SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
[X] ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended
December 31,
2007
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Commission
File Number
000-50048
(Name of
small business issuer in its charter)
|
Nevada
|
|
82-6008492
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
|
|
|
18101
Von Karman Avenue, Suite 330
|
|
|
|
Irvine,
California
|
|
92612
|
|
(Address
of principal executive offices)
|
|
(zip
code)
|
Issuer's
telephone number including area code:
(888)
258-6458
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value
(Title if
Class)
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. __
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
X
No
_____
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form
10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ____ No
X__
The
issuer’s revenues for its most recent fiscal year ended December 31, 2007 was
$2,228,809.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by the closing price, as of April 1, 2008 was
approximately $40,008 based on a share value of $0.0025.
The
number of shares of Common Stock, $0.001 par value, outstanding on December 31,
2007 was 16,266,157 shares. As of March 31, 2008, 18,790,166 shares of the
issuer’s Common Stock were outstanding.
Documents
Incorporated by Reference
None
Transitional
Small Business Disclosure Format (check one): Yes __ No
X
MOTIVNATION,
INC.
FOR
THE FISCAL YEAR ENDED
December
31, 2007
Index
to Report
on
Form 10-KSB
|
Item
1.
|
Description
of Business.
|
1
|
|
Item
2.
|
Description
of Property.
|
4
|
|
Item
3.
|
Legal
Proceedings.
|
4
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
6
|
PART
II
|
Item
5.
|
Market
for Common Equity and Related Stockholder Matters.
|
6
|
|
Item
6.
|
Management’s
Discussion and Analysis or Plan of Operation.
|
10
|
|
Item
7.
|
Financial
Statements.
|
F-1–
F-20
|
|
Item
8.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
24
|
|
Item
8A.
|
Controls
and Procedures.
|
24
|
|
Item
8B.
|
Other
Information.
|
25
|
PART
III
|
Item
9.
|
Directors
and Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act.
|
25
|
|
Item
10.
|
Executive
Compensation.
|
28
|
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
30
|
|
Item
12.
|
Certain
Relationships and Related Transactions.
|
31
|
|
Item
13.
|
Exhibits.
|
32
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
32
|
FORWARD-LOOKING
STATEMENTS
This document contains “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical fact are
“forward-looking statements” for purposes of federal and state securities laws,
including, but not limited to, any projections of earnings, revenue or other
financial items; any statements of the plans, strategies and objections of
management for future operations; any statements concerning proposed new
services or developments; any statements regarding future economic conditions or
performance; any statements or belief; and any statements of assumptions
underlying any of the foregoing.
Forward-looking statements may include
the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect”
or “anticipate” or other similar words. These forward-looking
statements present our estimates and assumptions only as of the date of this
report. Except for our ongoing securities laws, we do not intend, and undertake
no obligation, to update any forward-looking statement.
Although we believe that the
expectations reflected in any of our forward-looking statements are reasonable,
actual results could differ materially from those projected or assumed in any or
our forward-looking statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are subject to change and
inherent risks and uncertainties. The factors impacting these risks and
uncertainties include, but are not limited to:
|
·
|
Our
ability to distribute, sell, and market our services and
products;
|
|
·
|
Our
ability to develop and offer new services and
products;
|
|
·
|
The
performance of our automotive products and
accessories;
|
|
·
|
The
significant and ongoing funds needed to achieve our production, marketing,
and sales objectives;
|
|
·
|
The
appeal of our services and products to
consumers;
|
|
·
|
Our
ability to generate adequate revenue to support our
operations;
|
|
·
|
Our
ability to maintain positive cash flow resulting from extended periods of
monetary responsibility in the form of labor for extensive custom works in
progress;
|
|
·
|
The
loss or injury of our principal design or technical staff;
and
|
|
·
|
Changes
in environmental regulation and enforcement relating to our operations,
including those governing VOC
emissions.
|
Actual
future performance and results could differ from that contained in or suggested
by these forward-looking statements as a result of factors set forth in this
Form 10-KSB (including those sections hereof incorporated by reference from
other filings with the Securities and Exchange Commission), in particular as set
forth in the "Management’s Discussion and Analysis" under Item 6.
In this
filing references to “MotivNation,” “Company,” “we,” “our,” and/or “us,” refers
to MotivNation, Inc.
PART
I
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.
(b)
Business of Issuer
Following the acquisitions of Damon’s,
and TrixMotive, we ceased our prior business operations, but we intend to
continue in the automotive industry that Damon’s and TrixMotive, are a part of
as well as plan to expand these businesses using the assets we acquired. Damon’s
was in the business of customizing motorcycles and automobiles for individuals
and performing custom parts and accessories for independent dealers and
manufacturers. TrixMotive is in the business of converting automobile
chassis into stretched limousines and other specialized
automotives.
Additionally,
the company provides a full-range of services that cater 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 is also
specialized in custom paint work for automotives while engaging in the retail
sale of aftermarket automotive parts, accessories, and related
apparel.
Our target clients fall into two
categories: the individual custom automotive enthusiast or collectors of the
“one of a kind” custom auto creations, and those of local fabricators, custom
shops, and Original Equipment Manufacturers. Our primary market is
the latter of two listed and these customers buy materials, supplies, and
finished parts for their work in serving the growing market of custom or
modified automobile creations. In addition to distributing several
lines of materials and equipment, we plan to provide training through
independent dealers and our own distribution infrastructure to our primary
market clientele.
Principal
Products or Services
Our manufacturing operations consist of
in-house production of components and parts, assembly and finishing of
components, painting, conversion and assembly of automobiles, and quality
control, which includes performance testing of finished products under running
conditions. The custom design, fabrication, finish and paint
processes are moved into and out of each aspect of the manufacturing
process.
We offer various products and services
depending on which client we are catering to. For our individual
retail clients we offer products and services direct and include restoration
work, finish and paint for automobiles as well as signature paint and design
applied to non automotive personal property. For our independent
dealers we offer products and services direct to the dealers which include
custom and signature finish and design work on a dealer’s own restoration or
manufactured work. We also offer consultative work in the preparation
of signature paints blends, techniques, and design advice related to the
dealer’s own project. For our original equipment manufacturers we
offer services and products that include signature design and fabrication for
manufactured parts and accessories, which are a party of a “designer” or
“signature” series of products or design themes. These products and
services are also sold direct to the original equipment
manufacturers.
Competition
The market for our products and
services are highly competitive and there are no substantial barriers to
entry. There are a lot of competitors in this industry but our main
ones are: Tiffany Coachworks, Pinnacle Limousine, Coach Industries
Group, Aladdin Limousine, VIP Coachworks, and Royal Coach by Victor. We expect
that competition will intensify and new competitors may enter the market with
the growing trends of custom automobiles, which may result in a reduction in
profit margins on our products and services.
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
One customer accounted for
approximately $627,707 or 28% of the Customized Automotive segment revenues for
the year ended December 31, 2007. The Company has no major customer for the year
ended December 31, 2006.
Intellectual
Property
We have not filed for any patents or
trademarks, and we have no license agreements. Although we believe we
have obtained common law rights outside that of the United States Patent and
Trademark Office through the use of the name “Damon’s Motorcycle Creations”,
“Moonlight Industries”, “MotivNation”, and “TrixMotive”, in connection with our
business, our failure to obtain proprietary protection in the future for the use
of the name could negatively impact our operations.
Government
Regulations
Our business is subject to certain
federal, state, and local government regulations, including those of the
Environmental Protection Agency (“EPA”) and comparable state agencies that
regulate emissions of Volatile Organic Compounds (“VOC”) and other air
contaminants, the Occupational Safety and Heal Administrations (“OSHA”), and
regulations governing the disposal of oil, grease, tires, batteries, and the
prevention of pollution. Although we believe we are in compliance
with all of these agencies and government regulations, our failure to comply
with such regulations could result in the termination of our operations,
impositions of fines, or liabilities in excess of our capital
resources. In addition, any changes in the laws or regulations
imposed on us could significantly increase our costs of doing business and could
have a negative impact on our business.
Personnel
As of
March 31, 2008 we had 32 full-time employees, including 28 in production staff
and 4 in sales and administration. Management believes our future success will
depend in large part upon our ability to attract and retain qualified
employees. We have no collective bargaining agreements with our
employees and believe our relations with our employees are good.
(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
2. DESCRIPTION
OF PROPERTY.
MotivNation
maintains its corporate headquarters at 18101 Von Karman Ave. Ste 330, Irvine,
CA 92612. As of February 2008 we currently participate in an
identity package at this location. Under this package we have access to the
board rooms, and day offices to conduct our business. The monthly cost is
approximately $155 per month plus any additional services that may be
used. We intend to continue this identity package for the foreseeable
future.
Damon’s
leases 1 unit that is approximately 13,890 square feet of retail, service,
warehouse, and fenced yard space. The units are located at 1741 E. Lambert Road,
La Habra, CA 90631. The lease requires a monthly rental payment of approximately
$5,000. Currently the company has assigned the lease to IMZZ industries in full,
with consent from the lessor. The assignment expires on August 31,
2008.
TrixMotive currently lease 1 unit that
is approximately 24,000 square feet for its production operations at 13659
Excelsior Drive, Santa Fe Springs, CA 90670. The leases require a collective
monthly rental payment of approximately $13,125.
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.
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. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
occurred during the 4
th
Quarter.
PART
II
|
ITEM
5.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
|
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.
|
|
2007*
|
2006*
|
|
|
High
|
Low
|
High
|
Low
|
|
1
st
Quarter
|
$0.045
|
$0.015
|
$0.05
|
$0.028
|
|
2
nd
Quarter
|
$0.025
|
$0.011
|
$0.06
|
$0.012
|
|
3
rd
Quarter
|
$0.018
|
$0.003
|
$0.069
|
$0.0095
|
|
4
th
Quarter
|
$0.009
|
$0.001
|
$0.029
|
$0.0095
|
|
|
|
|
|
|
|
|
2008*
|
|
|
High
|
Low
|
|
1
st
Quarter
|
$0.008
|
$0.0017
|
* Prices
have been modified to reflect post split values
Holders
of Common Stock
As of
March 31, 2008, we had approximately 546 stockholders of record of the
18,790,166 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-KSB 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:
On April
20, 2004, we and NeoTactix (NTX) entered into a Business Consulting Agreement
pursuant to which Neotactix agreed to provide certain business consulting
services to us as specified in the Agreement, In exchange for such services, we
agreed to issue 196,000 (post-split) shares of our common stock. We and NTX
agree that the compensation shares issued by us to affiliates of NTX shall be
cancelled and returned to us if, prior to October 31, 2005, we have has not
achieved certain benchmarks pursuant to the Agreement. The agreement was amended
by the Board of Directors on October 15, 2005 to extend the Agreement to October
31, 2006.
As of
December 31, 2005, none of the benchmarks have occurred. The services, valued at
$6.47 million, were deferred until the performances commit.
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 4
th
, 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 30
th
, 2006
MotivNation issued $1,200,000 in Convertible Debentures, under the same
conditions as disclosed for agreements signed Janary 4
th
, 2006
and November 30
th
,
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 a $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
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.
|
ITEM
6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
|
Overview
Our
current plan of operation provides a full-range of services that cater 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 is in the
business of converting automobile chassis into stretched limousines and other
specialized automotives. TrixMotive is also specialized in custom paint work for
automotives while also engaging in the retail sale of aftermarket automotive
parts, accessories, and related apparel.
