TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	3
Item 1A	Rick Factors	9
Item 1B	Unresolved Staff Comments	17
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
		18
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	18
Item 6	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation	20
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	30
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	30
Item 9A(T).	Controls and Procedures	30
Item 9B.	Other Information	30
	PART III
Item 10.	Directors, Executive Officers, Promoters and Corporate Governance	31
Item 11.	Executive Compensation	32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	35
Item 13.	Certain Relationship and Related Transactions, and Director Independence	36
Item 14.	Principal Accountant Fees and Services	37
Item 15.	Exhibits and Financial Statement Schedule	38
SIGNATURES		61

 

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ITEM 1. DESCRIPTION OF BUSINESS.

 

Organizational History

 

aVinci Media Corporation (AVI Media or the Company) (formerly known as Secure Alliance Holdings Corporation) is a Delaware corporation.  Between October 2, 2006 and June 6, 2008, we were a shell public company and conducted no business activities other than seeking appropriate merger acquisition candidates.  In June 2008 (described in Recent Developments below), these efforts led to the acquisition of Sequoia Media Group, LC by way of a reverse merger.  Sequoia Media Group, LC changed its name to aVinci Media, LC in July 2008 following the reverse merger.  aVinci Media, LC, is a Utah limited liability company originally organized on March 28, 2003 under the name Life Dimensions, LC.

 

The Merger was effective on June 6, 2008, upon the filing of Articles of Merger with the Utah Division of Corporations.  In connection with the Merger transaction, we amended the Certificate of Incorporation to (i) change our name from Secure Alliance Holdings Corporation to aVinci Media Corporation; (ii) increase our authorized shares of common stock from 100,000,000 to 250,000,000; (iii) authorize a class of preferred stock consisting of 50,000,000 shares of $.01 per value preferred stock; and (iv) effect a 1-for-2 reverse stock split.

 

General Development of AVI Media’s Business

 

AVI Media has developed and deployed a software technology that employs “Automated Multimedia Object Models,” its patent-pending way of turning consumer captured images, video, and audio into complete digital files in the form of full-motion movies, DVD’s, photo books, posters and streaming media files.  AVI Media filed its first provisional patent in early 2004 for patent protection on various aspects of its technology with a full filing occurring in early 2005, and AVI Media has filed several patents since that time as part of its intellectual property strategy. All of AVI Media’s patent applications are pending and have not, as yet, been granted. AVI Media’s technology carries the brand names of “aVinci” and “aVinci Experience.”

 

In May 2004 aVinci Media, LC signed its first client agreement with BigPlanet, a division of NuSkin International, Inc. (“NuSkin”).  Under the terms of the BigPlanet agreement, aVinci Media, LC supplied BigPlanet with its software technology that BigPlanet marketed, sold, and fulfilled for its consumers.  Revenues from BigPlanet represent substantially all of aVinci Media, LC’s sales through 2007 at approximately $3.4 million from May 2004 through December 2007.  aVinci Media, LC’s agreement with BigPlanet expired on December 31, 2007.  BigPlanet continues to offer aVinci Media, LC’s DVD products and pays a per-product royalty for products resulting in a monthly royalty of less than $2,000 per month.

 

Since inception aVinci Media, LC has continued to develop and refine its technology to be able to provide higher quality products through a variety of distribution models including in-store kiosks, retail kits, and online downloads.  aVinci Media, LC’s business strategy has been to develop a product solution that provides users with professionally created templates to automatically create personalized products by simply adding user images.

 

aVinci Media, LC spent approximately $1.7 million, $1.9 million and $1.1 million for the years ended December 31, 2008, 2007, and 2006, respectively, on research and development. The majority of these costs are salary costs for those involved in research and development activities.

Business efforts during 2006 and 2007 were directed at developing relationships with mass retailers.  aVinci Media, LC signed an agreement to provide its technology in Meijer stores at the end of 2006.  Due to problems a third party supplier had deploying its kiosk software in Meijer stores, aVinci Media, LC was delayed in deploying its software technology that was to be provided through the third party kiosk.  During 2007, Meijer signed Hewlett Packard as its kiosk vendor and aVinci Media, LC entered into an agreement to provide its software in Meijer stores on Hewlett Packard kiosks.  aVinci Media, LC’s software integration onto the Hewlett Packard kiosk was completed in 2008 and deployed in April 2008 in Meijer stores.  During 2007, AVI Media signed an agreement with Fujicolor to deploy its technology on their kiosks located in domestic Wal-Mart stores.  AVI Media’s initial integration and deployment with Fujicolor in domestic Wal-Mart stores took place in the third quarter of 2007, with a software update in the third quarter of 2008 to enhance the user experience and the product offering.

 

In January 2008, aVinci Media, LC signed an agreement with Costco.com, to deliver its DVD product online.  aVinci Media, LC’s DVD product began being offered at Costco.com on the “photo” category at the end of March 2008.

 

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In November 2008, aVinci Media, LC began deploying its software in domestic Walgreens stores on kiosks located in the photo department.  Deployment continues and is anticipated to be completed in over 6,500 stores by May 30, 2009.  The product offering is being deployed on existing kiosks and photo lab equipment that allows the retailer to create DVD products in-store.  Under this model, we place the product builder in the retail stores and the product creation and fulfillment happens in the store.  The retailer supplies the raw materials and the labor to build the DVD products.

Initial operations before aVinci Media, LC’s formal entity organization in March 2003 were funded through founder contributions.  Operations since May 2004 have been funded by royalty revenue received from BigPlanet, totaling approximately $3.4 million to date; from outside investment capital, totaling approximately $9.8 million to date; and from loans from Secure Alliance Holdings Corporation (associated with the Merger transaction) totaling approximately $2.5 million.

 

From pre-organization through aVinci Media, LC’s initial contract, the founders contributed approximately $150,000.  These initial contributions were provided in exchange for promissory notes bearing interest at 10%, the principal and interest of which were converted into convertible debentures bearing interest at 10% with a term of 13 months through January 31, 2005.  The debentures and interest were converted into Series A preferred membership interests (the “Series A Preferred Units”) in January 2005.  The preferences of the Series A Preferred Units was the right to convert the Series A Preferred Units into an investment in a future financing if, at anytime within 12 months of receiving the Series A Preferred Units, aVinci Media, LC raised capital at a lower valuation than such Series A Preferred Units holders’ initial investment (which did not occur), and the right to receive distributions upon a liquidating event before common unit holders receive distributions.  All of the Series A Preferred Units were converted into common units prior to the Merger.

 

During the fourth quarter of 2003, aVinci Media, LC initiated a small private offering that closed in the first quarter of 2004.  The offering consisted of 12-month convertible debt, bearing interest at the annual rate of 10%.  In January 2005, all but $30,000 of the debt converted into Series A preferred.  In February 2005, aVinci Media, LC closed a private offering of approximately $150,000 consisting of the sale of common units, and it followed that offering with another offering in June of 2005, consisting of the sale of common units through which it raised an additional $173,000.

 

Needing more capital to continue pursuing its business plan through 2006, aVinci Media, LC undertook a larger private offering consisting of 12-month convertible debt, bearing interest at 10%.  The offering was taken in its entirety by Amerivon Investments, LLC, who invested a total of $829,250. At the time of the investment, Amerivon Investments LLC placed a member on aVinci Media, LC’s Board of Managers. In August of 2006, Amerivon Investments LLC invested an additional $1,560,000 in a convertible debt offering, bearing interest at 10%.  

 

During the six months ended June 30, 2007, aVinci received $2,000,000, net of $190,000 in issuance costs, from Amerivon Investments, LLC for the issuance of the Series B preferred units, and $1,535,000 from issuance of the convertible debentures.  In May 2007, Amerivon Investments, LLC converted approximately $2.4 million in aggregate convertible debt together with accumulated interest into common units of aVinci Media, LC.  Amerivon Investments, LLC also provided $2,675,000 in additional cash in the second half of 2007, which, along with funding made in the first half of 2007, plus accumulated interest, was used before the merger to purchase a total of $6.4 million of Series B preferred stock. Upon the closing of the Series B preferred stock offering, Amerivon placed a second member on AVI Media’s Board of Managers.

The Series B preferred entitled its holders to redemption rights after four years, annual dividends equal to 8% of the principal amount of the investment, and the right to receive distributions before common and Series A preferred holders receive distributions upon liquidation.  The Series B preferred owners converted all of their Series B preferred units into common units immediately prior to the Merger.

AVI Media is currently working to close a private round of capital to raise $1.5 million from Amerivon Holdings.  For the capital, Amerivon Holdings would receive Series A convertible preferred shares which have an 8% per annum cumulative dividend to be paid when declared by the Board.  Each share of Series A convertible preferred is convertible into five common shares.  AVI Media does not anticipate declaring payment of the preferred dividend until the Company has positive cash flows from operations.

 

Financial Information about Operating Segments

 

We conduct business within one operating segment in the United States.  From 2004 through 2007, aVinci Media, LC generated revenues (except for a few thousand dollars) with one customer, BigPlanet, a division of NuSkin.  Beginning in 2008, AVI Media began diversifying its customer base and generating revenues through agreements with Fujicolor (in Wal-Mart stores), Costco.com, Meijer Stores, Walgreens and Qualex Inc. Our long-lived assets are located in the United States.

 

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Description of Business

 

Software Technology and Products

 

We make software technology and package it in various forms available to mass retailers, specialty retailers, Internet portals and websites that allow end consumers to use an automated process to create products such as DVD productions, photo books, posters, calendars, and other print media products from consumer photographs, digital pictures, video, and other media.  Our customers are retailers and other vendors and generally not end consumers.  We enable our customers to sell our products to the end consumer who remain customers of its vendor and do not become our customers directly.  We currently do, however, deliver our technology to end consumers through (i) third party photo kiosks at mass and specialty retail outlets, (ii) retail kit shrink wrapped software at mass and specialty retail outlets, (iii) simple software downloads through third party Internet sites, (iv) simple software downloads through our own managed Internet site to which third party Internet sites are linked, and (v) on our own managed web servers on the world wide web to which third party Internet sites are linked.

 

Generally all of our products require the end consumer to simply supply digital images.  We supply preformatted templates for an occasion, event, or style such as a wedding, birthday, or activity that fits a particular style.  A template for a DVD generally includes six to eight different scenes that incorporate background images related to that particular template theme.  Each scene is built around four to ten digital image frames, or placeholders, where user supplied images are placed to have the appearance of being part of the themed contextual images we supply to support the template theme.  We utilize a technique called “layering,” (which is the subject of its patent) to stitch together its supplied images with the user-supplied images to produce a themed DVD movie.  Scenes may involve panning over the user images as though they are photographs sitting on a table, or having user images appear in frames sitting on a mantle as the camera angle appears to change and move around the mantle piece, to describe a few of the hundreds of scene effects we utilize.  Each template also provides a pre-designated position and font for a unique title, and in some instances subtitle and other text, to be added by the end consumer.  The scenes are assembled in an order to give the production a feeling of telling a story.  Each template also comes with a default sound track selected to match the template theme.  In some applications of our software, the consumer can select from one of several music selections fitted to the selected theme.  All of the images and music we supply with the themed templates are owned by us or have been fully licensed from the owners of the rights.

