U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

Quarterly Report Under

the Securities Exchange Act of 1934

 

For Quarter Ended: September 30, 2015

 

Commission File Number: 333-187554

 

MOTIVATING THE MASSES, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada		88-0410660
(State of other jurisdiction of incorporation)		(IRS Employer ID No.)

 

2121 Palomar Airport Road, Suite 300

Carlsbad, California 92011

(Address of principal executive offices)

 

(760) 931-9400

(Issuer’s Telephone Number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨   No þ

 

The number of shares of the registrant’s only class of common stock issued and outstanding as of October 20, 2015 was 16,415,390 shares.

 

TABLE OF CONTENTS

 

 

			Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Interim Financial Statements		3
	Condensed Balance Sheet as of September 30, 2015 (Unaudited) and December 31, 2014 (Audited)		3
	Condensed Statement of Operations for the Three and Nine Month Periods Ended September 30, 2015 and 2014 (Unaudited)		4
	Condensed Statement of Cash Flows for the for the Nine Month Period Ended September 30, 2015 and 2014 (Unaudited)		5
	Notes to Unaudited Condensed Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations/Plan of Operation.		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		16
Item 4.	Controls and Procedures.		16
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings		17
Item 1A.	Risk Factors		17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		17
Item 3.	Defaults Upon Senior Securities		17
Item 4.	Mine Safety Disclosures		17
Item 5.	Other Information		17
Item 6.	Exhibits		17
	Signatures		19

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

MOTIVATING THE MASSES, INC
CONDENSED BALANCE SHEETS

		(Unaudited)				(Audited)
		September 30,				December 31,
		2015				2014
ASSETS
Current Assets:
Cash		$	48,318			$	13,210
Restricted cash			10,600				10,600
Accounts receivable, net			270,039				428,482
Prepaids			10,417				110,648
Other receivable			56,197				103,197
Total Current Assets			395,571				666,137
Property and equipment, net			28,743				29,035
Other Assets:
Deposits			30,886				46,218
Intellectual property			1,836				1,836
Total Other Assets			32,722				48,054
Total Assets		$	457,036			$	743,226
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Accounts payable and accrued expenses		$	152,508			$	146,717
Deferred revenue			553,879				427,529
Line of credit			3,344				7,088
Total Current Liabilities			709,731				581,334
Total Liabilities			709,731				581,334
Stockholders' (Deficit) Equity:
Preferred Stock, $0.001 Par value, 1,000,000 shares authorized,
No shares issued and outstanding			-				-
Common Stock, $0.001 Par value, 75,000,000 shares authorized
16,415,390 and 15,624,300 shares issued respectively and 14,915,390 and 15,624,300 shares outstanding, respectively			14,915				15,624
Treasury stock (1,500,000)			(150	)
Stock subscription receivable			(27,100	)			(11,000	)
Additional paid in capital			2,936,103				2,539,850
Accumulated deficit			(3,176,463	)			(2,382,582	)
Total Stockholders' (Deficit) Equity			(252,695	)			161,892
Total Liabilities and Stockholders' Equity		$	457,036			$	743,226

 

 

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

MOTIVATING THE MASSES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

		For the Three Months Ended								For the Nine Months Ended
		Sept 30,								Sept 30,
		2015				2014				2015				2014
Revenues		$	607,714			$	597,983			$	2,780,189			$	2,271,205
Costs of services			464,827				211,295				1,281,578				796,584
Gross Profit			142,887				386,688				1,498,611				1,474,621
Operating Expenses:
Bad debt			-				-				14,488				28,480
Consulting			127,016				69,059				459,267				269,209
General and administrative			170,500				141,139				445,939				422,520
Professional fees			57,891				13,062				170,945				55,962
Wages and other compensation			316,178				205,973				853,409				552,894
Total Operating Expenses			671,585				429,233				1,946,832				1,329,065
Income (Loss) from Operations			(528,698	)			(42,545	)			(448,221	)			145,556
Other Income:
Interest Income			-				3				-				49
Total Other Income			-				3				-				49
Net Income (Loss) Before Income Taxes			(528,698	)			(42,542	)			(448,221	)			145,605
Income Taxes			-				-				-				-
Net Income (Loss)			(528,698	)			(42,542	)			(448,221	)			145,605
Net Income (Loss) per Share - Basic and Diluted		$	(0.03	)		$	0.00			$	(0.03	)		$	0.01
Weighted average number of shares
outstanding - Basic and Diluted			15,771,639				15,221,355				15,775,564				15,119,865

