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, 2012
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, 2012
Commission file number 000-27727
SAVICORP
(Exact name of small business issuer as specified
in its charter)
Nevada |
91-1766174 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
|
|
|
|
|
2530 S. Birch Street
Santa Ana, California |
|
92707 |
|
(877) 611-7284 |
(Address of principal executive office) |
|
(Postal Code) |
|
(Issuer's telephone number) |
Securities registered under Section 12(b) of the Exchange Act:
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, $0.001 par value
Indicate by check mark whether the issuer (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x
No ¨
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
No x
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to Form
10-K.
Yes ¨
No x Delinquent filers are disclosed herein.
As of April 7, 2015 there were 5,982,510,962 shares of issuer’s
common stock outstanding.
SAVI MEDIA GROUP, INC.
Quarterly Report on Form 10-Q for the
Quarterly Period Ending September 30, 2012
Table of Contents
PART I. FINANCIAL INFORMATION |
|
|
|
Item 1. Unaudited Condensed Financial Statements |
|
|
|
Balance Sheets: |
|
September 30, 2012 and December 31, 2011 |
3 |
|
|
Statements of Operations: |
|
For the three months and nine months ended September 30, 2012 and 2011 |
4 |
|
|
Statement of Stockholders’ Deficit |
|
For the period from December 31, 2010, to September 30, 2012 |
5 |
|
|
Statements of Cash Flows: |
|
For the nine months ended September 30, 2012 and 2011 |
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 |
29 |
|
|
PART II. OTHER INFORMATION |
|
|
|
Item 1. Legal Proceedings |
30 |
|
|
Item 2. Changes in Securities |
31 |
|
|
Item 3. Defaults Upon Senior Securities |
31 |
|
|
Item 4. Submission of Matters to a Vote of Security Holders |
31 |
|
|
Item 5. Other Information |
31 |
|
|
Item 6. Exhibits |
32 |
|
|
SIGNATURES |
33 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SaviCorp
BALANCE SHEETS
September 30, 2012 and December 31, 2011
| |
| | |
| |
| |
September 30, 2012 | | |
December 31, 2011 | |
ASSETS | |
(unaudited) | | |
| |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | – | | |
$ | 427 | |
Accounts Receivable | |
| 18,821 | | |
| 861 | |
Inventory | |
| 109,765 | | |
| 157,616 | |
Prepaid expenses | |
| 136,567 | | |
| 16,669 | |
Total current assets: | |
| 265,153 | | |
| 175,573 | |
| |
| | | |
| | |
Long term assets: | |
| | | |
| | |
Net fixed assets | |
| 14,745 | | |
| – | |
| |
| | | |
| | |
Total assets | |
$ | 279,898 | | |
$ | 175,573 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Bank overdraft | |
$ | 8,320 | | |
$ | – | |
Convertible debt, net of unamortized discount of $0 and $0, in default | |
| 526,440 | | |
| 588,440 | |
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 | |
| 1,808,496 | | |
| 1,475,710 | |
Related party accounts payable | |
| 270,942 | | |
| 314,452 | |
Accounts payable assumed in recapitalization | |
| 159,295 | | |
| 159,295 | |
Settlements payable | |
| 1,580,252 | | |
| – | |
Rescission Liability | |
| 491,716 | | |
| – | |
Derivative liabilities - embedded derivatives | |
| 4,296,514 | | |
| 10,189,518 | |
Derivative liabilities - warrants | |
| 1,129,408 | | |
| 6,041,518 | |
Total current liabilities | |
| 10,501,463 | | |
| 18,999,013 | |
| |
| | | |
| | |
Long term liabilities: | |
| | | |
| | |
Convertible debt, net of unamortized discount of $69,293 and $0 | |
| 34,707 | | |
| – | |
| |
| | | |
| | |
Total liabilities | |
| 10,536,170 | | |
| 18,999,013 | |
| |
| | | |
| | |
Commitments and contingencies | |
| – | | |
| – | |
| |
| | | |
| | |
Stockholders' deficit: | |
| | | |
| | |
Series A convertible preferred stock; $0.001 par value,10,000,000 shares authorized, 6,053,233
and 6,312,733 issued and outstanding at September 30, 2012 and December 31, 2011, respectively |
|
|
6,053 |
|
|
|
6,313 |
|
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, 4,409,609
and 6,014,992 issued and outstanding at September 30, 2012 and December 31, 2011, respectively |
|
|
4,410 |
|
|
|
6,015 |
|
Common stock: $0.001 par value, 6,000,000,000 shares authorized,
4,601,516,619 and 3,598,834,936 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively |
|
|
4,601,517 |
|
|
|
3,598,835 |
|
Subscription Receivable | |
| (46,800 | ) | |
| – | |
Stock payable | |
| 1,406,768 | | |
| 1,981,768 | |
Additional paid-in capital | |
| 269,449,412 | | |
| 264,112,848 | |
Accumulated deficit | |
| (285,677,632 | ) | |
| (288,529,219 | ) |
| |
| | | |
| | |
Total stockholders' deficit | |
| (10,256,272 | ) | |
| (18,823,440 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 279,898 | | |
$ | 175,573 | |
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, 2012 and 2011
(unaudited)
| |
For the three months ended: | | |
For the nine months ended: | |
| |
September 30,
2012 | | |
September 30,
2011 | | |
September 30,
2012 | | |
September 30,
2011 | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | 39,183 | | |
$ | 9,710 | | |
$ | 81,229 | | |
$ | 52,977 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of Goods Sold | |
| 27,823 | | |
| 5,536 | | |
| 58,455 | | |
| 47,787 | |
| |
| | | |
| | | |
| | | |
| | |
Gross Profit | |
| 11,360 | | |
| 4,174 | | |
| 22,774 | | |
| 5,190 | |
| |
| | | |
| | | |
| | | |
| | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative expenses | |
$ | 825,280 | | |
$ | 1,331,511 | | |
$ | 4,087,620 | | |
$ | 4,096,983 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
$ | (813,920 | ) | |
$ | (1,327,337 | ) | |
$ | (4,064,846 | ) | |
$ | (4,091,793 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expenses): | |
| | | |
| | | |
| | | |
| | |
Gain/(loss) on debt settlement | |
| – | | |
| 3,477,100 | | |
| (928,000 | ) | |
| 3,477,100 | |
(Loss) on legal settlement | |
| – | | |
| – | | |
| (1,580,252 | ) | |
| – | |
Change in fair value of financial instruments | |
| 3,834,594 | | |
