The accompanying notes are an integral
part of these unaudited condensed interim financial statements.
The accompanying
notes are an integral part of these unaudited condensed interim financial statements.
Notes to Unaudited Condensed Financial
Statements
NOTE 1 - ORGANIZATION AND DESCRIPTION
OF BUSINESS
Motivating the Masses, Inc. (the “Company”)
was incorporated under the laws of the state of Nevada on September 2, 1998. The Company was founded by Lisa S. Nichols for the
purpose of providing high quality resources for business coaching, and professional and management development techniques both
on the local and national scale.
The Company’s products and services
revolve around the personal life coaching program written and developed by its CEO Lisa Nichols. The program sells as a package
of books and DVD’s at the Company’s local and national training seminars, and on the Company’s website. The
Company has contract rights to the sales of the product. The Company, through its CEO and a core team of coaches, also provides
training and development programs through local and national seminars, on-site employee training, public and private speaking
engagements, and customized life-coaching programs.
In February of 2013, the Company amended
its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized common stock increased
to 75,000,000 shares at a par value of $0.001 per share.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation
These unaudited condensed interim financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments of a normal recurring nature and considered necessary for a fair presentation of its financial condition and results
of operations for the interim periods presented in this Quarterly Report on Form 10-Q have been included. Operating results for
the interim periods are not necessarily indicative of financial results for the full year. These unaudited condensed interim financial
statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”)
on April 18, 2016. In preparing these unaudited condensed interim financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited condensed interim financial
statements and the reported amount of revenues and expenses during the reporting periods.
Use of estimates
The preparation of unaudited condensed
interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed interim
financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results
could differ from those estimates. Such estimates include management’s assessments of the carrying value of certain assets,
useful lives of assets, and related depreciation and amortization methods applied.
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. During the three months
period ended March 31, 2016, the Company may have had cash deposits that exceeded Federal Deposit Insurance Corporation (“FDIC”)
insurance limits. The Company maintains its cash balances at high quality financial institutions to mitigate this risk. The Company
performs ongoing credit evaluations of its customers and generally does not require collateral. The Company records an allowance
for doubtful accounts in accordance with the procedures discussed below. Past-due amounts are written off against the allowance
for doubtful accounts when collections are believed to be unlikely and all collection efforts have ceased.
Cash and cash equivalents
The Company considers all highly liquid
investments with an original maturity of 90 days or less when purchased to be cash equivalents. As of March 31, 2016 and December
31, 2015, the Company had no cash equivalents.
MOTIVATING THE MASSES, INC.
Notes to Unaudited Condensed Financial
Statements
Fair value of financial instruments
The Company adopted the provisions of
FASB ASC 820 (the “Fair Value Topic”) which defines fair value, establishes a framework for measuring fair value under
GAAP, and expands disclosures about fair value measurements.
The Fair Value Topic defines fair value
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
It requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. It also
establishes a fair value hierarchy, which prioritizes the valuation inputs into six broad levels.
The following fair value hierarchy is
used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets
and liabilities:
A) Market approach—Uses prices and
other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may
be indicated by pricing guides, sale transactions, market trades, or other sources;
B) Cost approach—Based on the amount
that currently would be required to replace the service capacity of an asset (replacement cost); and
C) Income approach—Uses valuation techniques to convert
future amounts to a single present amount based on current market expectations about the future amounts (includes present value
techniques, and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted
at an appropriate market interest rate.
Level 1: Quoted market prices
available in active markets for identical assets or liabilities as of the reporting date. An active market for an asset or liability
is a market in which transactions for the asset or liability occur with significant frequency and volume to provide pricing information
on an ongoing basis.
Level 2: Observable inputs other
than Level 1 inputs. Example of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted
prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs
based on the Company’s assessment of the assumptions that are market participants would use in pricing the asset or liability.
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses, accounts payable, accrued expenses, and deferred revenue approximate
their fair value because of the short maturity of those instruments.
The Company had no assets and/or liabilities
measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015, respectively, using the market and income
approaches.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable related to the products
and services sold are recorded at the time revenue is recognized, and are presented on the balance sheet. The ultimate collection of the receivable may not be known for several months after services have been provided
and billed.