Our target clients fall into two
categories: the individual custom automotive enthusiast or collectors of the
“one of a kind” custom auto creations, and those of local fabricators, custom
shops, and Original Equipment Manufacturers. Our primary market is
the latter of two listed and these customers buy materials, supplies, and
finished parts for their work in serving the growing market of custom or
modified automobile creations. In addition to distributing several
lines of materials and equipment, we plan to provide training through
independent dealers and our own distribution infrastructure to our primary
market clientele.
Fiscal
Year 2007 Compared to Fiscal Year 2006
Results
of Operations for the Years Ended December 31, 2007 and 2006
Compared.
|
|
Year
Ended
December
31, 2007
|
Year
Ended
December
31, 2006
|
|
Revenues
|
$ 2,228,809
|
$ 2,329,507
|
|
|
|
|
|
Cost
of Revenues
|
2,120,716
|
2,283,297
|
|
|
|
|
|
Gross
Profit
|
108,093
|
46,210
|
|
|
|
|
|
Total
Operating Expenses
|
1,257,366
|
1,847,617
|
|
|
|
|
|
Total
Other Expenses
|
399,812
|
1,879,369
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
2,400
|
2,400
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
|
207,293
|
215,072
|
|
|
|
|
|
Net
Loss
|
$ 1,758,778
|
$ 3,683,176
|
Revenue
|
|
2007
|
2006
|
Increase/(decrease)
|
|
$
|
|
For
the year ended December 31:
|
|
|
|
|
Revenue
|
$
2,228,809
|
$ 2,329,507
|
$ (100,698)
|
Revenues
for the year ended December 31, 2007 were $2,228,809 compared to revenues of
$2,329,507 in the year ended December 31, 2006. This resulted in a decrease
in revenues of $100,698, approximately 4.3% from the same period one year
ago.
Cost
of Revenues
|
|
2007
|
2006
|
Increase/(decrease)
|
|
|
$
|
|
|
|
|
|
|
For
the year ended December 31:
|
|
|
|
|
Cost
of revenue
|
$2,120,716
|
$2,283,297
|
$ (162,581)
|
Cost of
revenues for the year ended December 31, 2007 was $2,120,716 a decrease of
$162,581 from $2,283,297 for the same period ended December 31,
2006. The decrease in cost of revenues of approximately 7.1% was
primarily due to the direct costs associated with the decrease in revenues
compared to last year.
Operating
expenses
Our
selling, general and administrative expenses consist primarily of sales,
marketing, production and other administrative personnel, cost of facilities and
related spending, salaries, and related costs. Major expenses
increased by 37% for the same period in 2007 versus 2006, primarily as a result
of decreases in consulting and bad debt expense of 99% and 83%, respectively.
Also attributing largely to the decrease was a decrease in salary and wages of
$94,920, or 22.6% during the twelve months ending December 31, 2007 compared to
same prior period. Additional decreases were in accounting, advertising,
and insurance fees of 11.6%, 18.5% and 34%, respectively for the same time
period. Also contributing were decreases in loss on disposal of assets,
shipping/delivery, and utilities expense of 38.5%, 41.8%, and 32.3% for the same
period in 2007 versus 2006. The largest offset was an increase in legal expense
of $12,158 or 497.9%. There were also increases during this period in
depreciation, rent, and stock related fees of 6%, 12.5%, and 119%. Total
Operating expenses were $1,257,366 and $1,664,367, respectively, for the twelve
months ended December 31, 2007 and 2006.
The Major
expenses incurred during the twelve months ended December 31, 2007 and 2006
were:
|
|
|
12
Months Ended
December
31, 2007
|
|
|
12
Months
Ended
December
31,
2006
|
|
Percentage
Change
Increase
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Major
Expenses:
|
|
|
|
|
|
|
|
|
|
Rent
|
$
|
175,095
|
|
|
155,675
|
|
12.5
|
%
|
|
Salary
& Wages
|
|
325,986
|
|
|
420,907
|
|
(22.6)
|
%
|
|
Insurance
|
|
97,867
|
|
|
148,233
|
|
(34.0)
|
%
|
|
Accounting
Fees
|
|
58,769
|
|
|
66,488
|
|
(11.6)
|
%
|
|
Consulting
|
|
3,811
|
|
|
384,775
|
|
(99.0)
|
%
|
|
Advertising
|
|
23,404
|
|
|
28,703
|
|
(18.5)
|
%
|
|
Shipping
and Delivery
|
|
14,368
|
|
|
24,693
|
|
(41.8)
|
%
|
|
Depreciation
|
|
23,138
|
|
|
21,827
|
|
6.0
|
%
|
|
Bad
debt expense
|
|
8,416
|
|
|
49,379
|
|
(83.0)
|
%
|
|
Impairment
of Goodwill
|
|
166,621
|
|
|
166,621
|
|
0.0
|
%
|
|
Loss
on disposal of assets
|
|
3,914
|
|
|
6,368
|
|
(38.5)
|
%
|
|
Utilities
|
|
17,425
|
|
|
25,720
|
|
(32.3)
|
%
|
|
Legal
|
|
14,600
|
|
|
2,442
|
|
497.9
|
%
|
|
Stock
Related
|
|
18,450
|
|
|
8,424
|
|
119.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
Major Expenses
|
|
951,864
|
|
|
1,510,256
|
|
(37.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
$
|
1,257,366
|
|
$
|
1,664,367
|
|
(24.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses) and Net Loss
Our other
income and expenses and net loss for the twelve months ended December 31, 2007
and 2006 are as follows:
|
|
|
12
Months Ended
December
31, 2007
|
|
|
12
Months
Ended
December
31,
2006
|
|
Percentage
Change
Increase
(Decrease)
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
5,063
|
|
|
17,874
|
|
(71.7)
|
%
|
|
Change
in derivative liabilities
|
|
366,415
|
|
|
1,936,311
|
|
(81.1)
|
%
|
|
Interest
expenses
|
|
(16,131)
|
|
|
(227,757)
|
|
(92.9)
|
%
|
|
Financing
costs
|
|
(755,159)
|
|
|
(3,606,136
|
|
(79.1)
|
%
|
|
Total
other income (expenses)
|
|
(399,812)
|
|
|
(1,879,708)
|
|
(78.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
$
|
(1,758,778)
|
|
|
(3,683,176)
|
|
(147.8)
|
%
|
Other
expenses decreased approximately $1,479,896 from the year ending December 31,
2007 compared to the same period in 2006. This was primarily due to decreases in
finance costs and interest expense of $2,850,977 and $211,626 respectively.
Finance costs increased primarily due to the company receiving less financing in
2007 compared to 2006. This decrease was offset by an decrease in change of
derivative liability of $1,569,896, and interest and other income of $12,811.
The net loss for the year ended December 31, 2007 was $1,758,778, versus a net
loss of $3,683,176 for the year ended December 31, 2006, a decrease in net loss
of $1,924,398, or 52.2%
LIQUIDITY
AND CAPITAL RESOURCES
Our cash, total current
assets, total assets, total current liabilities, and total liabilities as of
December 31, 2007, as compared to December 31, 2006 were as
follows:
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
96,524
|
|
$
|
180,952
|
|
|
Accounts
receivable
|
|
13,953
|
|
|
13,275
|
|
|
Inventory
|
|
37,057
|
|
|
379,198
|
|
|
Prepaid
expenses
|
|
27,518
|
|
|
18,881
|
|
|
Net
assets of discontinued operations
|
|
0
|
|
|
134,865
|
|
|
Total
current assets
|
|
175,052
|
|
|
18,881
|
|
|
Total
assets
|
|
349,673
|
|
|
1,117,290
|
|
|
Total
current liabilities
|
|
1,348,294
|
|
|
891,362
|
|
|
Total
liabilities
|
|
5,956,115
|
|
|
5,021,804
|
|
At December 31, 2007, we had a working
deficit of $1,173,242 resulting primarily from the company’s large short-term
notes payable, Accrued liabilities and trade accounts payable.
Net cash
used in operating activities was a negative $171,088 for the year ending
December 31, 2007. This resulted primarily from the net loss of $1,758,778.
Contributing to the net loss was a change in derivative liability of $366,415.
In addition there was an increase in A/R, and prepaid/other assets of $9,094,
and $8,537. Offsetting the net loss was adjustment to depreciation, impairment
of goodwill, loss on disposal of assets, and provision for bad debt of $23,138,
$166,621, $3,914, and $8,416. Another offset is noncash interest expense and
financing costs of $755,159. In addition a decrease in inventory of $342,141,
and increases in A/P/Accrued liabilities, and unearned revenue of $383,719, and
$81,335 respectively offset the net loss.
Net cash
provided in investing activities for the year ending December 31, 2007 was
a negative $3,775 which was primarily due to the purchase of property and
equipment.
Net cash
from financing activities was $152,275 for the year ending December 31, 2007 and
resulted primarily from net proceeds from convertible debt of $175,000. This was
slightly offset by repayments of long-term debt and capital lease obligations of
$17,111. In addition there were repayments to related parties of
$5,614.
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 2007 the company sold its remaining
in-house custom vehicles, and is now focusing on selling client end custom
automotive conversion.
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. The lack of
cash flow has also resulted in increased company liabilities due to the non
payment of federal and state payroll taxes. In addition the company is at
further risk due to lack of workers compensation insurance coverage
since the fourth quarter. 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. The company may also choose to shut down the current
operations of the TrixMotive subsidiary, and the Company will act as a shell
company for another business transaction.
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,
2007, the Company had an impairment of goodwill of $166,621 and a loss on
disposal of assets of $3,914.
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.
FACTORS THAT MAY AFFECT OUR
RESULTS OF OPERATIONS
RISKS
RELATING TO OUR BUSINESS AND OUR MARKETPLACE
We
are a relatively young company with a minimal operating history
Since we
were a non-operating company for many years prior to our acquisition of Damon’s,
it is difficult to evaluate our business and prospects. At this stage
of our business operations, even with our good faith efforts, potential
investors have a high probability of losing their investment. Since
our acquisition and reorganization in May 2004 and our change of business
direction, we have acquired the assets of a growing
industry. However, our future operating results will depend on many
factors, including the ability to generate sustained and increased demand and
acceptance of our products, the level of our competition, and our ability to
attract and maintain key management and employees. While management believes its
estimates of projected occurrences and events are within the timetable of its
business plan, there can be no guarantees or assurances that the results
anticipated will occur.
In addition, as a result of our limited
operating history, our historical and operating information is of limited value
in predicting our future operating results. We may not accurately
forecast customer behavior and recognize or respond to emerging trends, changing
preferences or competitive factors facing us, and therefore, we may fail to make
accurate financial forecasts. Our current and future expense levels
are based largely on our investment plans and estimates of future
revenue. As a result, we may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall, which could
force us to curtail or cease our business operations.
We
have not achieved profitability on an annual basis and expect to continue to
incur net losses in future quarters.
If we do not achieve profitability, our
business may not grow or continue to operate. In order to become
profitable, we must increase our revenues and/or decrease
expenses. We may not be able to increase or even maintain our
revenues, and we may not achieve sufficient revenues or profitability in any
future period. We recorded a net loss of $1,758,778 for the year
ended December 31, 2007, and have an accumulated deficit of
$8,169,470. We could incur net losses for the foreseeable
future. We will need to generate additional revenues from the sales
of our products or take steps to reduce operating costs to achieve and maintain
profitability. Even if we are able to increase revenues, we may
experience price competition that will lower our gross margins and our
profitability. If we do achieve profitability, we cannot be certain
that we can sustain or increase profitability on a quarterly or annual
basis.
