ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
We were incorporated on April 26, 1946, under the laws of the State of Idaho for the purpose of exploring, acquiring and developing mineral properties in the Idaho. The initial and subsequent efforts in the acquisition, exploration, and development of potentially viable and commercial mineral properties were unsuccessful. We have since ceased our mining business.
In 2003, we merged with our wholly-owned Nevada subsidiary and changed our corporate domicile from the State of Idaho to the State of Nevada. We also changed our corporate name from Aberdeen Idaho Mining Company to Aberdeen Mining Company.
On March 8, 2004, pursuant to the terms of the Asset Purchase Agreement dated February 26, 2004, we acquired substantially all of the assets and liabilities of C&M Transportation, Inc., a Kansas corporation whose sole shareholder was Velocity Holdings, Inc. In the agreement we acquired substantially all of the assets and liabilities of C&M in exchange for the issuance and delivery to C&M of 888,799 (post-split) shares of our common stock.
Due to subsequent events after the closing of the transaction the company discovered undisclosed issues such as the imposition of a tax lien by the Internal Revenue Service on certain assets of C&M and the refusal by First State Bank to further finance the activities of C&M, the parties to the Asset Purchase Agreement agreed to unwind and rescind the C&M transaction, according to terms and conditions of a Rescission and Mutual Release Agreement, dated May 6, 2004.
Shortly after the rescission of the C&M transaction, on May 11, 2004 we entered into an Asset Purchase Agreement with Damon’s Motorcycle Creations, Inc, a California corporation. According to the terms of the agreement we acquired substantially all of the assets and liabilities of Damon’s in exchange for 888,799 (post-split) shares of our common stock that we issued to Damon’s sole shareholders, Thomas Prewitt and Richard Perez. The shares issued are restricted stock and bear a restrictive legend. As a result of the transaction, Mr. Prewitt and Mr. Perez together obtained indirect control of the Company through Damon’s ownership of a majority of our issued and outstanding shares.
On June 25, 2004, we changed our corporate name to “MotivNation, Inc.” by filing an amendment to our Articles of Incorporation with the Nevada Secretary of State. We feel the name is more indicative of our new line of business and is more identifiable.
On October 11, 2004, MotivNation, Inc. and its wholly owned subsidiary, TrixMotive Inc., a Nevada corporation, entered into an Asset Purchase Agreement with Moonlight Industries, Inc., a California corporation, to acquire certain assets and liabilities. According to the terms of the agreement, we acquired certain assets and liabilities of Moonlight in exchange for 140,000 (post-split) shares of MotivNation common stock that was issued to Moonlight’s sole shareholders, Leslie McPhail and her husband David McPhail. The president of Moonlight, Leslie A. McPhail, also serves as the Secretary of TrixMotive. Tom Prewitt and Richard Perez, president and secretary of MotivNation respectively, agreed to return 140,000 (post-split) shares of MotivNation’s common stock held by them prior to the closing of the acquisition. The company will continue under the Moonlight brand but will operate under the TrixMotive corporate entity.
In December of 2007, MotivNation, Inc. decided to discontinue the operations of the Damon’s division due to lack of sales, and cash flow to sustain operations. The company still retains rights to the Damon’s name and may in the future resurrect the operations.
On July 18, 2008 the company’s primary operation and wholly-owned subsidiary TrixMotive Inc. filed for bankruptcy. The company is looking for other avenues to continue business, and is currently working on finishing its prototype bike and to establish business interest outside the automotive business sector. In addition the company is looking at licensing the use of Damon’s name.
(b) Business of Issuer
In the first three quarters of 2008 MotivNation through its subsidiary TrixMotive Inc. provided a full-range of services that catered to the custom automotive enthusiast, including the sale, manufacture, converting, customization, armor protecting, and installation of custom auto parts and accessories, as well as restoration, repair, and servicing. TrixMotive was in the business of converting automobile chassis into stretched limousines and other specialized automotives.
In July of 2008 TrixMotive, Inc. ceased operating and the Company’s filed for protection under Chapter 7 of the United States Bankruptcy Court in the Central District of California. The company is looking for other avenues to continue business, and is currently working on finishing its prototype bike and to establish business interest outside the automotive business sector. In addition the company is looking at licensing the use of Damon’s name.
Competition
Not Applicable
Sources of Materials and Suppliers
We obtain our supplies from national manufacturers and after market manufacturers of automotive parts, paints, and supplies. These supplies are readily available and there is no dependency on any single supplier. We have no need for long term supply contracts since material and parts cost are not the most significant factor to the cost of our completed work.
Dependence on One or More Customers
Not applicable
Intellectual Property
Not Applicable
Government Regulations
Not Applicable
Personnel
As of March 31, 2009 we had 1 full-time employee, and from time to time hire consultants to provide necessary business services.
(c) Reports to Security Holders
We file annual, quarterly and special reports and other information with the SEC that can be inspected and copied at the public reference facility maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0030. Our filings are also available through the SEC’s Electronic Date Gathering Analysis and Retrieval System which is publicly available through the SEC’s website (www.sec.gov). Copies of such materials may also be obtained by mail from the public reference section of the SEC at 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates.
ITEM 1A.
ITEM 1A. RISK FACTORS.
The company is a smaller reporting company and no response is required pursuant to this Item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2.
ITEM 2. PROPERTY.
MotivNation maintains its corporate headquarters at 8 Corporate Park, Suite 300, Irvine, CA 92606. We lease approximately 150 square feet of office space under a 6 month lease. The monthly cost is approximately $620 per month plus any additional services that may be used.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We may from time to time be involved in routine legal matters incidental to our business; however, at this point in time we are currently not involved in any litigation, nor are we aware of any threatened or impending litigation.
Prior to our acquisition of the assets of Moonlight Industries a worker’s compensation claim had been filed against Moonlight Industries by a former employee. Despite the fact that the injury had taken place with an employer that was not Moonlight Industries as claim was filed against Moonlight and has been in litigation. Moonlight continues to defend against this claim and believes it is without merit. Despite the fact that this incident had taken place prior to our acquisition on the assets of Moonlight Industries and that we acquired only the assets and not the liabilities of Moonlight Industries, this worker’s compensation claim could become material to the company. In 2006 there were no inquiries regarding this claim.
Damon’s historically leased four (4) units space in city of Brea, California under four separate non-cancelable operating lease agreements, which expires through November 30, 2007. Damon’s currently does not occupy the spaces. In July, the landlord filed claims against Damon’s for the past due rent and charges of all units, aggregate of $19,657, and the additional amounts due pursuant to the remaining terms of the lease agreements. The obligations under the remaining terms of the lease agreements are estimated at a total of $89,086. Subsequently, Damon’s and the landlord entered into a Surrender Agreement for one unit, providing that Damon’s agreed to forfeit a security deposit of $1,568 and to pay a sum of $3,822, representing the unpaid charges and rent through the date of agreement. In return, the landlord agreed to discharge and release Damon’s from all obligations under the lease agreement of that unit.
No provision for any contingent liabilities has been made in the accompanying consolidated financial statements since management cannot predict the outcome of the claims or estimate the amount of any loss that may result. However, the Company has accrued the past due rent of $19,657 in the accompanying financial statements.
On December 7, 2005, a customer of TrixMotive filed a lawsuit in the Superior Court of Santa Clara County of California against TrixMotive claiming for breach of contract and warranty, intentional and negligence misrepresentation for a customized vehicle. The plaintiff seeks $98,827 in compensatory damages and other unspecified damages plus interest, attorneys’ fees and costs. Subsequent to year end, there was a settlement court appearance by which the Company and the Plaintiff agreed to settle the claim in the amount of $2,000. Final settlement agreement is being processed. No liability was accrued as of December 31, 2006 as the settlement amount was considered insignificant.
On July 3, 2007, a claim was filed in the Superior Court of Los Angeles County of California against TrixMotive, Inc. to seek for a payment of $21,888 due to the California State Compensation Insurance Fund. The Company agreed to pay $750 per month commencing January 10, 2008 until the amount as paid in full. The liability has been accrued already in prior year.
On January 24, 2008, a customer of TrixMotive filed a lawsuit in the Superior Court of Middlesex County of New Jersey against TrixMotive claiming for breach of contract and warranty, intentional and negligence misrepresentation for a customized vehicle. The claim is in early stage and the outcome of this matter is not determinable.