 

 

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

MOTIVATING THE MASSES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Nine Months Ended
		September 30,
		2015				2014
OPERATING ACTIVITIES:
Net income (loss) for the Period		$	(445,437	)		$	145,605
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization			10,362				12,582
Bad debt expense			14,488				28,480
Share based compensation			20,000				-
Changes in operating assets and liabilities
Accounts receivables			143,955				(451,252	)
Other receivable			47,000				200
Prepaid expenses			100,231				1,675
Deferred revenue			126,350				(47,813	)
Deposits			15,332				(72,511	)
Accounts payable & accrued expenses			5,791				(2,757	)
Net cash provided by (used in) operating activities			38,072				(385,791	)
INVESTING ACTIVITIES:
Purchase of property and equipment			(10,070	)			(17,675	)
Net cash used in investing activities			(10,070	)			(17,675	)
FINANCING ACTIVITIES:
Proceeds from line of credit			74,186				37,265
Repayments on line of credit			(77,930	)			(37,451	)
Common stock issued for cash			11,000				242,650
Repurchase of common shares			(150	)
Net cash provided by financing activities			7,106				242,464
Net Increase (Decrease) in Cash			35,108				(161,002	)
Cash at beginning of period			13,210				232,206
Cash at end of period		$	48,318			$	71,204
Cash paid during period:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-
Non Cash Transactions
Royalty Stock Dividends			348,444				-

  

The accompanying notes are an integral part of these unaudited condensed interim 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 their CEO Lisa Nichols. The program sells as a package of books and DVD’s at their 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 their CEO and a core team of coaches, also provide 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, 2014 filed with the SEC on March 30, 2015. 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 generally accepted accounting principles 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 nine months period ended September 30, 2015, 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 September 30, 2015 and December 31, 2014, the Company had no cash equivalents.

 

 

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 September 30, 2015 and December 31, 2014, 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 net of allowance for doubtful accounts. The ultimate collection of the receivable may not be known for several months after services have been provided and billed.

 

The Company has established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, analyses of current and historical cash collections, and the aging of receivables. Delinquent accounts are written-off when the likelihood for collection is remote and/or when the Company believes collection efforts have been fully exhausted and the Company does not intend to devote any additional efforts in an attempt to collect the receivable. The Company adjusts their allowance for doubtful accounts balance on a quarterly basis. The quarterly adjustment to allowance for doubtful accounts is calculated at 5% of Accounts Receivable and adjusted to reflect this amount.

 

As of the nine months ended September 30, 2015, the Company reviewed its collectables and adjusted its allowance for doubtful accounts to 5% and reserved an additional $30,761 for two accounts at risk of default.  

 

 

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 (3) years for equipment, (5) years for automobile, and (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.

  

Identifiable Intangible Assets

 

As of September 30, 2015 and December 31, 2014, $1,836 of costs related to acquiring intellectual property has been capitalized. It has been determined that the intellectual property has an indefinite useful life and is not subject to amortization. However, the intellectual property will be reviewed for impairment annually or more frequently if impairment indicators arise.

 

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 September 30, 2015 and December 31, 2014.

 

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.

 

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.

 

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 September 30, 2015 and December 31, 2014, respectively.

 

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. The Company has an accumulated deficit of $3,176,463, and negative working capital of $314,010 as of and for the three and nine months ended September 30, 2015.

  

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.

 

 

NOTE 4 – ACCOUNTS RECEIVABLE

 

Accounts receivable at September 30, 2015 and December 31, 2014 consisted of the following:

 

		September 30, 2015				December 31, 2014
Accounts receivable		$	316,632			$	460,587
Less: Allowance for doubtful accounts			(46,593	)			(32,105	)
		$	270,039			$	428,482

 

The Company generates a significant amount of their revenue from holding event seminars and/or multi-day conferences, which are held throughout the calendar year. Due to the seasonal timing when these event seminars and/or multi day conferences are held, the Company revenues and accounts receivable declined in Q3.