We
may require additional funds to operate in accordance with our business
plan.
We may not be able to obtain additional
funds that we may require. We do not presently have adequate cash
from operations or financing activities to meet our long-term
needs. Our operations have been financed to date through debt and
sales of our equity. We believe our estimated cash flow from
operations will be sufficient to satisfy our contemplated cash requirements for
our current proposed plans and assumptions relating to our operations for
approximately 3 months.
If
unanticipated expenses, problems, and unforeseen business difficulties occur,
which result in material delays, we will not be able to operate within our
budget. If we do not achieve our internally projected sales revenues
and earnings, we will not be able to operate within our budget. If we
do not operate within our budget, we will require additional funds to continue
our business. If we are unsuccessful in obtaining those funds, we
cannot assure you of our ability to generate positive returns to the
Company. Further, we may not be able to obtain the additional funds
that we require on terms acceptable to us, if at all. We do not
currently have any established third-party bank credit
arrangements. If the additional funds that we may require are not
available to us, we may be required to curtail significantly or to eliminate
some or all of our development, manufacturing, or sales and marketing
programs.
If we need additional funds, we may
seek to obtain them primarily through equity or debt financings. Such
additional financing, if available on terms and schedules acceptable to us, if
available at all, could result in dilution to our current stockholders and to
you. We may also attempt to obtain funds through arrangement with
corporate partners or others. Those types of arrangements may require
us to relinquish certain rights or resulting products.
Our
auditor’s report reflects the fact that we have suffered recurring losses, which
raises substantial doubt about our ability to continue as a going
concern.
The
report of our independent auditors accompanying our financial statements for the
year ended December 31, 2007 and previous filings include an explanatory
paragraph indicating there is a substantial doubt about our ability to continue
as a going concern due to recurring losses. We plan to overcome the
circumstances that impact our ability to remain a going concern through a
combination of increased revenues and decreased costs, and additional debt
and/or equity financing. There can be no assurances that these plans
will be successful.
If
we acquire additional companies or products in the future, they could prove
difficult to integrate, disrupt our business, dilute stockholder value or
adversely affect our operating results.
We anticipate that we will make other
investments in complementary companies or products. We may not
realize the anticipated benefits of any such acquisition or
investment. The success of our acquisition program will depend on our
ability to overcome substantial obstacles, such as the availability of
acquisition candidates, our ability to compete successfully with other acquirers
seeking similar acquisition candidates, the availability of funds to finance
acquisitions and the availability of management resources to oversee the
operation of acquired businesses. Furthermore, we may have to incur
debt or issue equity securities to pay for future acquisitions or investments,
the issuance of which could be dilutive to us or our existing
stockholders. In addition, our profitability may suffer because of
acquisition-related costs or future impairment costs for acquired goodwill and
other intangible assets.
We have
limited resources and we can offer no assurance that we will be able to
integrate and manage any acquisitions successfully. We have no
present commitments, understandings, or plans to acquire other complementary
companies or products.
We
may not be able to compete effectively in markets where our competitors have
more available resources.
The automobile customization and
accessories market is competitive and there are no substantial barriers to
entry. We expect that competition will intensify and that new
competitors may enter the market in the future. Increased competition
may result in reduced profit margins on our products and services.
In addition, many of our competitors
have longer operating histories, larger customer bases, longer relationships
with clients, and significantly greater financial, technical, marketing, and
public relations resources than us. We may not successfully compete
in any market in which we conduct business currently or in the
future. The fact that we compete with established competitors who
have substantially greater resources and longer operating histories than us,
enables them to engage in substantial advertising and promotion and attract a
greater number of customers and business that we currently
attract. While this competition is already intense, it could have a
material adverse impact on our revenues and profitability if it were to
increase.
We
are highly dependent on a limited number of key personnel. The loss
of these personnel, whose knowledge, leadership, and technical expertise upon
which we rely, would harm our ability to execute our business plan.
We are largely dependent on duties
performed by the officers of the company George R. Lefevre, and Leslie McPhail.
In addition we are dependent on the co-founder of Moonlight Industries, David
McPhail for specific proprietary technical knowledge and specialized market
knowledge. Our intellectual property and our ability to successfully
market and distribute our products and services may be at risk from the
unanticipated accident, injury, illness, incapacitation, or death of either, Mr.
Lefevre, Mrs. McPhail, or Mr. McPhail or the loss of other principal design or
technical staff. Upon such occurrence, unforeseen expenses, delays,
losses, and diminished abilities to deliver signature work that our client’s
desire may be encountered. We maintain “key person” life insurance on
Mr. Lefevre, but do not carry insurance on Mrs. McPhail and Mr.
McPhail.
The
company has recently lost key personnel in 2007 and 2008. In 2007 the closing of
the Damon’s facility due to a lack of business and cash flow resulted in the
loss of Richard Perez the co-founder of Damon’s Motorcycle Creations. In
addition Jay Isco the former CFO and Secretary resigned in February of 2008, due
to non payment of salaries. The current CEO and CFO George Lefevre has also gone
without salary for all of 2007, and there can be no assurance that the company
will be able to retain his services without payment of salary.
We also have other key employees who
manage our operations and if we were to lose their services, senior management
would be required to expend time and energy to replace and train their
replacements which could severely harm our business.
Our
success may also depend on our ability to attract and retain other qualified
management and sales and marketing personnel. We compete for such
persons with other companies and other organizations, some of which have
substantially greater capital resources than we do. We cannot give
you any assurance that we will be successful in recruiting or retaining
personnel of the requisite caliber or in adequate numbers to enable us to
conduct our business.
We
are subject to federal, state, and local government regulations affecting
automotive customization and restoration that may affect our
operations.
Our
business is subject to certain federal, state and local government regulations,
including those of the Environmental Protection Agency ("EPA") and comparable
state agencies that regulate emissions of Volatile Organic Compounds ("VOC") and
other air contaminants, the Occupational Safety and Health Administration
("OSHA"), and regulations governing the disposal of oil, grease, tires,
batteries and the prevention of pollution, and State tax authorities where
vehicle sales may be affected as well as State motor vehicle regulators with an
interest in our manufacturing, sales and distribution of finished products . Any
changes in the laws or regulations imposed on us by these agencies could
significantly increase our costs of doing business and could have a very
negative effect on our business.
State tax
and motor vehicle regulations are migratory and in some cases regulating bodies
may decide that a code or regulation may apply to our business when there was no
history of such application. We may in the process of conducting our
business or yielding to a customer request have inadvertently or in ignorance
created a possible infraction of these regulations. We may encounter
a situation in which a regulator from a State tax authority or motor vehicle
regulator would decide that we have not been in compliance and insist on a
material change in the way we have done business that could seriously impact our
ability to continue to market our products to our customers. We may
further encounter a corrective measure by a similar regulator that would take
action more aggressive that a correction of our process or practice that could
include a back payment, a fine or termination of our ability to do business
within a particular state. These applications of regulations that our
business has not historically been subject to by any of these state regulators
would have a serious negative impact on our business.
In
the event our business operations and facilities are subject to a number of
federal, state and local environmental laws and regulations, such application of
these laws, regulations to our operations may require us to make significant
additional capital expenditures to ensure compliance in the future. Our failure
to comply with environmental laws could result in the termination of our
operations, impositions of fines, or liabilities in excess of our capital
resources.
Our
painting operations are subject to air quality management standards and
enforcement by The South Coast Air Quality Management District
(AQMD). AQMD requires licensing and conducts inspections from time to
time relative to vapor as a result of our paint operations. If we
were found to require adjustment or replacement of our paint and ventilation
equipment as a result of an unfavorable AQMD inspection or suspension or change
of our license with AQMD we could risk experiencing an interruption in
production that would have a negative impact on revenue and
profits.
We
may incur material losses as a result of product recall and product
liability.
Given the nature of our products and
services, we expect that we will be subject to potential product liability
claims that could, in the absence of sufficient insurance coverage, have a
material impact on our business. A significant product liability
judgment against us, or a widespread product recall, could have a material
adverse effect on our business, financial condition and results of operations.
The government may adopt regulations that could increase our costs or our
liabilities.
From time
to time we warrant or guarantee the quality of our work for a limited duration
and under limited circumstances. If we were to experience an adverse
workmanship issue under a warranty or not under a warranty or similar guarantee
it could result in a remedy or litigation that would have a negative impact on
our revenue and profits.
Our
success is dependent upon the popularity of Customized Automotives.
Although our products and services are
not limited to that of customized stretched automotives, the success of our
business is depended upon the popularity of the custom automotive industry.
There can be no assurance, however, that the current popularity of custom
automotives will continue. If such popularity declines, our business operations
may be adversely affected.
We
do not own any patents or registered trademarks or trade names. Protecting our
proprietary technology and other intellectual property may be costly and
ineffective, and if we are unable to protect our intellectual property, we may
not be able to compete effectively in our market.
Our business success will depend
materially on our ability to protect our trademarks and trade names, to preserve
our trade secrets, and to avoid infringing the proprietary rights of third
parties. In general, our proprietary rights will be protected only to the extent
that protection is available and to the extent we have the financial and other
resources to enforce any rights we hold.
We do not own any patents or registered
trademarks or trade names. We may apply for federal and other governmental
trademark registrations in the future, but we cannot assure you that any of our
trademark applications will result in a registered and protectable trademark.
Any registered or unregistered trademarks held or asserted by us may be
canceled, infringed, circumvented or declared generic, or determined to be
infringing on other marks owned by third parties. We intend to rely upon trade
secrets, proprietary know-how and continuing technological innovation to become
competitive in our market. We cannot assure you that others may not
independently develop the same or similar technologies or otherwise obtain
access to our technology and trade secrets.
Costly litigation might be necessary to
protect our intellectual property or to determine the scope and validity of
third-party proprietary rights. If an adverse outcome in litigation finds that
we have infringed on proprietary rights of others, we may be required to pay
substantial damages and may have to discontinue use of our products or re-design
our products. Any claim of infringement may involve substantial expenditures and
divert the time and effort of management.
RISKS
RELATING TO OUR COMMON STOCK
We
are subject to price volatility due to our operations materially
fluctuating.
As a result of the evolving nature of
the markets in which we compete, as well as the current nature of the public
markets and our current financial condition, we believe that our operating
results may fluctuate materially, as a result of fiscal year comparisons and our
results of operations may not be meaningful. If our results of
operations fall below the expectations of investors, the trading price of our
common stock would likely be materially and adversely affected. You
should not rely on our results of any period as an indication of our future
performance. Additionally, our quarterly results of operations may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside our control such as:
|
·
|
Our
ability to retain existing
customers;
|
|
·
|
Our
ability to attract new customers at a steady
pace;
|
|
·
|
Our
ability to maintain customer
satisfaction;
|
|
·
|
The
extent to which our products and services gain market
acceptance;
|
|
·
|
Introductions
of products and services by
competitors;
|
|
·
|
Price
competition in the markets in which we
compete;
|
|
·
|
Our
ability to attract, train, and retain skilled
management;
|
|
·
|
The
amount and timing of operating costs and capital expenditures relating to
the expansion of our business, operations, and infrastructure;
and
|
|
·
|
General
economic conditions and economic conditions specific to the aftermarket
automotive parts, services, and accessories
industry.
|
We
do not expect to pay dividends for the foreseeable future.