On July 18, 2008, the Company’s principal operating wholly-owned subsidiary, TrixMotive, Inc. (“TrixMotive”), has filed protection under Chapter 7 of the United States Bankruptcy Court in the Central District of California. TrixMotive ceased operating as of its bankruptcy filing, and finalization of the bankruptcy is pending.
The Company is also currently party to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, management do not believe that the outcome of any of these claims or any of the above mentioned legal matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
While the outcome of these matters is not determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None occurred during the 4th Quarter.
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
We have been eligible to participate in the OTC Bulletin Board, an electronic quotation medium for securities traded outside of the NASDAQ Stock Market, and prices for our common stock were published on the OTC Bulletin under the trading symbol “MOVN” through October 25, 2005, subsequently on October 26, 2005, in conjunction with the a one for one-hundred reverse split., our OTC: BB trading symbol changed to “MOVT”. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. The following table sets forth the quarterly high and low bid prices for our Common Stock during our last two fiscal years, as reported by a Quarterly Trade and Quote Summary Report of the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
* Prices have been modified to reflect post split values
Holders of Common Stock
As of March 31, 2009, we had approximately 542 stockholders of record of the 134,019,366 shares outstanding
Dividends
We have never declared or paid dividends on our Common Stock. We intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be the sole discretion of the Board of Directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.
Transfer Agent and Registrar
MotivNation’s transfer agent is Fidelity Transfer Company, 8915 S. 700 E., Suite 102, Sandy, UT 84070
Securities authorized for issuance under equity compensation plans.
N/A
Recent Sales of Unregistered Securities
The following is a description of all equity securities of the Company sold by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act of 1933 as amended, including registered sales made pursuant to Section 4(2) of the Securities Act of 1933, as follows:
Restricted Stock Agreements
On February 15, 2005, the Company entered into a Restricted Stock Agreement with each of the following directors: Mark Absher, David Psachie, and Richard Holt. The agreement held that the company would issue 50,000 (post-split) restricted shares to each director, in exchange for the services provided by each director.
On February 14, 2005, the Company entered into a Restricted Stock Agreement with each of two consultants: George R. Lefevre, and Scott Absher. In consideration for extraordinary services rendered by the Consultants to the Company and the continuing dedication of the Consultants to the Company and its business, we have issued 150,000 restricted shares to each George R. Lefevre, and Scott Absher.
On February 15, 2005, the Company entered into Shares for Debt Agreement with each Jay Isco, the CFO, and Secretary of MotivNation, and Leslie McPhail the Chief Operating Officer together with her husband David McPhail (“McPhail’s”). The company issued 100,000 (post-split) and 600,000 (post-split) restricted shares to Jay Isco and the McPhail’s respectively, pursuant to the terms described in the Shares for Debt Agreements.
On November 30, 2005 MotivNation issued $300,000 in Convertible Debentures, at an 8% annual interest rate, pursuant to a Securities Purchase Agreement (the “Agreement”). The convertible debentures can be converted into shares of common stock under the following calculation: the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined herein). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the “Conversion Date”). “Trading Price” means, for any security as of any date, the intraday trading price on the Over-the-Counter Bulletin Board (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the intraday trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no intraday trading price of such security is available in any of the foregoing manners, the average of the intraday trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. “Applicable Percentage” shall mean 50.0%.
The above notes were issued to the following: AJW Partners, LLC a $35,700 secured convertible debenture, AJW Qualified Partners, LLC a $97,800 secured convertible debenture, New Millennium Capital Partners II, LLC a $4,500 secured convertible debenture, and AJW Offshore, LTD a $162,000 secured convertible debenture.
In connection with the convertible notes, the following common stock issuable upon the exercise of warrants at $1.50: 44,625 shares of common stock issuable to AJW Partners, LLC, 122,250 shares of common stock issuable to AJW Qualified Partners, LLC, 6,625 shares of common stock issuable to New Millennium Capital Partners II, LLC and 202,500 to AJW Offshore, LTD.
The holders of the 8% convertible debentures may not convert its securities into shares of MotivNation’s common stock if after the conversion such holder would beneficially own over 4.99% of the outstanding shares of MotivNation’s common stock. Since the number of shares of MotivNation’s common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of MotivNation’s common stock prior to a conversion, the actual number of shares of MotivNation’s common stock that will be issued under the debentures owned by the holders is based on a reasonable good faith estimate of the maximum amount needed.
On January 4th, 2006 MotivNation issued $500,000 in Convertible Debentures under the same conditions disclosed on November 30, 2005.
The above notes were issued to the following: AJW Partners, LLC a $59,500 secured convertible debenture, AJW Qualified Partners, LLC a $163,000 secured convertible debenture, New Millennium Capital Partners II, LLC a $7,500 secured convertible debenture, and AJW Offshore, LTD a $270,000 secured convertible debenture.
In connection with the convertible notes, the following common stock issuable upon the exercise of warrants at $1.50: 74,375 shares of common stock issuable to AJW Partners, LLC, 203,750 shares of common stock issuable to AJW Qualified Partners, LLC, 9,375 shares of common stock issuable to New Millennium Capital Partners II, LLC and 337,500 to AJW Offshore, LTD.
The holders of the 8% convertible debentures may not convert its securities into shares of MotivNation’s common stock if after the conversion such holder would beneficially own over 4.99% of the outstanding shares of MotivNation’s common stock. Since the number of shares of MotivNation’s common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of MotivNation’s common stock prior to a conversion, the actual number of shares of MotivNation’s common stock that will be issued under the debentures owned by the holders is based on a reasonable good faith estimate of the maximum amount needed.
On January 30th, 2006 MotivNation issued $1,200,000 in Convertible Debentures, under the same conditions as disclosed for agreements signed January 4th, 2006 and November 30th, 2005.
The above notes were issued to the following: AJW Partners, LLC a $142,800 secured convertible debenture, AJW Qualified Partners, LLC a $391,200 secured convertible debenture, New Millennium Capital Partners II, LLC an $18,000 secured convertible debenture, and AJW Offshore, LTD a $648,000 secured convertible debenture.
In connection with the convertible notes, the following common stock issuable upon the exercise of warrants at $1.50: 178,500 shares of common stock issuable to AJW Partners, LLC, 489,000 shares of common stock issuable to AJW Qualified Partners, LLC, 22,500 shares of common stock issuable to New Millennium Capital Partners II, LLC and 810,000 to AJW Offshore, LTD.
The holders of the 8% convertible debentures may not convert its securities into shares of MotivNation’s common stock if after the conversion such holder would beneficially own over 4.99% of the outstanding shares of MotivNation’s common stock. Since the number of shares of MotivNation’s common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of MotivNation’s common stock prior to a conversion, the actual number of shares of MotivNation’s common stock that will be issued under the debentures owned by the holders is based on a reasonable good faith estimate of the maximum amount needed.
On January 31, 2008, related accrued interest on the $2,000,000 convertible notes of $288,174 was converted into principal. The converted principal carries interest at 2% per annum and matures on January 31, 2011.
On November 16, 2007 MotivNation entered into a subscription agreement to issue $175,000 at an 8% annual interest rate. The convertible debentures can be converted into shares of common stock with the conversion price being 50% of the average of the lowest three closing bid prices of the common stock during the 20 trading day preceding the conversion date.
The above notes were issued to the following: AJW Master Fund, Ltd for $163,450 secured convertible debenture, AJW Partners, LLC for $9,275 secured convertible debenture, and New Millennium Capital Partners II, LLC for $2,275 secured convertible debenture.
In connection with the convertible notes, the following common stock issuable upon the exercise of warrants at $0.002: 795,000 shares of common stock issuable to AJW Partners, LLC, 14,010,000 shares of common stock issuable to AJW Master Fund, Ltd, and 195,000 shares of common stock issuable to New Millennium Capital Partners II, LLC
The holders of the 8% convertible debentures may not convert its securities into shares of MotivNation’s common stock if after the conversion such holder would beneficially own over 4.99% of the outstanding shares of MotivNation’s common stock. Since the number of shares of MotivNation’s common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of MotivNation’s common stock prior to a conversion, the actual number of shares of MotivNation’s common stock that will be issued under the debentures owned by the holders is based on a reasonable good faith estimate of the maximum amount needed.