 

Using a wedding DVD template that is supplied on a retail kiosk as an example, a consumer brings a CD or photo storage card containing his or her images to a kiosk located in a retailer’s store.  The consumer inserts the image storage device into the kiosk reader and the kiosk loads the user images onto the kiosk.  The user then chooses to make a DVD from a menu on the kiosk at which point our software is launched.  The user browses the categories and selects “wedding” from among four to six categories of templates and then selects “wedding day” from a few different wedding templates.  The user next selects 40 photos from his or her user supplied images to be incorporated into the template and can rotate and move the images into the preferred orientation and order.  A title and subtitle, such as “John and Jessica’s Wedding,” “November 14, 2007,” are typed into the kiosk by the user and the user specifies the number of copies he or she wants to purchase.  With this, the user has successfully ordered a wedding DVD.

Upon completion of an order, we take the order information and images and build the DVD product remotely at our offices.  The user then gets back a DVD case with the user’s pictures on the cover containing a DVD with the user’s image printed on the DVD as a label and an insert containing thumbnail sized images of each user image used to make the DVD.  The DVD plays on standard DVD players and starts with a customer or aVinci branded “spin-up” to get to a standard navigation screen.  The navigation screen shows a user image in a contextual background consisting of wedding flowers.  By pressing the “Play” button, the movie is launched with the first scene featuring a wedding announcement with John and Jessica’s name in a rich stylistic font.  The perceived camera angle then pans over to a digitally created frame containing a picture of the bride supplied by the user, while soft wedding themed music plays.  The scenes transition with pictures of flowers taking the viewer through the wedding day.  The DVD ends with credits for licensed media and audio used to produce the DVD production.

 

Our photo books are created in the same fashion as described for DVDs, only our templates are created and laid out to tell the themed story in the form of a ten to twenty page, eight by eleven inch photo book.  Book pages are laid out by our design experts, printed on a digital press and hardbound.  Posters incorporate one or more user images into themed art matching DVD and photo book themes.  We launched the first photo book and poster products during the second quarter of 2008.

 

Product Delivery Model

 

Under our business model, we integrate with retail or other vending customers according to each customer’s business plan.  Our customers maintain the end consumer relationship and control as much of the image capture, product creation, and delivery of product as they desire based largely upon the product delivery method they select.  We do the rest and manage whatever our customers want to pass to us to manage.

 

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With its kiosk model, we integrate with a third party kiosk provider and integrate our software onto the kiosk.  End consumers using the kiosk load their images onto the kiosk and can make a variety of products.  With our software on the kiosk, when the consumer chooses to make a DVD product, its software launches and takes the consumer through the process of selecting a theme, a specific production type (called a storyboard), the photos to be integrated into the product, a title, and the order quantity.  The kiosk then generates an order confirmation for the consumer who uses the confirmation to pick up and pay for the order when complete.  Upon completion the kiosk order goes either to the retailer’s lab to be fulfilled in store or to central processing to be fulfilled remotely.

 

Retailers and vendors can stock our retail kit product which consists of a small box containing a CD containing a simplified version of its production software for a specific production type (such as Wedding) and a product code.  The end consumer pays for the product at the store and can then use the CD at home or work to place their prepaid product order.  The CD loads the software onto the customer’s computer and walks the customer through the process of selecting his or her digital images to be used in creating the product, typing any unique consumer information such as a customized title and subtitle, entering order information for shipping, and uploading the order information and image files for remote fulfillment.

 

With third party Internet sites, the process is similar to our retail kit product except for how the consumer loads the simple software on his or her computer and how he or she pays for the product order.  With an Internet vendor that manages our software through their site, we supply the vendor with its software download.  The consumer then downloads the simple software from the vendor’s web servers over the Internet.  The software loads and walks the customer through the process of selecting his or her digital images to be used in creating the product, typing any unique consumer information such as a customized title and subtitle, entering order information for shipping, taking the consumer’s credit card information to process the payment transaction for products ordered via a secure Internet transaction, and uploading the order for remote fulfillment.

In the event a retailer or vendor wants us to manage the software download, they simply provide a link on their website to us and we provide the simple software download from its web servers over the Internet.  The consumer process then works as outlined for a third party Internet site deployment.  Following the software download, the software loads and walks the customer through the process of selecting his or her digital images to be used in creating the product, typing any unique consumer information such as a customized title and subtitle, entering order information for shipping, taking the consumers credit card information to process the payment transaction for products ordered via a secure Internet transaction, and uploading the order for remote fulfillment.

 

As a companion to the retail kit product, we launched in the second quarter of 2008 a web site that will allow consumers who upload orders using the retail kit software to order additional copies and additional products on the web site.  Under this business model, the consumer uploads the product order purchased as a retail kit product.  Upon receipt of the order, we provide the consumer with a dialogue box asking if they would like to add additional copies of the created product to his or her order, and if he or she would like to order a companion photo book or poster to the order.  If the customer chooses to order additional products, we process the payment transaction for the products ordered via a secure Internet transaction.

 

Until November 2008, all of our customers have elected to have products fulfilled remotely.  We currently fulfill all such product orders in house.  Once a consumer orders a product by selecting the product and the pictures and his or her images to be used in creating the product, the order and images are received by our web servers deployed in-house.  Our servers process the orders and photos and pass the electronic files off to computers that build the final product and send the files to be burned on a DVD or printed on a print media product such as a photo book or poster.  Finished products are shipped to retail customers for delivery to end customers or directly to end customers depending on the retail customer’s business model.

In November 2008, we began deploying our product builder in Walgreens stores on existing kiosks and photo lab equipment that allows the retailer to create DVD products in-store.  Under this model, we place the product builder in the retail stores and the product creation and fulfillment happens in the store.  The retailer supplies the raw materials and the labor to build the DVD products.

 

Our revenue model generally includes a per product royalty.  With all product deployments except the retail kit product, each time an end customer makes a product utilizing our technology, we receive a royalty from our retailer customers.  From the royalty received, we pay the royalties associated with licensed media and technology.  If we are performing product fulfillment, we also pay the costs of goods associated with production of the product.  If our customer utilizes in-store fulfillment, our customer pays the cost of goods associated with production.

 

Previously our revenue contracts generally included a software license and post-contract support (PCS), and may have included training, implementation, and other services such as product fulfillment services. Because these contracts generally include the delivery of a software license, we account for the majority of these revenue contracts in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP 97-2 with Respect to Certain Transactions. SOP 97-2 applies to activities that represent licensing, selling, leasing, or other marketing of computer software. SOP 97-2 generally provides that until vendor specific objective evidence (VSOE) of fair value exists for the various components within the contract, that revenue is deferred until delivery of all elements except for PCS and training has occurred.

 

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After all elements are delivered except for PCS and training, deferred revenue is recognized on a straight-line basis over the remaining term of the contract. Because of our limited sales history, we do not have VSOE for the different components that may be included in sales contracts.

We record billings and cash received in excess of revenue earned as deferred revenue. The deferred revenue balance generally results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. Revenue earned but not billed is classified as unbilled accounts receivable in the balance sheet. We bill customers as payments become due under the terms of the customer’s contract. We consider current information and events regarding our customers and their contracts and establish allowances for doubtful accounts when it is probable that we will not be able to collect amounts due under the terms of existing contracts.

As noted above, we currently deliver our technology to end consumers through (i) third party photo kiosks at mass and specialty retail outlets, (ii) retail kit shrink wrapped software at mass and specialty retail outlets, (iii) simple software downloads through third party Internet sites, (iv) simple software downloads through our own managed Internet site to which third party Internet sites are linked, and (v) on our own managed web servers on the world wide web to which third party Internet sites are linked.

 

We currently have fulfillment hardware deployed in our Draper, Utah office.  Fulfillment equipment includes computer server configurations and DVD burning and printing units and large format printers.  DVD supplies, including DVD media supplied by Verbatim and Taiyo Yuden, DVD cases, and paper for printing DVD case covers, are inventoried to be able to meet customer DVD and poster fulfillment needs.  We currently use a local vendor partner, X-press-N Digital, Inc. to fulfill our photo books.

 

Customers

 

In May 2004, aVinci Media, LC signed its first client agreement with BigPlanet, a division of NuSkin.  NuSkin is a global direct selling company.  NuSkin markets premium-quality personal care products under the Nu Skin® brand, science-based nutritional supplements under the Pharmanex® brand, and technology-based products and services under the Big Planet® brand.  BigPlanet, NuSkin’s technology division, offers its customers ways to easily preserve, organize, share and enjoy photos online.  Under the terms of its BigPlanet agreement, aVinci Media, LC supplied software technology to build DVD movies which BigPlanet marketed, sold, and fulfilled for their consumers under their brand name “PhotoMax.”  Revenues from BigPlanet represented substantially all of aVinci Media, LC sales through 2007 at approximately $3.4 million to date.  The agreement required an annual minimum guaranteed royalty of $1 million, which was payable monthly in the amount of $83,333.33.  aVinci Media, LC’s agreement with BigPlanet expired on December 31, 2007.  

 

On September 18, 2006, aVinci Media, LC signed an agreement to provide its technology in Meijer stores.  Meijer Distribution, Inc. (“Meijer”) is a Michigan-based retailer that operates 181 super centers throughout the mid-west.  The agreement term with Meijer continues through a date two years from the date Meijer first makes our software technology available to end consumers, subject to automatic renewal for additional 12-month periods after the initial term.  Under the terms, Meijer purchases DVD kits from aVinci Media, LC consisting of a pre-labeled DVD, DVD cover and paper for the case cover, and inserts printed with thumbnail size images of all the user photographs provided for use in the DVD production.  Meijer placed and paid for an initial purchase order of DVD kits, for approximately $109,000, but due to problems a third party supplier had deploying its kiosk software in Meijer stores, aVinci Media, LC was delayed in deploying its software technology that was to be provided through the third party kiosk.  During 2007, Meijer signed Hewlett Packard as its kiosk vendor and aVinci Media, LC entered into an agreement to provide its software in Meijer stores on Hewlett Packard kiosks.  aVinci Media, LC’s software integration onto the Hewlett Packard kiosk was completed in 2008 and deployed in April 2008 in Meijer stores and continues to be offered.

 

In January 2006, aVinci Media, LC signed an agreement with Storefront, a photo kiosk company. Storefront anticipated deploying our software on client kiosks in retailers such as King Soopers, Smith’s, Fred Meyer, Ralph’s and others.  Storefront has not deployed our software to date and we do not know if they will ever deploy our software with their customers.