| (10,255,003 | ) | |
| 9,990,731 | | |
| 46,099,950 | |
Change in fair value of rescission liability | |
| (387,967 | ) | |
| – | | |
| (491,716 | ) | |
| – | |
Interest expense | |
| (28,642 | ) | |
| (55,498 | ) | |
| (74,329 | ) | |
| (297,034 | ) |
Registration rights expense | |
| – | | |
| – | | |
| – | | |
| (300,133 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total other income and (expenses), net | |
| 3,417,985 | | |
| (6,833,401 | ) | |
| 6,916,434 | | |
| 48,979,883 | |
| |
| | | |
| | | |
| | | |
| | |
Net profit (loss) | |
$ | 2,604,065 | | |
$ | (8,160,738 | ) | |
$ | 2,851,588 | | |
$ | 44,888,090 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 4,514,942,089 | | |
| 3,169,269,545 | | |
| 4,232,154,449 | | |
| 2,668,656,921 | |
Weighted average shares outstanding-diluted | |
| 6,541,082,648 | | |
| 3,169,269,545 | | |
| 6,258,295,008 | | |
| 4,849,733,958 | |
| |
| | | |
| | | |
| | | |
| | |
Net profit (loss) per common share - basic | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | 0.02 | |
Net profit (loss) per common share - diluted | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | 0.01 | |
The accompanying notes are an integral part
of the unaudited financial statements
SaviCorp
STATEMENT OF STOCKHOLDERS' DEFICIT
For the Period
From December 31, 2010 to September 30, 2012
| |
| Preferred
Stock A | |
| Preferred
Stock C | |
| Common
Stock | |
| Additional
Paid-In | | |
Subscription | | |
Stock | | |
Accumulated | | |
| | |
| |
| Shares | | |
Amount | |
| Shares | | |
Amount | |
| Shares | | |
Amount | |
| Capital | | |
Receivable | | |
Payable | | |
Deficit | | |
Total | |
Balance
at December 31, 2010 | |
| 9,956,483 | | |
$ | 9,956 | |
| 7,887,275 | | |
$ | 7,887 | |
| 2,313,878,184 | | |
$ | 2,313,878 | |
| 251,848,925 | | |
$ | – | | |
$ | 705,000 | | |
$ | (341,361,036 | ) | |
$ | (86,475,390 | ) |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock
issued in exchange for consulting services and employee compensation | |
| – | | |
| – | |
| – | | |
| – | |
| 261,399,579 | | |
| 261,400 | |
| 3,108,873 | | |
| – | | |
| – | | |
| – | | |
| 3,370,273 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Common and preferred
stock issued for cash under Regulation D offering | |
| – | | |
| – | |
| 20,000 | | |
| 20 | |
| 589,363,479 | | |
| 589,363 | |
| 1,238,159 | | |
| – | | |
| – | | |
| – | | |
| 1,827,542 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of
Preferred A to common | |
| (1,143,750 | ) | |
| (1,143 | ) |
| – | | |
| – | |
| 114,375,000 | | |
| 114,376 | |
| (113,233 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of
Preferred C to common | |
| – | | |
| – | |
| (1,392,333 | ) | |
| (1,392 | ) |
| 139,233,300 | | |
| 139,233 | |
| (137,841 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Settlement of
Cornell Debt and cancellation of Preferred A shares | |
| (4,000,000 | ) | |
| (4,000 | ) |
| – | | |
| – | |
| – | | |
| – | |
| 9,466,292 | | |
| – | | |
| – | | |
| – | | |
| 9,462,292 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of
debt for common | |
| – | | |
| – | |
| – | | |
| – | |
| 9,000,000 | | |
| 9,000 | |
| 120,406 | | |
| – | | |
| – | | |
| – | | |
| 129,406 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | |
| 30,620 | | |
| – | | |
| – | | |
| – | | |
| 30,620 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | | |
| – | | |
| 52,831,817 | | |
| 52,831,817 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at December 31, 2011 | |
| 6,312,733 | | |
$ | 6,313 | |
| 6,014,942 | | |
$ | 6,015 | |
| 3,598,834,936 | | |
$ | 3,598,835 | |
| 264,112,848 | | |
$ | – | | |
$ | 1,981,768 | | |
$ | (288,529,219 | ) | |
$ | (18,823,440 | ) |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock
issued in exchange for consulting services and employee compensation | |
| – | | |
| – | |
| – | | |
| – | |
| 354,343,445 | | |
| 354,344 | |
| 2,810,695 | | |
| – | | |
| – | | |
| – | | |
| 3,165,039 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock Options
issued for consulting services | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | |
| 770 | | |
| – | | |
| – | | |
| – | | |
| 770 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Common and preferred
stock issued for cash and subscriptions under Regulation D offering | |
| – | | |
| – | |
| 100,000 | | |
| 100 | |
| 259,855, 238 | | |
| 259,855 | |
| 361,645 | | |
| (46,800 | ) | |
| – | | |
| – | | |
| 574,800 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of
Preferred A to common | |
| (259,500 | ) | |
| (260 | ) |
| – | | |
| – | |
| 25,950,000 | | |
| 25,950 | |
| (25,690 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of
Preferred C to common | |
| – | | |
| – | |
| (1,705,333 | ) | |
| (1,705 | ) |
| 170,333,000 | | |
| 170,533 | |
| (168,828 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of
debt for common | |
| – | | |
| – | |
| – | | |
| – | |
| 142,000,000 | | |
| 142,000 | |
| 1,813,407 | | |
| – | | |
| – | | |
| – | | |
| 1,955,407 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Imputed interest
on related party debt | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | |
| 19,565 | | |
| – | | |
| – | | |
| – | | |
| 19,565 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock
repaid by Company | |
| – | | |
| – | |
| – | | |
| – | |
| 50,000,000 | | |
| 50,000 | |
| 525,000 | | |
| – | | |
| (575,000 | ) | |
| – | | |
| – | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
income | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | |
| – | | |
| – | | |
| – | | |
| 2,851,588 | | |
| 2,851,588 | |
| |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at September 30, 2012 (unaudited) | |
| 6,053,233 | | |
$ | 6,053 | |
| 4,409,609 | | |
$ | 4,410 | |
| 4,601,516,619 | | |
$ | 4,601,517 | |
| 269,449,412 | | |
$ | (46,800 | ) | |
$ | 1,406,768 | | |
$ | (285,677,632 | ) | |
$ | (10,256,272 | ) |
The accompanying notes
are an integral part of the unaudited financial statements