Property and Equipment
Property and equipment are recorded at
cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is computed by the straight-line method over the assets estimated useful life of three (3) years for equipment, five
(5) years for automobile, and seven (7) years for furniture and fixtures. Upon sale or retirement of property and equipment, the
related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.
MOTIVATING THE MASSES, INC.
Notes to Unaudited Condensed Financial
Statements
Impairment of long-lived assets
The Company follows paragraph ASC350 of
the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, such as intellectual
property, are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
The Company assesses the recoverability
of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or
group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment,
if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined
using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are
determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated,
the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company determined that there were
no impairments of long-lived assets as of March 31, 2016 and December 31, 2015.
Commitments and contingencies
The Company follows subtopic 450-20 of
the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies
arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably estimated.
Revenue recognition
The Company follows paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized
or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are
met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to
the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition, the
Company records allowances for accounts receivable that are estimated to not be collected.
A portion of the Company’s revenues
are from coaching and/or training services provided under contracts that are greater than one month in length. These contracts
are billed in total at the onset of the contract period, and to the extent that billings exceed revenue earned, the Company will
record such amount as deferred revenue until the revenue is earned. We recognize revenue on these contracts in the period the
coaching and/or training services are provided under the contract. Expenses associated with providing the coaching and/or training
services are recognized in the period the services are provided which coincides with when the revenue is earned. Clients either
pay in full or make payments that coincide with the progress of their programs. The Company generally will not begin services
until full payment, or a down payment, is received. We offer a 3-day cancellation policy on all of our program and services.
Income taxes
The Company follows Section 740-10-30
of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the fiscal year in which the temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the
assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
The Company adopted section 740-10-25
of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty in income taxes. Section
740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting
in interim periods and requires increased disclosures. The Company had no material adjustments to its assets and/or liabilities
for unrecognized income tax benefits according to the provisions of Section 740-10-25.
MOTIVATING THE MASSES, INC.
Notes to Unaudited Condensed Financial
Statements
Stock-Based Compensation
In December 2004, the FASB issued FASB
Accounting Standards Codification No. 718,
Compensation – Stock Compensation
. Under FASB Accounting
Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements
based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees
are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the
date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company applies this statement prospectively.
Equity instruments (“instruments”)
issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting
Standards Codification No. 718. FASB Accounting Standards Codification No. 505,
Equity Based Payments to Non-Employees
defines
the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a)
performance commitment, as defined, is reached; or (b) the earlier of (i) the non-employee performance is complete, or (ii) the
instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances
of each particular grant as defined in the FASB Accounting Standards Codification.
Net income (loss) per share
The Company computes basic and diluted
earnings per share amounts pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic earnings per share
is computed by dividing net income (loss) available to common shareholders, by the weighted average number of shares of common
stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share
are computed by dividing net income (loss) available to common shareholders by the diluted weighted average number of shares of
common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number
of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
There were no potentially dilutive shares
outstanding as of March 31, 2016 and December 31, 2015.
Subsequent events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. No material subsequent events
exist through the date of this filing.
Recently issued accounting pronouncements
We have decided to take advantage of the
exemptions provided to emerging growth companies under the JOBS Act and as a result our financial statements may not be comparable
to companies that comply with public company effective dates. We may take advantage of exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies, including not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, delay compliance with
new or revised accounting standards that have different effective dates for public and private companies until they are made applicable
to private companies.
Company management does not believe that
any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying
unaudited condensed financial statements.
NOTE 3 - GOING CONCERN
These unaudited condensed financial statements
have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company's
ability to continue as a going concern is contingent upon its ability to achieve and maintain profitable operations, and the Company’s
ability to raise additional capital as required.
These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management has taken certain actions and continues to implement changes
designed to improve the Company’s consolidated financial results and operating cash flows. The actions involve certain cost-saving
initiatives and growing strategies, including (a) product expansion, (b) optimizing online sales, and (c) maximizing media opportunities.
Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing
operations through December 31, 2016. As a result, these unaudited condensed financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that
might result from this uncertainty.
MOTIVATING THE MASSES, INC.