On April 22, 2008 MotivNation entered into a subscription agreement to issue $100,000 at an 8% annual interest rate. The convertible debentures can be converted into shares of common stock with the conversion price being 40% of the average of the lowest three closing bid prices of the common stock during the 20 trading day preceding the conversion date.
The above notes were issued to the following: New Millennium Capital Partners II, LLC for $100,000 secured convertible debenture.
In connection with the convertible notes, the following common stock issuable upon the exercise of warrants at $0.002: 10,000,000 shares of common stock issuable to New Millennium Capital Partners II, LLC
The holders of the 8% convertible debentures may not convert its securities into shares of MotivNation’s common stock if after the conversion such holder would beneficially own over 4.99% of the outstanding shares of MotivNation’s common stock. Since the number of shares of MotivNation’s common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of MotivNation’s common stock prior to a conversion, the actual number of shares of MotivNation’s common stock that will be issued under the debentures owned by the holders is based on a reasonable good faith estimate of the maximum amount needed.
On September 26, 2008 MotivNation entered into a subscription agreement to issue $17,500 at an 8% annual interest rate. The convertible debentures can be converted into shares of common stock with the conversion price being 40% of the average of the lowest three closing bid prices of the common stock during the 20 trading day preceding the conversion date.
The above notes were issued to the following: New Millennium Capital Partners II, LLC for $17,500 secured convertible debenture.
The holders of the 8% convertible debentures may not convert its securities into shares of MotivNation’s common stock if after the conversion such holder would beneficially own over 4.99% of the outstanding shares of MotivNation’s common stock. Since the number of shares of MotivNation’s common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of MotivNation’s common stock prior to a conversion, the actual number of shares of MotivNation’s common stock that will be issued under the debentures owned by the holders is based on a reasonable good faith estimate of the maximum amount needed.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA.
The company is a smaller reporting company and no response is required pursuant to this Item.
ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
Overview
In the first three quarters of 2008 MotivNation through its subsidiary TrixMotive Inc. provided a full-range of services that catered to the custom automotive enthusiast, including the sale, manufacture, converting, customization, armor protecting, and installation of custom auto parts and accessories, as well as restoration, repair, and servicing. TrixMotive was in the business of converting automobile chassis into stretched limousines and other specialized automotives.
In July of 2008 TrixMotive, Inc. ceased operating and the Company’s filed for protection under Chapter 7 of the United States Bankruptcy Court in the Central District of California. The company is looking for other avenues to continue business, and is currently working on finishing its prototype bike and to establish business interest outside the automotive business sector. In addition the company is looking at licensing the use of Damon’s name.
Fiscal Year 2008 Compared to Fiscal Year 2007
Results of Operations for the Years Ended December 31, 2008 and 2007 Compared.
Year Ended
December 31, 2008
Year Ended
December 31, 2007
Operating Expenses:
Selling, General and Administrative Expenses
$ 292,034
$ 354,817
Impairment of Goodwill
-
166,621
Total Operating Expenses
292,034
521,438
Total Other Expenses
2,446,931
553,040
Provision for income taxes
2,400
2,400
Discontinued Operations
280,653
681,900
Net Loss
3,022,018
1,758,778
Operating expenses
Our selling, general and administrative expense consists primarily of corporate expenditures related to maintaining a public company, and any related spending and costs. Major expenses decreased by 49.2% for the same period in 2008 versus 2007, primarily as a result of decreases in rent and accounting expense of 54.7% and 25.1%, respectively. Also attributing largely to the decrease was a decrease in salary and wages of $62,500, or 27.8% during the twelve months ending December 31, 2008 compared to same prior period. Additional decreases were in insurance, advertising, and utilities fees of 49.0%, 100% and 30.9%, respectively for the same time period. Also contributing were decreases in impairment of goodwill and stock related expense of 100%, and 44.5% for the same period in 2008 versus 2007. The largest offset was an increase in consulting expense of $7.639 or 211.5%. There were also increases during this period in legal and shipping and delivery fees of 56.7% and 125.8%, respectively. Total Operating expenses were $292,034 and $521,438, respectively, for the twelve months ended December 31, 2008 and 2007.
The Major expenses incurred during the twelve months ended December 31, 2008 and 2007 were:
Months Ended
December 31, 2008
Months
Ended
December 31,
Percentage
Change
Increase
(Decrease)
Major Expenses:
Rent
$
7,864
$
17,360
(54.7)
%
Salary & Wages
162,500
225,000
(27.8)
%
Insurance
2,087
4,088
(49.0)
%
Accounting Fees
44,000
58,769
(25.1)
%
Consulting
11,250
3,611
211.5
%
Advertising
(100.0)
%
Shipping and Delivery
1,574
125.8
%
Impairment of Goodwill
166,621
(100.0)
%
Utilities
1,483
2,145
(30.9)
%
Legal
17,014
10,858
56.7
%
Stock Related
10,237
18,450
(44.5)
%
Total Major Expenses
258,008
507,703
(49.2)
%
Total Operating Expenses
292,034
521,438
(44.0)
%
Other Income (Expenses) and Net Loss
Our other income and expenses and net loss for the twelve months ended December 31, 2008 and 2007 are as follows:
Months Ended
December 31, 2008
Months
Ended
December 31,
Percentage
Change
Increase
(Decrease)
Other income (expenses)
Interest and other income
3,011
(96.2)
%
Change in derivative liabilities
(253,893)
366,415
169.3
%
Interest expenses
(292,349)
(167,307)
74.7
%
Financing costs
(1,900,802)
(755,159)
151.7
%
Total other income (expenses)
(2,446,931)
(1,893,891)
342.5
%
Net (loss)
$
(3,022,018)
(1,758,778)
71.8
%
Other expenses increased approximately $1,263,240 from the year ending December 31, 2008 compared to the same period in 2007. This was primarily due to increases in financing costs, change in derivative liabilities, and interest expense of $1,145,643, $620,308 and $125,042 respectively. Finance costs increased primarily due to the company receiving additional financing in 2008. This increase was offset by a decrease in interest and other income of $2,898. The net loss for the year ended December 31, 2008 was $3,022,018, versus a net loss of $1,758,778 for the year ended December 31, 2007, a decrease in net loss of $1,263,240, or 71.8%. The increase in net loss was primarily due to the bankruptcy of the company’s subsidiary TrixMotive, Inc. in the third quarter of 2008.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, total current assets, total assets, total current liabilities, and total liabilities as of December 31, 2008, as compared to December 31, 2007 were as follows:
December 31,
December 31,
Cash
$
32,655
$
90,672
Prepaid expenses
-
11,532
Net assets of TrixMotive held for liquidation
70,496
223,664
Total current assets
103,151
325,868
Total assets
103,415
349,673
Total current liabilities
3,398,542
1,348,294
Total liabilities
8,683,853
5,956,115
At December 31, 2008, we had a working deficit of $3,295,391 resulting primarily from the company’s large convertible notes payable, Accrued liabilities and net liabilities of TrixMotive, Inc. in liquidation.
Net cash used in operating activities was a negative $135,355 for the year ending December 31, 2008. This resulted primarily from the net loss of $3,022,018. Contributing to the net loss was an increase in cash in escrow of $17,500. An offset to the net loss was adjustments to reconcile net loss to net cash used in operating activities: in issuance of stocks for services, noncash interest expense and financing costs, and a change in derivative liability of $2,500, $2,000,874, and $253,893, respectively. In addition there was an offset due to the increase in A/R, and accrued liabilities of $354,711. The company had a decrease in prepaid and other assets of $11,532 which offset the net loss.
Net cash provided in investing activities for the year ending December 31, 2008 was $zero.
Net cash from financing activities was $117,500 for the year ending December 31, 2008 and resulted primarily from net proceeds from convertible debt of $117,500.