SaviCorp
STATEMENTS OF CASH FLOWS
For the Periods
Ended September 30, 2012 and 2011
| |
For the nine months ended: | |
| |
September 30, 2012 | | |
September 30, 2011 | |
Cash flows from operating activities: | |
| | | |
| | |
Net profit | |
$ | 2,851,588 | | |
$ | 44,888,090 | |
Adjustments to reconcile net income to net cash used by operating activities: | |
| | | |
| | |
Compensatory common, preferred stock and warrant issuances | |
| 3,165,809 | | |
| 2,969,222 | |
Imputed interest | |
| 19,565 | | |
| 23,058 | |
Interest expense recognized on issuance and through accretion of discount on debt | |
| 1,731 | | |
| – | |
Change in fair value of derivatives | |
| (9,990,731 | ) | |
| (46,099,950 | ) |
Change in fair value of rescission liability | |
| 491,716 | | |
| – | |
(Gain) Loss on extinguishment of debt | |
| 928,000 | | |
| (3,477,100 | ) |
(Gain) Loss on legal settlement | |
| 1,580,252 | | |
| – | |
Depreciation expense | |
| 1,737 | | |
| – | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Changes in accounts receivable | |
| (17,960 | ) | |
| (2,585 | ) |
Changes in inventory | |
| 47,851 | | |
| (158,638 | ) |
Changes in pre-paid assets | |
| (119,898 | ) | |
| (33,335 | ) |
Changes in other current assets | |
| – | | |
| (31,437 | ) |
Accrued registration rights expense | |
| – | | |
| 300,133 | |
Changes in related party accounts payable | |
| (43,510 | ) | |
| 145,587 | |
Changes in accounts payable and accrued liabilities |
|
|
321,105 |
|
|
|
479,781 |
|
Net cash used by operating activities | |
| (762,745 | ) | |
| (997,174 | ) |
Cash flows from investing activities: | |
| | | |
| | |
Acquisition of equipment | |
| (16,482 | ) | |
| – | |
Net cash used in investing activities | |
| (16,482 | ) | |
| – | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds (net payments) from(on) notes payable | |
| 204,000 | | |
| (550,000 | ) |
Proceeds from sale of common and preferred stock | |
| 574,800 | | |
| 1,543,543 | |
Net cash provided by financing activities | |
| 778,800 | | |
| 993,543 | |
Net increase (decrease) in cash and cash equivalents | |
| (427 | ) | |
| (3,631 | ) |
Cash and cash equivalents at beginning of year | |
| 427 | | |
| 6,381 | |
Cash and cash equivalents at end of year | |
$ | – | | |
$ | 2,750 | |
The accompanying notes are an integral part
of the unaudited financial statements
SAVICORP
NOTES TO FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2012 and
September 30, 2011 (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 is considered a development stage
enterprise because it currently has no significant operations, has not yet generated revenue from new business activities and is
devoting substantially all of its efforts to business planning and the search for sources of capital to fund its efforts.
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 cash equivalents of $427 as of December 31, 2011 and $0 as of September 30, 2012.
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 $2,969,222
and $3,165,809 for the periods ended September 30, 2011 and September 30, 2012, 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 Notes. 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.
See Note 10 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 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.
In July 2012, the FASB issued ASU
2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment”
in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing
Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether
it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary
to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles
Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning
after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date
before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet
been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected
to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued
ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin (SAB) No. 114. , Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting
Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs
pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial
position or results of operations.
We have adopted recently issued
accounting pronouncements and have determined that they have no material effect on our financial position, results of operations,
or cash flow. We do not expect any recently issued but not yet adopted accounting pronouncements to have a material
effect on our financial position, results of operations or cash flow.
2. |
Going Concern Considerations |
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. In 2012, the Company had limited operations and
resources. At September 30, 2012, the Company is in a negative working capital position of $10,236,310 and has a stockholders'
deficit of $10,256,272. Additionally, as of September 30, 2012 the Company faced substantial challenges to future success as follows:
|
· |
The Company is delinquent on critical liabilities such as payments to key consultants. |
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 its growth 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, 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. |
Accounts Payable and Accrued Liabilities |
Accounts Payable and Accrued Liabilities
at September 30, 2012 and December 31, 2011, consisted of the following:
|
|
9/30/2012 |
|
|
12/31/2011 |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
500,735 |
|
|
$ |
321,026 |
|
Accrued wages payable |
|
|
1,120,199 |
|
|
|
1,019,042 |
|
Accrued interest expense |
|
|
187,562 |
|
|
|
135,642 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,808,496 |
|
|
$ |
1,475,710 |
|
4. |
Accounts Payable and Accrued Liabilities – Related Party |
The $15,000 amount due at December
31, 2011 and September 30, 2012 consist of $10,000 to Serge Monros and $5,000 to Greg Sweeney for payments made on behalf of the
Company related to the Herrera Settlement.
