011, SaviCorp began to generate revenue
from new business activities. We were still devoting substantial efforts to business planning and the search for sources of capital
to fund our efforts. We have acquired all rights to certain technology for the production of a gasoline and diesel engine emission
reduction device which we believe delivers superior emission reduction technology and operating performance. This technology is
an emission reduction device believed to reduce harmful exhaust emissions in gasoline and diesel engines, and increase fuel efficiency.
History
We were originally incorporated as Energy
Resource Management, Inc. on August 13, 2002 and subsequently adopted name changes to Redwood Energy Group, Inc. and Redwood Entertainment
Group, Inc., upon completion of a recapitalization on August 26, 2002. The re-capitalization occurred when we acquired the non-operating
public shell of Gene-Cell, Inc., a public company. Gene-Cell had no significant assets or operations at the date of acquisition
and we assumed all liabilities that remained from its prior discontinued operation as a biopharmaceutical research company. The
historical financial statements presented herein are those of Redwood Entertainment Group, Inc. and its predecessors, Redwood Energy
Group, Inc. and Energy Resource Management, Inc.
The public entity used to recapitalize
the Company was originally incorporated as Becniel and subsequently adopted name changes to Tzaar Corporation, Gene-Cell, Inc.,
Redwood Energy Group, Inc., Redwood Entertainment Group, Inc., and finally its current name, Savi Media Group, Inc. In 2012, Savi
Media Group, Inc. changed its name to SaviCorp.
Business History
Until 2011, we were considered a development
stage enterprise because we had no significant operations, had not yet generated revenue from new business activities and were
devoting substantially all of our efforts to business planning and the search for sources of capital to fund our efforts. We had
acquired all rights to "blow-by gas and crankcase engine emission reduction technology" which we intended to develop
and market on a commercial basis.
This technology is an emission reduction
device believed to reduce harmful exhaust emissions in gasoline and diesel engines, and increase fuel efficiency. Phase one testing
at California Environmental Engineering indicated notable reduction in tailpipe emissions and Particulate Matter (PM) while improving
fuel economy. The reductions were 5.1% in hydrocarbons, 5.1% in carbon monoxide, 5.5% in nitrogen oxides, while increasing fuel
economy by 0.3%.
We currently have the right to market and
distribute the DynoValve and DynoValve Pro products, which provides for increased fuel economy and reduced emissions in automotive
applications for both new and existing vehicles and may be used in other non-automotive applications. Personal watercraft, small
engine powered lawn equipment, and stand alone power generation engines are additional markets that we intend to develop. The technology
may be sold internationally and we are pursuing opportunities simultaneously domestically and internationally. We have no immediate
plans to develop additional products at this time.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and our estimates are based on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions provide
a basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from our estimates under different assumptions or conditions, and these differences may be material.
We believe that the following critical
accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:
Income Taxes
We use the liability method of accounting
for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their financial amounts at year-end. We provide a valuation allowance
to reduce deferred tax assets to their net realizable value.
Stock-Based Compensation
Effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R),
and began expensing at fair value on a straight-line basis the costs resulting from share-based payment transactions.
Prior to 2006, the Company elected to follow
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations
in accounting for stock options granted to employees as permitted by SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Under
APB 25, the Company did not recognize share-based payment expense in its financial statements because the stock option awards qualified
as fixed awards and the exercise price of the Company’s employee stock options equaled the market price of the underlying
stock on the date of grant.
Convertible Notes - Derivative Financial Instruments
The convertible notes issued to Cornell
Capital in 2006 has been accounted for in accordance with SFAS No. 133 and EITF No. 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock."
The Company has identified that the Cornell
Capital debenture have embedded derivatives. These embedded derivatives have been bifurcated from the host debt contract and accounted
for as derivative liabilities in accordance with EITF 00-19. When multiple derivatives exist within the convertible notes, they
have been bundled together as a single hybrid compound instrument in accordance with SFAS No. 133 Derivatives Implementation Group
Implementation Issue No. B-15, "Embedded Derivatives: Separate Accounting for Multiple Derivative Features Embedded in a Single
Hybrid Instrument."
