Artificial Intelligence Technology Solutions Inc. - Quarter Report: 2014 November (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2014
or
o | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission File Number: 333-168530
ON THE MOVE SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
Florida |
| 27-2343603 |
(State or other jurisdiction of Incorporation or organization) |
| (I.R.S. Employer Identification Number) |
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3001 North Rocky Point East, Suite 200 |
| 33607 |
(Address of principal executive offices) |
| (Zip code) |
Registrant’s telephone number, including area code: (813) 367-3511
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.
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 is smaller reporting company) |
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| |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of January 9, 2015, there were 34,280,000 shares of common stock, issued and outstanding.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION | 4 |
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Item 1. Financial Statements | 4 |
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Consolidated Balance Sheets (Unaudited) | 4 |
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Consolidated Statements of Operations (Unaudited) | 5 |
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Consolidated Statements of Cash Flows (Unaudited) | 6 |
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Notes to the Unaudited Consolidated Financial Statements | 7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk | 17 |
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Item 4. Controls and Procedures | 17 |
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PART II — OTHER INFORMATION | 18 |
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Item 1. Legal Proceedings | 18 |
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Item 1A. Risk Factors | 18 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
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Item 3. Defaults upon Senior Securities | 18 |
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Item 4. Mine Safety Disclosures | 18 |
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Item 5. Other Information | 18 |
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Item 6. Exhibits | 18 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors, which may cause actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2014. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
OTHER PERTINENT INFORMATION
When used in this report, the terms, “we,” the “Company,” “OMVS,” “our,” and “us” refers to On the Move Systems Corp., a Florida corporation.
- 3 -
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ON THE MOVE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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| November 30, 2014 |
| February 28, 2014 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 13,330 |
| $ | 30,183 |
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Accounts receivable |
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| 3,000 |
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| — |
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Assets of discontinued operations |
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| — |
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| 7,005 |
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Total current assets |
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| 16,330 |
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| 37,188 |
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Fixed assets, net of accumulated depreciation of $7,336 and $0, respectively |
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| 84,668 |
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| — |
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Long-term assets of discontinued operations |
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| — |
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| 17,751 |
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Investment in joint venture |
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| — |
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| — |
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TOTAL ASSETS |
| $ | 100,998 |
| $ | 54,939 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 401,442 |
| $ | 247,672 |
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Advances payable |
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| — |
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| 130,037 |
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Current portion of convertible notes payable, net of discount of $480,643 and $0, respectively |
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| 392,537 |
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| 294,871 |
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Current portion of capital lease obligation |
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| 5,504 |
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| — |
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Current portion of accrued interest payable |
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| 108,022 |
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| 20,953 |
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Liabilities of discontinued operations |
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| — |
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| 35,350 |
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Total current liabilities |
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| 907,505 |
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| 728,883 |
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Convertible notes payable, net of discount of $448,520 and $615,024, respectively |
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| 11,082 |
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| 43,529 |
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Accrued interest payable |
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| 8,867 |
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| 29,354 |
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Capital lease obligation |
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| 23,540 |
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| — |
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TOTAL LIABILITIES |
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| 950,994 |
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| 801,766 |
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STOCKHOLDERS’ DEFICIT |
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Series E Preferred Stock, $0.001 par value; 1,000,000 shares authorized; 1,000,000 and 0 shares issued and outstanding at November 30, 2014 and February 28, 2014, respectively |
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| 1,000 |
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| — |
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Common Stock, $0.0001 par value; 100,000,000 shares authorized; 32,680,000 and 23,100,000 shares issued and outstanding at November 30, 2014 and February 28, 2014, respectively |
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| 3,268 |
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| 2,310 |
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Additional paid-in capital |
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| 5,234,687 |
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| 4,581,243 |
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Accumulated deficit |
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| (6,088,951 | ) |
| (5,330,380 | ) |
Total stockholders’ deficit |
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| (849,996 | ) |
| (746,827 | ) |
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| $ | 100,998 |
| $ | 54,939 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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ON THE MOVE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Nine months ended |
| Three months ended |
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| 2014 |
| 2013 |
| 2014 |
| 2013 |
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ADVERTISING REVENUE | $ | 4,500 |
| $ | — |
| $ | 2,250 |
| $ | — |
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COST OF GOODS SOLD |
| — |
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| — |
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| — |