For the foreseeable future, it is
anticipated that earnings, if any, that may be generated from our operations
will be used to finance our operations and that cash dividends will not be paid
to holders of our common stock.
Our
common stock may be affected by limited trading volume and may fluctuate
significantly, which may affect our stockholders' ability to sell shares of our
common stock
There has been a limited public market
for our common stock and there can be no assurance that a more active trading
market for our common stock will develop. An absence of an active trading market
could adversely affect our stockholders' ability to sell our common stock in
short time periods, or possibly at all. Our common stock has experienced, and is
likely to experience in the future, significant price and volume fluctuations,
which could adversely affect the market price of our common stock without regard
to our operating performance. In addition, we believe that factors such as
quarterly fluctuations in our financial results and changes in the overall
economy or the condition of the financial markets could cause the price of our
common stock to fluctuate substantially. These fluctuations may also cause short
sellers to enter the market from time to time in the belief that we will have
poor results in the future. We cannot predict the actions of market participants
and, therefore, can offer no assurances that the market for our stock will be
stable or appreciate over time. These factors may negatively impact
stockholders' ability to sell shares of our common stock.
Because our
common stock is deemed a low-priced “Penny” stock, an investment in our common
stock should be considered high risk and subject to marketability
restrictions
.
Since our common stock is a penny
stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be
more difficult for investors to liquidate their investment. Until the
trading price of the common stock rises above $5.00 per share, if ever, trading
in our common stock is subject to the penny stock rules of the Securities
Exchange Act specified in rules 15g-1 through 15g-10. Those rules require
broker-dealers, before effecting transactions in any penny stock,
to:
|
|
·
|
Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
|
|
|
·
|
Disclose
certain price information about the
stock;
|
|
|
·
|
Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
|
|
|
·
|
Send
monthly statements to customers with market and price information about
the penny stock; and
|
|
|
·
|
In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules.
|
Consequently, the penny stock rules may
restrict the ability or willingness of broker-dealers to sell the common stock
and may affect the ability of holders to sell their common stock in the
secondary market and the price at which such holders can sell any such
securities. These additional procedures could also limit our ability to raise
additional capital in the future.
We
are subject to SEC regulations and changing laws, regulations and standards
relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations and other trading market rules,
are creating uncertainty for public companies.
We are committed to maintaining high
standards of corporate governance and public disclosure. As a result,
we intend to invest appropriate resources to comply with evolving standards, and
this investment may result in increased general and administrative expenses and
a diversion of management time and attention from revenue-generating activities
to compliance activities.
ITEM
7. FINANCIAL
STATEMENTS.
See
Financial Statements and Financial Statement Schedules appearing on page F-1
through F-20 of this Form 10-KSB.
HAROLD Y. SPECTOR,
CPA
SPECTOR, WONG & DAVIDIAN,
LLP
TEL: 1-888-584-5577
CAROL S. WONG,
CPA
Certified Public
Accountants
FAX: 1-626-584-6447
80 SOUTH LAKE AVENUE
PASADENA, CA 91101
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, 2007 and 2006, and the related consolidated statements of
operations, stockholders’ equity, 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, 2007 and 2006, 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. 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
May 12,
2008
MOTIVNATION,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
|
$ 96,524
|
|
$ 180,952
|
|
Accounts
receivable, net
|
|
13,953
|
|
13,275
|
|
Inventory
|
|
37,057
|
|
379,198
|
|
Prepaid
expenses and other current assets
|
|
27,518
|
|
18,881
|
|
Net
assets of discontinued operations
|
|
-
|
|
134,865
|
|
Total
Current Assets
|
|
175,052
|
|
727,171
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
99,403
|
|
122,680
|
|
Goodwill
|
|
-
|
|
166,621
|
|
Debt
issuance cost, net
|
|
23,805
|
|
49,305
|
|
Other
assets
|
|
51,413
|
|
51,513
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ 349,673
|
|
$ 1,117,290
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable
|
|
$ 182,269
|
|
$ 180,278
|
|
Accrued
liabilities
|
|
764,033
|
|
382,305
|
|
Unearned
revenue
|
|
116,945
|
|
35,610
|
|
Net
liabilities of discontinued operations
|
|
10,588
|
|
-
|
|
Short-term
notes payable to related parties
|
|
269,487
|
|
275,101
|
|
Current
portion of long-term notes payable
|
|
3,430
|
|
3,687
|
|
Current
portion of capital lease obligations
|
|
1,542
|
|
14,381
|
|
Total
Current Liabilities
|
|
1,348,294
|
|
891,362
|
|
Long-Term
Debt
|
|
|
|
|
|
Long-term
notes payable, excluding current portion
|
|
-
|
|
3,754
|
|
Capital
lease obligations, excluding current portion
|
|
-
|
|
261
|
|
Convertible
notes payable, net of unamortized discount of $1,394,249
and
|
698,786
|
|
208,131
|
|
$1,735,436
for 2007 and 2006, respectively
|
|
|
|
|
|
Derivative
liabilities
|
|
3,909,035
|
|
3,918,296
|
|
Total
Long-Term Liabilities
|
|
4,607,821
|
|
4,130,442
|
|
Total
Liabilities
|
|
5,956,115
|
|
5,021,804
|
|
Stockholders'
Deficit
|
|
|
|
|
|
Preferred
Stock, $0.001 par value; 100,000,000 shares authorized;
|
|
|
|
|
none
issued and outstanding
|
|
-
|
|
-
|
|
Common
Stock, $0.001 par value; 300,000,000 shares authorized;
|
|
|
|
|
issued
and outstanding 2007 16,266,157 shares; 2006 7,045,463
shares
|
16,267
|
|
7,046
|
|
Paid-in
Capital
|
|
2,546,761
|
|
2,499,132
|
|
Accumulated
deficit
|
|
(8,169,470)
|
|
(6,410,692)
|
|
Total
Stockholders' Deficit
|
|
(5,606,442)
|
|
(3,904,514)
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ 349,673
|
|
$ 1,117,290
|
|
|
|
|
|
|
See Notes
to Consolidated Financial
Statements
F-1
MOTIVNATION,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For
years ended December 31,
|
|
2007
|
|
2006
|
|
Sales:
|
|
|
|
|
|
Sales
- products
|
|
$ 391,500
|
|
$ 1,126,336
|
|
Sales
- services
|
|
1,837,309
|
|
1,155,747
|
|
Total
sales
|
|
2,228,809
|
|
2,282,083
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
|
|
|
Cost
of products
|
|
361,527
|
|
565,587
|
|
Cost
of services
|
|
1,759,189
|
|
1,638,125
|
|
Total
costs of sales
|
|
2,120,716
|
|
2,203,712
|
|
|
|
|
|
|
|
Gross
profit
|
|
108,093
|
|
78,371
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
Selling,
general and administrative Expenses
|
|
1,086,831
|
|
1,497,397
|
|
Impairment
of Goodwill
|
|
166,621
|
|
166,621
|
|
Loss
on disposal of assets
|
|
3,914
|
|
349
|
|
Total
Operating Expenses
|
|
1,257,366
|
|
1,664,367
|
|
|
|
|
|
|
|
Operating
loss
|
|
(1,149,273)
|
|
(1,585,996)
|
|
|
|
|
|
|
|
Other
income(expenses)
|
|
|
|
|
|
Interest
and other income
|
|
5,063
|
|
17,874
|
|
Change
in derivative liabilities
|
|
366,415
|
|
1,936,311
|
|
Interest
expense
|
|
(16,131)
|
|
(227,757)
|
|
Financing
costs
|
|
(755,159)
|
|
(3,606,136)
|
|
Total
other income(expenses)
|
|
(399,812)
|
|
(1,879,708)
|
|
|
|
|
|
|
|
Net
loss before state franchise tax
|
|
(1,549,085)
|
|
(3,465,704)
|
|
|
|
|
|
|
|
State
franchise tax
|
|
2,400
|
|
2,400
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
(1,551,485)
|
|
(3,468,104)
|
|
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
|
|
Net
loss from discontinued operations (net of
|
|
|
|
|
|
applicable
taxes of $0 for 2007 and 2006)
|
|
(207,293)
|
|
(215,072)
|
|
|
|
|
|
|
|
Net
loss
|
|
$ (1,758,778)
|
|
$ (3,683,176)
|
|
|
|
|
|
|
|
Net
loss from continuing operations per share-Basic and
Diluted
|
$ (0.15)
|
|
$ (0.68)
|
|
Net
loss
|
|
$ (0.17)
|
|
$ (0.72)
|
|
Weighted
Average Number of Shares
|
|
10,528,987
|
|
5,110,004
|
See Notes
to Consolidated Financial
Statements
F-2
MOTIVNATION,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHDOLERS’ DEFICIT
For
years ended December 31, 2007 and 2006
|
|
Common
Stock
|
Paid-in
|
Deferred
|
Accumulated
|
|
|
Shares
|
Amount
|
Capital
|
Consulting
|
Deficit
|
Total
|
|
Balance
at December 31, 2005,
|
2,293,463
|
$ 2,294
|
$ 2,159,710
|
$ (424,221)
|
$ (2,727,516)
|
$ (989,733)
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
reduction
of accrued liability
|
652,000
|
652
|
149,348
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
Forgiven
debt by related party
|
|
|
79,310
|
|
|
79,310
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable
|
4,100,000
|
4,100
|
52,333
|
|
|
56,433
|
|
|
|
|
|
|
|
|
|
Reclassification
of derivative liabilites
|
|
|
|
|
|
|
and
unamortized discount due to conversion
|
|
58,431
|
|
|
58,431
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred consulting
|
|
|
424,221
|
|
424,221
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
(3,683,176)
|
(3,683,176)
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
7,045,463
|
7,046
|
2,499,132
|
-
|
(6,410,692)
|
(3,904,514)
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable
|
9,220,694
|
9,221
|
16,311
|
|
|
25,532
|
|
|
|
|
|
|
|
|
|
Reclassification
of derivative liabilites
|
|
|
|
|
|
|
and
unamortized discount due to conversion
|
|
31,318
|
|
|
31,318
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
(1,758,778)
|
(1,758,778)
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
16,266,157
|
$ 16,267
|
$ 2,546,761
|
$ -
|
$ (8,169,470)
|
$ (5,606,442)
|
|
|
|
|
|
|
|
|
See Notes
to Consolidated Financial
Statements
F-4
MOTIVNATION,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
For
years ended December 31,
|
|
2007
|
|
2006
|
|
CASH
FLOW FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
Net
loss
|
|
$ (1,758,778)
|
|
$(3,683,176)
|
|
Add:
Net loss from discontinued operations, net of tax
|
|
207,293
|
|
215,072
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
Depreciation
|
|
23,138
|
|
21,826
|
|
Impairment
of goodwill
|
|
166,621
|
|
166,621
|
|
Noncash
interest expense and financing costs
|
|
755,159
|
|
3,606,136
|
|
Change
in derivative liabilities
|
|
(366,415)
|
|
(1,936,311)
|
|
Loss
on disposal of assets
|
|
3,914
|
|
349
|
|
Provision
for bad debt
|
|
8,416
|
|
-
|
|
Compensation
recognized on vested shares
|
|
-
|
|
424,221
|
|
(Increase)
Decrease in:
|
|
|
|
|
|
Accounts
receivable
|
|
(9,094)
|
|
42,475
|
|
Inventory
|
|
342,141
|
|
(302,602)
|
|
Prepaid
and other assets
|
|
(8,537)
|
|
(22,944)
|
|
Increase
(Decrease) in:
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
383,719
|
|
291,247
|
|
Unearned
revenue
|
|
81,335
|
|
(113,230)
|
|
Net
cash flows used in operating activities from continuing
operations
|
|
(171,088)
|
|
(1,290,316)
|
|
CASH
FLOW FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
Purchase
of property and equipment
|
|
(3,775)
|
|
(11,221)
|
|
Net