The embedded derivatives within the convertible
notes have been recorded at fair value at the date of issuance and are marked-to-market each reporting period with changes in fair
value recorded to the Company's income statement as "Net change in fair value of derivative liabilities." The Company
has utilized a third party valuation firm to fair value the embedded derivatives using a lattice model with layered discounted
probability-weighted cash flow methods.
The fair value of the derivative liabilities
are subject to the changes in the trading value of the Company's common stock, as well as other factors. As a result, the Company's
financial statements may fluctuate from quarter-to-quarter based on factors, such as the price of the Company's stock at the balance
sheet date and the amount of shares converted by note holders. Consequently, our financial position and results of operations may
vary from quarter-to-quarter based on conditions other than our operating revenues and expenses.
Results of Operations
During the period from inception, August
13, 2002, to December 31, 2010, we had not generated any revenue from operations. During the period ending September 30, 2011,
we generated revenues of $52,977. Costs of Goods Sold was $47,787 yielding a gross profit of $5,190. Loss from operations for the
period ending September 30, 2011 was $4,091,793. Other Income and Expense, net was $48,979,883 primarily due to the change in fair
value of our derivative liabilities and gain on settlement of the Cornell debt. As of September 30, 2011, we have accumulated net
losses of $297,131,074. Additionally, at September 30, 2011, we are in a negative working capital position of $27,589,185 and a
stockholders' deficit position $27,589,185. Our auditors have opined that such matters raise substantial doubt about our ability
to continue as a going concern. We financed our operations mainly through the sale of common stock and have been entirely dependent
on outside sources of financing for continuation of operations. For the remainder of fiscal 2011, we will continue to pursue funding
for our business. There is no assurance that we will continue to be successful in obtaining additional funding on attractive terms
or at all, nor that the projects towards which additional paid-in capital is assigned will generate revenues at all.
Plan of Operations
We believe that there are six critical
elements for the building of a successful research & development company that has the capacity to manufacture technology for
the implementation of immediate and long-term solutions to the global challenges of air, water, and land pollution.
|
1. |
People - this includes a qualified board
of directors, advisory board members, management, employees, shop personnel, Q.C., project managers, journeymen, welders, machinists,
CNC operators, cad cam, shop planners, senior engineers, tool & design, maintenance personnel, calibrators & inspectors,
sheet metal fabricators, deburring and finishing personnel, purchasers, transporters, CNC trainers and consultants, etc.;
|
|
2. |
Projects - a credible portfolio of projects
that have the appropriate risk-return ratio in order to generate potentially significant shareholder value;
|
|
3. |
Capital - based upon the reputation of
the people and the quality of the projects, there must be sufficient capital in order to launch the company and to provide for
additional funding;
|
|
4. |
Technology - the most advanced interpretation
methods, techniques and methods should be utilized in order to maximize the potential for finding and developing immediate and
long term solutions to the global challenges of air, water, and land pollution;
|
|
5. |
Favorable positioning - the international
influence of the oil and gas companies along with the automotive & diesel industries requires a combination of secured relationships
with their appointed leadership in these various industries as well as with all the various local and international governmental
entities; and
|
|
6. |
Manufacturing capability and equipment- the competitive nature of the automotive &diesel industry requires a unique approach and a significant capital commitment in order to secure the latest in hi-tech equipment, technology, research, and the creation of numerous patents as well as to expedite mass production. |
People:
In August 2004 Savi Media Group was founded
by Serge Monros and Mario Procopio. Serge Monros sold the Crankcase Ventilation technologies to Savi Media that he personally developed
over the last 17 years. Mario Procopio was hired as the President, Chief Executive Officer and director with a mandate to acquire
the initial funding for the planned projects and to assist in aggressively transforming us into an emerging research and development
company in the field of automotive and diesel retrofitting and pollution control. In August 2004, enough capital was obtained to
acquire a bulletin board company, pay off many of its existing debts, and begin to launch the varied projects of which the DynoValve
is one of several projects.