Our liquidity is dependent on our ability to continue to meet our obligations, to obtain additional financing as may be required and to obtain and maintain profitability. Our management continues to look for ways to reduce operating expenses and secure an infusion of capital through either public or private investment in order to maintain our liquidity. These steps include increasing operating revenues over last year through the growth of the business by expanding our product line to offer van and hearse conversions to overseas clientele. The company is constantly testing the market for better pricing on our costs of goods sold. As well as making timely payments of our obligations, building our stock and debt sources to provide additional working capital, and continuing to review our business plan to assure we are moving the business forward in a cost-effective manner. The company will and continuing continue to examine the segments of our business that offer the most profitable opportunity for success and eliminating operations and practices which detract from our profitability. During the course of 2008 the company shut down its primary operations and is looking for an acquisition or merger of another operation/company.
In 2008 the California State Board of Equalization performed a sales tax audit on the company. After review MotivNation was billed $22,664.74 in additional taxes, and $7,869.81 in additional penalties and interest. The company is currently paying down this liability, and as of March 31, 2008 owes approximately $22,600 to the State Board of Equalization.
Going Concern
There can be no assurance that we will be successful in executing our plans to improve operations or obtain additional debt or equity financing. If the company is unable to have adequate cash from operations and is unsuccessful in obtaining financing, the company would have to cut back on operations. In addition there would be substantial doubt as mentioned in our financial footnotes about our ability to continue due to a decrease in our working capital and inability to obtain financing. The operations of the company have continued to be unprofitable and cash flow negative. The company has been dependent on outside institutions for additional funding to keep the operations running. If positive cashflow or continued funding can not be achieved, the company will have to look at other avenues to continue business. This may possibly include an acquisition or merger of another operation/company by the exchange of shares.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND PRONOUNCEMENTS.
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements including various allowances and reserves for accounts receivable and inventories, the estimated lives of long-lived assets and trademarks and trademark licenses as well as claims and contingencies arising out of litigation or other transactions that occur in the normal course of business. The following summarize our most significant accounting and reporting policies and practices:
MotivNation, Inc Accounting Policies
Our accounting policies are fully described in Note 2 to our consolidated financial statements. The following describes the general application of accounting principles that impact our consolidated financial statements.
Impairment or Disposal of Long-Lived Assets. The Company reviews long-lived assets for impairment annually, and whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. At December 31, 2008, the Company had an impairment of goodwill of $zero and a loss on disposal of assets of $zero.
Use of estimates: The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires our management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates.
Revenue Recognition. The Company’s primary source of revenue comes from the sales of customized automotive conversions. We recognize revenue based on the completed-contact method, whereas customer deposits and partial payments of the conversion are deferred and treated as current liabilities, until the vehicle is completed and recognized as revenue. Other services such as repairs minor alterations are recorded when the service is performed.
Allowance for Doubtful Accounts: We provide an allowance for doubtful accounts that is based upon our review of outstanding receivables, historical collection information, and existing economic conditions.
Cash Equivalents: For purposes of the statements of cash flows, we consider all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments: The carrying amounts of the financial instruments have been estimated by our management to approximate fair value.
Inventories. Inventory includes parts and materials related to the vehicles in the process of being modified and converted. In addition the company will include the cost of the unmodified vehicle chassis if purchased in house. Shipping and handling costs are included in inventory. All inventories are valued at the lower of cost or market.
The Company performs periodic inventory procedures and at times identifies supply inventory that is considered excess inventory or obsolete. The Company writes the obsolete and excessive inventory down to the lower of cost or market and the amount is included in general and administrative expenses for the period.
Income Taxes. The Company’s income tax expense involves using the deferred tax assets and liabilities included on the balance sheet. These tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities.
Property and Equipment: Property and Equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets: 3 to 7 years for office equipment, and 7 years for furniture and fixtures, and 10 years for machinery and tools.
Income Taxes. The Company’s income tax expense involves using the deferred tax assets and liabilities included on the balance sheet. These tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities.
Net Loss Per Common Share: The Company accounts for income (loss) per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS No. 128 requires that presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Diluted net loss per common share does not differ from basic net loss per common share due to the lack of dilutive items in the Company.
MotivNation, Inc. results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debt, inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation.
MotivNation bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Schedules appearing on page through of this Form 10-K.
Report of Independent Certified Public Accountants
Consolidated Balance Sheet as of December 31, 2008 and 2007
Consolidated Statement of Operations for the fiscal year ended December 31, 2008,
Statement of Changes in Stockholders’ Deficit for the fiscal ended December 31, 2008, 2007
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2008,
Notes to Financial Statements
-
HAROLD Y. SPECTOR, CPA SPECTOR, WONG & DAVIDIAN, LLP 80 SOUTH LAKE AVENUE
CAROL S. WONG, CPA Certified Public Accountants
SUITE 723
Z. DAVID DAVIDIAN, CPA
1- (888) 584-5577 PASADENA, CA 91101
FAX (626) 584-6447
admin@swdcpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
MotivNation, Inc.
We have audited the accompanying consolidated balance sheets of MotivNation, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MotivNation, Inc. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company's ability to continue in the normal course of business is dependent upon the success of future operations. The Company has recurring losses, substantial working capital and stockholders' deficit and negative cash flows from operations. In July 2008, the Company’s principal operating subsidiary has ceased its operations and filed for Chapter 7 bankruptcy. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Spector, Wong & Davidian, LLP
Pasadena, California
April 7,
MOTIVNATION, INC.
CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements
MOTIVNATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to Consolidated Financial Statements
MOTIVNATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHDOLERS’ DEFICIT
For years ended December 31, 2008 and 2007
See Notes to Consolidated Financial Statements
MOTIVNATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
CASH FLOW FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
Net loss
$(3,022,018)
$(1,758,778)
Add: Net loss from discontinued operations, net of tax
280,653
681,900
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash interest expense and financing costs
2,000,874
755,159
Change in derivative liabilities
253,893
(366,415)
Issuance of stocks for services
2,500
-
Impairment of goodwill
-
166,621
(Increase) Decrease in:
Cash in Escrow
(17,500)
-
Prepaid and other assets
11,532
4,088
Increase (Decrease) in:
Accounts payable and accrued liabilities
354,711
376,747
Net cash flows used in operating activities from continuing operations
(135,355)
(140,678)
CASH FLOW FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
Net cash flows provided by (used in) investing activities from continuing operations
-
-
CASH FLOW FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
Proceeds from convertible debt
117,500
175,000
Net cash flows provided by financing activities from continuing operations
117,500
175,000
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS
(17,855)
34,322
NET CASH USED BY DISCONTINUED OPERATIONS
(57,662)
(112,702)
NET DECREASE IN CASH
(75,517)
(78,380)
CASH AT BEGINNING OF YEAR
90,672
169,052
CASH AT END OF PERIOD
$ 15,155
$ 90,672
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income Taxes Paid
$ 2,400
$ 2,400
Interest Paid
$ -
$ -
Noncash Investing and Financing Activities:
Conversion of notes payable
$ 17,351
$ 25,532
Transfer unamortized discount to paid in capital due to debt conversion
$ 5,357
$ 18,499
Transfer derivative liabilities to paid in capital debt conversion
$ 33,528
$ 49,817
Conversion of accrued interest into convertible debt
$ 288,174
$ -
Issuance of warrants in lieu of convertible debt
$ 15,000
$ 59,995
Beneficial conversion features on convertible debt
$ 1,101,178
$ 346,976
See Notes to Consolidated Financial Statements
MOTIVNATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND GOING CONCERN
Nature of Business: MotivNation (“the Company”) was incorporated on April 26, 1946, under the laws of the State of Idaho. In 2003, the Company merged into its wholly-owned Nevada subsidiary, and changed its corporate domicile from the State of Idaho to the State of Nevada. MotivNation, Inc. provides a range of services that cater to the custom automotive enthusiast.
In fourth quarter of 2007, the Company discontinued the customizing motorcycles business with Damon’s Motorcycle Creation.
On July 18, 2008, the Company’s principal operating wholly-owned subsidiary, TrixMotive, Inc. (“TrixMotive”), has filed protection under Chapter 7 of the United States Bankruptcy Court in the Central District of California. TrixMotive ceased operating as of its bankruptcy filing.