 

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On September 1, 2007, aVinci Media, LC signed an agreement with Qualex, Inc. (“Qualex”) to allow for the distribution of its software product to Qualex customers.  Qualex, a wholly owned subsidiary of Eastman Kodak, is the largest wholesale and on-site photofinishing company in the world and it offers traditional print and digital output solutions by operating a large network of commercial and in store labs throughout the United States and Canada.  Qualex announced in December 2008 that it was discontinuing its operations in the first quarter of 2009 and cancelled its contracts with us.

 

During 2007 at the request of Wal-Mart, aVinci Media, LC signed an agreement with Fujicolor to deploy its technology on Fujicolor kiosks located in domestic Wal-Mart stores.  Wal-Mart is a worldwide retailer with more than 5,000 domestic retail stores.  Fujicolor is part of Fujifilm, which is a world leader in photographic products and technology.  Our initial integration and deployment with Fujicolor in domestic Wal-Mart stores took place in the third quarter of 2007.  Our DVD product offering is currently deployed throughout domestic Wal-Mart stores on Fujicolor kiosks in more than 3,000 stores.   We updated our software and began offering companion books and posters with our DVD products.

 

We also became a Wal-Mart vendor and shipped our retail kit product to 200 Wal-Mart stores in June 2008.  We do not currently have plans to distribue the kit product into additional stores.

 

In January 2008, we signed an agreement with Costco.com, to deliver our DVD product online.  Our DVD product began being offered at Costco.com on the “photo” category at the end of March 2008.

In November 2008, we placed our kit product in Walgreens stores and deployed our software in approximately 1,500 Walgreens stores on existing kiosks.  We expect to continue to be successful in deploying our products through May 2009 until our product is available in over 6,500 Walgreens locations.  The product offering allows customers the choice of creating an archive of their digital media or our premium product on a DVD in-store.  This is our first deployment of our product created in-store, and we are working with Walgreens on the merchandising launch to raise awareness of the product set for June or July 2009.

 

Five customers accounted for a total of 92 percent of our revenues for the year ended December 31, 2008 (individually 34 percent, 20 percent, 18 percent, 11 percent and 10 percent) compared to one customer accounting for all of the revenue for the same period in 2007. No other single customer accounted for more than 10 percent of our total revenues for the year ended December 31, 2008 or 2007.  In addition to its current customers, we continue to actively negotiate agreements and relationships with other mass and specialty retailers and other vending partners. Given our large net loss applicable to common stockholders for the year ended December 31, 2008, the loss of any of our customers would not materially increase our net losses.  

 

Competitors

 

Our competitors consist of professional videographers on the high-cost end and slideshow software programs on the low-cost end, with varying software tools in the middle.  Unfamiliar evaluators on the surface may attempt to compare the low-end slide show creator products with our products, but we believe when compared side by side differences are readily seen in production quality and detail.  Generally only user images are included in the slide show and context; graphics, audio, and music are not included.  We believe finished productions are generally poor quality and lack any meaningful emotional impact.

 

Software providers who supply consumer tools or solutions for consumers to make their own DVD productions include Adobe, Microsoft, Ulead, PhotoShow, Roxio, among others.  The closest direct competitive products to our technology are software tools such as iPhoto, iMovie and Final Cut Pro from Apple, each of which require users to spend a significant sum for the software, devote extensive time to master software usage, and significant time to create each individual production.  Additional competitors include Simple Star, MuVee, RocketLife, PhotoDex, and Smilebox all of which offer similar products.

 

Specific competitors in the market for the provision of personalized photo products include MediaClip, Muvee, Animoto, Slide, Roxio PhotoShow, and One True Media.  These competitors offer similar product lines including photo slideshows (online and DVD), photo books, and posters which are created through the use of software applications.  Certain competitors also make their products available for use on social networking sites such as Facebook and MySpace.

We believe AVI Media’s patent-pending production technology which automates the creation of multiple photo products utilizing the same images without further customer input, along with its proprietary storyboards incorporating licensed content such as popular music and animation and professional transitions gives it an advantage over its competitors.  We believe AVI Media’s use of licensed content gives it an additional advantage over its competitors who are still incorporating unlicensed music and other content into their products in that AVI Media has established good relationships in the music and film industry and may be able to offer popular titles its competitors cannot.

Common to software tools are their lack of automation.  The user spends a vast amount of time mastering software to produce the same sort of automated results that can otherwise be accomplished very quickly with AVI Media’s products.  A software user must first import media, organize it, choose timing and effects, edit music to length then render the production.  The rendered production must then be committed to DVD where the user has to then design a DVD interface before burning to DVD to have any navigation capabilities.

 

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PART II  

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ISSUER PURCHASES OF EQUITY SECURITIES.  

  

MARKET INFORMATION

Our common stock traded over-the-counter on the OTC Pink Sheets under the symbol “SAHC.PK” from June 19, 2007 to June 8, 2008.  From March 26, 2003 to June 18, 2007, our common stock traded over-the-counter on the OTC Pink Sheets under the symbol “ATMS”.  From February 1998 to March 25, 2003, our common stock traded on the NASDAQ stock market under the symbol “ATMS”.  As of June 9, 2008, our post-merger, post reverse split trading symbol on the OTC Pink Sheets is “AVMC.PK”.  The following table sets forth the quarterly high and low bid information for our common stock for the two-year period ended December 31, 2008:

		High Bid				Low Bid
Year Ended December 31, 2007
First Quarter		$	1.38			$	0.92
Second Quarter			2.00				1.22
Third Quarter			1.80				1.40
Fourth Quarter			1.74				1.20
Year Ended December 31, 2008
First Quarter		$	1.36			$	1.06
Second Quarter			2.25				0.60
Third Quarter			1.34				0.81
Fourth Quarter			1.05				0.07

The market price of our common stock, like that of other technology companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of technological innovations or new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance.

 

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Holders

 

As of March 24, 2009 there were 48,738,545 shares of common stock outstanding and approximately 88 stockholders of record.

 

Transfer Agent and Registrar

 

Our transfer agent is Computershare, 350 Indiana Street, Suite 800, Golden, CO 80401; telephone (303) 262-0600.

 

Dividend Policy

 

Except for the $2,000,000 Dividend that we have paid to our stockholders of record as of April 16, 2008, we have not paid any cash dividends on our common stock to date and do not anticipate we will pay dividends on common stock in the foreseeable future. The payment of dividends in the future will be contingent upon revenues and earnings, if any, capital requirements, and our general financial condition. The payment of any dividends will be within the discretion of the then Board of Directors. It is the present intention of the Board of Directors to retain all earnings, if any, for use in the business operations. Accordingly, the Board does not anticipate declaring any dividends in the foreseeable future on common stock.  AVI Media is currently working to close a private round of capital to raise $1.5 million from Amerivon Holdings.  For the capital, Amerivon Holdings would receive Series A convertible preferred shares which have an 8% per annum cumulative dividend to be paid when declared by the Board.  AVI Media does not anticipate declaring payment of the preferred dividend until the Company has positive cash flows from operations.

  

Warrants, Options and Convertible Debt

 

There are no outstanding options or warrants that would entitle any person to purchase our preferred stock.  Currently, there are outstanding options and warrants to purchase shares of our common stock. Information about outstanding options and warrants as of December 31, 2009 is as follows:

 

Holder		Shares Underlying Option/Warrant (1)						Exercise Price (1)				Expiration Date
Jerrell G. Clay			475,000					$	1.24			March 21, 2017
Stephen P. Griggs			475,000					$	1.24			March 21, 2017
Chett B. Paulsen			870,963		(2	)		$	0.71			December 31, 2012
Richard B. Paulsen			870,963		(2	)		$	0.71			December 31, 2012
Edward B. Paulsen			609,674		(3	)		$	0.71			December 31, 2012
Amerivon Investments LLC.			2,255,794		(4	)			(4)			(4)
Terry Dickson			705,479		(5	)			(5)			(5)
Other Employees			423,941		(6	)			(6)			(6)

 

(1)	The share amounts and exercise prices reflect the 1-for-2 reverse split associated with the Merger.
(2)	Includes 489,917 currently vested options priced at $0.71, and 381,046 non-vested options priced at $0.71.
(3)	Includes 342,942 currently vested options priced at $0.71, and 266,732 non-vested options priced at $0.71.
(4)	Includes 949,350 shares of common stock underlying currently exercisable warrants priced at $0.53, 653,222 shares of common stock underlying currently exercisable options priced at $0.18, and 653,222 options priced at $0.71 subject to sales performance vesting in 2009.
(5)	Includes 407,175 currently vested options priced at $0.27, 37,016 non-vested options priced at $0.27, 146,975 currently vested options priced at $0.71, and 114,314 non-vested options priced at $0.71.
(6)	Includes options held by employees that are exercisable at prices ranging from $.41 to $0.71 and which expire at various times from September 10, 2011 to December 31, 2012.

RECENT SALES OF UNREGISTERED SECURITIES

 None.

 

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ITEM 6. SELECTED FINANCIAL DATA

N/A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

 

Some of the information in this filing contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

 

·	Discuss our future expectations;

 

·	Contain projections of our future results of operations or of our financial condition; and

 

·	State other “forward-looking” information.

 

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors,” “Business” and elsewhere in this report.

 

Overview

 

Through our subsidiary, aVinci Media, LC, we deploy a software technology that employs “Automated Multimedia Object Models,” a patent-pending way of turning consumer captured images, video, and audio into complete digital files in the form of full-motion movies, DVD’s, photo books, posters and streaming media files.  We make software technology that is packaged in various forms available to mass retailers, specialty retailers, Internet portals and web sites that allow end consumers to use an automated process to create products such as DVD productions, photo books, posters, calendars, and other print media products from consumer photographs, digital pictures, video, and other media. Under our business model, our customers are retailers and other vendors.  We enable our customers to sell our products to the end consumer who remain customers of the vendor.  Only a small percentage of our business will be generated from the ultimate consumer.  Through 2007, aVinci Media, LC generated revenues through the sales of DVD products created using its technology. During 2008, we began deploying our technology to create photo books and posters as well.

 

We will continue to utilize the current revenue model of entering into agreements and receiving a fee for each product made using our technology.  Our revenue model generally includes a per product fee. With all product deployments, except with respect to our retail kit product, we receive a fee from our retailer customer each time an end customer makes a product utilizing our technology.  From the fees received, we pay the fees associated with licensed media and technology. If we are performing product fulfillment, we also pay the costs of goods associated with the production of the product. If our customer utilizes in-store fulfillment, its end consumer pays the cost of goods associated with production.

 

aVinci Media, LC signed its first agreement in 2004 under which it supplied its software technology to BigPlanet, a company that markets, sells, and fulfilled personal DVD products for its customers. Through 2006 all of aVinci’s revenues were generated through BigPlanet. Under the terms of this agreement, BigPlanet was required to make minimum annual guaranteed payments to aVinci in the amount of $1 million to be paid in 12 equal monthly installments. The BigPlanet agreement included software development, software license, post-contract support and training. As a result of the agreement terms, aVinci Media, LC determined to use the percentage-of-completion method of accounting to record the revenue for the entire contract. aVinci Media, LC utilized the ratio of total actual costs incurred to total estimated costs incurred related to BigPlanet to determine the proportional amount of revenue to be recognized at each reporting date.  The BigPlanet agreement expired on its terms at the end of 2007.  During the last months of the agreement term, BigPlanet reassessed and repositioned its photo offering and determined it would not actively pursue photo archiving which generated the sale of DVD movies as an ancillary product offering using the our technology.  Accordingly the agreement was not renewed based upon BigPlanet’s business strategy.  Revenues from BigPlanet now generate less than $2,000 per month.