 

For the three months ended September 30, 2015, the Company did not record a bad debt expense. In 2014, the Company recorded bad debt expense of $0. For the nine months ended September 30, 2015 and 2014, the Company recorded bad debt expense of $14,488 and 28,480, respectively.

 

In the year ended December 31, 2014, the Company wrote off $207,176 of uncollectible customer accounts using the allowance method of accounting. This resulted in a reduction of both accounts receivable and allowance for doubtful accounts in the amounts of $207,176. The Company adjusts it’s Allowance for Doubtful Accounts based on 5% of Accounts Receivable and adjusts Quarterly. As of December 31, 2014, the Company’s allowance for doubtful accounts balance was approximately 7% of the ending accounts receivable balance. As of the nine months ended September 30, 2015, the Company reviewed its collectables and adjusted its allowance for doubtful accounts to 5% and reserved an additional $30,761 for two accounts at risk of default. There were no write offs for the nine-month period ended September 30, 2015.

 

 

NOTE 5 – PROPERTY AND EQUIPMENT, NET

 

Property and Equipment, stated at cost, less accumulated depreciation at September 30, 2015 and December 31, 2014, consisted of the following:

 

		September 30, 2015				December 31, 2014
Equipment		$	57,777			$	56,712
Furniture & Fixtures			25,910				16,905
Less: Accumulated Depreciation			(54,944	)			(44,582	)
Net Fixed Assets		$	28,743			$	29,035

 

 

Depreciation expense

 

Depreciation expense for the nine months ended September 30, 2015 and 2014 was $10,362, and $12,582 respectively.

  

 

NOTE 6 – LINE OF CREDIT

 

In October of 2012, the Company entered into a revolving line of credit with a financial institution in the amount of $10,000. The line of credit carries an interest rate of 6.00%, and is collateralized by certain assets of the Company. As of September 30, 2015 and December 31, 2014, the balance owed was $3,344 and $7,088 respectively.

 

 

NOTE 7 – 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 and recognized

 

As of September 30, 2015 and December 31, 2014, the Company had deferred revenues balance of $553,879 and $427,529.

 

 

NOTE 8 – COMMITMENTS & CONTINGENCIES

 

Service Agreement

 

On April 25, 2014, the Company entered into a Contracted Services Agreement (“CSA”) with The Steve Harvey Companies (“TSHC”), which was effective March 8, 2014. Pursuant to the CSA, the Company will participate in six conferences with TSHC in various U.S. locations through August 2014 and are participating in the development of additional programs to leverage books and other produces marketed by TSHC. The CSA requires TSHC to pay us $250,000 on a payment plan as follows; 3/8/14 $50,000, 5/1/14 $50,000, 7/1/14 $50,000, 8/1/14 $50,000, 9/30/14 $50,000. The Company received the $50,000 March 2014 payment. The Company will receive 30% allocation of revenue from developed products with TSHC. In May of 2014, the company elected to change the payment option election to Option No. 2 in the contract. This Option No. 2 allowed for the balance due of $200,000 to be paid in full on August 30, 2014. This contract has been completed and paid with the exception of an outstanding balance of $50,000. This amount was supposed to be repaid, however only $20,000 of this amount was received during the third quarter. A new agreement was subsequently extended wherein TSHC will repay the balance owing of $30,000 by the end of 2015.

 

Lease

 

The Company currently occupies office space at 2121 Palomar Airport Road, Carlsbad, California. The Company signed an eleven-month lease agreement starting September 1, 2011 to July 31, 2012 for $3,159 per month. In July of 2012, the Company renewed the three year lease for the same 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 9 – RELATED PARTY TRANSACTIONS

 

Employment Agreements

 

On January 1, 2015, the Company signed employment agreements with its three officers who also make up the Board of Directors. Each employment agreement is for one year starting January 1, 2015. The employment agreement with the Company’s Chief Executive Officer Lisa Nichols calls for an annual salary of $225,000. The employment agreement with the Company’s President and Chief Operating Officer Susie Carder calls for an annual salary of $200,000. The employment agreement with the Company’s Chief Financial Officer Scott Ryder was dated October 15, 2015 and calls for an annual salary of $150,000. The employment agreements to the three officers stipulate a potential bonus at the discretion of the Board of Directors.