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| — |
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GROSS PROFIT |
| 4,500 |
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| — |
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| 2,250 |
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| — |
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OPERATING EXPENSES |
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Expenses related to joint ventures and other business development agreements |
| 63,178 |
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| 15,000 |
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| 12,000 |
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| 15,000 |
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General and administrative expenses |
| 448,582 |
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| 448,293 |
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| 113,853 |
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| 181,430 |
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Total operating expenses |
| 511,760 |
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| 463,293 |
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| 125,853 |
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| 196,430 |
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Net operating loss |
| (507,260 | ) |
| (463,293 | ) |
| (123,603 | ) |
| (196,430 | ) |
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Interest expense |
| (229,402 | ) |
| (51,824 | ) |
| (104,430 | ) |
| (23,724 | ) |
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Loss from continuing operations |
| (736,662 | ) |
| (515,117 | ) |
| (228,033 | ) |
| (220,154 | ) |
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Loss from discontinued operations |
| (21,909 | ) |
| (32,150 | ) |
| — |
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| (15,433 | ) |
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NET LOSS | $ | (758,571 | ) | $ | (547,267 | ) | $ | (228,033 | ) | $ | (235,587 | ) |
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NET LOSS PER COMMON SHARE – |
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Continuing operations | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
Discontinued operations | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) |
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Net loss per common share | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – |
| 28,684,509 |
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| 19,530,909 |
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| 32,284,396 |
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| 21,002,198 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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ON THE MOVE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| Nine months ended November 30, |
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| 2014 |
| 2013 |
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CASH FLOW FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | (758,571 | ) | $ | (547,267 | ) |
Loss from discontinued operations |
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| (21,909 | ) |
| (32,150 | ) |
Loss from continuing operations |
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| (736,662 | ) |
| (515,117 | ) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation expense |
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| 7,336 |
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| — |
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Preferred stock issued for services |
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| 100,000 |
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| — |
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Amortization of discount on convertible notes payable |
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| 145,463 |
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| 17,738 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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| (3,000 | ) |
| — |
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Accounts payable and accrued expenses |
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| 123,770 |
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| 113,024 |
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Accrued interest payable |
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| 82,138 |
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| 34,086 |
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Cash used in operating activities – continuing operations |
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| (280,955 | ) |
| (350,269 | ) |
Cash used in operating activities – discontinued operations |
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| (25,405 | ) |
| (29,658 | ) |
NET CASH USED IN OPERATING ACTIVITIES |
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| (306,360 | ) |
| (379,927 | ) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of fixed assets |
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| (30,000 | ) |
| — |
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Cash used in investing activities – continuing operations |
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| (30,000 | ) |
| — |
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NET CASH USED IN INVESTING ACTIVITIES |
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| (30,000 | ) |
| — |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from advances |
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| 329,565 |
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| 396,958 |
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Repayments of capital lease obligation |
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| (2,960 | ) |
| — |
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Cash provided by financing activities – continuing operations |
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| 326,605 |
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| 396,958 |
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Cash used in financing activities – discontinued operations |
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| (7,098 | ) |
| (15,342 | ) |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
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| 319,507 |
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| 381,616 |
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NET INCREASE (DECREASE) IN CASH |
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| (16,853 | ) |
| 1,689 |
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CASH, at the beginning of the period |
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| 30,183 |
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| 15,670 |
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CASH, at the end of the period |
| $ | 13,330 |
| $ | 17,359 |
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid during the period for: |
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Interest |
| $ | 1,794 |
| $ | — |
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Taxes |
| $ | — |
| $ | — |
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Noncash investing and financing transactions: |
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Refinancing of advances into convertible notes payable |
| $ | 459,602 |
| $ | 658,553 |
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Beneficial conversion on convertible notes payable |
| $ | 459,602 |
| $ | 658,553 |
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Common stock issued for conversion of convertible notes payable and accrued interest |
| $ | 95,800 |
| $ | 36,000 |
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Automobile acquired under capital lease |
| $ | 32,004 |
| $ | — |
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Equipment acquired with accounts payable |
| $ | 30,000 |
| $ | — |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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ON THE MOVE SYSTEMS CORP.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2014
Note 1. General Organization and Business
On the Move Systems Corp. (“we”, “us”, “our”, “OMVS”, or the “Company”) was incorporated in Florida on March 25, 2010. The Company’s business focus was the mobile electronics market, but is it currently transitioning to the transportation and trucking market. The Company’s year-end is February 28. The company is located at 3001 North Rocky Point East, Suite 200, Tampa, FL 33607. Our telephone number is (813) 367-3511.