5. |
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).
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
has finalized a negotiated settlement and has received court approval as of April 7, 2015. The Company has recorded a
$1,580,252 liability based on the current settlement agreement offer.
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 investments;
$0 in 2007 (although HDV sold $13,000 of its shares), $0 in 2008 (although HDV sold $445,750 of its shares), $0 in 2009 (although
HDV sold $448,000 of its shares), $910,742 in 2010, $1,827,543 in 2011, and $629,500 in the first three quarters 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) and the Company may need to offer rescission rights
to the investors.
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 $14,625 in 2008, shares for services valued at $380,500 in 2009, shares for services valued at $236,920 in 2010, shares for
services valued at $3,370,273 in 2011, and shares for services valued at $3,165,039 during the first 3 quarters of 2012. 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 rescission offers, in terms of rescission offers accepted by shareholders, were
very encouraging. We had four rescissions offers accepted and refunded $13,000 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. As of the date hereof, the Company has postponed
their plans to offer rescission to earlier purchasing shareholders, deeming it advisable to wait until the common stock price
increases and they have more operating cash available to pay for the cost of undertaking this endeavor. The Company has booked
a liability to account for this rescission liability and marks the liability to market on a quarterly basis. The rescission liability
as of September 30, 2012 is $491,716.
In connection with the sale
of debt or equity instruments, the Company may sell options or warrants to purchase our common stock. In certain circumstances,
these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity
instruments may contain embedded derivative instruments, such as embedded derivative features which in certain circumstances may
be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
The Company's derivative instrument
liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded
as charges or credits to income in the period in which the changes occur. For options, warrants and bifurcated embedded derivative
features that are accounted for as derivative instrument liabilities, the Company estimates fair value using either quoted market
prices of financial instruments with similar characteristics or other valuation techniques. The valuation techniques require assumptions
related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend
yield, and the expected volatility of our common stock price over the life of the option.
The following table summarizes the
convertible debt and warrant liabilities derivative activity for the period December 31, 2010 to September 30, 2012:
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 due to Settlement/Issuance |
|
|
(9,462,292 |
) |
|
|
3,226,847 |
|
|
|
(6,235,445 |
) |
Change due to Exercise/Conversion |
|
|
(120,406 |
) |
|
|
- |
|
|
|
(120,406 |
) |
Change in Fair Value |
|
|
(1,424,255 |
) |
|
|
(53,414,749 |
) |
|
|
(54,839,304 |
|
Fair value at December 31, 2011 |
|
$ |
10,189,518 |
|
|
$ |
6,041,518 |
|
|
$ |
16,231,036 |
|
Change due to Exercise/Conversion |
|
|
(814,383 |
) |
|
|
- |
|
|
|
(814,383 |
) |
Change in Fair Value |
|
|
(5,078,621 |
) |
|
|
(4,912,110 |
) |
|
|
(9,990,731 |
) |
Fair value at September 30, 2012 |
|
$ |
4,296,514 |
|
|
$ |
1,129,408 |
|
|
$ |
5,425,922 |
|
For the nine month period ended
September 30, 2012, net derivative income was $9,990,731. For the nine-month 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 |
|
9/30/2012 |
|
|
9/30/2011 |
|
Dividend yield |
|
|
0.00% |
|
|
|
0.00% |
|
Risk-free rate for term |
|
|
0.17%-0.23% |
|
|
|
.02%-0.25% |
|
Volatility |
|
|
143% |
|
|
|
130% |
|
Maturity dates |
|
|
0.0-2.41 years |
|
|
|
0.28-2.58 years |
|
Stock Price |
|
|
0.0040 |
|
|
|
0.0090 |
|
The Cornell 7/10/06 convertible
note ($2,470,000 balance) matured on 7/10/08. The Cornell 4/02/07 promissory note ($15,000 balance) became convertible upon default
and matured. The Cornell 7/10/06 warrants (initial 2,900,000,000 warrants with exercise prices ranging from $0.003 to $0.150 and
an expiration date of 7/10/11 reset to 66,000,000,000 warrants at $0.0005) had a term remaining of 0.522 years at 12/31/11. The
Cornell debt and warrants were settled in 2011 (see Note 9). The HDV and DSE convertible notes matured on April 1, 2010 and are
in default as of 12/31/11 and 9/30/12.
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. 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 due to not paying
the balance due at maturity. 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 $19,139,391 based
on the book value of the liabilities released and the fair 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. This note was in default as of September 30, 2012 due to lack of payment upon maturity.
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, 2012 and December 31, 2011:
| |
2012 | | |
2011 | |
| |
| | | |
| | |
Contractual balance, in default | |
$ | 526,440 | | |
$ | 588,440 | |
Less unamortized discount | |
| – | | |
| – | |
| |
| | | |
| | |
Convertible debt | |
$ | 526,440 | | |
$ | 588,440 | |
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 on December 15, 2009 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. During the nine month period ending September 30, 2012, $62,000 of the principal balance was converted
to 62,000,000 shares of common stock.
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. This note was in default as of September 30, 2012 due to lack of payment upon maturity.
Following is an analysis of convertible
debt - related party at September 30, 2012 and December 31, 2011:
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
Contractual balance, in default |
|
$ |
204,302 |
|
|
$ |
204,302 |
|
Less unamortized discount |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Convertible debt |
|
$ |
204,302 |
|
|
$ |
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.
Steve Botkin:
On July 17, 2012, the Company entered
into a convertible promissory note with Steve Botkin. The note bears interest at 12%, matures on July 17, 2015 and converts into
common shares at the conversion rate of 80% of market. On August 9, 2012, the Company entered into a convertible promissory note
with Steve Botkin. The note bears interest at 12%, matures on August 9, 2015 and converts into common shares at the conversion
rate of 80% of market.