Going Concern: The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred losses from continuing operations totaling $2,741,365 and $1,076,878 for the years ended December 31, 2008 and 2007, respectively. In addition, the Company has an accumulated deficit of $11,191,488 and working capital deficit of $3,295,391 as of December 31, 2008. In the near term, the Company expects operating costs to continue to exceed funds generated from operations.
The application of the going concern concept is dependent upon the Company’s ability to receive continued financial support from its creditors, stockholders and external investors. During 2008, the Company received $117,500 from issuing 8% callable secured convertible debts. In July 2008, the Company’s principal operating subsidiary has ceased its operations and filed for Chapter 7 bankruptcy. Subsequently, the Company will continue to build its prototype bike and seeks for new business opportunities. The ability of the Company to continue as a going concern is dependent its ability to meet its financing arrangement and the success of its future operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of MotivNation, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions. As the Company ceased the customizing motorcycles business in fourth quarter of 2007 and its wholly-owned subsidiary, TirxMotive, ceased operations effective as of the bankruptcy filing date, the accompanying financial statements have been retroactively adjusted to reflect the impact of the discontinuation of both businesses. The results of the customizing automobiles and motorcycles segments have been classified as discontinued operations in the accompanying consolidated statements of operations for years ended December 31, 2008 and 2007.
Use of estimates: The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition: The Company recognizes revenues on the completed-contract method. Under this method, contract costs and related billings are accumulated in the accounting records and reported as deferred items on the balance sheet until the job is complete or substantially complete, provided that collectibility is reasonably assured. A contract is regarded as substantially complete if remaining costs of completion are immaterial. When the accumulated costs exceed the related billings, the excess is presented as a current asset (inventory account). If billings exceed related costs, the difference is presented as a current liability. Cash payments received in advance are deferred. Completed-contract method is used because management considers estimated total costs are not dependable measure of progress on the contracts.
Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, and warranty work.
Vehicle sales are recorded when the title and risks and rewards of ownership have passed, provided that collectibility is reasonably assured.
Allowance for Bad Debts: The Company provides an allowance for doubtful accounts that is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. As of December 31, 2008, accounts receivable were fully written off.
Cash Equivalents: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments: The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and borrowings. The Company believes the financial instruments’ recorded values approximate current values because of their nature and respective durations. The convertible notes payable were evaluated and determined not conventional convertible and, therefore, because of certain terms and provisions including liquidating damages under the associated registration rights agreement the embedded conversion option was bifurcated and has been accounted for as a derivative liability instrument. The stock warrants issued in conjunction with these convertible notes payable were also evaluated and determined to be a derivative instrument and, therefore, classified as a liability on the balance sheet. The accounting guidance also requires that the conversion feature and warrants be recorded at fair value for each reporting period with changes in fair value recorded in the Consolidated Statements of Operations. The fair value of embedded conversion options and stock warrants are based on a Black-Scholes fair value calculation. The fair value of convertible notes payable is based on discounted cash flows of principal and interest payments.
Inventories: Raw materials and vehicles inventories are stated at the lower of cost or market, using the first-in, first-out method. Work in process inventory includes all direct materials, labor and overhead costs. As of December 31, 2008, all inventories, except a bike project, were disposed. A provision of $25,500 was made to reduce the bike project to its estimated scrap values.
Property and Equipment: Property and Equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets: 3 to 7 years for office equipment, and 7 years for furniture and fixtures, and 10 years for machinery and tools. As of December 31, 2008, all property and equipment was disposed.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill: The Company accounts for goodwill in accordance with SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangibles that are deemed to have indefinite lives are no longer amortized but, instead, are to be reviewed at least annually for impairment. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.
The Company recorded $333,242 of goodwill in connection with its acquisition of Moonlight Industries, Inc. The amount that the Company recorded in connection with this acquisition was determined by comparing the aggregate amounts of the respective purchase price plus related transaction costs to the fair values of the net tangible and identifiable intangible assets acquired for the business acquired. As of December 31, 2007, the goodwill was determined not recoverable, and fully impaired.
Convertible Notes Payable and Derivative Liabilities: The Company accounts for convertible notes payable and warrants in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires the conversion feature of convertible debt be separated from the host contract and presented as a derivative instrument if certain conditions are met. Emerging Issue Task Force (EITF) 00-19, "Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company's Own Stock" and EITF 05-2, "The Meaning of "Conventional Convertible Debt Instrument" in Issue No. 00-19" were also analyzed to determine whether the debt instrument is to be considered a conventional convertible debt instrument and classified in stockholders' equity. The convertible notes payable were evaluated and determined not conventional convertible and, therefore, because of certain terms and provisions including liquidating damages under the associated registration rights agreement the embedded conversion option was bifurcated and has been accounted for as a derivative liability instrument. The stock warrants issued in conjunction with these convertible notes payable were also evaluated and determined to be a derivative instrument and, therefore, classified as a liability on the balance sheet. The accounting guidance also requires that the conversion feature and warrants be recorded at fair value for each reporting period with changes in fair value recorded in the consolidated statements of operations.
A Black-Scholes valuation calculation was applied to both the conversion features and warrants at issuance dates and reporting date. The issuance date valuation was used for the effective debt discount that these instruments represent. The debt discount is amortized over the three-year life of the debts using the effective interest method. The reporting date valuation was used to record the fair value of these instruments at the end of the reporting period with any difference from prior period calculations reflected in the consolidated statement of operations.
Net Income Per Share: Basic net income per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted net income per share is computed by dividing net income by the weighted average number of common shares and the dilutive potential common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares and excludes dilutive potential common shares outstanding, as their effective is anti-dilutive. Dilutive potential common shares primarily consist of stock warrants and shares issuable under convertible debt.
Income Taxes: Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation: The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and the EITF Issue No. 00-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” SFAS No. 123 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Under the guidance in Issue 00-18, the measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).
New Accounting Pronouncements: In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring companies to enhance disclosure about how these instruments and activities affect their financial position, performance and cash flows. SFAS 161 also improves the transparency about the location and amounts of derivative instruments in a company’s financial statements and how they are accounted for under SFAS 133. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008 and interim periods beginning after that date. As such, the Company is required to adopt these provisions beginning the quarter ending in February 2009. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles in the United States of America. SFAS No. 162 will be effective 60 days after the Securities and Exchange Commission approves the Public Company Accounting Oversight Board’s amendments to AU Section 411. The Company does not anticipate the adoption of SFAS No. 162 will have an impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60.” SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement also clarifies how SFAS No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS No. 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of SFAS No. 163 will have a material impact on its financial condition or results of operation.
In June 2008, the FASB issued FASB SP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” SP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in SFAS No. 128, “Earnings per Share.” SP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. The Company is required to adopt SP EITF 03-6-1 in the first quarter of 2009 and is currently evaluating the impact that SP EITF 03-6-1 will have on its financial statements.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements - An Amendment of ARB No. 51." SFAS 160 clarifies the accounting for noncontrolling or minority interests. This statement requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent's owners and interests of the noncontrolling owners of a subsidiary. Those expanded disclosures include a reconciliation of the beginning and ending balances of the equity attributable to the parent and the noncontrolling owners and a schedule showing the effects of changes in a parent's ownership interest in a subsidiary on the equity attributable to the parent. The provisions of SFAS 160 are effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of the adoption of SFAS 160 on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS No. 141(R) will replace SFAS No. 141, and establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquire; recognizes and measures the goodwill acquired in the business combination or gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Currently, the Company does not anticipate that this statement will have a significant impact on its consolidated financial statements.
NOTE 3 - BALANCE SHEET DETAILS
The following tables provide details of selected balance sheet items:
December 31,
December 31,
Accrued Liabilities
Accrued payroll and related taxes
$ 459,528
$ 327,028
Credit cards payable
-
1,452
Accrued interest
239,788
336,673
Others
26,346
2,745
Total accrued liabilities
$ 725,662
$ 667,898
NOTE 4 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
Sale of $17,500 Convertible Debentures
On September 26, 2008, the Company sold in a private transaction an aggregate of $17,500 of convertible debentures (the “2008 Second Debentures”). The principal amount of the 2008 Second Debentures outstanding accrues interest at the rate of 8% per annum payable quarterly. The 2008 Second Debentures are convertible into shares of the Company’s common stock at 40% of the average of the lowest 3 intra-day trading prices during the 20 trading days immediately prior to the conversion date. The 2008 Second Debentures are repayable, principal and accrued interest, on September 26, 2011. The 2008 Second Debentures contain a provision that prohibits the holder from converting the debenture if such conversion would result in the holder owning more than 4.99% of the Company’s outstanding common stock at the time of such conversion.