On March 25, 2011, Crawford Mobile Installation Corp. (“CMIC”), a wholly owned subsidiary of the Company acquired all of the assets and assumed certain liabilities of Crawford Mobile Install (“CMI”). The assets of CMI included cash, inventory, a vehicle and installation equipment. On the date of the acquisition, a material relationship existed between the parties, because John Crawford was the sole officer and director of both the Company and CMIC as well as being the sole proprietor of CMI. The purchase price for the assets and liabilities of CMI was $100,000.
On September 1, 2014, we defaulted on a note payable to John Crawford. Pursuant to the terms of the note, 100% of the shares of CMIC were provided to Mr. Crawford. See Note 4 for additional details on this transaction.
Note 2. Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. For the nine months ended November 30, 2014, the Company had a net loss of $758,571 and negative cash flow from operating activities of $306,360. As of November 30, 2014, the Company had negative working capital of $891,175. Management does not anticipate having positive cash flow from operations in the near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern.
We will need to obtain loans or other financing in order to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will be able to obtain these loans or that they will be available to us on terms that are acceptable to the Company. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.
Note 3. Summary of Significant Accounting Policies
Interim Financial Statements
These unaudited financial statements have been prepared in accordance with generally accepted accounting (“GAAP”) principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the fiscal year ended February 28, 2014 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”).
The results of operations for the nine-month period ended November 30, 2014 are not necessarily indicative of the results to be expected for the full fiscal year ending February 28, 2015.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and Crawford Mobile Installation Corp. All of the Company’s shares in Crawford Mobile Installation Corp. were transferred to a third party during September 2014. Significant intercompany transactions have been eliminated in consolidation. The fiscal year-end for the Company and its subsidiary is February 28.
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Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purpose of the financial statements, cash equivalents include all highly liquid investments with a maturity of three months or less. Cash and cash equivalents were $13,330 and $30,183 at November 30, 2014 and February 28, 2014, respectively.
Fixed Assets
Fixed assets of the Company include vehicles and trailers and are stated at cost. In accordance with ASC Topic 360 Property, Plant and Equipment, expenditures for fixed assets that substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred.
Depreciation is provided principally on the straight-line method over the estimated useful lives of five years for financial reporting purposes.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. The Company determined that there was no impairment of long-lived assets during the nine months ended November 30, 2014.
Revenue Recognition
The Company follows ASC 605, Revenue Recognition recognizing revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
Advertising Costs
The Company’s policy is to expense advertising costs when they are incurred.
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of November 30, 2014 or February 28, 2014.
Earnings (Loss) per Common Share
The Company computes basic and diluted earnings per common share amounts in accordance with ASC Topic 260, Earnings per Share. Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per common share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered antidilutive and thus are excluded from the calculation.
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The Company’s convertible debt is considered anti-dilutive due to the Company’s net loss for the nine months ended November 30, 2014 and 2013. As a result, the Company did not have any potentially dilutive common shares for those periods. For the periods ended November 30, 2014 and 2013, potentially issuable shares as a result of conversions of convertible notes payable have been excluded from the calculation. At November 30, 2014, the Company had 330,410,976 potentially issuable common shares upon the conversion of convertible notes payable and interest.
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Financial Instruments
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period between the origination of these instruments and their expected realization.
FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) 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. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| Level 1 - | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
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| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
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| Level 3 - | Inputs that are both significant to the fair value measurement and unobservable. |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of November 30, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, accounts payable, and accrued expenses. The fair value of the Company’s notes payable and capital lease obligation is estimated based on current rates that would be available for debt of similar terms that is not significantly different from its stated value.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation.
Subsequent Events
The Company evaluated material events occurring between the end of our quarter, November 30, 2014, and through the date when the consolidated financial statements were available to be issued for disclosure.
Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
- 9 -
Note 4. Discontinued Operations
The Company defaulted on its $90,000 promissory note to John Crawford that was signed on March 25, 2011. Per the terms of the note, upon default the Company is to provide Mr. Crawford with 100% of the shares that it holds in Crawford Mobile Installation Corp (“CMIC”). During September 2014, the Company notified Mr. Crawford that it was in default on the note and the Company transferred its CMIC shares to Mr. Crawford.
The Company recognizes CMIC as a discontinued operation, in accordance with ASU 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
Assets and Liabilities of Discontinued Operations
|
| November 30, 2014 |
| February 28, 2014 |
| ||
Assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 2,435 |
|
Accounts receivable |
|
| — |
|
| 755 |
|
Inventory |
|
| — |
|
| 3,815 |
|
Fixed assets |
|
| — |
|
| 17,751 |
|
Total assets of discontinued operations |
| $ | — |
| $ | 24,756 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | — |
| $ | 3,671 |
|
Accounts payable to related party |
|
| — |
|
| 13,227 |
|
Notes payable to related party |
|
| — |
|
| 18,452 |
|
Total liabilities of discontinued operations |
| $ | — |
| $ | 35,350 |
|
Income and Expenses of Discontinued Operations
| Nine months ended |
| Three months ended |
| ||||||||
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| ||||
|
|
| (Restated) |
|
|
| (Restated) |
| ||||
Revenue | $ | 50,027 |
| $ | 65,926 |
| $ | — |
| $ | 20,916 |
|
Cost of goods sold |
| 28,677 |
|
| 41,758 |
|
| — |
|
| 12,872 |
|
Gross profit |
| 21,350 |
|
| 24,168 |
|
| — |
|
| 8,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
| 43,259 |
|
| 56,318 |
|
| — |
|
| 23,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss from discontinued operations | $ | (21,909 | ) | $ | (32,150 | ) | $ | — |
| $ | (15,433 | ) |
As a result of the Company removing intangible assets of $20,000 as of the date of its CMIC acquisition (March 25, 2011), the Company has restated its financial statements for the three and nine months ended November 30, 2013 to reverse amortization for intangible assets of $3,000 during the nine months ended November 30, 2014 and to reverse amortization for intangible assets of $1,000 during the three months ended November 30, 2014. The net loss for the Company for the nine months ended November 30, 2013 decreased from $550,267 as originally filed to $547,267 as restated. The net loss for the Company for the three months ended November 30, 2013 decreased from $236,587 as originally filed to $235,587 as restated. There was no impact on earnings per share as a result of the restatement.
As a result of the disposition in September 2014, there was no gain or loss on disposition.
- 10 -
Note 5. Fixed Assets
On May 1, 2014, the Company entered into a capital lease agreement to acquire a race car. The race car was recorded at the present value of the future minimum lease payments in the amount of $32,004.
On August 14, 2014, the Company purchased ten tri-axle trailers for $60,000. The Company has paid $30,000 for these trailers and the remaining $30,000 owed is included in accounts payable at November 30, 2014.
The Company recognized depreciation expense of $7,336 and $0 during the nine months ended November 30, 2014 and 2013, respectively.
Note 6. Joint Ventures
On February 11, 2014, the Company signed a joint venture agreement with The Xperience to offer fantasy travel packages beginning with auto racing events. OMVS has committed to fund up to $30,000 of the cash flow requirements of the joint venture at its discretion and to assist with creating the travel packages. OMVS will be allocated 40 percent of the earnings (losses) from this joint venture. During the nine months ended November 30, 2014, the Company funded $40,000 to this joint venture for operating expenses. The Company also incurred $23,178 of other expenses for various events as part of this joint venture.
Note 7. Capital Lease Obligation
|
| November 30, 2014 |
| February 28, 2014 |
| ||
|
|
|
|
|
|
|
|
Capital lease – race car, interest at 10%, payments of $680 per month, term 5 years |
| $ | 29,044 |
| $ | — |
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations |
|
| (5,504 | ) |
| — |
|
Long-term capital lease obligation |
| $ | 23,540 |
| $ | — |
|
The lease for the race car meets the accounting criteria for a capital lease with the lease covering over 75% of the economic life of the asset.