We have established a Strategic Advisory
Board and recruited qualified individuals to develop marketing strategies, feasibility studies, and update our business plan. Among
those are Retired U.S. General Alexander M. Haig, Jr., Alexander P. Haig, John Hewitt, Marketing Specialist, and John Dunlap, former
Executive Director of CalTrans.
Projects:
During 2006, we further refined our strategic
plan and have determined that the maximum value to all of our shareholders is best served by targeting three focused project areas
that provide for long-term growth from our invested capital. The three major project areas are as follows:
An R & D lab and adjacent offices
We have established an R & D lab with
its adjacent offices located at 2530 S. Birch St. Santa Ana, CA. 92707. We have also negotiated with G & K Auto in acquiring
a 270,000 square foot R & D lab and office in Tian Jin, China in the Auto Trade - Free Trade Zone in order to test and retrofit
internal combustion engines both stationary and in automotive applications.
Implement the initial testing phases
in order to secure revenues, licensing agreements, and contracts.
We hope to continue to test our emission
control device on select diesel engines in order to obtain certification and validation of our technology. However, we currently
lack the financial resources to continue testing. We hope to obtain an Executive Order from the California Air Resource Board which
allows us to legally sell our product in California. This will assist in obtaining contracts and purchase orders. The monthly cost
for each product testing is approximately $60,000 and completion of testing should be accomplished in six to nine months assuming
there are no delays. Phase one testing on a new diesel engine at California Environmental Engineering indicated notable reduction
in tailpipe emissions and Particulate Matter (PM) while improving fuel economy. The reductions were 5.1% in hydrocarbons, 5.1%
in carbon monoxide, 5.5% in nitrogen oxides, while increasing fuel economy by 0.3%.
Become a technology partner to the
various entities that are focused on environmental solutions.
We are presently participating in a consortium
of companies with emission reduction technologies for the problem solving of both our local environmental challenges and to assist
in China’s pursuit of immediate solutions to the particular needs in their environment. At this time we have not engaged
in formal agreements with any company or initiated any actions or plans and have not committed any funds.
As of September 30, 2011, we had limited
operations and we expect to require additional cash of a minimum of approximately $2,000,000 over the next twelve months. Those
funds, if available, will be used for continued operation in the development stage. Additional financing will need to be obtained.
Due to our still being in the development stage, sources of funding may not be available on terms that are acceptable to management
and existing stockholders, or may include terms that will result in substantial dilution to existing stockholders.
As of September 30, 2011, we had limited
operations and we expect to require additional cash of approximately $2,000,000 over the next twelve months. Those funds
will be used to continue operation in the development stage.
Our plan of operations will require sources
of funding that may not be available on terms that are acceptable to management and existing stockholders, or may include terms
that will result in substantial dilution to existing stockholders.
Liquidity and Capital Resources
As of September 30, 2011, the Company had
$2,750 in cash and $31,437 in undeposited funds.
Total current liabilities were $27,826,263
as of September 30, 2011, consisting of convertible debt, net, of $801,742, notes payable of $25,778, derivative liabilities of
$25,090,796, accounts payable and accrued liabilities of $1,435,237, and accounts payable assumed in recapitalization of $159,295.
We had a negative working capital of $27,589,185
as of September 30, 2011.
We incurred net losses of $297,131,074
during the period from inception, August 13, 2002, to September 30, 2011. In addition, at September 30, 2011, we were in a negative
working capital position and had a stockholders' deficit of $27,589,185. As a result, our independent registered public accounting
firm, in its report dated November 20, 2014, has expressed substantial doubt about our ability to continue as a going concern.
Our average monthly operational expenses have been $454,644
per month, for the period ended September 30, 2011.