 

During 2006, aVinci Media, LC signed an additional agreement to provide its technology in Meijer stores. The technology began being deployed in Meijer stores in April 2008 and has begun generating revenues in each store where the technology has been deployed. Full deployment in all 180 Meijer stores occurred in May 2008.

 

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In 2007, aVinci Media, LC signed an agreement with Fujicolor to deploy its technology on Fujicolor kiosks located in domestic Wal-Mart stores. aVinci Media, LC has begun generating limited revenues through Wal-Mart and anticipates generating additional revenues through its Wal-Mart deployment during 2008.

In November 2008, we placed our kit product in Walgreens stores and deployed our software in approximately 1,500 Walgreens stores on existing kiosks.  The rollout storewide will continue through May 2009 until our product is available in over 6,500 Walgreens locations.  The product offering allows customers the choice of creating an archive of their digital media or our premium product on a DVD in-store.  This is our first deployment of our product created in-store, and we are working with Walgreens on the merchandising launch to raise awareness of the product set for June or July 2009.

We currently manufacture DVDs for certain customers in our Draper, Utah facility and use services of local third-party vendors to produce print DVD covers and inserts and to assemble and ship final products.  During December 2008, we began the first roll out of our software to allow retailers to create our DVD product in-store.

 

On October 2, 2008, we announced an agreement with Preclick to distribute our photo movie software along with Preclick's Walmart Digital Photo Manager software on millions of photo CD discs distributed by Walmart each year.  Preclick is the default photo manager software distributed with all CD lab orders fulfilled by Walmart Photo Centers. Beginning in November 2008, aVinci Studio software will come preinstalled on all CDs distributed by Walmart with the Preclick Digital Photo Manager.

 

We showcase our products on aVinciStudio.com.  We do not plan to actively promote sales via this website as we want end users to purchase products through our customers.

Future Model

 

We plan to continue with a strategy of focusing on mass retailers to offer our products on kiosks, online and through software take-home kits.  We believe we can capitalize on consumers trending away from traditional print output for images by offering DVD photo archiving, DVD photo movies, photobook and poster print products.  

 

Basis of Presentation

 

Net Revenues. We currently generate revenues from our customers as they use our technology to create DVD products and from providing software through retail and online outlets that allow end consumers access to the technology to generate product orders which we produce and ship. Customers then pay a fee on orders produced. Our ongoing revenue agreements are generally multiple element contracts that may include software licenses, installation and set-up, training, post contract customer support (PCS), and fulfillment. For some of the agreements, we produce DVDs for the end customer. For other agreements, we provide blank DVD materials and the customer produces DVDs for the end customer. For other contracts, we do not provide any materials and our customer fulfills the orders for the end consumer. Our revenue recognition policy for the different revenue models is described below under Critical Accounting Policies.

 

In the past, we also generated revenue from a licensing agreement with BigPlanet.  Under the BigPlanet Agreement, a minimum guaranteed royalty of $1 million per year was required.  The BigPlanet agreement expired on its terms at the end of 2007.  During the last months of the agreement term, BigPlanet reassessed and repositioned its photo offering and determined it would not actively pursue photo archiving which generated the sale of DVD movies as an ancillary product offering.

 

As we expand our product offerings through additional customers, we believe our business and revenues will be subject to seasonal fluctuations prevalent in the photo industry. A substantial portion of our revenues (estimated at 20-40%) will likely occur during the holiday season in the fourth quarter of the calendar year. We expect to experience lower net revenues during the first, second and third quarters than we experiences in the fourth quarter. This trend follows the typical photo and retail industry patterns.

 

Cost of Revenues. Our cost of revenues consist of direct materials including DVDs, DVD cases, picture sheet inserts, third-party printing, assembly and packaging costs, payroll and related expenses for direct labor, shipping charges, packaging supplies, distribution and fulfillment activities, rent for production facilities and depreciation of production equipment. Cost of revenues also includes payroll and related expenses for personnel engaged in customer service. In addition, cost of revenues includes any third-party software or patents licensed, as well as the amortization of capitalized website development costs.

 

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Operating Expenses. Operating expenses consist of sales and marketing, research and development and general and administrative expenses. We anticipate that each of the following categories of operating expenses will increase in absolute dollar amounts.

 

Research and development expense consists of personnel and related costs for employees and contractors engaged in the development and ongoing maintenance of our deployment of its products or various delivery platforms including online, web and shrinkwrap deployments. Research and development expense also includes co-location and bandwidth costs.

 

Sales and marketing expense consists of costs incurred for marketing programs and personnel and related expenses for our customer acquisition, product marketing, business development and public relations activities.

 

General and administrative expense includes general corporate costs, including rent for the corporate offices, insurance, depreciation on information technology equipment and legal and accounting fees. In addition, general and administrative expense includes personnel expenses of employees involved in executive, finance, accounting, human resources, information technology and legal roles. Third-party payment processor and credit card fees will also be included in general and administrative expense in 2008. We also anticipate continuing costs associated with public reporting requirements and compliance with the Sarbanes-Oxley Act of 2002, as well as additional costs such as investor relations and higher insurance premiums.

 

Interest Expense. Interest expense consists of interest costs recognized under capital lease obligations and for borrowed money.

 

Income Taxes. Prior to the Merger, aVinci Media, LC was a limited liability company and not subject to entity taxation. Going forward, aVinci Media, LC anticipates making provision for income taxes depending on the statutory rate in the countries where it sells its products. Historically, aVinci Media, LC has only been subject to taxation in the United States. If aVinci Media, LC continues to sell its products to customers located within the United States, aVinci Media, LC anticipates that its long-term future effective tax rate will be between 38% and 45%, without taking into account the use of any of the net operating loss carry forwards. However, we anticipate that in the future we may further expand our sales of products to customers located outside of the United States, in which case it would become subject to taxation based on the foreign statutory rates in the countries where these sales took place and our effective tax rate could fluctuate accordingly.

 

Critical Accounting Policies and Estimates

Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition and Deferred Revenue

 

BigPlanet Contract

 

Prior to December 31, 2007, the Company generated the majority of its revenue from one customer, BigPlanet, a division of NuSkin International, Inc. The contract with BigPlanet included software development, software license, post-contract support (PCS), and training. Because the contract included the delivery of a software license, the Company accounted for the contract in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP 97-2 with Respect to Certain Transactions. SOP 97-2 applies to activities that represent licensing, selling, leasing, or other marketing of computer software.

 

Because the contract included services to provide significant production, modification, or customization of software, in accordance with SOP 97-2, the Company accounted for the contract based on the provisions of Accounting Research Bulletin (ARB) No. 45, Long-Term Construction-Type Contracts and the relevant guidance provided by SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts . In accordance with these provisions, the Company determined to use the percentage-of-completion method of accounting to record the revenue for the entire contract. The Company utilized the ratio of total actual costs incurred to total estimated costs to determine the amount of revenue to be recognized at each reporting date.

 

As of December 31, 2007, this contract was completed and all revenue under this contract had been recognized. The Company has no further obligations under this contract.

 

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Integrated Kiosk Revenue Contracts

 

Under the kiosk revenue model, the Company integrates its technology with a kiosk provided by a third party.  The kiosk is placed in retail stores where the end consumers utilize the kiosk to load their digital images and make a variety of products.  Under this revenue model, the Company enters into agreements with the retail stores.  The agreements provide for the grant of a software license, installation of the software on the customer’s kiosks, training, PCS, and order fulfillment.  As compensation, the agreements provide for the Company to receive payment on a per unit basis for each order fulfilled. Because these contracts involve a significant software component and include contingent usage-based fees, the Company accounts for its revenue generated under these contacts in accordance with the provisions of AICPA Technical Practice Aid 5100.76 Fair Value in Multiple-Element Arrangements That Include Contingent Usage-Based Fees and Software Revenue Recognition.

 

Scenario No. 3 of TPA 5100.76 provides that when the usage-based fee represents payment for both the perpetual license right and PCS, the fee becomes fixed and determinable only at the time actual usage occurs. Therefore, revenue should be recognized at the time a reliable estimate can be made of the actual usage that has occurred, provided collectability is probable. Consequently, we recognize revenue on a monthly basis as units are fulfilled.

 

Retail Kit Revenue

 

The Company has developed a retail kit product that retailers and vendors can stock on their retail store shelves.  The retail kit consists of a small box containing a CD of a simplified version of the Company’s software and a product code.  The end consumer pays for the product at the store and can then load the CD onto their personal computer and use the software and their personal digital images to create movies, photo books, and streaming media files.  Once complete, the software assists the customer in uploading the file for remote fulfillment.  The Company may provide the fulfillment services or such services may be provided by another fulfillment provider.  There is no additional fee for the fulfillment. The sale of retail kits does not include PCS. In accordance with SOP 97-2, revenue from the sale of the retail kits to the retail store is deferred until the fulfillment services have been provided and the completed product has been shipped to the consumer or until the Company’s obligation to provide fulfillment has expired due to the passage of time.

 

Revenue from Third Party Internet Sites

 

The Company has agreed to provide the simplified version of its software to certain third party Internet sites that would allow a customer to download the software from the third party Internet site.  The software loads and walks the customer through the process of selecting his or her digital images to be used in creating the product, typing any unique consumer information such as a customized title and subtitle, entering order information for shipping, taking the consumer’s credit card information to process the payment transaction for products ordered via a secure Internet transaction, and uploading the order for remote fulfillment.  In accordance with SOP 97-2, if the Company provides the fulfillment services, revenue is deferred until the order has been fulfilled and shipped to the consumer.  If the fulfillment services are provided by another supplier, revenue is recognized at the time the credit card transaction is completed.  There is no additional fee for the fulfillment. Sales from third party Internet sites do not include PCS.

 

Revenue from the Company’s Internet Site

 

As a companion to the retail kit product, the Company launched a web site that will allow consumers who upload orders using the retail kit software to order additional copies and additional products on the Company’s web site.  Revenue from such additional products is recognized upon shipment of the product.

 

Other Revenue Contracts

 

In one contract entered into during 2007, the Company sold fulfillment equipment, hardware and software installation, and software licenses. The Company deferred all revenues related to these contracts as there was no VSOE established for each separate component of the contract. During the quarter ended March 31, 2008, all elements of the contract were delivered except for PCS. In accordance with SOP 97-2, deferred revenue was recognized over the remaining term of the contract on a straight-line basis. This contract was terminated in December 2008 when the Company’s fulfillment partner announced it was ceasing operations.