Capital Leases-Future Minimum Lease Payments
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of November 30, 2014 are as follows:
For the periods ending November 30, |
| Amount |
| |
2015 |
| $ | 8,160 |
|
2016 |
|
| 8,160 |
|
2017 |
|
| 8,160 |
|
2018 |
|
| 8,160 |
|
2019 |
|
| 3,410 |
|
Total minimum lease payments |
| $ | 36,050 |
|
|
|
|
|
|
Total minimum lease payments |
| $ | 36,050 |
|
Less: Interest |
|
| (7,006 | ) |
Present value of net minimum lease and debt payments |
|
| 29,044 |
|
Less: Current maturities of lease obligation and debt |
|
| (5,504 | ) |
Long-term capital lease obligation |
| $ | 23,540 |
|
- 11 -
Note 8. Related Party Transactions
The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts.
Acquisition of CMIC
On March 25, 2011, CMIC, a wholly owned subsidiary of the Company, entered into an agreement to purchase all of the assets and the business of CMI for $100,000. CMI was a sole proprietorship owned and operated by John Crawford. John Crawford was also the sole officer-director of the Company and CMIC. The Company accounted for the acquisition as a transaction between entities under common control and, therefore, the transaction was accounted for at historical cost.
The purchase price was paid with $10,000 in cash at closing and a note payable for the remaining $90,000. The note bears interest at 10% per year and was payable in monthly installments of $2,500 with a balloon payment of the remaining principal and interest due February 1, 2014. We entered default on the note on February 1, 2014. On September 1, 2014 control of CMIC reverted to the noteholder, John Crawford, per the default remedies specified in the note.
Issuance of Preferred Stock
On May 8, 2014, the Company issued 1,000,000 shares of Series E preferred stock to Masclo Investment Corporation, a Panama corporation, (“Masclo”) for services. The Company recorded $100,000 of expense based on the fair value of the services provided. Masclo owned 9,000,000 shares of common stock of the Company prior to this transaction.
Note 9. Advances
During the nine months ended November 30, 2014, the Company received advances from Vista View Ventures Inc. totaling $329,565. These advances are non-interest bearing and payable on demand.
At November 30, 2014 and February 28, 2014, the Company owed Vista View Ventures Inc. $0 and $130,037, respectfully, for advances provided to the Company.
Note 10. Convertible Notes Payable
Convertible notes payable consist of the following as of November 30, 2014 and February 28, 2014:
Issued |
| Maturity |
| Interest |
| Conversion |
| Balance |
| Balance |
| ||
February 28, 2011 |
| February 27, 2013 |
| 18% |
| $0.015 |
| $ | 32,600 |
| $ | 32,600 |
|
January 31, 2013 |
| February 28, 2015 |
| 10% |
| $0.01 |
|
| 182,027 |
|
| 262,271 |
|
May 31, 2013 |
| May 31, 2015 |
| 10% |
| $0.01 |
|
| 261,595 |
|
| 261,595 |
|
November 30, 2013 |
| November 30, 2015 |
| 10% |
| $0.01 |
|
| 396,958 |
|
| 396,958 |
|
August 31, 2014 |
| August 31, 2016 |
| 10% |
| $0.002 |
|
| 355,652 |
|
| — |
|
November 30, 2014 |
| November 30, 2016 |
| 10% |
| $0.002 |
|
| 103,950 |
|
| — |
|
Total convertible notes payable |
|
|
|
| 1,332,782 |
|
| 953,424 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Less: current portion of convertible notes payable |
|
|
|
| (873,180 | ) |
| (294,871 | ) | ||||
Less: discount on noncurrent convertible notes payable |
|
|
|
| (448,520 | ) |
| (615,024 | ) | ||||
Long-term convertible notes payable, net of discount |
|
|
| $ | 11,082 |
| $ | 43,529 |
| ||||
The note dated February 28, 2011 is currently is in default and bears default interest at 18% per annum.
On November 30, 2014, the Company signed a convertible promissory note with Vista View Ventures Inc. which refinanced non-interest bearing advances in the amount of $103,950 into a convertible note payable. The convertible promissory note bears interest at 10% per annum and is payable along with accrued interest on November 30, 2016. The convertible promissory note is convertible into common stock at the option of the holder at the rate of $0.002 per share.