 

 

NOTE 10 – STOCKHOLDERS’ EQUITY

 

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 14,915,390 and 15,624,300 shares outstanding as of September 30, 2015 and December 31, 2014, respectively. Each holder of common stock is entitled to one vote for each share held. During nine months period ended September 30, 2015, the Company repurchased 1,500,000 shares of its common stock.

 

In the nine months ended September 30, 2015, the Company issued 751,090 common shares as a stock dividend to current shareholders as loyalty shares based on their investment on March 31, 2015 at fair value, issued 40,000 common shares to Alex Henderson for services rendered at fair value of $20,000, and repurchased 1.5 million common shares that were originally issued to Steve Corso for services rendered.

 

 

NOTE 11 - Subsequent events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company has determined that, other than listed below, no material subsequent events exist through the date of this filing.

 

In October of 2015, the Company issued 153,530 common shares as a stock dividend to current shareholders as loyalty shares based on their investment on March 31, 2015 at fair value.

 

In November of 2015, the Company issued 17,759 common shares as a stock dividend to current shareholders as loyalty shares based on their investment on March 31, 2015 at fair value.

 

In November of 2015, the Company repurchased 27,011 shares of common stock from the selling stockholder in a private transaction. The shares were repurchased at a price of $.48 per share, for an aggregate purchase price of $13,000.

   

 

 

PART I.

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

 

Overview and History

 

Motivating the Masses, Inc., a Nevada corporation (we, us, our, or the “Company”) was incorporated in the State of Nevada on September 2, 1998 to engage in providing top-quality professional development and coaching services to its clientele. The Company’s products and services revolve around the personal and business coaching programs written and developed by their CEO Lisa Nichols. The program sells as a package of books and DVD’s at their 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.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

·

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

·

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

·

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

·

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

We also qualify as a smaller reporting company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended. As a smaller reporting company and so long as we remain a smaller reporting company, we benefit from similar exemptions and exclusions as an emerging growth company. In the event that we cease to be an emerging growth company as a result of a lapse of the five-year period, but continue to be a smaller reporting company, we would continue to be subject to similar exemptions available to emerging growth company until such time as we were no longer a smaller reporting company.

 

 

Our principal place of business is located at 2121 Palomar Airport Road, Suite 300, Carlsbad, California 92011.  Our phone number is 760-931-9400.

 

We have not been subject to any bankruptcy, receivership or similar proceeding.

 

Results of Operations

 

Revenues  

 

Revenues for the three months ended September 30, 2015 were $607,714 compared to $597,983 for the three months ended September 30, 2014, which was an increase of $9,731, or 1.6%. The increase in revenues was mainly due to the addition of two coaches resulting in an increase in sales from coaching services.

 

Revenues for the nine months ended September 30, 2015 were $2,780,189 compared to $2,271,205 for the nine months ended September 30, 2014, which was an increase of $508,984, or 22%. The increase in revenues was due to new service offerings including Keynote speeches plus an increase in sales from its VIP days, coaching, training workshop seminars and events.

 

Cost of Revenues

 

The gross margin for the three months ended September 30, 2015 was 23.5% of sales compared to 64.7% for the three months ended September 30, 2014. The decrease in gross margin was primarily due to the Company’s increase in coaching sales. The commissions paid on coaching sales are higher than paid on the Company’s other service, which resulted in a lower gross margin. These costs were more of a one-to-one revenue model as opposed to a one-to-many model. Our company strategy is to build these coaches’ clients into a one-to-many model, or group coaching.

 

The gross margin for the nine months ended September 30, 2015 was 53.9% of sales compared to 64.9% for the nine months ended September 30, 2014. The decrease in gross margin was due to a couple of factors. One factor was that the event locations in the first three months of 2015 required higher costs of travel. Another factor was an added event in January of 2015, which increased the company’s sales but also increased the event’s costs. Another factor was the addition of Sean Smith as a coach and Nicole Roberts Jones increasing her coaching clients. These coaches assisted in increasing revenues but also increased the coaching expenses. The Company pays a 25% commission on its coaching services, which is higher than its commissions paid on its other services. These factors contributed to the overall decrease in Gross Margin. Further these costs were more of a one-to-one revenue model as opposed to a one-to-many model. Our company strategy is to build these coaches’ clients into a one-to-many model, or group coaching.