 

Deferred Revenue

 

The Company records billings and cash received in excess of revenue earned as deferred revenue. The deferred revenue balance generally results from contractual commitments made by customers to pay amounts to the Company in advance of revenues earned. Revenue earned but not billed is classified as unbilled accounts receivable in the balance sheet. The Company bills customers as payments become due under the terms of the customer’s contract. The Company considers current information and events regarding its customers and their contracts and establishes allowances for doubtful accounts when it is probable that it will not be able to collect amounts due under the terms of existing contracts.

 

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Accounting for Equity Based Compensation

 

Under the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R) (revised 2004), Share-Based Payment, stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. We use the Black-Scholes model to value option awards under SFAS No. 123(R). We recognize compensation cost on a straight-line basis over the requisite service period.

 

Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates, and expected terms. As the surviving entity in the reverse merger (see Note 3, in Notes to Consolidated Financial Statements) has limited historical data on the price of its shares, we have identified several similar entities from which to estimate our expected volatility. The expected volatility rates are estimated based on historical and implied volatilities of these companies’ common stock. The risk-free interest rates are based on the U.S Treasury securities constant maturity rate that corresponds to the expected life. The expected life represents the average time that options that vest are expected to be outstanding based on the vesting provisions and our historical exercise, cancellation and expiration patterns. We estimate pre-vesting forfeitures when recognizing stock-based compensation expense based on historical rates and forward-looking factors. We update these assumptions at least on an annual basis and on an interim basis if significant changes to the assumptions are warranted.

 

Results of Operations

For 2008, we had revenues of $599,187, an operating loss of $8,144,471, a net loss of $8,402,556, and a net loss applicable to common stockholders of $9,604,329. This compares to revenues of $541,856, an operating loss of $6,712,708, a net loss of $7,339,401, and a net loss applicable to common stockholders of $7,837,652 in 2007.

 

The following table sets forth, for the periods indicated, the percentage relationship of selected items from our statements of operations to total revenues.

 

		2008				2007
Revenues			100%				100%
Operating expense:
Cost of sales			178%				11%
Research and development			286%				349%
Selling and marketing			267%				249%
General and administrative			690%				679%
Depreciation and amortization			38%				51%
Total operating expense			1,459%				1,339%
Loss from operations			(1,359%	)			(1,239%	)
Other income (expense):
Loss on marketable securities			(29%	)			0%
Interest income			10%				12%
Interest expense			(24%	)			(127%	)
Total other income (expense)			(43%	)			(115%	)
Net loss			(1,402%	)			(1,354%	)
Preferred dividends and deemed dividends			(163%	)			(35%	)
Distributions on Series B redeemable convertible preferred units			(38%	)			(57%	)
Net loss applicable to common stockholders			(1,603%	)			(1,446%	)

 

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Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007

 

Revenues.

 

		2008				2007				% Change
Revenues		$	599,187			$	541,856				11%

Total revenues increased $57,331, or 11% to $599,187 for the year ended December 31, 2008 as compared to $541,856 for the for the year ended December 31, 2007. The increase in revenue is due to an increase in the number of customers from 2007 to 2008 and increased sales volume as a result of the new customers.

 

Five customers accounted for a total of 92 percent of aVinci’s revenues for the year ended December 31, 2008 (individually 34 percent, 20 percent, 18 percent, 11 percent and 10 percent) compared to one customer accounting for almost all of the revenue for the year ended December 31, 2007. No other single customer accounted for more than 10 percent of aVinci’s total revenues for the year ended December 31, 2008 or 2007. Given our large net loss applicable to common stockholders for the year ended December 31, 2008, the loss of any of our customers would not materially increase our net losses.

 

Operating Expenses.

 

		2008				2007				% Change
Cost of Goods Sold		$	1,065,661			$	57,068				1,767%
Research and Development			1,712,604				1,890,852				(9%	)
Selling and Marketing			1,600,874				1,351,860				18%
General and Administrative			4,133,698				3,677,326				12%
Depreciation and Amortization			230,821				277,458				(17%	)

Cost of Goods Sold. Cost of goods sold increased $1,008,593, or 1,767% from 2007 to 2008. The increase in cost of goods sold is primarily due to the change in the type of work being performed in 2008 versus 2007. In 2007, we primarily supplied software technology to build DVD movies for a single customer – BigPlanet. In 2008, we had multiple customers and the cost of goods sold includes not only fulfillment costs, but also includes a portion of the cost of hardware to one customer that purchased fulfillment equipment. (Both the revenue and costs associated with this contract were recognized over the life of the contract.) For the year ended December 31, 2008, cost of goods sold includes $900,345, in costs associated with fulfillment; and $165,316, for the cost of hardware.

 

Research and Development. Research and development decreased $178,248, or 9% from 2007 to 2008. The decrease in research and development expenses is due to a decrease in bonuses of $157,000 as no bonuses were accrued in 2008, and a reduction in personnel and related costs of approximately $101,000 due to our reduced research and development headcount. These decreases were partially offset by increases in the use of external resources of $54,000, and increased travel expenses of $27,000.

 

Selling and Marketing. Selling and marketing increased $249,014, or 18% from 2007 to 2008. The increase is due to consultants involved with increased marketing efforts directed at mass retailers, which increased approximately $219,000; due to additional personnel and the related costs for new employees which increased approximately $80,000; and due to increased advertising of approximately $74,000, in an effort to increase consumer awareness about our products. These increases were offset in part by a decrease in the selling and marketing bonuses of approximately $152,000 as no bonuses were accrued in 2008.

 

General and Administrative. General and administrative expenses increased $456,372, or 12% from 2007 to 2008. The increase is due to a $426,000 increase in consulting and outside services primarily as a result of the consulting agreement with Amerivon (see “Related Party Transactions” below, for more information on this consulting agreement). The increase is also attributable to fees incurred as a result of the reverse merger transaction (see Note 3, in Notes to Consolidated Financial Statements); legal and accounting fees of approximately $212,000; and directors and officers’ liability insurance of $201,000. These increases were offset in part by a decrease in general and administrative bonuses of approximately $273,000 as no bonuses were accrued in 2008.

 

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Depreciation and Amortization. Depreciation and amortization expense decreased $46,637, or 17% from 2007 to 2008 as a result of allocating approximately $214,000 of deprecation expense to cost of sales in 2008 due to the change in the type of work being performed in 2008 versus 2007.

 

Loss on Marketable Securities. At December 31, 2008 management determined that the decrease in fair value of its investment in marketable securities was other than temporary. Consequently, in accordance with the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, we have recognized a realized loss of $171,546.

 

Interest Expense. Interest expense decreased $548,077 or 79% from 2007 to 2008. The decrease is due to the accretion of debt discount of $338,594 and the conversion of convertible debt into equity in May 2007. To fund operations, aVinci Media, LC undertook in the first quarter of 2006 a large private offering consisting of 12-month convertible debt, bearing interest at 10%. The offering was taken in its entirety by Amerivon Investments, LLC, who invested a total of $830,000. In August of 2006, Amerivon invested an additional $1,560,000 in a convertible debt offering, bearing interest at 9%.

 

 In December 2006, aVinci Media, LC entered into various short-term loans from its members totaling $285,783 to fund operations until the funding transaction with Amerivon Investments, LLC closed. These loans bore interest at 10% per annum and were payable on or before December 31, 2007. In May 2007, these loans were repaid.

 

Income Tax Expense. For the years ended December 31, 2008 and 2007, no provisions for income taxes were required. Prior to June 6, 2008, aVinci Media, LC was a flow-through entity for income tax purposes and did not incur income tax liabilities.

 

 At December 31, 2008, management has recognized a valuation allowance for the net deferred tax assets related to temporary differences and current operating losses. The valuation allowance was recorded because there is significant uncertainty as the realizability of the deferred tax assets. Based on a number of factors, the currently available, objective evidence indicates that is more likely than not that the net deferred tax assets will not be realized.

 

 Preferred Dividends and Deemed Dividends. We recorded a preferred dividend of $976,000 in 2008, to reflect the conversion of Series B preferred units to common units immediately prior to the closing of the merger with aVinci Media, LC. The conversion included an additional 1,525,000 common units that were issued upon conversion in order to induce conversion. The inducement units were recorded as a preferential dividend, thus increasing the accumulated deficit and increasing the loss applicable to common stockholders. We recorded a deemed dividend of $190,000 in 2007, due to the accretion of issuance costs related to the Series B offering.

 

Distributions on Series B redeemable convertible preferred units. The Series B redeemable convertible preferred unit holders were entitled to an annual distribution of $0.06 per unit. For 2008, distributions on Series B redeemable convertible preferred units decreased $82,478, or 27% to $225,773 compared to $308,251, for 2007. The change is due to the distribution accrual beginning in May 2007, and ending (due to the reverse merger) in June 2008. 

 

Balance Sheet Items

 

The following were changes in our balance sheet accounts. Many of the changes were as a result of the merger. See Note 3 of Notes to Consolidated Financial Statements for more information on the merger.

 

Cash. Cash increased $211,984, or 25%, to $1,071,053 at December 31, 2008, from $859,069 at December 31, 2007. The increase is due to the cash received in connection with the reverse merger.

 

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Marketable Securities-Available-for Sale. We own 2,022,000 shares of the common stock of Cashbox plc. As of December 31, 2008, the common stock in Cashbox plc was recorded at a fair value of $131,754. At December 31, 2008 management determined that the decrease in fair value of its investment in marketable securities was other than temporary. Consequently, in accordance with the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, we have recognized a realized loss of $171,546.

 

Inventory Consigned to Others. Beginning in 2008 we began selling a DVD product on a consigned basis. At December 31, 2008 we had $156,286 of consigned inventory.

 

Property and Equipment, net. Property and equipment decreased $367,838, or 37%, to $622,685 at December 31, 2008, from $990,523 at December 31, 2007. The decrease is due to depreciation expense ($435,000) exceeding fixed asset additions ($67,000).

 

Accrued Liabilities. Accrued liabilities decreased $632,158, or 77%, to $191,614 at December 31, 2008, from $823,772 at December 31, 2007. The decrease is a result of paying accrued bonuses ($554,000) with no bonuses being accrued in 2008, and due to the decrease in wages payable ($45,000) and the related payroll taxes. Total headcount was lower by approximately 14 employees, at the end of 2008 compared to the end of 2007. 

 

Distributions Payable. Distributions payable decreased $308,251, or 100%, to $0 at December 31, 2008, from $308,251 at December 31, 2007. The decrease is a result of paying off all accrued distributions, and the elimination of the Series B convertible preferred units as a result of the reverse merger. 

 

Notes Payable. Notes payable decreased $1,000,000, or 100%, to $0 at December 31, 2008, from $1,000,000 at December 31, 2007. The decrease is due to the notes payable balance being eliminated as a result of the reverse merger.

 

Equity Accounts. As a result of the reverse merger, Sequoia’s Series A and B convertible preferred units and common units were exchanged for common stock.