Proceeds of the 2008 Second Debentures were held in escrow as of December 31, 2008 and were released in March 2009.
NOTE 4 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED)
Sale of $100,000 Convertible Debentures
On April 22, 2008, the Company sold in a private transaction an aggregate of $100,000 of convertible debentures (the “2008 First Debentures”). The principal amount of the 2008 First Debentures outstanding accrues interest at the rate of 8% per annum payable quarterly. The 2008 First Debentures are convertible into shares of the Company’s common stock at 40% of the average of the lowest 3 intra-day trading prices during the 20 trading days immediately prior to the conversion date. The 2008 First Debentures are repayable, principal and accrued interest, on April 22, 2011. The 2008 First Debentures contain a provision that prohibits the holder from converting the debenture if such conversion would result in the holder owning more than 4.99% of the Company’s outstanding common stock at the time of such conversion.
In addition, purchasers of the 2008 First Debentures received warrants exercisable to purchase an aggregate of 10,000,000 shares of the Company’s common stock at an exercise price of $0.002 per share (the "2008 First Debenture Warrants"). The 2008 First Debenture Warrants shall have a seven year term from date of issuance and have a cashless exercise feature.
The Company will file a Registration Statement covering the resale of the common shares underlying the notes and warrant within 30 days of the closing date. The Company shall respond to all SEC comments within 10 calendar days of receipt of said comments and will use its best efforts to cause the Registration Statement to become effective within 120 days of the closing date. As of report date, the Company did not file the Registration Statement with the SEC.
Sale of $175,000 Convertible Debentures
On November 16, 2007, the Company sold in a private transaction an aggregate of $175,000 of convertible debentures (the “2007 Debentures”). The principal amount of the 2007 Debentures outstanding accrues interest at the rate of 8% per annum payable quarterly. The 2007 Debentures are convertible into shares of the Company’s common stock at 50% of the average of the lowest 3 intra-day trading prices during the 20 trading days immediately prior to the conversion date. The 2007 Debentures are repayable, principal and accrued interest, on November 16, 2010. The 2007 Debentures contain a provision that prohibits the holder from converting the debenture if such conversion would result in the holder owning more than 4.99% of the Company’s outstanding common stock at the time of such conversion.
In addition, purchasers of the 2007 Debentures received warrants exercisable to purchase an aggregate of 15,000,000 shares of the Company’s common stock at an exercise price of $0.002 per share (the "2007 Debenture Warrants"). The 2007 Debenture Warrants shall have a seven year term from date of issuance and have a cashless exercise feature.
The Company will file a Registration Statement covering the resale of the common shares underlying the notes and warrant within 30 days of the closing date. The Company shall respond to all SEC comments within 10 calendar days of receipt of said comments and will use its best efforts to cause the Registration Statement to become effective within 120 days of the closing date. As of report date, the Company did not file the Registration Statement with the SEC.
NOTE 4 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED)
Sale of $2,000,000 Convertible Debentures
On January 30, 2006, the Company completed the sale of $2 million aggregate principal amount of 8% callable secured convertible notes (the “2005 Debentures”) due three years from date of receipt, and issued stock warrants purchasing up to 2.5 million shares of the Company’s common stock (the “2005 Debenture Warrants”). Proceeds from the notes amounted to $1,903,500 after issuance costs, of which the first traunch of $300,000 (less issuance costs of $55,000 and $20,000 for prepaid officers’ life insurance) was received on November 30, 2005, the second traunch of $500,000 (less issuance costs of $6,000) was received on January 5, 2006, and the third and final traunch of $1,200,000 (less issuance costs of $15,500) was received on January 30, 2006. During the years ended December 31, 2008 and 2007, the Company has converted $17,351 and $25,532 principal amount into 84,987,030 shares and 9,220,694 shares of the Company’s common stock at the request of the note holders, respectively.
The Company also granted warrants to purchase 2,500,000 shares of common stock in connection with the financing. The warrants are exercisable at $1.50 per share for a period of five years, and were fully vested.
The Company filed a registration statement with the SEC on December 15, 2005 and amended the registration statement on December 30, 2005, with respect to the sale of the notes and common stock issuable upon the conversion of the notes. The issuance costs incurred in connection with the convertible notes are deferred and being amortized to interest expense over the life of each debenture traunch.
On January 31, 2008, related accrued interest of $288,174 was converted into principal. The converted principal carries interest at 2% per annum and matures on January 31, 2011.
As of December 31, 2008, the Company was in default of the first traunch of debt; accordingly, the Company added a penalty of $62,326 to the principal. Interest is being accrued at the default rate of 15% per annum. Subsequent to December 31, 2008, the Company was also in default of the second and final traunch of debt.
The Company is accounting for the conversion option in the debentures and the associated warrants as derivative liabilities in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock” and EITF No. 05-2, “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19.” The Company attributed beneficial conversion features to the convertible debt using the Black-Scholes Option Pricing Model. The fair value of the conversion feature has been included as a discount to debt in the accompanying balance sheet up to the proceeds received from each traunch, with any excess charged to operations. The discount is being amortized over the life of each debenture traunch using the interest method.
The following tables describe the valuation of the conversion feature of each traunch of the convertible debenture, using the Black Scholes pricing model:
11/30/05
Traunch
1/4/06
Traunch
1/30/06
Traunch
11/16/07
Traunch
1/31/08
Traunch
4/22/08
Traunch
9/26/08 Traunch
12/1/08 Default Penalty
Approximate risk free rate
4.41%
4.28%
4.47%
3.30%
2.27%
2.43%
2.38%
0.81%
Average expected life
years
years
years
years
years
years
years
year
Dividend yield
0%
0%
0%
0%
0%
0%
0%
0%
Volatility
356.33%
348.92%
342.77%
286.90%
289.55%
325.91%
355.73%
411.17%
Estimated fair value of conversion feature
$599,200
$998,346
$2,395,289
$346,997
$571,604
$249,283
$43,695
$121,197
Charged to debt discount
$300,000
$500,000
$1,200,000
$175,000
$288,174
$100,000
$17,500
$0
Charged to expenses
$299,200
$498,346
$1,195,289
$171,997
$283,434
$149,283
$26,195
$121,197
NOTE 4 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED)
The Company recorded the fair value of the conversion feature as a discount to the convertible debt in the accompanying balance sheet up to the proceeds received from each traunch, with any excess charged to expense. Amortization expense related to the conversion feature discount for the years ended December 31, 2008 and 2007 was $1,166,755 and $497,688, respectively.
The warrants issued in lieu of the financing were recorded as derivative liabilities and valued using the Black-Scholes Option Pricing Model with the following weighted-average assumptions used.
11/30/05
Traunch
1/4/06
Traunch
1/30/06
Traunch
11/16/07
Traunch
4/22/08
Traunch
Approximate risk free rate
4.42%
4.28%
4.46%
3.88%
3.29%
Average expected life
years
years
years
years
years
Dividend yield
0%
0%
0%
0%
0%
Volatility
356.33%
348.92%
342.77%
286.90%
325.91%
Number of warrants granted
375,000
625,000
1,500,000
15,000,000
10,000,000
Estimated fair value of total warrants granted
$299,975
$493,692
$1,184,815
$59,995
$15,000
In accordance with the EITF 00-19, the conversion feature of each convertible debenture and the stock warrants issued in conjunction with convertible debentures have been included as long-term liabilities and were originally valued at fair value at the date of issuance. As a liability, the convertible features and the stock warrants are revalued each period until and unless the debt is converted. As of December 31, 2008 and December 31, 2007, the fair values of the conversion feature and the stock warrants aggregated to $5,245,580 and $3,909,035, respectively. The Company recorded a loss of $253,893 for the year ended December 31, 2008, and a gain of $366,415 for the year ended December 31, 2007. This amount is recorded as “Change in Derivative Liabilities” a component of other income in the accompanying consolidated statement of operations. If the debt is converted prior to maturity, the carrying value will be transferred to equity.