 

Operating Activities

  

Total operating income for the three months ended September 30, 2015 was negative $528,698 as compared to negative $42,545 for the three months ended September 30, 2014, which was a decrease of $486,153. Total operating income for the nine months ended September 30, 2015 was negative $448,221 as compared to $145,556 for nine months ended September 30, 2014, which was a decrease of $593,777. The reason for the decrease was mainly due to the Company having incurred more consulting expense, wages and other compensation expense, and professional expense. The Company hired an investment-banking firm to provide financial advisory services and also increased Lisa Nichols and Susie Carder’s salaries to market level.

 

Operating expenses were $671,585 for the three months ended September 30, 2015 compared to $429,233 for the three months ended September 30, 2014, which was an increase of $242,352. Operating expenses were $1,946,832 for the nine months ended September 30, 2015 compared to $1,329,065 for the nine months ended September 30, 2014, which was an increase of $617,767. The reason for the increase was mainly due to the Company having incurred more consulting expense, wages and other compensation expense, and professional expense. . The Company hired an investment-banking firm to provide financial advisory services and also increased Lisa Nichols and Susie Carder’s salaries to market level.

 

Bad debt expense was none for both the three months ended September 30, 2015 and for the three months ended September 30, 2014. Bad debt expense was $14,488 for the nine months ended September 30, 2015 as compared to $28,480 for the nine months ended September 30, 2014, which was a decrease of $13,992. The reason for the decrease is due to the reduction in Accounts Receivable.

 

 

Consulting expense was $127,016 for the three months ended September 30, 2015 as compared to $69,059 for the three months ended September 30, 2014, resulting in an increase of $57,957. The increase was due to the added cost of the compliance consultants, PR firm, attorneys and regulatory guidance consultants that were retained earlier this year. Consulting expense was $459,267 for nine months ended September 30, 2015 as compared to $269,209, resulting in an increase of $190,058. The increase was due to the addition of adding an investment-banking firm, compliance consultants, PR firm, attorneys and regulatory guidance consultants.

 

Professional fees were $57,891 for the three months ended September 30, 2015 as compared to $13,062 for the three months ended September 30, 2014, resulting in an increase of $44,829. Professional fees were $170,945 for the nine months ended September 30, 2015 as compared to $55,962 for the nine months ended September 30, 2014, resulting in an increase of $114,983. The increase was due to adding professional consultants relating to financial advisory services and auditing.

 

General and administrative expenses were $170,500 for the three months ended September 30, 2015 as compared to $141,139 for the three months ended September 30, 2014, resulting in an increase of $29,361. General and administrative expenses were $445,939 for the nine months ended September 30, 2015 as compared to $422,520 for the nine months ended September 30, 2014, resulting in an increase of $23,419. The increased expense in both periods was primarily due to an increase in rent.

 

Wages and other compensation were $316,178 for the three months ended September 30, 2015 as compared to $205,973 for the three months ended September 30, 2014, resulting in an increase of $110,205. The increased expense was primarily due to the addition of a customer service position and an increase in Lisa Nichols and Susie Carder’s salaries to market level. Wages and other compensation were $853,409 for the nine months ended September 30, 2015 as compared to $552,894 for the nine months ended September 30, 2014, resulting in an increase of $300,515. The increase was due to the company expanding operations. The company added a customer service position and increased executive salaries to market level.

 

Liquidity and Capital Resources

 

Our total cash balance is $48,318 as of September 30, 2015 as compared to $13,210 as of December 31, 2014.

 

As of September 30, 2015, total current assets were $395,571 compared to $666,137 at December 31 2014. The decrease of $270,566 in current assets is mainly a result of a decrease in accounts receivable due to a change in the Company’s accounting policies. Beginning in 2015, the Company adjusts its accounts receivable to reflect earned receivables.

 

As of September 30, 2015, total current liabilities were $709,731 as compared to $581,334 on December 31, 2014. The increase in our current liabilities is mainly due to the increase in deferred revenues, which represents income to be recognized in the future as services are provided.

 

During the nine months ended September 30, 2015, net cash provided by operating activities was $38,072 consisting of $143,955 increase in accounts receivable, $47,000 increase in other receivables, $100,231 increase in prepaids, $126,350 increase in deferred revenues, $15,332 increase in deposits and $5,791 increase in accounts payable. For the same nine months ended September 30, 2014, net cash used by operating activities was a negative $385,791, consisting of a $451,252 decline in accounts receivable, $200 increase in other receivables, $1,675 increase in prepaids, $47,813 decrease in deferred revenue, $72,511 decline in deposits and $2,757 decline in accounts payable.