cash flows used in investing activities from continuing
operations
|
|
(3,775)
|
|
(11,221)
|
|
CASH
FLOW FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
Repayment
on long-term notes payable and capital lease obligations
|
|
(17,111)
|
|
(30,557)
|
|
Net
repayments to related parties
|
|
(5,614)
|
|
(25,560)
|
|
Net
proceeds from convertible debt
|
|
175,000
|
|
1,678,500
|
|
Net
cash flows provided by financing activities from continuing
operations
|
|
152,275
|
|
1,622,383
|
|
NET
CASH PROVIDED BY(USED IN) CONTINUING OPERATIONS
|
|
(22,588)
|
|
320,846
|
|
NET
CASH USED IN DISCONTINUED OPERATIONS
|
|
(61,840)
|
|
(235,427)
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
(84,428)
|
|
85,419
|
|
CASH
AT BEGINNING OF YEAR
|
|
180,952
|
|
95,533
|
|
CASH
AT END OF YEAR
|
|
$ 96,524
|
|
$ 180,952
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Income
Taxes Paid
|
|
$ 2,400
|
|
$ 2,400
|
|
Interest
Paid
|
|
$ 2,139
|
|
$ 5,584
|
|
Noncash
Investing and Financing Activities:
|
|
|
|
|
|
Assumption
of accounts payable by related party
|
|
$ -
|
|
$ 17,098
|
|
Issuance
common stocks for reduction of accrued liabilities
|
|
$ -
|
|
$ 150,000
|
|
Conversion
of notes payable
|
|
$ 25,532
|
|
$ 56,433
|
|
Issuance
of warrants in connection with convertible debt
|
|
$ 59,995
|
|
$ 1,678,507
|
|
Recorded
a beneficial conversion feature
|
|
$ 346,976
|
|
$ 3,393,635
|
|
Transfer
unamortized discount and derivative liabilities to paid in
|
|
|
|
|
|
capital
due to debt conversion
|
|
$ 31,318
|
|
$ 58,431
|
See Notes
to Consolidated Financial
Statements
F-4
MOTIVNATION,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
1 – NATURE OF BUSINESS AND GOING CONCERN
Nature of Business:
MotivNation, Inc. (“the Company”) provides a full range of services that cater
to the custom motorcycle and automotive enthusiast, including the sale,
manufacture, converting, customization, armor protecting, and installation of
custom-built automotive and motorcycles, auto parts and accessories, as well as
restoration, repair, and servicing. MotivNation’s business divisions specialize
in customized motorcycles, specialized automotives conversions such as stretched
limousines, and is an automotive supplier delivering advanced systems and
components to the motor vehicle industry. In third quarter of 2007, the Company
began to cease the business of customizing motorcycles.
MotivNation
was incorporated on April 26, 1946, under the laws of the State of Idaho. The
Company was organized to explore for, acquire and develop mineral properties in
the State of Idaho. The initial and subsequent efforts in the acquisition,
exploration and development of potentially viable and commercial mineral
properties were unsuccessful. The Company has since ceased its mining
business.
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. The Company
also changed its name from Aberdeen Idaho Mining Company to Aberdeen Mining
Company.
On May
11, 2004, the Company completed a “reverse acquisition” transaction with Damon’s
Motorcycle Creations, Inc. (“DAMON”), from which the Company acquired
substantially all the assets and assumed substantially all the liabilities of
DAMON, in consideration for the issuance of a majority of the Company’s shares
of common stock. The reverse acquisition was completed pursuant to the Asset
Purchase Agreement, dated as of May 11, 2004. For accounting purposes, DAMON is
the acquirer in the reverse acquisition transaction, and consequently the assets
and liabilities and the historical operations reflected in the financial
statements are those of DAMON and are recorded at the historical cost basis of
DAMON. All shares and per share data prior to the acquisition have been restated
to reflect the stock issuance as a recapitalization of DAMON. Since the reverse
acquisition transaction is in substance a recapitalization of the Company and is
not a business combination, pro forma information is not presented. Such pro
forma statements of operations would be substantially identical to the
historical statements of operations of the Company, which are presented in the
accompanying consolidated statements of operations.
Following
the reverse acquisition, the Company changed its name to MotivNation,
Inc.
On
October 11, 2004, the Company and its wholly owned subsidiary, TrixMotive Inc.
(“TrixMotive”), a Nevada corporation, entered into an Asset Purchase Agreement
with Moonlight Industries, Inc., a California corporation (“MOONLIGHT”), to
acquire certain assets and liabilities of MOONLIGHT in exchange for 140,000
shares of the Company’s common stock. The president of MOONLIGHT became the
Secretary of TrixMotive. The Company’s president and secretary agreed to return,
in the aggregate, 140,000 shares of the Company’s common stock held by them to
the Company prior to the closing of this acquisition. The company will continue
under the MOONLIGHT brand but will operate under the TrixMotive corporate
entity.
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 operating losses totaling $1,758,778 and $3,683,176 for the years ended
December 31, 2007 and 2006, respectively. In addition, the Company has an
accumulated deficit of $5,606,442 and working capital deficit of $1,173,242 as
of December 31, 2007. In the near term, the Company expects operating
costs to continue to exceed funds generated from operations. As a result, the
Company expects to continue to incur operating losses and may not have enough
money to grow its business in the future. The Company can give no assurance that
it will achieve profitability or be capable of sustaining profitable
operations. As a result, operations in the near future are expected
to continue to use working capital.
NOTE
1 – NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)
Management's
plans include raising additional working capital through debt or equity
financing and increasing marketing efforts to increase revenues. In 2007, the
Company completed the sale of $175,000 aggregate principal amount of 8% callable
secured convertible notes due in 2010, and issued stock warrants purchasing up
to 15 million shares of the Company’s common stock pursuant to a Security
Purchase Agreement dated November 16, 2007 (See Note 8 – Convertible Notes
Payable and Derivative Liabilities). 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. In third quarter of
2007, the Company began to cease the business of customizing motorcycles.
Accordingly, the accompanying consolidated financial statements for the years
ended December 31, 2007 and 2006 have been restated to present the results of
the customizing motorcycles segment as discontinued operations.
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.
Revenue and Cost
Recognition:
The Company recognizes revenues from fixed-price contracts
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,
2007 and 2006, the Company considered its accounts receivable to be fully
collectible; accordingly, no allowance for bad debts was recorded for each of
the year. Bad debt expense for the years ended December 31, 2007 and 2006 was
$8,416 and $49,379, respectively.
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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. Depreciation expense was $23,138
and $21,826 for 2007 and 2006, respectively.
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 goodwill in connection with the Company’s acquisition described
in Note 13 amounting to $333,242. The Company’s annual impairment
review of goodwill has identified that the goodwill impairment charge of
$166,621 are necessary for each of the year ended December 31, 2007 and
2006 as discussed in Note 4.
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
Instru
ments 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Advertising Costs:
All advertising costs are expensed as incurred. Advertising expenses were
$13,450 and $12,890 for 2007 and 2006, respectively.
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.
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 February 2007, the Financial Accounting Standards
Board (FASB) issued SFAS No. 159,
"The Fair Value Option For Financial
Assets And Liabilities - Including An Amendment Of FASB Statement No. 115."
SFAS No. 159 provides companies with an option to measure, at specified
election dates, certain financial instruments and other items at fair value that
are not currently measured at fair value. A company that adopts SFAS 159 will
report unrealized gains and losses on items for which the fair value option has
been elected in its financial statements during each subsequent reporting date.
SAFS No.159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company does not expect SFAS 159 to have material impact on its
consolidated financial position, results of operations and cash
flows.
In May
2007, the FASB issued FASB Staff Position No. FIN 48-1,
"Definition of Settlement in FASB
Interpretation No. 48."
FSP 48-1 amended FIN 48 to provide guidance on
how an enterprise should determine whether a tax position is effectively settled
for the purpose of recognizing previously unrecognized tax benefits. FSP 48-1
required application upon the initial adoption of FIN 48. The adoption of FSP
48-1 did not affect the Company's consolidated 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
September 2006, the FASB issued SFAS No. 157,
“
Fair Value Measurements
.
”
SFAS No. 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement addresses how to calculate fair value
measurements required or permitted under other accounting pronouncements.
Accordingly, this statement does not require any new fair value measurements.
However, for some entities, the application of the statement will change current
practice. SFAS No. 157 is effective for the Company beginning January 1, 2008.
The Company is currently evaluating the impact of this standard.
In
September 2006, the Securities and Exchange Commission ("SEC") staff issued
Staff Accounting Bulletin No. 108 ("SAB 108"),
Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.
The stated purpose of SAB 108 is to provide consistency
between how registrants quantify financial statement misstatements.
NOTE
3 – BALANCE SHEET DETAILS
The
following tables provide details of selected balance sheet items:
|
At
December 31,
|
|
2007
|
|
2006
|
|
Inventory
|
|
|
|
|
|
Painted
materials
|
|
$ 5,689
|
|
$ 6,346
|
|
Mechanical
materials
|
|
20,536
|
|
26,903
|
|
Body
shop materials
|
|
10,832
|
|
10,390
|
|
Vehicles
|
|
-
|
|
181,577
|
|
Work-in
Process
|
|
-
|
|
153,982
|
|
Total
inventory
|
|
$ 37,057
|
|
$ 379,198
|
|
Property
and Equipment, net
|
|
|
|
|
|
Automobiles
|
|
$ 19,026
|
|
$ 19,026
|
|
Furniture
and fixtures
|
|
4,129
|
|
4,129
|
|
Machinery
and equipment
|
|
143,279
|
|
146,882
|
|
|
|
166,434
|
|
170,037
|
|
Less:
accumulated depreciation
|
|
(67,031)
|
|
(47,357)
|
|
Property
and Equipment, net
|
|
$ 99,403
|
|
$ 122,680
|
|
Accrued
Liabilities
|
|
|
|
|
|
Accrued
payroll and related taxes
|
|
$ 380,402
|
|
$ 177,014
|
|
Credit
cards payable
|
|
503
|
|
1,686
|
|
Accrued
vacation
|
|
23,421
|
|
10,778
|
|
Accrued
interest
|
|
336,673
|
|
169,573
|
|
Accurd
warranty
|
|
8,994
|
|
8,994
|
|
Others
|
|
14,040
|
|
14,260
|
|
Total
accrued liabilities
|
|
$ 764,033
|
|
$ 382,305
|
NOTE
4 – IMPAIRMENT OF GOODWILL
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.