Following is an analysis of convertible
debt due Steve Botkin at September 30, 2012 and December 31, 2011:
|
|
9/30/2012 |
|
|
12/31/2011 |
|
|
|
|
|
|
|
|
Contractual balance |
|
$ |
104,000 |
|
|
$ |
– |
|
Less unamortized discount |
|
|
(69,293 |
) |
|
|
– |
|
|
|
|
|
|
|
|
|
|
Convertible debt |
|
$ |
34,707 |
|
|
$ |
– |
|
This note is considered a derivative
instrument due to the variable conversion feature. The Company recorded a derivative liability upon issuance which resulted in
the note discount ($71,024 at issuance).
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 September 30,
2012 and December 31, 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.
The Company issued Steve Botkin
a note payable of $80,000 for accrued and unpaid wages. On February 7, 2012, the Company issued Steve Botkin 80,000,000 shares
as full consideration for the note payable. Based on the market price of the stock at the conversion date, the Company recorded
a loss on settlement of $928,000.
The Company files a U.S. Federal
income tax return. The components of the net loss before income tax benefit for the periods ended September 30, 2012 and December
31, 2011 are as follows:
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Net income/(loss) before income taxes |
|
$ |
2,851,588 |
|
|
$ |
52,831,817 |
|
The components of the Company's deferred tax assets at
September 30, 2012 and December 31, 2011 are as follows:
|
|
2012 |
|
|
2011 |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Loss carry-forwards |
|
$ |
3,254,545 |
|
|
$ |
2,015,062 |
|
Valuation allowance |
|
|
(3,254,545 |
) |
|
|
(2,015,062 |
) |
|
|
$ |
– |
|
|
$ |
– |
|
At September 30, 2012, the Company
had generated US net operating loss carry-forwards of approximately $9,572,191 which
will expire in various years between 2012 and 2029. The benefit from utilization of net operating loss carry forwards incurred
prior to December 30, 2004 is significantly limited in connection with a change in control of the Company. Such benefit could be
subject to further limitations if significant future ownership changes occur in the Company. The Company believes that a significant
portion of its unused net operating loss carry forwards will never be utilized due to expiration or limitations on use due to ownership
changes.
At September 30, 2012 and December
31, 2011, the Company has no uncertain tax positions.
12. |
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
Duces Tecum,” 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 investments;
$0 in 2007 (although HDV sold $13,000 of its shares), $0 in 2008 (although HDV sold $445,750 of its shares), $0 in 2009 (although
HDV sold $448,000 of its shares), $910,742 in 2010, $1,827,543 in 2011, and $629,500 in the first three quarters 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) and the Company may need to offer rescission rights
to the investors.
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 $14,625 in 2008, shares for services valued at $380,500 in 2009, shares for services valued at $236,920 in 2010, shares for
services valued at $3,370,273 in 2011, and shares for services valued at $3,165,039 during the first 3 quarters of 2012. 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 rescission offers, in terms of rescission offers accepted by shareholders, were
very encouraging. We had four rescissions offers accepted and refunded $13,000 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. As of the date hereof, the Company has postponed
their plans to offer rescission to earlier purchasing shareholders, deeming it advisable to wait until the common stock price increases
and they have more operating cash available to pay for the cost of undertaking this endeavor. The Company has booked a liability
to account for this rescission liability and marks the liability to market on a quarterly basis. The rescission liability as of
September 30, 2012 is $491,716.
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 has finalized a negotiated settlement
and has received court approval as of April 7, 2015. The Company has recorded a settlement liability of $1,580,282 which represents
an estimate of the fair value of the consideration to be paid to the Plaintiffs based on most recent settlement discussions. This
amount includes the current value of approximately 300,000,000 shares to be issued and the $100,000 in legal fees to be paid.
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 periods ended December 31, 2011 and September 30, 2012.
Year Ended December 31, 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.
In October 2011, the Board of Directors
authorized the issuance of 36,000,000 common shares to accredited and non-accredited investors for total proceeds of $88,000.
In November 2011, the Board of Directors
authorized the issuance of 58,800,000 common shares to accredited and non-accredited investors for total proceeds of $126,000.
The Company converted 9,000 of convertible debt and 57,803 of derivative liability into 9,000,000 common shares
In December 2011, the Board of Directors
authorized the issuance of 35,000,001 common shares to accredited and non-accredited investors for total proceeds of $70,000.
Throughout the year, the Board of
Directors also authorized the issuance of 261,399,579 common shares for services rendered by independent contractors issuances
based on the market value of the stock.
Throughout the year, 1,143,750 Preferred
A shares were converted to 114,375,000 common shares and 1,392,333 Preferred C shares were converted to 139,233,300 common shares.
In May, 2011, the Company borrowed
128,414,606 common shares from directors of the Company.
In August, 2011, the Company repaid
200,000,000 common shares that were loaned to the Company.
Period Ended September 30, 2012
In January 2012, the Board of Directors
authorized the issuance of 14,603,571 common shares to accredited and non-accredited investors for total proceeds of $35,500 and
a subscription receivable of $10,000.
In February 2012, the Board of Directors
authorized the issuance of 119,500,000 common shares to accredited and non-accredited investors for total proceeds of $223,000
and a subscription receivable of $24,500. The Company converted $80,000 of debt, $22,000 of convertible debt, and $366,382 of derivative
liability into 102,000,000 common shares. The Company recorded a loss on conversion of $928,000 of the $80,000 of debt.
In March 2012, the Board of Directors
authorized the issuance of 37,866,667 common shares to accredited and non-accredited investors for total proceeds of $80,200 and
a subscription receivable of $13,000. The Company converted $40,000 of convertible debt and $519,025 of derivative liability into
40,000,000 common shares.