 

Liquidity and Capital Resources.

 

		Year Ended
		December 31,
Statements of Cash Flows		2008				2007
Cash Flows from Operating Activities		$	(8,113,123	)		$	(5,513,316	)
Cash Flows from Investing Activities			(74,306	)			(577,295	)
Cash Flows from Financing Activities			8,399,413				6,780,988
Increase in Cash and Cash Equivalents			211,984				690,377

Operating Activities. 

 

Net cash used in operating activities was $(8,113,123) for the year ended December 31, 2008 compared to $(5,513,316) for 2007. The changes were due to higher operating expenses for the year ended December 31, 2008 for the pursuit of new customers. 

 

Investing Activities. 

 

Net cash used by investing activities was $(74,306) for the year ended December 31, 2008 compared to $(577,295) for 2007. The change was due to purchasing less property and equipment in 2008 than in 2007. During 2007 we purchased property and equipment to allow for the fulfillment of products for customers and anticipated customers. 

 

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Financing Activities. 

 

Net cash provided by financing activities was $8,399,413 for the year ended December 31, 2008 compared to $6,780,988 for 2007. During 2008 we received approximately $7.1 million in cash as a result of the reverse merger. During this period, aVinci Media, LC received $460,625 from Amerivon Investments, LLC from the pre-merger exercise of 1,827,606 warrants to purchase additional common units (converted to 1,591,776 shares after the merger), used $534,024 for payment of accrued distributions, and used $124,706 for principal payments under capital lease obligations. During 2007 aVinci Media, LC received $4.7 million from Amerivon Investments, LLC for the issuance of the Series B preferred units, $1.5 million from the issuance of the convertible debentures, and $1.0 million from the proceeds of a loan from Secure Alliance Holdings Corporation (SAH). Also during this period aVinci Media, LC made payments of $285,783 on loans to management, and $117,080 in loan costs. 

 

Previously, aVinci Media, LC had elected to grow its business through the use of outside capital beyond what had been available from operations to capitalize on the growth in the digital imaging industry. During the first half of 2006 aVinci Media, LC undertook a private equity offering consisting of 12-month convertible debt, bearing interest at 10%. The offering was taken in its entirety by Amerivon Investments, LLC, who invested a total of $829,250. At the time of the investment, Amerivon Investments, LLC placed a member on aVinci Media, LC’s Board of Managers. In August of 2006, Amerivon Investments, LLC invested an additional $1,564,000 in a convertible debt offering, bearing interest at 10%.

 

In anticipation of closing the Merger Agreement, SAH, entered into a Loan Agreement with aVinci Media, LC whereby SAH agreed to extend to aVinci Media, LC $2.5 million to provide operating capital through the closing of the transaction. A total of $1 million was loaned to aVinci Media, LC during 2007, with an additional $1.5 million being loaned in 2008. In connection with the closing of the Merger Agreement on June 6, 2008, aVinci Media, LC received approximately $7.1 million to fund operations in addition to the $2.5 million previously loaned by SAH to aVinci Media, LC. Upon closing of the Merger, the $2.5 million notes payable by aVinci Media, LC was eliminated.

 

AVI Media is currently working to close a private round of capital to raise $1.5 million from Amerivon Holdings to fund operations through December 2009. We may, however, choose to modify our growth and operating plans to the extent of available funding, if any. As disclosed in the risk factors, we are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. This capital raise will be dilutive to current shareholders.  There can be no assurance that we will be successful in our efforts to raise additional capital.  In the event additional outside capital cannot be raised, we plan to take action to cut operating expenses related to future product enhancements and deployments and continue only with expenses associated with servicing and selling the products deployed as of March 2009.  These reductions to operating expenses would be in addition to expense reductions that occurred in November 2008. In November 2008 we reduced our staff by seven full-time resources (a 20% reduction) as part of a reduction in force, and all remaining full-time employees took a salary reduction of approximately 5%, with executives taking a reduction of approximately 10%. Additional salary reductions of approximately 10% for executives and 5% for all other employees will be effective in April 2009. We have also been successful in reducing our other monthly expenses by renegotiating agreements in an effort to reduce our monthly cash burn rate in 2009.

Related Party Transactions 

 

Consulting Agreement. For the years ended December 31, 2008 and 2007, pursuant to an agreement executed during the year ended December 31, 2007, we recorded expense of $725,000 and $50,000, respectively, for consulting services from Amerivon Holdings, Inc., the parent company of a significant stockholder. For the years ended December 31, 2008 and 2007, we paid Amerivon Holdings, Inc. $745,000 and $30,000, respectively, for this agreement. 

 

On July 1, 2008 we entered into a new sales and consulting agreement with Amerivon that terminated the agreement referenced above that was executed during the year ended December 31, 2007. For the year ended December 31, 2008, the Company recorded expense of $3,360 for consulting services under this new agreement. For the year ended December 31, 2008, the Company paid Amerivon $683 for this agreement. 

 

Distributions. The former Series B redeemable convertible preferred unit holders were entitled to a cumulative annual distribution of $.06 per unit. For the years ended December 31, 2008 and 2007, $225,773 and $308,251, respectively, was accrued for distributions due on the Series B redeemable convertible preferred units held by Amerivon Investments, LLC and another party. We paid Amerivon Investments, LLC $447,783 for the accrued distributions in June 2008. 

 

Warrant Exercise. On January 30, 2008, Amerivon Investments, LLC exercised 1,504,680 warrants to purchase common units for cash received of $414,625; and on June 5, 2008, Amerivon Investments, LLC exercised 87,096 warrants to purchase common units for a total price of $46,000. These exercises, along with Amerivon’s conversion of convertible preferred units, increased Amerivon Investments, LLC ownership percentage to 43.4% of all common units prior to the merger on June 6, 2008.  

 

Notes Payable. On January 19, 2007 and again on February 14, 2007, Amerivon Investments, LLC was issued $500,000 of convertible notes payable. These convertible notes payable accrued interest at 9% per annum, and had a maturity date of June 30, 2007. A beneficial conversion feature in the amount of $171,875 was recognized, all of which was accreted to interest expense as of June 30, 2007. 

 

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In December 2006, aVinci Media, LC entered into various loans from its members of the Company totaling $285,783. These loans bore interest at 10% per annum and were payable on or before December 31, 2007. Loan origination fees of $20,005 were recorded as an intangible asset to be amortized over the life of the loans. On January 5, 2007, an additional $20,000 was loaned was loaned by the managers. In April and May 2007, total outstanding principal, accrued interest, and loan origination fees of $285,783, $10,376, and $20,005, respectively, were paid and the associated asset was fully amortized.

 

New Accounting Pronouncements

 

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161 (SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133.” SFAS 161 amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company believes that the future requirements of SFAS 161 will not have a material effect on its consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities.” Under SFAS 159, companies may elect to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 was effective beginning in the first quarter of fiscal 2008.  The adoption of this accounting pronouncement did not have any effect on the Company’s consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), “Business Combinations” and SFAS No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51.” SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for us beginning in the first quarter of fiscal 2010. Early adoption is not permitted. The adoption of SFAS 141R and SFAS 160 is not expected to have a material impact on the Company’s financial statements.

 

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FSP FAS 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Effective for fiscal 2008, the Company adopted SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The adoption of SFAS 157 did not have a material impact on the Company’s financial statements.

 

Off-Balance Sheet Arrangements

 

aVinci does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources that is material to investors.

 

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Contractual Obligations and Commitments

 

The following table sets forth certain contractual obligations as of December 31, 2008 in summary form:

 

						Less												More
						than 1				1-3				4-5				than 5
Description		Total				year				years				years				years
Long-term debt		$	-				-				-				-				-
Capital lease obligations			263,464				166,162				97,302								-
Operating lease obligations			457,474				309,067				144,807				3,600				-
Notes payable			-				-				-				-				-
Purchase obligations			-				-				-				-				-
Other long-term liabilities under GAAP			-				-				-				-				-
Totals		$	720,938				475,229				242,109				3,600				-

As noted in Financing Activities above, under Liquidity and Capital Resources, $2.5 million of the notes payable outstanding were eliminated upon the closing of the merger between Secure Alliance Holdings and aVinci Media, LC.

 

ITEM 7A. QUANTATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

 

None.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

All financial information required by this Item is attached hereto at the end of this report beginning on page 39 and is hereby incorporated by reference.  

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Subsequent to completion of the merger, the Board of Directors determined that it was in the best interests of the Company to appoint the accounting firm used by aVinci Media, LC prior to the merger as the independent registered public accounting firm in place our previous accounting firm.

 

Effective June 16, 2008, Hein & Associates, LLP (“Hein”) was notified that it was no longer our independent registered public accounting firm.  The reports of Hein on our financial statements for the fiscal years ended September 30, 2007 and 2006 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

 

During the fiscal years ended September 30, 2007 and 2006 and through June 12, 2008, there were no disagreements with Hein on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which disagreements, if not resolved to the satisfaction of Hein, would have caused Hein to make a reference to the subject matter of the disagreement in its reports on the our financial statements for such periods.  There were no reportable events (as defined in Regulation S-B Item 304(a)(1)(iv)) during the fiscal years ended September 30, 2007 and 2006 or the subsequent interim period through June 12, 2008.

 

On June 16, 2008, upon the authorization and approval of the full Board of Directors acting as the audit committee, we appointed the accounting firm of Tanner LC (“Tanner”) as our independent registered public accounting firm.  No consultations occurred between us and Tanner during the years ended September 30, 2007 and 2006 and through June 12, 2008 regarding either (i) the application of accounting principles to a specific completed or contemplated transaction, the type of audit opinion that might be rendered on our financial statements, or other information provided that was an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issue, or (ii) any matter that was the subject of disagreement or a reportable event requiring disclosure under Item 304(a)(1)(iv) of Regulation S-B.

ITEM 9A(T). CONTROLS AND PROCEDURES.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including Chett B. Paulsen, the Company’s Chief Executive Officer (“CEO”) and Edward B. Paulsen, the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2008. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective such that the information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

 

The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each. There are no family relationships among any of our Directors and Executive Officers.

 

Name	Age	Position
Chett B. Paulsen	52	President, Chief Executive Officer, Director
Richard B. Paulsen	49	Vice President, Chief Technology Officer, Director
Edward B. Paulsen	45	Secretary/Treasurer, Chief Operating Officer, Director
Terry Dickson	51	Vice President Marketing and Business Development
Tod M. Turley	47	Director
John E. Tyson	65	Director
Jerrell G. Clay	67	Director
Stephen P. Griggs	51	Director

Chett B. Paulsen, President and Chief Executive Officer, Director.  Chett co-founded AVI Media in 2003 and serves as its President and Chief Executive Officer.  From 1998 to 2002, Chett co-founded, served as President and then as Chief Operating Officer of Assentive Solutions, Inc. (aka, iEngineer.com, Inc.), which developed visualization and collaboration technologies for rich media content that was ultimately sold to Oracle in 2002.  During his tenure with Assentive, the company raised more than $25 million in private and venture capital funding from entities including Intel, Sun Microsystems, J.W. Seligman, and T.L. Ventures.  From 1995 to 1998, Chett founded and managed Digital Business Resources, Inc., which sold communications technologies to Fortune 100 companies such as American Stores and Walgreens, among others.  From 1984 to 1995, Chett worked at Broadcast International (NASDAQ “BRIN”) playing key management roles including Executive Vice President, Vice President of Operations and President of the Instore Satellite Network and Business Television Network divisions of Broadcast where he implemented and managed technology deployment in thousands of retail locations for Fortune 500 companies.  During Chett’s tenure at BI, market capitalization rose to over $200 million.  Chett graduated from the University of Utah in 1982 with a B.S. degree in Film Studies.