- 12 -
On August 31, 2014, the Company signed a convertible promissory note with Vista View Ventures Inc. which refinanced non-interest bearing advances in the amount of $355,652 into a convertible note payable. The convertible promissory note bears interest at 10% per annum and is payable along with accrued interest on August 31, 2016. The convertible promissory note is convertible into common stock at the option of the holder at the rate of $0.002 per share.
On November 30, 2013, the Company signed a convertible promissory note with Vista View Ventures Inc. which refinanced non-interest bearing advances in the amount of $396,958 into a convertible note payable. The convertible promissory note bears interest at 10% per annum and is payable along with accrued interest on November 30, 2015. The convertible promissory note is convertible into common stock at the option of the holder at the rate of $0.01 per share.
On May 31, 2013, the Company signed a convertible promissory note with Vista View Ventures Inc. which refinanced non-interest bearing advances in the amount of $261,695 into a convertible note payable. The convertible promissory note bears interest at 10% per annum and is payable along with accrued interest on May 31, 2015. The convertible promissory note is convertible into common stock at the option of the holder at the rate of $0.01 per share.
During nine months ended November 30, 2014, the holders of our convertible notes elected to convert principal and interest of $95,800 into 9,580,000 shares of common stock.
During nine months ended November 30, 2013, the holders of our convertible notes elected to convert principal and interest of $36,000 into 3,600,000 shares of common stock.
The Company evaluated the terms of the notes in accordance with ASC Topic No. 815 – 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion features for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized a discount for the beneficial conversion feature in the amount of $459,602, in aggregate, on the date the notes were signed during the nine months ended November 30, 2014. The beneficial conversion feature was recorded as an increase in additional paid-in capital and a discount to the convertible notes payable. The discount to the convertible notes payable will be amortized to interest expense over the life of the notes.
Note 11. Stockholders’ Equity
Conversion of convertible notes payable
During nine months ended November 30, 2014, the holders of our convertible notes elected to convert principal and interest of $95,800 into 9,580,000 shares of common stock.
During nine months ended November 30, 2013, the holders of our convertible notes elected to convert principal and interest of $36,000 into 3,600,000 shares of common stock.
Preferred Stock
On May 8, 2014, the board of directors designated 1,000,000 shares of Series E preferred stock. The Series E preferred stock has a par value of $0.001 and ranks subordinate to the Company’s common stock. The outstanding shares of Series E preferred stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of capital stock. On the same date, the Company issued 1,000,000 shares of Series E preferred stock to Masclo Investment Corporation, a Panama corporation, (“Masclo”) for services. Masclo owned 9,000,000 shares of common stock of the Company prior to this transaction.
Reincorporation
On September 12, 2014, the board of directors and Masclo elected to reincorporate the Company in Nevada. Each shareholder will receive one share of the new Nevada corporation for each 500 shares of the Florida corporation already owned. Fractional shares will be rounded up to the next whole share and each existing shareholder will own at least five shares of the Nevada corporation. Because this reincorporation includes a reverse split of the Company’s stock, it cannot be effective until it is approved by the Financial Industry Regulatory Authority (“FINRA”). As of the date of this report, it has not been approved by FINRA; therefore, the effect of the reverse split is not reflected in the accompanying financial statements.
- 13 -
Note 12. Subsequent Events
On December 5, 2014, the holder of the Convertible Promissory Note dated January 31, 2013 elected to convert $16,000 of principal and accrued interest into 1,600,000 shares of our Common Stock at a rate of $0.01 per share. The unamortized discount related to the converted principal was immediately amortized to interest expense. No gain or loss was recorded on the transaction as it occurred within the terms of the note agreement.
- 14 -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On the Move Systems Corp. (“we”, “us”, “our”, “OMVS”, or the “Company”) was incorporated in Florida on March 25, 2010. The Company’s business focus was the mobile electronics market, but is it currently exploring the specialized travel and transportation market by developing a network of niche travel, destination lodging, and international logistics partnerships. The Company’s year-end is February 28. The company is located at 3001 North Rocky Point East, Suite 200, Tampa, FL 33607. Our telephone number is (813) 367-3511.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For a full description of our critical accounting policies, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended February 28, 2014 on Form 10-K.
Results of Operations
Nine months ended November 30, 2014 compared to the nine months ended November 30, 2013.
Revenue
Revenue increased to $4,500 for the nine months ended November 30, 2014, compared to $0 for the nine months ended November 30, 2013 due to the commencement of race car advertising in June 2014.