NOTE 5 - INCOME TAX
Provision of income tax consists of a minimum state franchise tax of $2,400 for each of the year ended December 31, 2008 and 2007, respectively.
As of December 31, 2008, the Company has net operating loss carryforwards, approximately of $4.3 million and $4.4 million to reduce future federal and state taxable income, respectively. To the extent not utilized, the carryforwards will begin to expire through 2028 for federal tax purposes and through 2018 for state tax purposes. The Company’s ability to utilize its net operating loss carryforwards is uncertain and thus a valuation reserve has been provided against the Company’s net deferred tax assets.
The deferred tax assets as of December 31, 2008 and 2007 consist of the following:
NOTE 6 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share for the periods:
In accordance with SFAS No. 128, “Earnings Per Share”, the Company also has excluded from the calculation of diluted net loss per share approximately 5,438 shares relating to its 10% related party convertible debt that are anti-dilutive. As of December 31, 2008, depending on the stock price on the conversion date, up to maximum of 57,184,333,333 shares, subject to certain adjustments, may be issued upon conversion of the 8% Callable Secured Convertible Notes. For additional information, see “Note 4 - Convertible Notes Payable and Derivative Liabilities.” Stock warrants to purchase approximately 27,500,000 shares were outstanding, but were not included in the computation of diluted net loss per share because the exercise price of the stock warrants were greater than the average share price of the common stocks, and, therefore, the effect would have been antidilutive.
As the Company incurred net losses for the year ended December 31, 2007, potential dilutive securities from stock warrants totalling 750,000 equivalent shares have been excluded from diluted net loss per share computations as their effect was deemed anti-dilutive. In accordance with SFAS No. 128, “Earnings Per Share”, the Company also has excluded from the calculation of diluted net loss per share approximately 3,973 shares relating to its 10% related party convertible debt that are anti-dilutive. As of December 31, 2007, depending on the stock price on the conversion date, up to maximum of 800,051,333 shares, subject to certain adjustments, may be issued upon conversion of the 8% Callable Secured Convertible Notes. For additional information, see “Note 8 - Convertible Notes Payable and Derivative Liabilities.” Stock warrants to purchase approximately 2,500,000 shares were outstanding, but were not included in the computation of diluted net loss per share because the exercise price of the stock warrants were greater than the average share price of the common stocks, and, therefore, the effect would have been antidilutive
NOTE 7 - DISCONTINUED OPERATIONS
In July 2008, the Company’s principal operating subsidiary, TrixMotive, Inc., has ceased operations and filed for Chapter 7 bankruptcy. In addition, the Company has discontinued the customizing motorcycles business in the fourth quarter of 2007.
Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the accompanying consolidated financial statements have been retroactively adjusted to reflect the impact of the discontinuation of TrixMotive and the customizing motorcycles business. The net operating results, net assets and liabilities, and net cash flows of both businesses have been reported as “Discontinued Operations.”
Following is summarized financial information for the discontinued operations:
NOTE 7 - DISCONTINUED OPERATIONS (CONTINUED)
NOTE 8 - GUARANTEES AND PRODUCT WARRANTIES
The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company’s businesses or assets; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (iii) certain agreements with the Company's officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship.
The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of December 31, 2008.
NOTE 9 - LEGAL PROCEEDINGS
A former employee of Moonlight Industries filed a workers compensation claim against the Company. The former employee is alleging that he was injured during the course of his employment with Moonlight Industries. The damages claimed by the former employee do not appear to be covered by insurance. Management is responding to the case vigorously defending it as they believe the claim is frivolous and potentially fraudulent. In the opinion of the Company’s legal counsel, the likelihood of an unfavourable outcome is low.
Damon’s historically leased four (4) units space in city of Brea, California under four separate non-cancelable operating lease agreements, which expires through November 30, 2007. Damon’s currently does not occupy the spaces. In July, the landlord filed claims against Damon’s for the past due rent and charges of all units, aggregate of $19,657, and the additional amounts due pursuant to the remaining terms of the lease agreements. The obligations under the remaining terms of the lease agreements are estimated at a total of $89,086. Subsequently, Damon’s and the landlord entered into a Surrender Agreement for one unit, providing that Damon’s agreed to forfeit a security deposit of $1,568 and to pay a sum of $3,822, representing the unpaid charges and rent through the date of agreement. In return, the landlord agreed to discharge and release Damon’s from all obligations under the lease agreement of that unit.
No provision for any contingent liabilities has been made in the accompanying consolidated financial statements since management cannot predict the outcome of the claims or estimate the amount of any loss that may result. In addition, the Company has received an outside legal opinion from an attorney that states the outstanding liability is not the Company’s as the original lease was signed by the previous owners of Damon’s. However, the Company will continue to accrue the past due rent of $19,657 in the accompanying financial statements until this matter is resolved.
On December 7, 2005, a customer of TrixMotive filed a lawsuit in the Superior Court of Santa Clara County of California against TrixMotive claiming for breach of contract and warranty, intentional and negligence misrepresentation for a customized vehicle. The plaintiff seeks $98,827 in compensatory damages and other unspecified damages plus interest, attorneys’ fees and costs. The arbitrator after a hearing held on September 22, 2006 awarded that the plaintiff shall recover from the Company the price of the refrigerator and microwave which were ordered and paid for by the plaintiff but not installed in the vehicle, and that all other claims of plaintiff are denied as to the Company. The Plaintiff rejected the arbitration award on October 19, 2006. The Company entered into a settlement agreement on January 28, 2008 to settle the claim in the amount of $2,000. The Company did not accrue the settlement amount which was considered immaterial.
On July 3, 2007, a claim was filed in the Superior Court of Los Angeles County of California against TrixMotive, Inc. to seek for a payment of $21,888 due to the California State Compensation Insurance Fund. The Company agreed to pay $750 per month commencing January 10, 2008 until the amount as paid in full. The liability has been accrued already in prior years.
On January 24, 2008, a customer of TrixMotive filed a lawsuit in the Superior Court of Middlesex County of New Jersey against TrixMotive claiming for breach of contract and warranty, intentional and negligence misrepresentation for a customized vehicle. The claim is in early stage and the outcome of this matter is not determinable.
While the outcome of these matters is not determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company has short-term notes payable to an officer and a related party, aggregate of $253,648 including related accrued interest of $58,415 as of December 31, 2008. The notes carry interest at range of 8% to 10% per annum and are unsecured. On July 2, 2008, the Company, the officer and the related party agreed to extend the note to December 31, 2008 and to increase the principal by $20,000 as a cost of extension. A 10% penalty will be added annually until the note is paid in full. In addition, the Company granted a conversion right to the officer allowing him to convert all or any outstanding balance into the Company’s common stocks at 75% of the average of the lowest three closing prices during the ten days prior to the date the conversion notice. As a result, the Company recorded a conversion expense of $115,399 using the Black-Scholes valuation model:
Approximate risk free rate
1.88%
Average expected life
months
Dividend yield
0%
Volatility
249.98%
Estimated fair value of conversion feature
$115,399
NOTE 11 - CHANGE OF OFFICERS
On February 27, 2008 the Chief Financial Officer (“CFO”), Jay Isco, resigned as CFO and Secretary of the Company. George Lefevre, the Company’s Chief Executive Officer (“CEO”), will effective immediately the vacant positions of CFO and secretary.
NOTE 12 - SEGMENT INFORMATION
The Company evaluates its reporting segments in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by SFAS No. 131. The Chief Executive Officer allocates resources to each segment based on their business prospects, competitive factors, net sales and operating results.
The Company previously reported two principal operating segments: (i) custom motorcycle, and (ii) custom automotive. The custom motorcycle segment provides a full range of services that cater to motorcycle enthusiast, including the sale, manufacture and installation of custom-built parts and accessories, the restoration, repair and servicing and the custom painting work. The custom automotive segment specializes in creating customized limousines to suit the tastes and needs of each individual customer. In fourth quarter of 2007, the Company discontinued the customizing motorcycles business. In July 2008, TrixMotive filed for Chapter 7 Bankruptcy. As a result, both segments are reclassified to discontinued operations and the Company has no reportable segment.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
TrixMotive has a non-cancelable operating lease that expires through August 2009. As of December 31, 2008, TrixMotive has accrued the remaining lease obligations, amounted to $136,000.