Our ability to continue as a going concern
is dependent upon several factors. These factors include our ability to:
|
· |
further implement our business plan; |
|
· |
obtain additional financing or refinancing as may be required; |
We believe it is imperative that we raise
an additional $5,000,000 of capital in order to implement our business plan. We are attempting to raise additional funds through
debt and/or equity offerings. We intend to use any funds raised to pay down debt and to provide us with working capital. There
can be no assurance that any new capital would be available to us or that we would have adequate funds for our operations, whether
from our revenues, financial markets, or other arrangements will be available when needed or on terms satisfactory to us. Any additional
financing may involve dilution to our then-existing shareholders.
We have no other commitments from officers,
directors or affiliates to provide funding. If we are unable to obtain debt and/or equity financing upon terms that we deem sufficiently
favorable, or at all, it would have a materially adverse impact upon our ability to pursue our business strategy and maintain our
current operations. As a result, it may require us to delay, curtail or scale back some or all of our operations.
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 our financial condition or results of operations.
There were no recent accounting pronouncements
that have had or are likely to have a material effect on our financial position or results of operations.
ITEM 3 - CONTROLS AND PROCEDURES
a) |
Evaluation of Disclosure Controls and Procedures. As of September 30, 2011, the Company’s management carried out an evaluation, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company’s system of disclosure controls and procedures pursuant to the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective, as of the date of their evaluation, for the purposes of recording, processing, summarizing and timely reporting material information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934. This assessment was made based on the need to amend prior filings due to embedded derivatives within various convertible securities and the lack of sufficient personnel to process transactions. We have hired an outside expert to evaluate and value derivative financial instruments in any and all convertible securities and when we obtain additional financing will hire additional personnel and implement procedures to properly account for and disclose all transactions. |
b) |
Changes in internal controls. There were no changes in internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is likely to materially effect, the Company’s internal control over financial reporting. |
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
From time to time, we may become party
to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.
On or about July 28, 2011, SaviCorp, a
Nevada corporation, formerly known as Savi Media Group, Inc. (the “Company”) entered into a Repayment Agreement (the
“Repayment Agreement”) with YA Global Investments, L.P., a Cayman Islands exempt limited partnership formerly known
as Cornell Capital Partners, L.P. (“YA Global”).
On or about July 10, 2006, the Company
and YA Global, then known as Cornell Capital Partners, L.P., entered into a Securities Purchase Agreement which was subsequently
amended and restated on August 17, 2006 (collectively the “SPA”) wherein the Company issued and sold to YA Global secured
convertible debentures in the aggregate amount of approximately US$2,485,000 (collectively, the “Debentures”) and certain
warrants (collectively the “Prior Warrants” and with the Debentures, the “Securities”) to purchase an aggregate
of 2,900,000,000 shares of the Company’s common stock, par value $0.001 (the “Common Stock”).
In connection with the SPA, the Company
and YA Global entered into ancillary agreements, including a Security Agreement, an Insider Pledge and Escrow Agreement, a Registration
Rights Agreement, and other related documents (the SPA and such ancillary agreements are collectively referred to hereinafter as
“Financing Documents”). Copies of the Financing Documents have been attached to the Company’s prior filings with
the United States Securities and Exchange Commission (the “SEC”) and are hereby incorporated in their entirety by reference.
Pursuant to the terms of the Repayment
Agreement, all of the Company’s obligations under the Financing Documents have been terminated in full. Without limitation,
all amounts otherwise due under the Debentures are deemed satisfied in full, the Prior Warrants are deemed cancelled, and any and
all security interests granted by the Company in favor of YA Global pursuant to the Financing Documents have been extinguished,
including the release of 4,000,000 shares of Series A Preferred Stock held in escrow. In exchange for the foregoing, the
Company delivered to YA Global: (i) a one-time cash payment of US$550,000; and (ii) new warrants to purchase up to 25,000,000 shares
of Common Stock at an exercise price of $0.0119 (the “Current Warrants”). The Current Warrants expire on or about July
28, 2014. A copy of the Repayment Agreement and Current Warrants have been attached as exhibits to the Form 8-K filed August 2,
2011 and are hereby incorporated in their entirety by reference.