Cost of Goods Sold
Cost of goods sold were $0 for the nine months ended November 30, 2014 and 2013. While we began advertising sales in June 2014, we had no cost of goods sold.
Gross Profit
Gross profit increased to $4,500 for the nine months ended November 30, 2014, compared to $0 for the nine months ended November 30, 2013. This was due to the commencement of race car advertising in June 2014.
Expenses related to joint ventures and other business development agreements
We recognized expenses related to joint ventures and other business development agreements in the amount of $63,178 for the nine months ended November 30, 2014, compared to $15,000 during the comparable period of 2013. The increase in these expenses is due to the commencement of operations of our XPerience travel operations in 2014.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $448,582 and $448,293 for the nine months ended November 30, 2014 and ended 2013, respectively.
- 15 -
Interest Expense
Interest expense increased from $51,824 for the nine months ended November 30, 2013 to $229,402 for the nine months ended November 30, 2014. Interest expense for the nine months ended November 30, 2014 included amortization of discount on convertible notes payable in the amount of $145,463, compared to $17,738 for the comparable period of 2013. The remaining amount is the result of the Company entering into interest-bearing convertible notes payable.
Net Loss
We incurred a net loss of $758,571 for the nine months ended November 30, 2014 as compared to $547,267 for the comparable period of 2013. The increase in the net loss was primarily the result of the increase in interest expense.
Three months ended November 30, 2014 compared to the three months ended November 30, 2013.
Revenue
Revenue increased to $2,250 for the three months ended November 30, 2014, compared to $0 for the three months ended November 30, 2013 due to the commencement of race car advertising sales in June 2014.
Cost of Goods Sold
There were no cost of goods sold for the three months ended November 30, 2014 and 2013, as there are no cost of goods sold attributed to our sales.
Gross Profit
Gross profit increased to $2,250 for the nine months ended November 30, 2014, compared to $0 for the three months ended November 30, 2013 due to the commencement of race car advertising sales in June 2014.
Expenses related to joint ventures and other business development agreements
We recognized expenses related to joint ventures and other business development agreements in the amount of $12,000 for the three months ended November 30, 2014, compared to $15,000 during the comparable period of 2013. The increase in these expenses is due to the commencement of operations of our XPerience travel operations in 2014.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $113,853 and $181,430 for the three months ended November 30, 2014 and ended 2013, respectively. This was due to reductions in professional fees and advertising expense in the third quarter of this year.
Interest Expense
Interest expense increased from $23,724 for the three months ended November 30, 2013 to $104,430 for the nine months ended November 30, 2014. This was caused by increased amortization of the discount on our convertible notes payable. Additionally, we had higher convertible debt balances in 2014, leading to increased interest expense.
Liquidity and Capital Resources
At November 30, 2014, we had cash on hand of $13,330. The Company has negative working capital of $891,175 . Net cash used in operating activities for the nine months ended November 30, 2014 was $306,360. Cash on hand is adequate to fund our operations for less than one month. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to fully implement our business plan. There is no guarantee that we will be able to obtain funds when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of November 30, 2014.
- 16 -
Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
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
Not applicable to a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Internal Control over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of November 30, 2014. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of November 30, 2014, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
| 1. | As of November 30, 2014, we did not maintain effective controls over the financial reporting control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
|
|
|
| 2. | As of November 30, 2014, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
Our management, including our principal executive officer and principal financial officer, who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
- 17 -
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities during the nine months ended November 30, 2014.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not defaulted upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to the Company.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
3.1 | Articles of Incorporation (1) |
|
|
3.2 | Bylaws (1) |
|
|
31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and account officer. (2) |
|
|
32.1 | Section 1350 Certification of principal executive officer and principal financial accounting officer. (2) |
|
|
101 | XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (2),(3) |
__________
(1) | Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on April 14, 2010 |
|
|
(2) | Filed or furnished herewith |
|
|
(3) | In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.” |
- 18 -
SIGNATURES
Pursuant to the requirements 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.
| On the Move Systems Corp. |
|
|
|
|
Date: January 14, 2015 | BY: /s/ Robert Wilson |
| Robert Wilson |
| President, Chief Executive Officer, Chief Financial Officer, |
- 19 -