In April 2012, the Board of Directors
authorized the issuance of 57,260,000 common shares to accredited and non-accredited investors for total proceeds of $122,300.
In May 2012, the Board of Directors
authorized the issuance of 12,000,000 common shares to accredited and non-accredited investors for total proceeds of $30,000.
In June 2012, the Board of Directors
authorized the issuance of 14,250,000 common shares to accredited and non-accredited investors for total proceeds of $37,000 and
a subscription receivable of $10,000.
In July 2012, the Board of Directors
authorized the issuance of 4,375,000 common shares to accredited and non-accredited investors for a subscription receivable of
35,000.
Throughout the nine month period
ending September 30, 2012, the Company received $45,700 from subscriptions receivable.
Throughout the period through September
30, 2012, the Board of Directors also authorized the issuance of 354,343,445 common shares for services rendered by independent
contractors issuances based on the market value of the stock.
Throughout the period through September
30, 2012, 259,500 Preferred A shares and 1,705,333 Preferred C shares were converted to 196,483,000 common shares.
In March 2012, the Company repaid
50,000,000 common shares previously borrowed from directors of 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 85 shares with exercise prices that are so high that the exercise of the options
will never be practical. Expiration dates ranged from March, 2012 through July, 2012. There are 38 stock options outstanding as
of 9/30/12 at an exercise price of $2,700.
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 as of December 31,
2011.
Stock Warrants
In connection with the securities
purchase agreement, we agreed to issue Cornell warrants to purchase an aggregate 2,900,000,000 shares of common stock, exercisable
for a period of five years as follows:
|
|
|
|
|
|
Remaining |
Number of |
|
|
Exercise |
|
|
Life |
Warrants |
|
|
Price |
|
|
Years |
|
1,000,000,000 |
|
|
$ |
0.0030 |
|
|
0.0 |
|
1,000,000,000 |
|
|
|
0.0060 |
|
|
0.0 |
|
300,000,000 |
|
|
|
0.0100 |
|
|
0.0 |
|
200,000,000 |
|
|
|
0.0150 |
|
|
0.0 |
|
150,000,000 |
|
|
|
0.0200 |
|
|
0.0 |
|
100,000,000 |
|
|
|
0.0300 |
|
|
0.0 |
|
60,000,000 |
|
|
|
0.0500 |
|
|
0.0 |
|
40,000,000 |
|
|
|
0.0750 |
|
|
0.0 |
|
30,000,000 |
|
|
|
0.1000 |
|
|
0.0 |
|
20,000,000 |
|
|
|
0.1500 |
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
2,900,000,000 |
|
|
$ |
0.0114 |
|
|
|
These warrants issued to Cornell expired in 2011.
In connection with the repayment
agreement, we agreed to issue to YA Global warrants to purchase an aggregate of 25,000,000 shares of common stock, exercisable
for a period of three years at an exercise price of $0.0119. The warrants issued to YA Global provide for certain anti-dilution
protection in the event that (i) we issue shares of our common stock for a purchase price below the exercise price of the various
warrants or in the event we issue options or other convertible securities with a conversion price below the exercise price, (ii)
we effectuate a stock split, stock dividend or other form of recapitalization, or (iii) we declare a dividend payment to the holders
of our common stock. The exercise price was reset on August 8, 2011 to $0.0005 and the number of warrants increased to 595,000,000.
The Company issued 5,000,000 warrants
in May 2010 to a law firm for services rendered valued at $137,000 using a Black-Scholes-Merton model using the following inputs
(0.0% dividend yield, stock price of $0.0274, risk-free rate of 2.43%, volatility of 417%, 5 year remaining term). The warrants
expire in five years with an exercise price of $0.01.
The Company issued 666,667 warrants
in April 2012 to a law firm for services rendered valued at $770 using a lattice model using the following inputs (0.0% dividend
yield, stock price of $0.009, risk-free rate of 0.53%, volatility of 139%, 2.5 year remaining term). The warrants expire in thirty
months with an exercise price of $0.015.
As of September 30, 2012 the following
warrants remain outstanding:
|
|
|
|
|
|
Remaining |
Number of |
|
|
Exercise |
|
|
Life |
Warrants |
|
|
Price |
|
|
Years |
|
595,000,000 |
|
|
$ |
0.0005 |
|
|
1.81 |
|
5,000,000 |
|
|
|
0.0100 |
|
|
2.58 |
|
666,667 |
|
|
|
0.0150 |
|
|
2.01 |
|
|
|
|
|
|
|
|
|
|
600,666,667 |
|
|
$ |
0.0006 |
|
|
|
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, 2010 the Company had 9,956,483 shares of series A preferred stock
issued and outstanding and 7,887,275 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, 2011 and the nine month period ended September 30, 2012.
Year Ended December 31, 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, 1,143,750 Preferred
A shares were converted to 114,375,000 common shares and 1,392,333 Preferred C shares were converted to 139,233,300 common shares.
Period Ended September 30, 2012
In June 2012, the Board of Directors
authorized the issuance of 100,000 Preferred C shares to accredited and non-accredited investors for total proceeds of $10,000.
Throughout the period, 259,500
Preferred A shares and 1,705,333 Preferred C shares were converted to 196,483,000 common shares.
Potentially Dilutive Equity
Instruments
The following is an analysis of
potentially dilutive equity instruments at September 30, 2012
Series A Preferred Stock convertible to common stock on a 100 for 1 basis | |
| 605,323,300 | |
Series C Preferred Stock convertible to common stock on a 100 for 1 basis | |
| 440,960,900 | |
| |
| | |
Total | |
| 1,046,284,200 | |
Other Equity Transactions
Year Ended December 31, 2011
Interest was imputed on non-interest
bearing related party debt in the amount of $30,620 and credited to additional paid in capital.
Period Ended September 30, 2012
Interest was imputed on non-interest
bearing related party debt in the amount of $19,565 and credited to additional paid in capital. Subscriptions receivable of $46,800
represent amounts due from shareholders for stock issued during the period.