Notes to Unaudited Condensed Financial
Statements
NOTE 4 – ACCOUNTS RECEIVABLE
Accounts receivable at March 31, 2016 and December 31, 2015
consisted of the following:
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
Accounts receivable
|
|
$
|
65,712
|
|
|
$
|
-
|
|
|
|
|
$
|
65,712
|
|
|
$
|
-
|
|
For the three months ended March 31, 2016 the Company did not
record a bad debt expense. For the three months ended March 31, 2015, the Company recorded a bad debt recovery of $5,897.
NOTE 5 – PROPERTY AND EQUIPMENT
Fixed assets, stated at cost, less accumulated
depreciation at March 31, 2016 and December 31, 2015, consisted of the following:
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
Equipment
|
|
$
|
62,577
|
|
|
$
|
60,073
|
|
|
Furniture & Fixtures
|
|
|
24,669
|
|
|
|
25,909
|
|
|
Less: Accumulated Depreciation
|
|
|
(62,566
|
)
|
|
|
(60,172
|
)
|
|
Property and Equipment, net
|
|
$
|
24,680
|
|
|
$
|
25,810
|
|
Depreciation expense
Depreciation expense for the three months
ended March 31, 2016 and March 31, 2015 was $2,394 and $3,250, respectively.
NOTE 6 – DEFERRED REVENUES
A portion of the Company’s revenues
are from coaching and/or training services provided under contracts that are greater than one month in length. These contracts
are billed in total at the onset of the contact period, and to the extent that billings exceed revenue earned, the Company will
record such amount as deferred revenue until the revenue is earned. We recognize revenue on these contracts in the period the
coaching and/or training services are provided under the contract. Expenses associated with providing the coaching and/or training
services are recognized in the period the services are provided which coincides with when the revenue is earned.
As of March 31, 2016 and December 31,
2015, the Company had deferred revenues balance of $1,455,376 and $1,572,644, respectively.
MOTIVATING THE MASSES, INC.
Notes to Unaudited Condensed Financial
Statements
NOTE
7 – COMMITMENTS & CONTINGENCIES
Lease
The Company currently occupies office
space at 2121 Palomar Airport Road, Carlsbad, California. In July of 2012, the Company signed a three year lease for the office
space starting August 1, 2012, for $3,127 a month for the first year, $5,686 a month for the second year, and $5,844 a month for
the third year. The Company is currently holding over in their current space as they survey other spaces to relocate. The current
holdover rate is 150% of the previous base rent, or $8,766 per month on a month-to-month basis.
NOTE 8 – RELATED PARTY TRANSACTIONS
Employment Agreements
On May 1, 2016, the Company executed employment
agreements with Lisa Nichols, Chief Executive Officer, and Susie Carder, Chief Operating Officer, who also serve on the Company’s
Board of Directors. Each employment agreement is for one year starting January 1, 2016. Pursuant to their employment agreements,
Ms. Nichols shall receive an annual salary of $225,000 and Ms. Carder an annual salary of $200,000. On October 12, 2015, the Company
entered into an employment agreement with Scott Ryder as the Company’s Chief Financial Officer. Pursuant to his employment
agreement, Mr. Ryder receives an annual salary of $150,000. The employment agreements for the officers stipulate a potential bonus
at the discretion of the Board of Directors. In the three months ended March 31, 2016, the Company did not pay any bonuses to its
officers.
NOTE 9 – STOCKHOLDERS’
DEFICIT
Common and Preferred Shares authorized
The Company was incorporated on September
2, 1998, at which time the Company authorized 3,000,000 shares of Common Stock with $0.001 par value and 1,000,000 shares of Preferred
Stock with $0.001 par value.
Preferred Stock - There are 1,000,000
shares of authorized preferred stock, par value $0.001 per share, with no shares of preferred stock issued or outstanding.
Common Stock - There are 75,000,000 shares
of authorized common stock, par value $0.001 per share, with 16,400,157 and 16,481,812 issued and outstanding as of March 31,
2016 and December 31, 2015, respectively. Each holder of common stock is entitled to one vote for each share held. During the
three month period ended March 31, 2016, the Company issued 5,049 shares as a stock dividend to current shareholders as loyalty
shares based on their original investment as of March 31, 2015 at fair value, and repurchased 86,704 shares of its common stock
for $43,352, or $0.50 per share.
PART I.