 

Net cash used in investing activities for the nine months ended September 30, 2015 was negative $10,070. Net cash used in investing activities for the nine months September 30, 2014 was a negative $17,675.

 

Net cash provided from financing activities for the nine months ended September 30, 2015, were $7,106 consisting of $11,000 in net proceeds from the private sale of common shares. Net cash provided from financing activities for the nine months ended September 30, 2014 were $242,464, which was mainly due to $242,650 from the private sale of common shares.

 

The Company’s management is reviewing new ways to cut costs and increase revenues so they can increase operational efficiency in the future. The Company is in the process of restructuring its compensation plan in a way to reduce cash expense while incentivizing increased sales. At the moment, they are reviewing a number of stock option and equity plans. The Company plans to increase the utilization of their website with users and have increased material that will be sold online in the form of instructional videos and webinars that will incrementally increase revenues without increasing costs.  The costs are being incurred now through the creation of the technology but the revenues will be realized in the years to come with very minimal costs in the form of website hosting and video hosting.  

 

 

Because we are currently subject to the reporting requirements of the Exchange Act of 1934, we expect that we will incur ongoing expenses associated with professional fees for accounting, legal and other expenses for annual reports and proxy statements.  We estimate that these costs could range up to $200,000 per year for the next few years and will be higher if our business volume and activity increases.   

 

To date, our operations have been limited and we have only generated relatively limited revenues. We believe that our principal difficulty has been the lack of available capital to operate and expand our business.  We believe we need additional funding for working capital and general and administrative expense.   Although we have recently executed an Investment Banking Agreement with Andrew Garrett, Inc., a FINRA member broker dealer, as of the date of this Report we have no commitment from any investor to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future.  Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.  

 

 

Contractual Obligations

 

The Company currently has no material required contractual obligations.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the three-month period ended September 30, 2015.

 

Critical Accounting Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based 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. Note 2 above represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

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 of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

  

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Management maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

 

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive Officer/Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2015.

 

Based on that evaluation, management concluded, that our disclosure controls and procedures may not have been effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms. After the period covered by this Report, we terminated our prior auditors, certain consultants and our counsel and have engaged new independent auditors and counsel as well as an investment bank to assist us on a going forward basis.

 

Changes in Internal Controls over Financial Reporting

 

As of the end of the period covered by this report, there have been no changes in the internal controls over financial reporting during the quarter ended September 30, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting subsequent to the date of management’s last evaluation. However, as disclosed hereinabove, subsequent to the period covered by this Report, we terminated our prior auditors, certain consultants and our counsel and have engaged new independent auditors and counsel as well as an investment bank to assist us on a going forward basis. These changes are expected to ensure that our disclosure controls and procedures will be effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms subsequent to the taking of such actions.

 

 

 PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently a party to any legal proceeding, nor are we aware of any threatened actions.

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

Period		(a) Total Number of Shares (or Units) Purchased				(b) Average Price Paid per Share (or Unit)				(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs				(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July (July 29, 2015)			1,500,000			$	0.0001				0			$	150
Total			1,500,000			$	0.0001				0

  

1 - Motivating the Massess' Board of Directors approved the repurchase of 1,500,000 shares for $150 on July 29, 2015.  There were no other common stock repurchases planed, or otherwise, during Q3.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

The following exhibits are included with this report.

 

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial and Accounting Officer
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Principal Financial and Accounting Officer Certification pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.

EX-101.INS	XBRL Instance Document
EX-101.SCH	XBRL Taxonomy Extension Schema Document
EX-101.CAL	XBRL Taxonomy Extension Calculation Linkbase
EX-101.DEF	XBRL Taxonomy Extension Definition Linkbase
EX-101.LAB	XBRL Taxonomy Extension Labels Linkbase
EX-101.PRE	XBRL Taxonomy Extension Presentation Linkbase

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 23, 2015.

 

	MOTIVATING THE MASSES, INC.
	By:	/s/ Lisa Nichols
	Lisa Nichols, Principal Executive Officer
	By:	/s/ Scott Ryder
	Scott Ryder, Principal Accounting Officer and Principal Financial Officer