The
Company performed its annual impairment test of goodwill at its designated
valuation dates of December 31, 2007 and 2006 in accordance with SFAS
142. As a result of these tests, the Company determined that the
amount of goodwill recorded was not recoverable. Accordingly the
Company recorded a goodwill impairment charge of $166,621 for each of the year
ended December 31, 2007 and 2006.
NOTE
5 – SHORT-TERM NOTES PAYABLE TO RELATED PARTIES
At
December 31, short-term notes payable to related parties consisted of the
following:
|
|
|
|
2007
|
|
2006
|
|
1.)
|
Revolving
line of credit up to $50,000, payable
|
|
|
|
|
|
|
to
a related party
a
|
|
$ 107,998
|
|
$ 107,998
|
|
|
|
|
|
|
|
|
2.)
|
Payable
to a related party, interest accrued at
|
|
|
|
|
|
|
10%,
due on July 2, 2005
b
|
|
32,388
|
|
32,388
|
|
|
|
|
|
|
|
|
3.)
|
Demand
note payable to a related party, non-
|
|
|
|
|
|
|
interest
bearing
|
|
49,000
|
|
49,000
|
|
|
|
|
|
|
|
|
4.)
|
Demand
note payable to a related party, non-
|
|
|
|
|
|
|
interest
bearing
|
|
1,003
|
|
3,617
|
|
|
|
|
|
|
|
|
5.)
|
Inventory
line of credit to a related party
c
|
|
62,000
|
|
65,000
|
|
|
|
|
|
|
|
|
6.)
Payable to a related party, interest accrued at 8%,
|
|
|
|
|
|
due
on November 8, 2007
d
|
|
17,098
|
|
17,098
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ 269,487
|
|
$ 275,101
|
|
|
|
|
|
|
|
|
a.
|
On
July 26, 2004, the Company entered into a revolving line of credit
agreement with the Company’s CEO. Under this agreement the Company can
borrow working capital advances up to a total of $50,000, payable on or
before July 26, 2005, extended to December 31, 2007, with interest payable
monthly commencing on December 15, 2004 at 10% per annum. Borrowings under
this agreement are unsecured. The Company is negotiating the note
payments.
|
|
b.
|
The
note is convertible into the Company’s common stock at 70% of the average
of the three lowest closing bid prices within the first seven trading days
after the effective day of the note. The due date of the note is extended
to December 31, 2007. The Company is negotiating the note
payments.
|
NOTE
5 – SHORT-TERM NOTES PAYABLE TO RELATED PARTIES (CONTINUED)
|
c.
|
On
December 28, 2006, TrixMotive and the related party entered in to a
settlement agreement providing that the related party shall forgive the
original note balance and related accrued interest of $144,310 in exchange
of a new promissory note of $65,000. As a result, an aggregate amount of
$79,310 was forgiven. The new note is payable in minimum quarterly
installments of $3,000. The remaining unpaid amount will be due at June
30, 2008. The new note bears a zero interest. The Company
recorded the transaction as equity transaction because IPC is a related
party based on the guidance outlined in paragraph 20 of APB Opinion 26,
“Early Extinguishment of
Debt.”
|
TrixMotive
is currently in default of three minimum quarterly payments aggregated to
$9,000.
|
d.
|
On
July 18, 2006, the Company’s CEO assumed a liability of $17,098 payable to
a former attorney. The Company issued a note payable of this amount on
November 8, 2006. The note bears interest at 8% per annum payable
quarterly in cash. The note is due on November 8, 2007. The Company is
negotiating the note payments.
|
As of
December 31, 2007 and 2006, total accrued interest due to these related parties
was $42,197 and $27,023, respectively.
NOTE
6 – LONG-TERM NOTES PAYABLE
At
December 31, long-term notes payable consisted of the following:
|
|
|
|
2007
|
|
2006
|
|
1.)
|
Note
Payable to Dell - Monthly installments of
|
|
|
|
|
|
|
$90,
including interest at 9.99% per annum, due
|
|
|
|
|
|
|
March
2006. Secured by office equipment.
(a)
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
2.)
|
Note
Payable to Bank of America - Monthly
|
|
|
|
|
|
|
installments
of $337, including interest at 5.99%
|
|
|
|
|
|
|
per
annum, due January 2009. Secured by a vehicle
|
|
3,430
|
|
7,441
|
|
|
|
|
|
|
|
|
|
|
|
3,430
|
|
7,441
|
|
|
Less:
current maturities
|
|
(3,430)
|
|
(3,687)
|
|
|
|
|
|
|
|
|
|
Long-term
notes payable
|
|
$ -
|
|
$ 3,754
|
|
|
|
|
|
|
|
|
a.
|
The
note payable was reclassified and included in net liabilities of
discontinued operations – see Note
12.
|
NOTE
7 – CAPITAL LEASE OBLIGATIONS
Certain
long-term lease transactions relating to the financing of equipment and
machinery are accounted for as capital leases. Capital lease obligations reflect
the present value of future rental payments, les an interest amount implicit in
the lease.
A
corresponding amount is capitalized as property and equipment, and amortized
over the individual asset’s estimated useful life. Amortization of assets under
capital lease obligations is included in depreciation expense.
In 2007,
the Company paid off three lease obligations. The remaining lease payments as of
December 31, 2007 were $1,542, which was all current.
NOTE
8 – CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
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. Through to date, the
Company did not file the Registration Statement with the SEC.
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 in 2009, 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 2007 and 2006, the Company has converted $25,532 and $56,433 principal
amount into 9,220,694 and 4,100,000 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.
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.
NOTE 8 –
CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED)
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
|
|
Approximate
risk free rate
|
4.41%
|
4.28%
|
4.47%
|
3.30%
|
|
Average
expected life
|
3
years
|
3
years
|
3
years
|
3
years
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
0%
|
|
Volatility
|
356.33%
|
348.92%
|
342.77%
|
286.90%
|
|
Estimated
fair value of conversion feature
|
$599,200
|
$998,346
|
$2,395,289
|
$346,997
|
The
Company recorded the fair value of the conversion feature, aggregate of $346,997
and $3,393,635 as a discount to the convertible debt in the accompanying balance
sheets as of December 31, 2007 and 2006, respectively, up to the proceeds
received from each traunch, with any excess or $171,997 and $1,693,635 charged
to expense for the years then ended. Amortization expense related to
the conversion feature discount for the years ended December 31, 2007 and 2006
was $497,689 and $208,327, respectively. Remaining unamortized discount as of
those dates was $1,349,249 and $1,735,436, 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
|
|
Approximate
risk free rate
|
4.42%
|
4.28%
|
4.46%
|
3.88%
|
|
Average
expected life
|
5
years
|
5
years
|
5
years
|
7
years
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
0%
|
|
Volatility
|
356.33%
|
348.92%
|
342.77%
|
286.90%
|
|
Number
of warrants granted
|
375,000
|
625,000
|
1,500,000
|
15,000,000
|
|
Estimated
fair value of total warrants granted
|
$299,975
|
$493,692
|
$1,184,815
|
$59,995
|
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, 2007 and 2006, the fair values of the
conversion feature and the stock warrants aggregated to $3,909,035 and
$3,918,296, respectively. The Company recorded a gain of $366,415 and
$1,936,311 for the years then ended. 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
9 – STOCKHOLDERS’ EQUITY
Shares for Debt
Agreement
On
February 2, 2006 the Board of Directors approved the issuance of 217,000
unregistered shares of common stock to the Chief Financial Officer and Secretary
of the Company, and the Company entered into Shares for Debt Agreement with the
CFO on the same date. The consideration received by the Company consisted of
$50,000 in services rendered by the CFO during the period from January 1, 2005
through December 31, 2005, and a full release from any other claims for
compensation relating to such period. The services had been accrued in prior
year.
The Board
has also approved the issuance of 435,000 unregistered shares of common stock to
the Chief Executive Officer and Chairman of the Board of the Company, and the
Company entered into Shares for Debt Agreement with the CEO on the same date.
The consideration received by the Registrant consisted of $100,000 in services
rendered by the CEO during the period from January 1, 2005 through December 31,
2005, and a full release from any other claims for compensation relating to such
period. The services had been accrued in prior year.
The value
of the shares was based on the lowest price of the last trading day from
February 2, 2006 (date of grant) which was $0.23 per share as there was limited
trading volume. Therefore, no gain or loss on debt settlement was
recorded.
Restricted Stock
Agreements
The
Company recognized $169,421 in compensation during the first nine months ended
September 30, 2006 based on the vesting conditions provided by the Restricted
Stock Agreements dated February 15, 2005.
As of
September 30, 2006, all shares under the Agreements were vested.
NOTE
10 – INCOME TAX
Provision
of income tax consists of a minimum state franchise tax of $2,400 for each of
the year ended December 31, 2007 and 2006, respectively.
As of
December 31, 2007, the Company has net operating loss carryforwards,
approximately of $3.3 million and $3.4 million to reduce future federal and
state taxable income, respectively.
To the extent not utilized, the
carryforwards
will begin to expire through 2027 for federal tax purposes
and through 2017 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, 2007 and 2006 consist of the following:
|
|
|
For
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Tax
benefit on net operating loss carryforward
|
|
$ 1,411,828
|
|
$ 1,307,897
|
|
Temporary
difference in other accruals
|
|
171,868
|
|
71,082
|
|
Temporary
difference in depreciation and amortization
|
|
118,692
|
|
57,865
|
|
Others
|
|
596,860
|
|
743,476
|
|
Less:
valuation allowance
|
|
(2,299,248)
|
|
(2,180,320)
|
|
Net
deferred tax assets
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
NOTE
11 – NET LOSS PER SHARE
The
following table sets forth the computation of basic and diluted net loss per
share for the periods:
|
|
|
For
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$ (1,551,485)
|
|
$ (3,468,104)
|
|
Net
loss from discontunued operations
|
|
$ (207,293)
|
|
$ (215,072)
|
|
Net
loss
|
|
$ (1,758,778)
|
|
$ (3,683,176)
|
|
Denominator:
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
10,528,987
|
|
5,110,004
|
|
Net
loss per share from continuing operations-basic and
diluted
|
|
$ (0.15)
|
|
$ (0.68)
|
|
Net
loss per share from discontinued operations-basic and
diluted
|
|
$ (0.02)
|
|
$ (0.04)
|
|
Net
loss per share-baisc and diluted
|
|
$ (0.17)
|
|
$ (0.72)
|
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.
As the
Company incurred net losses for the year ended December 31, 2006, potential
dilutive securities from unvested common stocks totalling 68,460 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 3,626 shares relating to its 10% related party convertible debt
that are anti-dilutive. As of December 31, 2006, depending on the
stock price on the conversion date, up to maximum of 209,427,866 shares, subject
to certain adjustments, may be issued upon conversion of the 8% Callable Secured
Convertible Notes. For additional information, see “Note 9 – 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
12 – DISCONTINUED OPERATIONS
In the
third quarter 2007, the Company began to cease the business of customizing
motorcycles.
Pursuant
to SFAS No. 144,
“Accounting
for the Impairment or Disposal of Long-Lived Assets,”
the accompanying
consolidated financial statements have been reclassified to reflect the
discontinued business. Accordingly, the revenues, costs and expenses, assets and
liabilities, and cash flows of the discontinued business have been segregated in
the consolidated statements of operations, consolidated balance sheet and
consolidated cash flows. The net operating results, net assets and net cash
flows of this business have been reported as “Discontinued
Operations.”