Officer Indemnification
Under the Company's organizational documents, the Company's officers, employees and directors are indemnified against certain liability arising out of the performance of their duties. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. The Company does not carry Director and Officers insurance policy. However, based on experience, the Company expects any risk of loss to be remote.
See Notes to Consolidated Financial Statements
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer/Chief Financial Officer have concluded that as of December 31, 2008, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, which result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that, as of December 31, 2008, our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have adequate reporting procedures in place to assure that we report timely and fully our activities as required and will likely have errors or omissions due to these inadequacies.
Remediation of Material Weaknesses
We have attempted to remediate the material weaknesses in our disclosure controls and procedures identified above whereby we have hired additional administrative person and will retain an outside professional firm to assist in the separation of duties on an ongoing basis. We will continue to monitor and assess the costs and benefits of additional staffing.
Changes in Internal Control over Financial Reporting
Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation of our executive officer and director during the last three fiscal years. The remuneration described in the table does not include the cost to us of benefits furnished to the named executive officers, including premiums for health insurance and other benefits provided to such individual that are extended in connection with the conduct of our business.
Summary Compensation Table
(1)
Amounts noted are actual cash amounts paid and accrued salaries combined in their respective year. The following are the portions of accrued salaries:
a.
George R. Lefevre
i.
$150,000 in accrued salary
ii.
$150,000 in accrued salary
iii.
$62,500 in accrued salary
b.
Jay Isco
i.
$12,500 in accrued salary
ii.
$57,500 in accrued salary
iii.
$23,666.64 in accrued salary
c.
Mark Absher
i.
$12,000 in accrued salary
d.
David Psachie
i.
$12,000 in accrued salary
e.
Richard Holt
i.
$9,000 in accrued salary
(2)
The dollar value of the restricted shares is calculated by multiplying the closing market price of our unrestricted stock on the date of issuance as required in instructions to Item 402(b)(2)(iv)(A).
(3)
Mark Absher, David Psachie, Richard Holt each received 50,000 (post split) shares at a price of $1.10 (post split), the close price of the stock on February 15, 2005.
Employment agreements
On July 31, 2006 the Company entered into a five year employment agreement with George R. Lefevre its CEO. Effective January 1, 2006, MotivNation agreed to a monthly salary of $12,500 per month with annual increases equaling 10% of the base salary. In addition he is eligible for a quarterly bonus of 20,000 based on the Company achieving a net profit for that quarter
On July 31, 2006 the Company entered into a five year employment agreement with Jay Isco its CFO. Effective January 1, 2006, MotivNation agreed to a monthly salary of $6,250 per month with annual increases equaling 10% of the base salary. In addition he is eligible for a quarterly bonus of 10,000 based on the Company achieving a net profit for that quarter. As of February 2008 Mr. Isco has resigned.
As of December 31, 2008, we have employment agreement with George Lefevre, and do not have any agreements in place for the amount of annual compensation that our other officers, directors and employees will receive in the future.
Compensation Committee
We currently do not have a compensation committee of the board of directors. However, the board of directors intends to establish a compensation committee, which is expected to consist of three inside directors and two independent members. Until a formal committee is established our entire board of directors will review all forms of compensation provided to our executive officers, directors, consultants and employees including stock compensation and loans.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
As of the close of business on December 31, 2008, based on information available to the Company:
Name of Officer, Director and Beneficial Owner
Number
of Shares
Percent
Beneficially
Owned*
1. Thomas Prewitt- Former President (2)(3)
2. 547 Apollo Unit C
3. Brea, CA 92821
748,799
0.704%
Jay Isco- Former Chief Financial Officer, Secretary(3)(7)
4. 18101 Von Karman Ave. Ste. 330
5. Irvine, CA 92612
817,000
0.769%
6. Richard Perez Former Secretary (2)(3)
7. 1741 E. Lambert Road
8. La Habra, CA 90631
748,799
0.704%
9. George R. Lefevre- Chief Executive Officer, Chief Financial Officer, Secretary, and Director (3)(6)(7)
10. 18101 Von Karman Ave. Ste. 330
Irvine, CA 92612
683,000
0.643%
11. Scott Absher- Beneficial Owner (4)
12. 18101 Von Karman Ave. Ste. 330
Irvine, CA 92612
248,000
0.233%
Leslie McPhail-Former Chief Operating Officer(1)(3)(9)
Shoemaker Avenue
Santa Fe Springs, CA 90670
640,000
0.602%
David McPhail- Beneficial Owner(1)
Shoemaker Avenue
Santa Fe Springs, CA 90670
640,000
0.602%
Mark Absher- Former Director (8)
13. 18101 Von Karman Ave. Ste. 330
Irvine, CA 92612
50,000
0.0471%
David Psachie- Director
14. 18101 Von Karman Ave. Ste. 330
Irvine, CA 92612
50,000
0.0471%
Richard Holt- Former Director (5)
15. 18101 Von Karman Ave. Ste. 330
Irvine, CA 92612
50,000
0.0471%
All Directors, Officers, & Beneficial Holders as a Group
3,286,799
3.09%
1.
Leslie McPhail owns jointly with David McPhail 740,000 (post-split) shares of the Company.
2.
Thomas Prewitt and Richard Perez own jointly 748,799 (post-split) shares of the Company.
3.
On February 15, 2005, the Board of Directors approved the removal of Mr. Prewitt and Mr. Perez as the President and Secretary respectively. George R. Lefevre was appointed to the position of Chief Executive Officer and President. Mr. Isco was elected to the position of Chief Financial Officer and Secretary, and Mrs. McPhail to the position of Chief Operating Officer.
4.
Scott Absher served as a consultant for the company and is the brother of Mark Absher a former director of the company.
5.
On October 2, 2006, Richard Holt resigned as director of the company
6.
On January 6, 2006, George Lefevre was elected as Chairman of the board of directors.
7.
On February 27, 2008 Jay Isco resigned as CFO and Secretary of the Company, on the same day George Lefevre was elected to the vacated positions by the board of directors of Motivnation.
8.
On May 1, 2008 Mark Absher resigned as director of the company
9.
On June 23, 2008 Leslie A. McPhail resigned as COO of the company
*
Number of shares and percent of ownership based upon 106,253,188 shares outstanding on December 31, 2008
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
There have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(1) AUDIT FEES
The aggregate fees billed for the fiscal year ended December 31, 2008, for professional services rendered by Spector & Wong LLP, for the audit of the registrant's annual financial statements and review of the financial statements included in the registrant's Form 10-Q and 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year 2008 and 2007 were approximately $41,500 and $56,000, respectively.
(2) AUDIT-RELATED FEES
The aggregate fees billed for the fiscal year ended December 31, 2008, for assurance and related services by Spector & Wong LLP, that are reasonably related to the performance of the audit or review of the registrant's financial statements for fiscal year 2008 were $0 and $0 for 2007.
(3) TAX FEES
The aggregate fees billed for each of the fiscal years ended December 31, 2008 and 2007, for professional services rendered by Spector & Wong LLP, for tax compliance, tax advice, and tax planning, for those fiscal years were $2,500 and $2,500 respectively. Services provided included preparation of Federal Income Tax Returns Form 1120, tax planning, and research regarding 1031 exchange.
(4) ALL OTHER FEES
There were no other aggregate fees billed in each of the fiscal years ended December 31, 2008 and 2007, for products and services provided by Spector & Wong LLP, other than those services reported above, for those fiscal years.
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES
Not Applicable.
(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Not Applicable.
ITEM 15.
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit
Description
Number
3(i)
Articles of Incorporation**
3(ii)
ByLaws**
23.1
Consent of Spector & Wong LLP, the Company’s Independent Public Accountants
31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002.
_____
* Filed herewith
** Incorporated herein by reference from the Company’s Form 10-SB filed with the Commission on 10-24-2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ George R. Lefevre
By:
George R. Lefevre
CEO
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME Title DATE
/s/ George R. Lefevre
________________________
George R. Lefevre CEO, CFO, Secretary, and Director April 13, 2009
/s/ David Psachie
________________________
David Psachie Director April 13, 2009