The Company received a letter from the
Securities and Exchange Commission, Los Angeles Regional Office, dated May 9, 2011. The letter informed us that the SEC had entered
into a “formal order of investigation” into “Savi Media Group, Inc.” The letter included a “Subpoena
DucesTecum,” meaning the Company was given a prescribed period of time to produce all requested documents and information
contained in the subpoena. An index of the source of all such produced information and an authentication declaration were also
to be supplied. The stated purpose of the investigation is a fact-finding inquiry to assist the SEC staff in determining if the
Company has violated federal securities laws. The SEC states there is no implication of negativity or guilt at this stage of the
investigation.
We hired the Los Angeles law firm of Troy
Gould to represent us in the matter of this investigation. As of the date of this filing, we believe we have provided all requested
material to the SEC. Updates on the investigation will be supplied by supplemental filings hereto.
Status of prior private investment; $0
in 2007 (although HDV sold $13,000 of its shares), $1,000 in 2008 (although HDV sold $453,750 of its shares), $442,000 in 2009,
$879,550 in 2010, $1,930,828 in 2011, $342,000 in the first calendar quarter of 2012 and $100,000 in the 2nd quarter of 2012. There
is concern that these private placement securities sales were not made in compliance with applicable law (lack of material disclosure
and/or failure to file securities sales notices as required by federal law).
In 2006, the Company issued shares for
services valued at $611,768. There were issued shares for services valued at $1,416,060 in 2007; shares for services valued at
$7,875 in 2008 and shares for services valued at $74,400 in 2009. We have no plans to offer rescission for these share issuances.
We offered rescission to many of the 2011
investors in late 2011 (“2011 rescission offer”). The legal sustainability of these rescission offers is also being
looked at by Counsel. The results of our 2011 rescission offer, in terms of rescission offers accepted by shareholders, were very
encouraging. We had three rescission offers accepted and refunded $8,000 plus interest.
Generally, we believe we have good relationships
with our shareholders. Our plan is to offer rescission to most shareholders obtaining privately offered shares from us since January
1, 2007 through 2011. The Company has pledged to use our best efforts, in good faith, to honor any accepted rescission offer. However,
there is no assurance that rescission offer acceptances will not have a material effect on our finances or that we will be able
to re-pay those electing to rescind in a complete and timely manner.
The Company received a letter dated June
7, 2013 with a Civil Complaint titled Arnold Lamarr Weese, et al v. SaviCorp filed in the Northern District of West Virginia. In
addition to SaviCorp, Serge Monros and Craig Waldrop are being sued individually. Settlement discussions failed and Plaintiff's
counsel began service of Process. The Company and Mr. Monros have hired Shustak and Partners to defend the claim. The defendants
have sued for breach of contract, fraud, vicarious liability, and unlawful sale by an unregistered broker. The lawsuit attempts
to hold the Company and Mr. Monros responsible for alleged improprieties of Waldrop. The Company intends on vigorously defending
its rights or reaching a settlement to release the Company and Mr. Monros of any alleged liability.
We may become involved in material legal
proceedings in the future.
ITEM 2 -
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
For the period ended September 30, 2011,
the Company issued the following:
In January 2011, the Board of Directors
authorized the issuance of 12,550,000 common shares to accredited and non-accredited investors for total proceeds of $41,500.
In February 2011, the Board of Directors
authorized the issuance of 82,525,000 common shares to accredited and non-accredited investors for total proceeds of $411,500.
In March 2011, the Board of Directors authorized
the issuance of 6,562,858 common shares to accredited and non-accredited investors for total proceeds of $41,100.
In January 2011, the Board of Directors
authorized the issuance of 20,000 Preferred C shares to accredited and non-accredited investors for total proceeds of $20,000.
In April 2011, the Board of Directors authorized
the issuance of 2,642,857 common shares to accredited and non-accredited investors for total proceeds of $12,100.