Following
is summarized financial information for the discontinued
operations:
|
|
|
For
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
REVENUES
|
|
$ 15,472
|
|
$ 47,424
|
|
NET
LOSS FROM DISCONTINUED OPERATIONS
(a)
|
|
$ (207,293)
|
|
$ (215,072)
|
|
(Net
of tax of $0 for years 2007 and 2006)
|
|
|
|
|
|
NET
ASSETS (LIABILITIES) OF DISCONTINUED OPERATIONS:
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
|
$ (24)
|
|
$ (167)
|
|
Accounts
receivable
|
|
-
|
|
34,076
|
|
Inventory
|
|
50,922
|
|
75,131
|
|
Net
other assets
|
|
13,304
|
|
105,441
|
|
Current
liabilities
|
|
|
|
|
|
Accounts
payable
|
|
(22,055)
|
|
(28,510)
|
|
Accrued
liabilities
|
|
(51,755)
|
|
(50,126)
|
|
Other
liabilities
|
|
(980)
|
|
(980)
|
|
Net
assets (liabilities) of discontinued operations
|
|
$ (10,588)
|
|
$ 134,865
|
|
|
|
|
|
|
|
(a)
A loss of disposal of assets of $17,041 and $6,019 was included in
net loss from discontinued operations
|
|
for
years ended December 31, 2007 and 2006, respectively.
|
|
|
|
|
Summarized cash flow
information for the discontinued operations is as follows:
|
|
|
For
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Net
cash used by operating activities of discontinued
operations
|
|
$ (61,840)
|
|
$ (232,783)
|
|
Net
cash used by investing activities of discontinued
operations
|
|
-
|
|
(2,644)
|
|
|
|
|
|
|
|
NET
CASH USED BY DISCONTINUED OPERATIONS
|
|
$ (61,840)
|
|
$ (235,427)
|
|
|
|
|
|
|
NOTE
13 – BUSINESS AND CREDIT CONCENTRATIONS
One
customer accounted for approximately $627,707 or 28% of the consolidated
revenues for the year ended December 31, 2007. The Company has no major customer
for year ended December 31, 2006.
The
Company maintains its cash deposit accounts at commercial banks. At times,
account balances may exceed federally insured limits. The Company has
not experienced any losses on these accounts, and management believes the
Company is not exposed to any significant risk on cash accounts.
NOTE
14 – COMMITMENTS AND CONTINGENCIES
Lease
Commitments
The
Company leases its office facilities under various non-cancelable operating
leases that expire through August 2009. The lease expense for the years ended
December 31, 2007 and 2006 was $204,761 and $215,398, respectively.
As of
December 31, 2007, the minimum lease payments under these leases
are:
|
|
|
Year
ended December 31,
|
Amount
|
|
|
|
2008
|
|
$ 162,287
|
|
|
|
2009
|
|
110,334
|
|
|
|
|
|
$ 272,620
|
Business Consulting
Agreement
On
November 6, 2006, the Board of Directors approved to eliminate the forfeiture
clause of a business consulting agreement. As a result, the Company recognized
$254,800 in expenses, which were included as a contra-equity item in prior
year.
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.
NOTE
14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 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.
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.
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.
Risk
Management
The
Company has been exposed to risk of loss related to employee injuries for which
TrixMotive does not carry workers compensation insurance policy since the fourth
quarter of 2007.
NOTE
15 – 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 sheets as of December 31,
2007.
NOTE
15 – GUARANTEES AND PRODUCT WARRANTIES (CONTINUED)
In
general, Damon’s offers a five-year warranty on workmanship to original
purchaser and a manufacturer’s warranty from 90 days to one year for most of its
products sold. TrixMotive warrants to the first registered owner for
a period of one year or twelve thousand miles from the date of original
purchase, whichever comes first, that this conversion shall be free from defects
in materials and workmanship, under normal use and service. The Company’s
liability under this warranty is limited solely to the repair or replacement of
defective parts and/or workmanship.
The
following table summarizes the activity related to the product warranty
liability during 2006 and 2005:
|
For
years ended December 31,
|
|
2007
|
|
2006
|
|
Beginning
Balance
|
|
|
$ 8,994
|
|
$ 12,350
|
|
Provision
of warranties
|
|
|
34,444
|
|
12,000
|
|
Utilization
of warranty reserve
|
|
|
(34,444)
|
|
(15,356)
|
|
Ending
Balance
|
|
|
$ 8,994
|
|
$ 8,994
|
NOTE
16 – 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 currently 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 third quarter of
2007, the Company began to cease the business of customizing motorcycle. As a
result, the custom motorcycle segment is reclassified to discontinued operations
and the custom automotive remains as the Company’s only reportable
segment.
The
Company reviews the operating companies’ income to evaluate segment performance
and allocate resources. Operating companies' income for the reportable segments
excludes income taxes, minority interest and amortization of goodwill. Provision
for income taxes is centrally managed at the corporate level and, accordingly,
such items are not presented by segment. The segments' accounting policies are
the same as those described in the summary of significant accounting
policies.
Intersegment
transactions: Intersegment transactions are recorded at cost.
NOTE
16 – SEGMENT INFORMATION (CONTINUED)
Summarized
financial information of the Company’s results by operating segment is as
follows:
|
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Net
Revenue to External Customers:
|
|
|
|
|
|
Custom
Automotive
|
|
$ 2,228,809
|
|
$ 2,282,083
|
|
Total
net revenue to external customers
|
|
$ 2,228,809
|
|
$ 2,282,083
|
|
Operating
Loss:
|
|
|
|
|
|
Custom
Automotive
|
|
$ (460,736)
|
|
$ (579,828)
|
|
Operating
loss by reportable segments
|
|
(460,736)
|
|
(579,828)
|
|
All
other operating loss
|
|
(688,537)
|
|
(1,006,168)
|
|
Consolidated
operating loss
|
|
$(1,149,273)
|
|
$(1,585,996)
|
|
Net
Loss from Continuing Operations
|
|
|
|
|
|
Custom
Automotive
|
|
$ (474,608)
|
|
$ (647,258)
|
|
Net
loss by reportable segments
|
|
(474,608)
|
|
(647,258)
|
|
All
other net loss
|
|
(1,076,877)
|
|
(2,820,846)
|
|
Consolidated
net loss from continuing operations
|
|
$(1,551,485)
|
|
$(3,468,104)
|
|
Net
loss from discontinued operations
|
|
|
|
|
|
Custom
Motorcycle
|
|
(207,293)
|
|
(215,072)
|
|
Consolidated
net loss from continuing operations
|
|
$(1,758,778)
|
|
$(3,683,176)
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
Total
Assets:
|
|
2007
|
|
2006
|
|
Custom
Automotive
|
|
$ 223,664
|
|
$ 581,827
|
|
All
other segments
|
|
126,009
|
|
400,598
|
|
|
|
349,673
|
|
982,425
|
|
Discontinued
operations:
|
|
|
|
|
|
Custom
Motorcycle
|
|
-
|
|
134,865
|
|
Consolidated
assets
|
|
$ 349,673
|
|
$ 1,117,290
|
|
|
|
|
|
|
NOTE
17 – SUBSEQUENT EVENTS
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.
In April
2008, the Company issued 8% callable secured convertible notes in the aggregate
principal amount of $100,000 and warrants to purchase an aggregate of 10,00,000
shares of the Company’s common stocks.
|
ITEM
8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None
ITEM
8A(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 March 31, 2007, 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 and Chief Financial Officer have concluded that as
of December 31, 2007, 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, 2007, 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
8B. OTHER
INFORMATION.
Not Applicable.
PART
III
|
ITEM
9
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT.
|
The
following table sets forth the names and positions of the executive officers and
directors of the Company. Directors will be elected at our annual
meeting of stockholders and serve for one year or until their successors are
elected and qualify. Officers are elected by the Board and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board.
|
Name
|
Age
|
Positions
and Offices held
|
|
Martyn
Powell
(1)
|
55
|
President,
Director
|
|
Robert
O’Brien
(1)
|
72
|
§
Secretary,
Treasurer, Director
|
|
Dale
Lavigne
(1)
|
77
|
Director
|
|
Dennis
O’Brien
(1)
|
46
|
Director
|
|
James
Etter
(1)
|
71
|
Director
|
|
John
Ohle
(2)
|
50
|
President,
Interim Chief Financial Officer
|
|
Arthur
Lefevre
(3)
(5)
|
70
|
Director
|
|
Mark
Absher
(3)
|
46
|
Director
|
|
Vincent
Michael Keyes III
(3)(5)
|
51
|
Director
|
|
Thomas
Prewitt
(4)
(8)
|
52
|
President
|
|
Richard
Perez
(4)
(8)
|
49
|
Secretary
|
|
Jay
Isco
(4)
(7)(11)
|
27
|
Chief
Financial Officer, Secretary
|
|
Richard
Holt
(6)(10)
|
67
|
Director
|
|
David
Psachie
(7)
|
68
|
Director
|
|
George
R. Lefevre
(8)(11)
|
40
|
Chief
Executive Officer, President, CFO, Secretary
|
|
Leslie
McPhail
(9)
|
35
|
Chief
Operating Officer
|
|
|
|
|
|
(1)
|
In
connection with Aberdeen Mining Company acquiring C&M Transportation,
Inc. the officers and directors resigned on March 8,
2004.
|
|
(2)
|
As
part of the acquisition agreement of C&M Transportation, Inc. Mr. Ohle
was appointed the President and interim Chief Financial
Officer. Once the C&M Transportation, Inc. agreement was
rescinded, Mr. Ohle was removed from his
positions.
|
|
(3)
|
Upon
consummation of the acquisition with C&M Transportation, Mr. Lefevre,
Mr. Absher, and Mr. Keyes were appointed to fill the board of
directors.
|
|
(4)
|
On
May 11, 2004, the Company acquired Damon’s Motorcycle Creations, Inc. and
the Board elected Mr. Prewitt to serve as the President, Mr. Perez to
serve as the Secretary, and Mr. Isco to serve as the Interim Chief
Financial Officer.
|
|
(5)
|
On
September 25, 2004, Mr. Lefevre and Vincent Michael Keyes resigned
as Directors from the Board of
Directors
|
|
(6)
|
On
October 6, 2004, the Board of Directors elected Richard Holt to serve as a
Director.
|
|
(7)
|
On
February 11, 2005, the Board of Directors elected Mr. Psachie to serve as
a Director
|
|
(8)
|
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.
|
|
(9)
|
On
February 15, 2005, the Board of Directors elected Ms. McPhail to the
position of Chief Operating
Officer.
|
|
(10)
|
On
October 2, 2006, Richard Holt resigned as director of the
company
|
|
(11)
|
On
February 27, 2008 Jay Isco resigned as CFO and Secretary of the company,
and George Lefevre was elected to the vacated positions of CFO and
Secretary.
|
Duties,
Responsibilities and Experience
George R.
Lefevre, Chief Executive Officer, Chief Financial Officer, Secretary and
Director
As CEO of
MotivNation, Mr. Lefevre is responsible for the oversight, and management of the
company’s direction of business affairs.