 

Richard B. Paulsen, Vice President and Chief Technology Officer, Director.  Richard co-founded AVI Media in 2003 and serves as its Vice President and Chief Technology Officer.  From 1999 to 2003, Richard worked as a senior member of the technical staff for Wind River Systems (NASDAQ “WIND”), managing a geographically diverse software development team and continuing work on software technology Richard pioneered at Zinc Software from 1990 to 1998 as one of Zinc’s founders.  Zinc subsequently sold to Wind River in 1998.  From 1998 to 2000, Richard enjoyed a sabbatical and served as the Director of Administrative Services for Pleasant Grove City, Utah, the highest appointed office in the city.  From 1981 through 1990, Richard worked as a software consultant and programmer working for the University of Utah Department of Computer Science conducting software analysis, design and coding, and Custom Design Systems developing custom user interface tools and managing the company’s core library used by thousands of developers worldwide.  Richard graduated with a MBA degree, with an emphasis in financial and statistical methods, from the University of Utah in 1987 after receiving a B.S. degree in Computer Science from the University of Utah in 1985.

 

Edward “Ted” B. Paulsen, J.D., Secretary/Treasurer, Chief Operating Officer, Director.  Ted has served as legal counsel since co-founding AVI Media in 2003, and joined the company full time as Chief Operating Officer in September 2006.  From 2003 to September 2006, Ted served as the Chief Operating Officer and Corporate Secretary of Prime Holdings Insurance Services, Inc. where he helped position the company operationally and financially to secure outside capital and partner funding to support future growth beyond the company’s then current annual revenue level.  From 1995 through 2003, Ted worked as an associate and then partner with the law firm of Gibson, Haglund & Paulsen and its predecessor.  With a securities focus, Ted has assisted emerging and growing businesses with organizational, operational and legal issues and challenges.  His legal practice focused on assisting businesses properly plan and structure business transactions related to seeking and obtaining financing.  Before moving to Utah and opening the Utah office of his firm in 1996, Mr. Paulsen worked in Southern California from 1990 to 1995 with the law firm of Chapman, Fuller & Bollard where he practiced in the areas of business and employment litigation and business transactions.  Ted graduated from the University of Utah College of Law in 1990 after receiving a B.S. degree in Accounting from Brigham Young University in 1987.

 

Terry Dickson, Vice President of Marketing and Business Development.  Terry has served as AVI Media’s Vice President of Marketing and Business Development since May 2006.  Prior to joining AVI Media, Terry was an advisor to AVI Media from March 2004 through May 2006.  Terry brings over 25 years of relevant software marketing, sales and management experience to AVI Media.  From April 2002 to April 2006, Terry served as the Chief Executive Officer of Avinti, Inc, a venture-funded startup company developing email security software.  From September 2001 to April 2002, he served as the Vice President of Marketing at venture-backed Lane15 Software in Austin, Texas.  Prior to that, Terry was the founding Marketing Vice President at Vinca Corporation from 1998 to 2000, where he played the point role in negotiating a $92 million acquisition to Legato Systems (NASDAQ: LGTO) in 1999.  From 1993 to 1996, Terry served in several marketing positions at the LANDesk software operation of Intel Corporation, including serving as the Business Unit Manager.  He also served as Intel’s Director of Platform Marketing, and was appointed as Chairman of the Distributed Management Task Force, an industry standards body consisting of the top 200 computer hardware and software vendors.  Terry received a BS Degree in Marketing in 1980 from Brigham Young University, and an MBA degree from the University of Colorado, Boulder in 1981.

 

Tod M. Turley, Director.  Tod was appointed to the Board of Managers of AVI Media in March 2006, following an investment in AVI Media by Amerivon Holdings.  Tod has served as the Chairman and Chief Executive Officer of Amerivon Holdings since 2003.  Tod has also served as the Chairman and Chief Executive Officer of Amerivon Investments LLC, a subsidiary of Amerivon Holdings (“Amerivon Investments” and, together with Amerivon Holdings, “Amerivon”), since he co-founded it in April 2007.  Amerivon is a significant equity holder and investor in AVI Media.  Through its integrated approach of sales, consulting and capital, Amerivon accelerates rapid growth plans for emerging growth companies such as AVI Media.  Previously, Mr. Turley served as the Senior Vice President, Business Development of Amerivon Holdings from June 2001 to July 2003.  Prior to Amerivon, Mr. Turley was the co-founder and Senior Vice President of Encore Wireless, Inc. (private label wireless service provider with a focus on “big-box” retailers).  Earlier, he served for 13 years as a corporate attorney and executive with emerging growth companies in the telecommunications industry.  He currently serves as a director on a number of other boards of private companies, including Wireless Advocates and Smart Pack Solutions.  Tod graduated from the University of Utah in 1985 with a BA in Economics and French, and subsequently graduated from the University of Southern California with a J.D. in 1988.

 

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John E. Tyson, Director.  John became a member of AVI Media’s Board of Managers in May 2007 as a representative of Amerivon.  John has served as the President of Amerivon Investments LLC upon its formation in April 2007, and also serves as Executive Vice President of Amerivon Holdings.  John previously served as the President of Amerivon Holdings from May 2005 through April 2007.  Concurrently, from April 2005 through April 2007, John served as the President of Xplane Corporation, an information design firm using visual maps to make complex processes easier to understand and Corporate Visions Inc., a sales consulting and training company. Prior to that, John founded etNetworks LLC, an IT training company (broadcasting IBM courses via satellite directly to the Desktop PC) in 1997 and served as the company’s Chairman, Chief Executive Officer and President through March 2005.  From May 1980 through February 1995, John was the Chairman and Chief Executive Officer of Compression Labs, Inc. (“CLI”), a NASDAQ company developing Video Communications Systems.  CLI pioneered the development of compressed digital video, interactive videoconferencing and digital broadcast television, including the systems used in today’s highly successful Hughes DirecTV® entertainment network.  Prior to CLI, John has held executive management positions with AT&T, General Electric, and General Telephone & Electronics.  He currently serves as Chairman of the Board of Provant, Inc., is a director on a number of boards of private companies, including MicroBlend Technologies, Retail Inkjet Solutions, The Wright Company and AirTegrity (a wireless networking company) and is an Advisory Board Member of the University of Nevada-Reno, Engineering School.

Jerrell G. Clay, Director.  Jerrell has served as a Director of Secure Alliance since December 1990, and as our Chief Executive Officer since October 3, 2006.  Concurrently, Jerrell has served as the co-Founder, Chairman of the Board and Chief Executive Officer of 3 Mark Financial, Inc., an independent life insurance marketing organization, since January 1997, and has served as President of Protective Financial Services, Inc., one of the founding companies of 3 Mark Financial, Inc., since 1985.  From 1962-1985, Jerrell held various positions within the insurance industry, including general agent, branch manager, vice president and branch agency director with a major life insurance company.  Jerrell currently serves as a member of the Independent Marketing Organization’s Advisory Committee of Protective Life Insurance Company of Birmingham, Alabama and is the past President of the Houston Chapter of the Society of Financial Service Professionals. Jerrell is a Chartered Life Underwriter and a Registered Securities Principal.  Upon consummation of the Merger, Jerrell resigned as our Chief Executive Officer, but will remain a director.

 

Stephen P. Griggs, Director.  Stephen has served as a Director of Secure Alliance since June 2002, and was our President and Chief Operating Officer from October 3, 2006 to the effective date of the Merger and as our Principal Financial Officer and Secretary from April 20, 2007 to the effective date of the Merger.  Stephen has been primarily engaged in managing his personal investments since 2000.  From 1988 to 2000, Stephen held various positions, including President and Chief Operating Officer of RoTech Medical Corporation, a NASDAQ-traded company.  He holds a Bachelor of Science degree in Business Management from East Tennessee State University and a Bachelor of Science degree in Accounting from the University of Central Florida.  Upon consummation of the Merger, Stephen resigned as our President and Chief Operating Officer, but will remain a director.

 

Chett B. Paulsen, Richard B. Paulsen and Edward B. Paulsen, the original founders of AVI Media, are brothers.

 

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The employment agreements provide for the following annual base salaries (subject to increase by the board of managers) and annual bonus target as a percentage of the executive’s annual base salary:

			Annual Base Salary (1)				Annual Bonus Target (2)
Chett B. Paulsen		$	235,000				40%
Richard B. Paulsen		$	215,000				35%
Edward B. Paulsen,		$	195,000				40%
Terry Dickson		$	185,000				95%
(1)  All executives have taken on approximately 20% reduction in their base salaries for 2009, and will receive stock in lieu of the foregone cash compensation at the approximate equivalent of $0.30 per share.
(2)  All executives waived any bonus payments for 2008.

 

Summary Compensation Table

 

Name	Year			Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Changes in Pension Value and Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Chett B. Paulsen, CEO, President, Manager (1)	2006			163,167				144,400				-				-				-				-				-				307,567
	2007			199,375				138,937				-				27,322	(2)			-				-				-				365,634
	2008			232,552				-				-				-				-				-				-				232,552
Richard B. Paulsen, CTO, Manager (1)	2006			142,917				129,500				-				-				-				-				-				272,417
	2007			183,333				118,125				-				27,322	(2)			-				-				-				328,780
	2008			213,656				-				-				-				-				-				-				213,656
Edward B. Paulsen, CFO, COO, Manager (1)	2006			44,423				53,495				-				-				-				-				-				97,918
	2007			173,854				88,000				-				19,125	(3)			-				-				-				280,979
	2008			193,781				-				-				-				-				-				-				193,781
Terry Dickson, VP Business Development	2006			103,231				131,625				-				31,250	(4)			-				-				-				266,106
	2007			181,042				135,000				-				34,238	(5)			-				-				-				350,280
	2008			183,844				-				-				-				-				-				-				183,844
Mark Petersen, VP Sales	2006			25,000				6,250				-				-				-				-				4,453				35,703
	2007			100,000				50,000				-				2,732	(6)			-				-				-				152,732
	2008			99,792				24,948				-				-				-				-				-				124,740

(1)	Chett B. Paulsen received $136,000 in salary in 2004 and $ 144,000 in salary in 2005. Richard B. Paulsen received $112,000 in salary in 2004 and $ 120,000 in salary in 2005. Edward B. Paulsen did not receive any salary in 2004 and 2005.
(2)	Non-qualified option grant to purchase 870,963 common units at $.71 (determined to be the fair market value on the date of grant).  Option vests 50% upon completing 12 months of employment on September 28, 2008, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.
(3)	Non-qualified option grant to purchase 609,674 common units at $.71 (determined to be the fair market value on the date of grant).  The Option vests 50% upon completing of 12 months of employment at September 28, 2008, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.
(4)	Non-qualified option grant to purchase 444,191 common units at $.28 (determined to be the fair market value on the date of grant).  The Option vests 50% upon completing of 12 months of employment at April 25, 2007, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.
(5)	Non-qualified option grant to purchase 261,289 common units at $.71 (determined to be the fair market value on the date of grant).  The Option vests 50% upon completing of 12 months of employment at September 28, 2008, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.
(6)	Non-qualified option grant to purchase 87,096 common units at $ .71 (determined to be the fair market value on the date of grant). The Option vests 50% upon completing of 12 months of employment at September 28, 2008, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.