In May 2011, the Board of Directors authorized
the issuance of 7,766,667 common shares to accredited and non-accredited investors for total proceeds of $24,000.
In June 2011, the Board of Directors authorized
the issuance of 58,155,555 common shares to accredited and non-accredited investors for total proceeds of $185,000.
In July 2011, the Board of Directors authorized
the issuance of 209,160,541 common shares to accredited and non-accredited investors for total proceeds of $696,343.
In July, 2011 His Divine Vehicle revised
its licensing agreement to issue 1,500,000 Preferred A shares and 100,000,000 common shares in exchange for 2,500,000 Preferred
C shares.
In August 2011, the Board of Directors
authorized the issuance of 52,200,000 common shares to accredited and non-accredited investors for total proceeds of $68,000.
In September 2011, the Board of Directors
authorized the issuance of 28,000,000 common shares to accredited and non-accredited investors for total proceeds of $44,000.
Since September 30, 2011, the Board of
Directors authorized the issuance of an aggregate of 1,029,341,266 shares of its common stock, 21,851,666 shares of its Preferred
A shares, 63,806 shares of its Preferred B shares and 4,588,500 of its Preferred C shares to accredited and non-accredited investors
for total proceeds of $3,167,750. No sales commissions were paid in connection with these issuances and all investors reviewed
or had access to all of the Company’s filing pursuant to the Securities Exchange Act of 1934, as amended.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
31.1 |
Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended |
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31.2 |
Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended |
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32.1 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer) |
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32.2 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer) |
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101.INS |
XBRL Instances Document |
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101.SCH |
XBRL Taxonomy Extension Schema Document |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SaviCorp
Date: December 30, 2014 |
By: /s/ SERGE MONROS |
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Serge Monros |
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President, Chief Executive Officer (Principal Executive Officer) and Director |
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Date: December 30, 2014 |
By: /s/ SERGE MONROS |
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Serge Monros |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT 31.1
SAVICORP.OFFICER’S CERTIFICATE PURSUANT TO SECTION
302
I, Serge Monros,
certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of SaviCorp; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; |
4. |
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared; |
| (b) | [Omitted pursuant to SEC Release No. 33-8238]; |
| (c) | Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the small business issuer's internal control over financial
reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small
business issuer's internal control over financial reporting; and |
5. |
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process,
summarize and report financial information; and |
(b) Any fraud,
whether or not material, that involves management or other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: December 30, 2014
/s/ SERGE MONROS
Serge Monros
Chief Executive Officer
EXHIBIT 31.2
SaviCorp.OFFICER’S CERTIFICATE PURSUANT TO SECTION
302
I, Serge Monros,
certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of SaviCorp; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; |
4. |
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared; |
| (b) | [Omitted pursuant to SEC Release No. 33-8238]; |
| (c) | Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the small business issuer's internal control over financial
reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small
business issuer's internal control over financial reporting; and |
5. |
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process,
summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the small business issuer's internal control over financial reporting. |
Date: December 30, 2014
/s/ SERGE MONROS
Serge Monros
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report
of SaviCorp (the “Company”) on Form 10-Q for the period ending September 30, 2011 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Serge Monros, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written statement
required by Section 906 has been provided to SaviCorp and will be retained by SaviCorp and furnished to the Securities and Exchange
Commission or its staff upon request.
Date: December 30, 2014 |
By: /s/ SERGE MONROS |
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Serge Monros |
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Chief Executive Officer |
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Exhibit 32.2
CERTIFICATION PURSUANT TO18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report
of SaviCorp (the “Company”) on Form 10-Q for the period ending September 30, 2011 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Serge Monros, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written
statement required by Section 906 has been provided to SaviCorp and will be retained by SaviCorp and furnished to the Securities
and Exchange Commission or its staff upon request.
Date: December 30, 2014 |
By: /s/ SERGE MONROS |
|
|
Serge Monros |
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Chief Financial Officer |
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