Since
2004, Mr. Lefevre has served as a director, Chief Financial Officer and
Secretary for EntreMetrix, Inc. Since 2000, George R. Lefevre has been the
co-founder and Managing Partner of NeoTactix, a company focused on mergers,
acquisitions and structural guidance for small public companies. From 1998 to
2000, Mr. Lefevre assisted in the formation and funding of PTM Molecular
Biosystems. He was the Chief of Finance and key officer for strategic business
ventures. Mr. Lefevre has invested in and managed portfolios of securities since
1991. He received a B.S. in Business Administration Finance from California
State University, Long Beach.
Leslie
McPhail, Chief Operating Officer
As COO of
MotivNation, Mrs. McPhail is responsible for the day to day management and
operations of TrixMotive, Inc. a wholly owned subsidiary of
MotivNation.
Leslie
McPhail graduated from Platt College's Graphic Design program in 1994. Mrs.
McPhail has served as Assistant Creative Director for Sarbacker Advertising and
Propper Design Group, based in Irvine, CA. In 1999 Mrs. McPhail has run her own
graphic design company, Moonlight Productions, and in 2001 with her husband
David McPhail started Moonlight Industries, a Limousine Manufacturer in Santa Fe
Springs, CA. In 2004 TrixMotive, Inc., a wholly owned subsidiary of MotivNation,
acquired Moonlight Industries, and Leslie McPhail has served as lead management
for the production and work flow for TrixMotive, Inc.
Election
of Directors and Officers.
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
No
Executive Officer or Director of the Corporation has been the subject of any
Order, Judgment, or Decree of any Court of competent jurisdiction, or any
regulatory agency permanently or temporarily enjoining, barring suspending or
otherwise limiting him from acting as an investment advisor, underwriter, broker
or dealer in the securities industry, or as an affiliated person, director or
employee of an investment company, bank, savings and loan association, or
insurance company or from engaging in or continuing any conduct or practice in
connection with any such activity or in connection with the purchase or sale of
any securities.
No
Executive Officer or Director of the Corporation has been convicted in any
criminal proceeding (excluding traffic violations) or is the subject of a
criminal proceeding which is currently pending.
No
Executive Officer or Director of the Corporation is the subject of any pending
legal proceedings.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our executive officers and directors, and persons who beneficially own
more than ten percent of our common stock, to file initial reports of ownership
and reports of changes in ownership with the SEC. Executive officers, directors
and greater than ten percent beneficial owners are required by SEC regulations
to furnish us with copies of all Section 16(a) forms they file. Based upon a
review of the copies of such forms furnished to us and written representations
from our executive officers and directors, we believe that during the year ended
2006, all officers and directors filed all forms 3, forms 4 and forms
5.
Audit
Committee and Financial Expert
We do not
have an Audit Committee, our board of directors during 2006, performed some of
the same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. The Company does not currently have
a written audit committee charter or similar document.
We have
no financial expert. We believe the cost related to retaining a financial expert
at this time is prohibitive. Further, because of our start-up operations, we
believe the services of a financial expert are not warranted.
Code
of Ethics
A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:
|
(1)
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
|
(2)
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that are filed with, or submitted to, the Commission and in
other public communications made by an
issuer;
|
|
(3)
|
Compliance
with applicable governmental laws, rules and
regulations;
|
|
(4)
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code;
and
|
|
(5)
|
Accountability
for adherence to the code.
|
We have
adopted a corporate code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. MotivNation will
provide, without charge, a copy of the Code of Ethics on the written request of
any person addressed to MotivNation at: 18101 Von Karman Avenue,
Suite 330, Irvine, CA 92612.
Nominating
Committee
We do not have a Nominating Committee
or Nominating Committee Charter. Our board of directors in 2007, performed some
of the functions associated with a Nominating Committee. We have elected not to
have a Nominating Committee in that we are a development stage company with
limited operations and resources.
Limitation
of Liability of Directors
Pursuant to the Nevada General
Corporation Law, our Articles of Incorporation exclude personal liability for
our Directors for monetary damages based upon any violation of their fiduciary
duties as Directors, except as to liability for any breach of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or any transaction from which a
Director receives an improper personal benefit. This exclusion of
liability does not limit any right which a Director may have to be indemnified
and does not affect any Director’s liability under federal or applicable state
securities laws. We have agreed to indemnify our directors against
expenses, judgments, and amounts paid in settlement in connection with any claim
against a Director if he acted in good faith and in a manner he believed to be
in our best interest.
ITEM
10. 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
|
|
Annual Compensation
|
Long Term Compensation
|
|
|
|
Name
and Principal Position
|
Year
|
Salary
(3)
|
Bonus
|
Other
Annual Compensation
|
Restricted
Stock
(4)
|
Options
|
LTIP
Payouts
|
All
Other Compensation
|
|
George
R. Lefevre - CEO & Director (1) (2) (3)
|
2007
|
$150,000
|
|
|
|
|
|
|
|
2006
|
$150,000
|
|
|
|
|
|
|
|
2005
|
$112,500
|
|
|
|
|
|
|
|
Jay
Isco- Former CFO & Secretary (1) (3)
|
2007
|
$75,000
|
|
|
|
|
|
|
|
2006
|
$75,000
|
|
|
|
|
|
|
|
2005
|
$55,167
|
|
|
|
|
|
|
|
Leslie
McPhail- Chief Operating Officer (1) (3)
|
2007
|
$84,240
|
|
|
|
|
|
|
|
2006
|
$86,240
|
|
|
|
|
|
|
|
2005
|
$74,880
|
|
|
|
|
|
|
|
Mark
Absher – Former Director (1) (2) (3)
|
2007
|
|
|
|
|
|
|
|
|
2006
|
$12,000
|
|
|
|
|
|
|
|
2005
|
|
|
|
$55,000
|
|
|
|
|
David
Psachie- Director (1) (2) (3)
|
2007
|
|
|
|
|
|
|
|
|
2006
|
$12,000
|
|
|
|
|
|
|
|
2005
|
|
|
|
$55,000
|
|
|
|
|
Richard
Holt- Former Director (1) (2) (3)
|
2007
|
|
|
|
|
|
|
|
|
2006
|
$9,000
|
|
|
|
|
|
|
|
2005
|
|
|
|
$55,000
|
|
|
|
|
(1)
|
Amounts
noted are actual cash amounts paid and accrued salaries combined in their
respective year. The following are the portions of accrued
salaries:
|
|
i.
|
2007-
$150,000 in accrued salary
|
|
ii.
|
2006-
$62,500 in accrued salary
|
|
iii.
|
2005-
$100,000 in accrued salary
|
|
i.
|
2007-
$57,500 in accrued salary
|
|
ii.
|
2006-
$23,666.64 in accrued salary
|
|
iii.
|
2005-
$50,000 in accrued salary
|
|
i.
|
2005-
$24,960 in accrued salary
|
|
i.
|
2006-
$12,000 in accrued salary
|
|
i.
|
2006-
$12,000 in accrued salary
|
|
i.
|
2006-
$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, 2007, we have employment agreements with do not have any agreements
in place for the amount of annual compensation that our 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
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
As of the
close of business on December 31, 2007, 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
|
|
4.60%
|
|
Jay
Isco- Former Chief Financial Officer, Secretary(3)(7)
4.
18101
Von Karman Ave. Ste. 330
5.
Irvine,
CA 92612
|
|
317,000
|
|
1.95%
|
|
6.
Richard
Perez Former Secretary (2)(3)
7.
1741
E. Lambert Road
8.
La
Habra, CA 90631
|
|
748,799
|
|
4.60%
|
|
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
|
|
4.20%
|
|
11.
Scott
Absher- Beneficial Owner (4)
12.
18101
Von Karman Ave. Ste. 330
Irvine,
CA 92612
|
|
248,000
|
|
1.52%
|
|
Leslie
McPhail-Chief Operating Officer(1)(3)
14948
Shoemaker Avenue
Santa
Fe Springs, CA 90670
|
|
640,000
|
|
3.93%
|
|
David
McPhail- Beneficial Owner(1)
14948
Shoemaker Avenue
Santa
Fe Springs, CA 90670
|
|
640,000
|
|
3.93%
|
|
Mark
Absher- Former Director (8)
13.
18101
Von Karman Ave. Ste. 330
Irvine,
CA 92612
|
|
50,000
|
|
0.31%
|
|
David
Psachie- Director
14.
18101
Von Karman Ave. Ste. 330
Irvine,
CA 92612
|
|
50,000
|
|
0.31%
|
|
Richard
Holt- Former Director (5)
15.
18101
Von Karman Ave. Ste. 330
Irvine,
CA 92612
|
|
50,000
|
|
0.31%
|
|
All
Directors, Officers, & Beneficial Holders as a Group
|
|
2,786,799
|
|
17.13%
|
|
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 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
|
|
|
*
|
Number
of shares and percent of ownership based upon 16,266,157 shares
outstanding on December 31, 2007
|
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
On April
20, 2004, the Company and NeoTactix (NTX) entered into a Business Consulting
Agreement pursuant to which Neotactix agreed to provide certain business
consulting services, in exchange for 196,000(post split) shares of the Company’s
common stock. George R. Lefevre and Scott Absher are partners in Neotactix and
in February 15, 2005 George R. Lefevre was elected to serve as CEO of
MotivNation. In addition Scott Absher is the brother of Mark Absher who is a
Director of MotivNation. On November 6, 2006, the Board of Directors approved to
eliminate the forfeiture clause of the agreement. As a result, the Company
recognized the compensation expense.
On
December 21, 2004, TrixMotive, Inc. a wholly owned subsidiary of MotivNation
entered into a $250,000 revolving line of credit inventory financing agreement
with Infinity Capital Partners, LLC. On December 28, 2006, TrixMotive and IPC
entered in to a settlement agreement providing that IPC shall forgive the
original note balance and related accrued interest of $144,310 in exchange of a
new promissory note of $65,000. As a result, an aggregate amount of $79,310 was
forgiven. The new note is payable in minimum quarterly installments of $3,000.
The remaining unpaid amount will be due at June 30, 2008.The new note bears a
zero interest. The president of Infinity Capital Partners is Michael Isco, who
is the father of Jay Isco the former CFO of MotivNation.
MotivNation
uses Neotactix Corporation for employee leasing and other human resource
activities. George R. Lefevre acts as the CFO of Entremetrix. MotivNation paid
approximately $16,000 in fees to Entremetrix for services provided during the
year ending December 31, 2007
ITEM
13. EXHIBITS.
(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
|
|
32
|
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
On
November 16, 2007, Motivnation entered into a subscription agreement to issue
$175,000 in convertible debentures at an 8% annual interest rate. The following
convertible debentures are as follow: AJW Master Fund, Ltd for $163,450; New
Millennium Capital Partners II, LLC for $2,275; and AJW Partners, LLC for
$9,275. 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.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
(1) AUDIT
FEES
The
aggregate fees billed for the fiscal year ended December 31, 2007, 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-QSB or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements for fiscal year 2007 and 200 were approximately $56,000and $54,000,
respectively.
(2)
AUDIT-RELATED FEES
The
aggregate fees billed for the fiscal year ended December 31, 2007, 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 2007 were $0 and $8,731 for 2006.
(3) TAX
FEES
The
aggregate fees billed for each of the fiscal years ended December 31, 2007 and
2006, 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, 2007 and 2006, 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.
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.
By: /s/
George R.
Lefevre
George R. Lefevre,
CEO
Dated: May 15, 2008
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________
May 15, 2008
George R.
Lefevre
CEO, CFO, Secretary, and Director
/s/ David
Psachie___________ May
15, 2008
David
Psachie Director