14. |
|
Related Party Transactions |
The Company engaged in various related
party transactions involving the issuance of shares of the Company's common stock during the periods ended September 30, 2012 and
December 31, 2011.
During 2007, 2008, 2009, 2010 and
2011 His Divine Vehicle, Inc. ("HDV") incurred costs on behalf of the Company. At December 31, 2012, the Company owed
HDV $244,956 and Serge Monros $570,367 in accrued wages. At December 31, 2011, the Company owed HDV $314,452 and Serge Monros $437,167
in accrued wages. At September 30, 2012, the Company owed HDV $270,942 and Serge Monros $534,367.
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.
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. The note matured and is currently in default due to lack of payment at maturity. The principal balance
due as of December 31, 2011 and September 30, 2012 is $204,302.
In August 2011, His Divine Vehicle
loaned 2,000,000 Preferred C shares and the 200,000,000 common shares to the Company.
15. |
|
Non-Cash Investing and Financing Transactions and Supplemental Disclosure of Cash Flow Information |
During the nine month periods ended
September 30, 2012 and September 30, 2011, the Company engaged in various non-cash investing and financing activities as follows:
| |
2012 | | |
2011 | |
Settlement of Convertible Debt and Derivative Liabilities with common stock | |
$ | 1,027,407 | | |
$ | – | |
Discount – Botkin Note | |
$ | 71,024 | | |
| | |
Conversion of Preferred Stock into Common Stock | |
$ | 196,483 | | |
$ | 274,608 | |
| |
| | | |
| | |
Preferred Stock Loaned/Common Stock Issued for Stock Payable | |
$ | (575,000 | ) | |
$ | 1,350,353 | |
During the periods ended September
30, 2012 and September 30, 2011, the Company made no interest payments and no income tax payments.
16. | | 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, 2012, 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 derivative liability is measured at fair value on a recurring basis. The Company classifies the fair value
of these convertible notes and warrants derivative liability under level three. The Company’s settlement payable is measured
at fair value on a recurring basis based on the most recent settlement offer. The Company classifies the fair value of the settlement
payable under level three. The Company’s rescission liability is measured at fair value on a recurring basis based on the
most recent stock price. The Company classifies the fair value of the rescission liability under level one.
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 presents liabilities
that are measured and recognized at fair value as of September 30, 2012 on a recurring and non-recurring basis:
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Gains (Losses) | |
Derivatives | |
$ | – | | |
$ | – | | |
$ | 5,425,922 | | |
$ | 9,990,731 | |
Settlements Payable | |
| – | | |
| 1,580,252 | | |
| – | | |
| (1,580,252 | ) |
Rescission Liability | |
| – | | |
| 491,716 | | |
| – | | |
| (491,716 | ) |
Fair Value at September 30, 2012 | |
$ | – | | |
$ | 2,071,968 | | |
$ | 5,425,922 | | |
$ | 7,918,763 | |
The following table presents liabilities
that are measured and recognized at fair value as of December 31, 2011 on a recurring and non-recurring basis:
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Gains (Losses) | |
Derivatives | |
$ | – | | |
$ | – | | |
$ | 16,231,036 | | |
$ | 54,839,304 | |
Fair Value at December 31, 2011 | |
$ | – | | |
$ | – | | |
$ | 16,231,036 | | |
$ | 54,839,304 | |
Stock Issuances:
Since September 30, 2012, the Board
of Directors authorized the issuance of an aggregate of 652,152,694 shares of its common stock, 21,751,666 shares of its Preferred
A shares, 214,846 shares of its Preferred B shares and 4,488,500 of its Preferred C shares to accredited and non-accredited investors
for total proceeds of $2,907,950. In addition, the Board of Directors has authorized the issuance of an aggregate of 810,400,000
shares of its common stock, 3,051,667 shares of its Preferred A shares, 94,950 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 $5,431,467. 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:
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
Duces Tecum,” 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 investments;
$0 in 2007 (although HDV sold $13,000 of its shares), $0 in 2008 (although HDV sold $445,750 of its shares), $0 in 2009 (although
HDV sold $448,000 of its shares), $910,742 in 2010, $1,827,543 in 2011. 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) and the Company may need to offer rescission rights to the investors.
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 $14,625 in 2008, shares for services valued at $380,500 in 2009, shares for services valued at $236,920 in 2010, and shares
for services valued at $3,370,273 in 2011. 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 rescission offers, in terms of rescission offers accepted by shareholders, were
very encouraging. We had four rescissions offers accepted and refunded $13,000 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. As of the date hereof, the Company has postponed
their plans to offer rescission to earlier purchasing shareholders, deeming it advisable to wait until the common stock price increases
and they have more operating cash available to pay for the cost of undertaking this endeavor. The Company has booked a liability
to account for this rescission liability and marks the liability to market on a quarterly basis. The rescission liability as of
September 30, 2012 is $491,716.
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 has finalized a negotiated settlement
and has received court approval as of April 7, 2015. The Company has recorded a $1,580,252 liability based on the current settlement
agreement offer.
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. The Company is currently in default on this agreement.
In March, 2015, the Company entered
into a seven (7) year Master Distribution Agreement with Dynovalve Mfg, LLC, the holder of the patents for the DynoValve products
and related IP. The agreement is an exclusive agreement for North America. The consideration for the agreement was payment for
products acquired and a three percent (3%) royalty payment.
Major Contracts:
In 2013, the Company has entered
into a 5 year licensing agreement with DynoGreen 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 nine months 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
nine months 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. During the nine months ending September 30, 2012, we generated revenues of $81,229.
Costs of Goods Sold was $58,455 yielding a gross profit of $22,774. These are improvements over the same period in 2011. Loss from
operations for the nine months ending September 30, 2012 was $4,064,846. This is comparable to the same period in 2011. Other Income
and Expense, net was a gain of $6,916,434 primarily due to the change in fair value of our derivative liabilities offset by the
legal settlement, loss on debt settlement, and change in fair value of the rescission liability.