 

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Outstanding Equity Awards

 

The following table sets forth all outstanding equity awards held by our Named Executive Officers as of December 31, 2008.

 

 

			Option Awards																	Stock Awards
Name	Grant Date		Number of Securities Underlying Unexercised Options (#) Exercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Number of Securities Underlying Unexercised Options (#) Unexercisable (1)				Option Exercise Price ($)			Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)			Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Chett B. Paulsen, CEO, President, Manager	9/28/2007			489,917				-				381,046			$	0.71		12/31/2012			-				-		-			-
Richard B. Paulsen, CTO, Manager	9/28/2007			489,917				-				381,046			$	0.71		12/31/2012			-				-		-			-
Edward B. Paulsen, CFO, COO, Manager	9/28/2007			342,942				-				266,732			$	0.71		12/31/2012			-				-		-			-
Terry Dickson, VP Business Development	4/25/2006			407,175				-				37,016	(2)		$	0.28		04/24/2011			-				-		-			-
	9/28/2007			146,975				-				114,314			$	0.71		12/31/2012			-				-		-			-
Mark Petersen, VP Sales	9/28/2007			48,992				-				38,104			$	0.71		12/31/2012			-				-		-			-

 

(1)	Unless otherwise indicated, the non-qualified options vest 50% upon completing 12 months of employment on September 28, 2008, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.
(2)	The non-qualified options vested 50% upon completing 12 months of employment at April 25, 2007, with the balance vesting monthly on a pro rata basis over the next 24 months of employment.

Grants of Plan-Based Awards

 

As of the date hereof, no specific awards have been granted or are contemplated under the 2008 Stock Incentive Plan.

 

Director Compensation

 

Currently, directors receive no compensation pursuant to any standard arrangement for their services as directors.  Nevertheless, we may in the future determine to provide our directors with some form of compensation, either cash or options or contractually restricted securities.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Tanner LC (“Tanner”) was the auditor for Sequoia Media Group, LC and became the independent registered public accounting firm for aVinci Media Corporation after the June 2008 merger with Secure Alliance Holdings.  Tanner performed the following professional services relating to the years ended December 31:

		2008				2007
Audit Fees		$	100,000			$	95,000
Audit-Related Fees		$	61,000			$	-
Tax Fees		$	32,000			$	10,000
All Other Fees		$	-			$	-

Audit fees include aggregate fees billed for professional services rendered for the audit of aVinci Media Corporation as of December 31, 2008 and for the quarterly reviews of the aVinci Media Corporation’s financial statements for the quarters ended June 30, 2008 and September 30, 2008 and the review of the March 31, 2008 financial statements of Sequoia Media Group, LC.  Audit fees for 2007 include aggregate fees billed for professional services rendered for the audit of the December 31, 2007 Sequoia Media Group, LC financial statements and the review of the March 31, June 30 and September 30, 2007 financial statements of Sequoia Media Group, LC financial statements.

 

Audit-related fees relate to the review of proxy statements, registration statements, other SEC filings and SEC comment letters resulting from the June 2008 merger.

 

Tax fees relate to the preparation of tax returns as well as various tax consultation.

 

All Other Fees

 

There were no other fees billed for products or services provided by Tanner for the fiscal years ended December 31, 2008 and 2007.

Hein & Associates, LLP (“Hein”) was the independent registered public accounting firm for Secure Alliance Holdings prior to the June 2008 merger.  Hein performed the following professional services relating to the years ended December 31:

		2008				2007
Audit Fees		$	94,000			$	60,000
Audit-Related Fees		$	-			$	-
Tax Fees		$	19,000			$	70,000
All Other Fees		$	-			$	-

Audit fees for 2008 include aggregate fees billed for professional services rendered for the reviews of the financial statements of Secure Alliance Holdings for the quarters ended December 31, 2007 and March 31, 2008.  Audit fees for 2007 include aggregate fees billed for professional services rendered for the audit of the financial statements of Secure Alliance Holdings as of September 30, 2007 and for the quarterly reviews of the Secure Alliance Holdings’ financial statements for the quarters ended December 31, 2006, March 31, 2007 and June 30, 2007.

 

Audit-related fees relate to the review of proxy statements, registration statements, other SEC filings and SEC comment letters resulting from the June 2008 merger.

 

Tax fees relate to the preparation of tax returns as well as various tax consultation.

 

All Other Fees

 

There were no other fees billed for products or services provided by Hein during the periods.

 

Audit Committee Pre-Approval Policies and Procedures

 

All members of the Company’s audit committee approved the engagement of Tanner LC as the Company’s independent registered public accountants.

 

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ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULE

(a)	(1.) Financial Statements:

The following documents are filed as part of this report:

 

	Page
Report of Independent Registered Public Accounting Firm	39
Consolidated Balance Sheets as of December 31, 2008 and 2007	40
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007	41
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007	42
Consolidated Statement of Cash Flows for the years ended December 31, 2008 and 2007	43
Notes to Consolidated Financial Statements	45

 

(2.) Financial Statement Schedule:

None.

 

(3.) Exhibits. The following is a list of exhibits required by Item 601 of Regulation S-K as part of this Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference.

Exhibit	Description
2.1	Agreement and Plan of Merger dated December 6, 2007 (incorporated by reference to exhibit 2.1 to the registrant’s current report on Form 8-K filed on December 6, 2007).
2.2	Amendment to Agreement and Plan of Merger dated March 31, 2008 (incorporated by reference to exhibit 2.1 to the registrant’s current report on Form 8-K filed on April 4, 2008.
3.1	Articles of Merger relating to the merger of Merger Sub. with and into AVI Media, Inc. (incorporated by reference to exhibit 3.1 to the registrant’s current report on Form 8-K filed on June 11, 2007).
3.2	Certificate of Incorporation of American Medical Technologies, Inc. (incorporated by reference to Exhibit 2 of the Form 10 dated November 7, 1988 as amended by Form 8 dated February 2, 1989), as amended by the Amendment to Certificate of Incorporation dated July 16, 1997 (incorporated by reference to Exhibit 3 of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997) and the Certificate of Amendment to Certificate of Incorporation regarding name change, increase in authorized shares, authorization of preferred stock and a reverse split (incorporated by reference to exhibit 3.1 to the registrant’s current report on Form 8-K filed on June 11, 2007).
10.1	Employment Agreement – Chett B. Paulsen (incorporated by reference to the registrant’s current report on Form 8-K filed on June 11, 2008).
10.2	Employment Agreement – Richard B. Paulsen (incorporated by reference to the registrant’s current report on Form 8-K filed on June 11, 2008).
10.3	Employment Agreement – Edward B. Paulsen (incorporated by reference to the registrant’s current report on Form 8-K filed on June 11, 2008).
10.4	Employment Agreement – Terry Dickson (incorporated by reference to the registrant’s current report on Form 8-K filed on June 11, 2008).
10.5	2008 Stock Incentive Plan (incorporated by reference to the Definitive Proxy Statement filed April 29, 2008).
10.6	Loan and Security Agreement, dated as of December 6, 2007, between Sequoia Media Group, LC and Secure Alliance Holdings Corporation (incorporated by reference to Exhibit 10.18 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2007).
10.7	Consulting Agreement between Amerivon Holdings LLC and aVinci Media, LC, effective as of August 1, 2007 (incorporated by reference to Amendment No. 1 to the registrant’s registration statement on Form S-1 filed on September 26, 2008)
10.8	Sales Representation Agreement between Amerivon Holdings LLC and aVinci Media, LC, effective as of July 1, 2008 (incorporated by reference to Amendment No. 1 to the registrant’s registration statement on Form S-1 filed on September 26, 2008)
10.9	Sales Consulting Agreement between Amerivon Holdings LLC and aVinci Media, LC, effective as of July 1, 2008 (incorporated by reference to Amendment No. 1 to the registrant’s registration statement on Form S-1 filed on September 26, 2008)
10.10	Loan agreement, dated January 1, 2007, with Chett B. Paulsen  (incorporated by reference to Amendment No. 2 to the registrant’s registration statement on Form S-1 filed on November 4, 2008)
10.11	Loan agreement, dated January 1, 2007, with Richard B. Paulsen (incorporated by reference to Amendment No. 2 to the registrant’s registration statement on Form S-1 filed on November 4, 2008)
10.12	Loan agreement, dated January 1, 2007, with Edward B. Paulsen (incorporated by reference to Amendment No. 2 to the registrant’s registration statement on Form S-1 filed on November 4, 2008)
10.14	Qualex Inc. and Sequoia Media Group, LC Services Agreement, dated September 1, 2007 (incorporated by reference to our quarterly report on Form 10-Q Filed on November 14, 2008)

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Draper, State of Utah, on March 31, 2009.

 

	aVINCI MEDIA CORPORATION
March 31, 2009	By:	/s/ Chett B. Paulsen
		Chett B. Paulsen
		President, Chief Executive Officer, Director (Principal Executive Officer)

 

March 31, 2009	By:	/s/ Edward B. Paulsen
		Edward B. Paulsen
		Secretary / Treasurer, Chief Operating Officer, Director (Principal Financial and Accounting Officer)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Chett B. Paulsen		President, Chief Executive Officer, Director		March 31, 2009
Chett B. Paulsen		(Principal Executive Officer)
/s/ Richard B. Paulsen		Vice President, Chief Technology Officer, Director		March 31, 2009
Richard B. Paulsen
/s/ Edward B. Paulsen		Secretary/Treasurer, Chief Operating Officer, Director		March 31, 2009
Edward B. Paulsen		(Principal Financial and Accounting Officer)

 

/s/ Tod M. Turley		Director		March 31, 2009
Tod M. Turley
/s/ John E. Tyson		Director		March 31, 2009
John E. Tyson
/s/ Jerrell G. Clay		Director		March 31, 2009
Jerrell G. Clay
/s/ Stephen P. Griggs		Director		March 31, 2009
Stephen P. Griggs