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SVMI > SEC Filings for SVMI > Form 10-K on 27-Nov-2013All Recent SEC Filings

Show all filings for SAVICORP

Form 10-K for SAVICORP


27-Nov-2013

Annual Report


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following information should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 6, "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this 10-K that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties including those discussed in the "Risk Factors" section contained elsewhere in this report, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.

Business 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 entity of Gene-Cell, Inc. 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 SaVi Media Group, Inc. and its predecessors, Redwood Entertainment Group, Inc., Redwood Energy Group, Inc. and Energy Resource Management, Inc.

The public entity we used to recapitalize 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 to SaviCorp.

Business Summary

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 and to His Divine Vehicle, Inc. and DS Enterprises, Inc. in 2009 have 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 these 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.

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& 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 fundings;

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.

During the years ended December 31, 2009 and 2008, we had limited operations and we expect to require additional cash of a minimum of approximately $2,000,000 over the next twelve months. Those funds, if available, will be used for continued operation in the development stage. Additional financing will need to be obtained. Due to our still being in the development stage, sources of funding may not be available on terms that are acceptable to management and existing stockholders, or may include terms that will result in substantial dilution to existing stockholders.

Results of Operations

During the period from inception, August 13, 2002, to December 31, 2009, we have not generated any revenue from operations. As of December 31, 2009, we have accumulated net losses in the development stage of $265,053,329 for the period from inception, August 13, 2002, to December 31, 2009. Additionally, at December 31, 2009, we are in a negative working capital position of $10,809,260 and had a stockholders' deficit of $10,098,260. 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. 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 Operation

During the year ended December 31, 2009, we had limited operations and we expect to require additional cash of approximately $2,000,000 over the next twelve months. Those funds will be used to continue operation in the development stage.

Our plan of operations will require sources of funding that may not be available on terms that are acceptable to management and existing stockholders, or may include terms that will result in substantial dilution to existing stockholders.

Liquidity and Capital Resources

As of December 31, 2009, the Company had no current assets.

Total current liabilities were $10,809,260 as of December 31, 2009, consisting of convertible debt, net, of $2,591,899, derivative liabilities of $3,784,530, accounts payable and accrued liabilities of $4,247,758, notes payable of $25,778 and accounts payable assumed in recapitalization of $159,295.

We had a negative working capital of $10,890,260 as of December 31, 2009.

We incurred net losses of $265,053,329 during the period from inception, August 13, 2002, to December 31, 2009. In addition, at December 31, 2009, we were in a negative working capital position and had a stockholders' deficit of $10,890,260. As a result, our independent registered public accounting firm, in its report dated November 26, 2013, has expressed substantial doubt about our ability to continue as a going concern.

Our average monthly operational expenses have been $82,940 per month, for the year ended December 31, 2009.

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;

and generate revenues.

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 of which $1,670,000 was advanced immediately. We entered into an amended and restated securities purchase agreement with Cornell on August 17, 2006. The second installment of $200,000 was advanced on August 17, 2006. The third installment of $600,000 was advanced on September 1, 2006. The last installment of $500,000 was to be advanced two business days prior to a registration statement being declared effective by the SEC. A portion of the funds advanced were used to pay off the existing convertible debenture and other advances made by Golden Gate Investors.

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:

                       Number of Warrants     Exercise Price

                           1,000,000,000     $     0.003
                           1,000,000,000     $     0.006
                             300,000,000     $     0.01
                             200,000,000     $     0.015
                             150,000,000     $     0.02
                             100,000,000     $     0.03
                              60,000,000     $     0.05
                              40,000,000     $     0.075
                              30,000,000     $     0.10
                              20,000,000     $     0.15

All of the warrants were issued upon closing. We also issued to the investor 30 million shares of restricted common stock as a commitment fee.

The debentures matured on the second anniversary of the date of issuance and bore interest at the annual rate of 10%. Holders may convert, at any time, any amount outstanding under the debentures into shares of our common stock at a conversion price per share equal to $0.013. Beginning the earlier of (i) the first business day of the month immediately following the month in which a registration statement is first declared effective or (ii) November 1, 2006, and continuing on the first business day of each calendar month thereafter, we are required to make a mandatory redemption payment of $225,000 and accrued and unpaid interest, which payment can be made in cash or in restricted common stock.

We had the option, in our sole discretion, to settle the monthly mandatory redemption amount by (i) paying the investor cash in an amount equal to 115% of the monthly mandatory redemption amount, or (ii) issuing to the investor the number of shares of common stock equal to the monthly mandatory redemption amount divided by $0.007, provided, however, that in order for us to issue shares upon payment of the monthly mandatory redemption amount (A) a registration statement is effective, (B) no event of default shall have occurred, and (C) the closing bid price for our common stock shall be greater than the redemption conversion price (currently $0.007) as of the trading day immediately prior to the redemption date. However, in the event that (A) a registration statement is effective, (B) no event of default shall have occurred, and (C) the closing bid price for our common stock is less than the redemption conversion price (currently $0.007) but is greater than $0.003, we shall have the option to settle mandatory redemptions by issuing to the investor the number of shares of common stock equal to the mandatory redemption amount divided by the default conversion price ($0.003).

In the event that certain events of default, such as failure to pay principal or interest when due, failure to issue common stock upon conversion or the delisting or lack of quotation of our common stock, the redemption conversion price will be reduced to the default conversion price.

Cornell had agreed to restrict its ability to convert the debenture and exercise the warrants and receive shares of our common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of our common stock.

We, at our option, had the right with three business days advance written notice, to redeem a portion or all amounts outstanding under this debenture prior to the maturity date provided that the closing bid price of our common stock, is less than $0.013 at the time of the redemption. In the event of a redemption, we are obligated to pay an amount equal to the principal amount being redeemed plus a 15% redemption premium, and accrued interest.

In connection with the Purchase Agreement, we also entered into a registration rights agreement, as amended, providing for the filing, within 60 days of closing, of a registration statement with the Securities and Exchange Commission registering the common stock issuable upon conversion of the debentures. We are obligated to use our best efforts to cause the registration statement to be declared effective no later than 90 days after filing the registration statement and to insure that the registration statement remains in effect until the earlier of (i) all of the shares of common stock issuable upon conversion of the debentures have been sold or (ii) July 10, 2008. In the event of a default of our obligations under the registration rights agreement, including our agreement to file the Registration Statement with the Securities and Exchange Commission no later than September 8, 2006, or if the registration statement is not declared effective by November 22, 2006, we are required to pay to Cornell, as liquidated damages, for each month that the registration statement has not been filed or declared effective, as the case may be, either a cash amount or shares of our common stock equal to 2% of the liquidated value of the debentures.

In connection with the securities purchase agreement, we executed a security agreement in favor of the investor granting them a first priority security interest in all of our goods, inventory, contractual rights and general intangibles, receivables, documents, instruments, chattel paper, and intellectual property. The security agreement states that if an event of default occurs under the secured convertible debentures or security agreements, the investor has the right to take possession of the collateral, to operate our business using the collateral, and has the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the collateral, at public or private sale or otherwise to satisfy our obligations under these agreements. As of December 31, 2009, the Company was in default on this debt.

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.

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