During the three months ending September 30,
2011, we generated revenues of $9,710. Costs of Goods Sold was $5,536 yielding a gross profit of $4,174. Loss from operations for
the three months ending September 30, 2011 was $1,327,337. Other Income and Expense, net was $6,883,401 primarily due to the change
in fair value of our derivative liabilities and the gain on debt settlement of $3,477,100. During the three months ending September
30, 2012, we generated revenues of $39,183. Costs of Goods Sold was $27,823 yielding a gross profit of $11,360. These are slight
improvements over the same period in 2011. Loss from operations for the three months ending September 30, 2012 was $813,920. The
decrease in the loss was primarily due to additional stock based compensation paid in 2011. Other Income and Expense, net was a
gain of $3,417,985 primarily due to the change in fair value of our derivative liabilities offset by the change in fair value of
the rescission liability.
As of September 30, 2012, we have accumulated
net losses of $285,677,632. Additionally, at September 30, 2012, we are in a negative working capital position of $10,236,310 and
a stockholders' deficit position $10,256,272. 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 2012, 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, 2012, 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. Additional financing will need to be obtained. 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.
Liquidity and Capital Resources
As of September 30, 2012, the Company had no
cash.
Total current liabilities were $10,501,464
as of September 30, 2012, consisting of convertible debt, net, of $765,449, notes payable of $25,778, derivative liabilities of
$5,425,922, accounts payable and accrued liabilities of $1,808,496, settlement payable of $1,580,252, rescission liability of $491,716
and accounts payable assumed in recapitalization of $159,295.
We incurred net losses of $285,667,632 during
the period from inception, August 13, 2002, to September 30, 2012. In addition, at September 30, 2012, we were in a negative working
capital position of $10,236,310 and had a stockholders' deficit of $10,256,272. As a result, our independent registered public
accounting firm, has expressed substantial doubt about our ability to continue as a going concern.
Our average monthly operational expenses have been $454,180 per
month, for the period ended September 30, 2012.
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.
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. These notes matured and were in default due to non-payment as of December 31,
2010. 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 $19,139,391 based on the book
value of the liabilities released and the fair value of the consideration paid.
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, 2012, 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.
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 Duces
Tecum,” 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 investments; $0 in
2007 (although HDV sold $13,000 of its shares), $0 in 2008 (although HDV sold $445,750 of its shares), $0 in 2009 (although HDV
sold $448,000 of its shares), $910,742 in 2010, $1,827,543 in 2011. 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) and the Company may need to offer rescission rights to the investors.
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 $14,625 in
2008, shares for services valued at $380,500 in 2009, shares for services valued at $236,920 in 2010, and shares for services valued
at $3,370,273 in 2011. 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 rescission offers, in terms of rescission offers accepted by shareholders, were very encouraging.
We had four rescissions offers accepted and refunded $13,000 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. As of the date hereof, the Company has postponed their plans
to offer rescission to earlier purchasing shareholders, deeming it advisable to wait until the common stock price increases and
they have more operating cash available to pay for the cost of undertaking this endeavor. The Company has booked a liability to
account for this rescission liability and marks the liability to market on a quarterly basis. The rescission liability as of September
30, 2012 is $491,716.
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 has finalized a negotiated settlement and
has received court approval as of April 7, 2015. The Company has recorded a $1,580,252 liability based on the current settlement
agreement offer.
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, 2012, the
Company issued the following:
In January 2012, the Board of Directors authorized the issuance of 14,603,571 common shares to accredited and non-accredited investors for total proceeds of $35,500 and a subscription receivable of $10,000.
In February 2012, the Board of Directors authorized the issuance of 119,500,000 common shares to accredited and non-accredited investors for total proceeds of $223,000 and a subscription receivable of $24,500.
In March 2012, the Board of Directors authorized the issuance of 37,866,667 common shares to accredited and non-accredited investors for total proceeds of $80,200 and a subscription receivable of $13,000.
In April 2012, the Board of Directors authorized the issuance of 57,260,000 common shares to accredited and non-accredited investors for total proceeds of $122,300.
In May 2012, the Board of Directors authorized the issuance of 12,000,000 common shares to accredited and non-accredited investors for total proceeds of $30,000.
In June 2012, the Board of Directors authorized the issuance of 14,250,000 common shares to accredited and non-accredited investors for total proceeds of $37,000 and a subscription receivable of $10,000.
In July 2012, the Board of Directors authorized the issuance of 4,375,000 common shares to accredited and non-accredited investors for a subscription receivable of 35,000.
Throughout the nine month period ending September 30, 2012, the Company received $45,700 from subscriptions receivable.
Since September 30, 2012, the Board of Directors
authorized the issuance of an aggregate of 652,152,694 shares of its common stock, 21,751,666 shares of its Preferred A shares,
214,846 shares of its Preferred B shares and 4,488,500 of its Preferred C shares to accredited and non-accredited investors for
total proceeds of $2,907,950. 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
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. These notes matured and were in default due to non-payment as of December 31,
2010. 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 $19,139,391 based on the book
value of the liabilities released and the fair value of the consideration paid.
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: April 8, 2015 |
By: /s/ SERGE MONROS |
|
Serge Monros |
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President, Chief Executive Officer (Principal Executive Officer) and Director |
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|
Date: April 8, 2015 |
By: /s/ SERGE MONROS |
|
Serge Monros |
|
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: April 8, 2015
/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: April 8, 2015
/s/ SERGE MONROS
Serge Monros
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 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, 2012 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: April 8, 2015 |
By: /s/ SERGE MONROS |
|
Serge Monros |
|
Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 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, 2012 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: April 8, 2015 |
By: /s/ SERGE MONROS |
|
Serge Monros |
|
Chief Financial Officer |