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EX-31 - RULE 13(A)-14(A)/15(D)-14(A) CERTIFICATION - Artificial Intelligence Technology Solutions Inc.ex_31-1.htm
EX-32 - SECTION 1350 CERTIFICATION - Artificial Intelligence Technology Solutions Inc.ex_32-1.htm
EX-21 - SUBSIDIARIES OF THE REGISTRANT - Artificial Intelligence Technology Solutions Inc.ex_21.htm

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 August 31, 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)

 

 

 

3001 North Rocky Point East, Suite 200
Tampa, FL

 

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 o No þ


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)

 

 


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 October 8, 2014, there were 32,680,000 shares of common stock, issued and outstanding.




TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

4

 

 

Item 1. Financial Statements

4

 

 

Consolidated Balance Sheets  (Unaudited)

4

 

 

Consolidated Statements of Operations  (Unaudited)

5

 

 

Consolidated Statements of Cash Flows  (Unaudited)

6

 

 

Notes to the Unaudited Consolidated Financial Statements

7

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

17

 

 

Item 4. Controls and Procedures

17

 

 

PART II OTHER INFORMATION

18

 

 

Item 1. Legal Proceedings

18

 

 

Item 1A. Risk Factors

18

 

 

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

18

 

 

Item 3. Defaults upon Senior Securities

18

 

 

Item 4. Mine Safety Disclosures

18

 

 

Item 5. Other Information

18

 

 

Item 6. Exhibits

18


- 2 -



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)


 

 

August 31, 2014

 

February 28, 2014

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,319

 

$

30,183

 

Accounts receivable

 

 

2,250

 

 

 

Prepaid expenses

 

 

302

 

 

 

Assets of discontinued operations

 

 

1,872

 

 

7,005

 

Total current assets

 

 

19,743

 

 

37,188

 

 

 

 

 

 

 

 

 

Long-term assets of discontinued operations

 

 

12,260

 

 

17,751

 

Fixed assets, net of accumulated depreciation of $2,749 and $0, respectively

 

 

89,255

 

 

 

Investment in joint venture

 

 

 

 

 

TOTAL ASSETS

 

$

121,258

 

$

54,939

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

383,157

 

$

247,672

 

Advances payable

 

 

 

 

130,037

 

Current portion of convertible notes payable, net of discount of $191,048 and $0, respectively

 

 

297,986

 

 

294,871

 

Current portion of capital lease obligation

 

 

6,906

 

 

 

Current portion of accrued interest payable

 

 

57,878

 

 

20,953

 

Liabilities of discontinued operations

 

 

14,132

 

 

35,350

 

Total current liabilities

 

 

760,059

 

 

728,883

 

 

 

 

 

 

 

 

 

Convertible notes payable, net of discount of $705,395 and $615,024, respectively

 

 

47,215

 

 

43,529

 

Accrued interest payable

 

 

29,799

 

 

29,354

 

Capital lease obligation

 

 

25,098

 

 

 

TOTAL LIABILITIES

 

 

862,171

 

 

801,766

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Series E Preferred Stock, $0.001 stated value; 1,000,000 shares authorized; 1,000,000 and 0 shares issued and outstanding at August 31, 2014 and at February 28, 2014, respectively

 

 

1,000

 

 

 

Common Stock, $0.0001 par value; 100,000,000 shares authorized; 31,180,000 and 23,100,000 shares issued and outstanding at August 31, 2014 and at February 28, 2014, respectively

 

 

3,118

 

 

2,310

 

Additional paid-in capital

 

 

5,115,887

 

 

4,581,243

 

Accumulated deficit

 

 

(5,860,918

)

 

(5,330,380

)

Total stockholders’ deficit

 

 

(740,913

)

 

(746,827

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

121,258

 

$

54,939

 


The accompany notes are an integral part of these unaudited consolidated financial statements.


- 4 -



ON THE MOVE SYSTEMS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


 

Six months ended
August 31,

 

Three months ended
August 31,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

(Restated)

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

ADVERTISING REVENUE

$

2,250

 

$

 

$

2,250

 

$

 

COST OF GOODS SOLD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

2,250

 

 

 

 

2,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Expenses related to joint ventures and other business development agreements

 

51,178

 

 

 

 

27,392

 

 

 

General and administrative expenses

 

334,729

 

 

266,863

 

 

135,930

 

 

194,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

385,907

 

 

266,863

 

 

163,322

 

 

194,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating loss

 

(383,657

)

 

(266,863

)

 

(161,072

)

 

(194,841

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(124,972

)

 

(28,100

)

 

(63,072

)

 

(21,012

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

(508,629

)

 

(294,963

)

 

(224,144

)

 

(215,853

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

(21,909

)

 

(16,717

)

 

(7,632

)

 

(5,988

)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

$

(530,538

)

$

(311,680

)

$

(231,776

)

$

(221,841

)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE –
Basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.02

)

$

(0.02

)

$

(0.01

)

$

(0.01

)

Discontinued operations

$

(0.00

)

$

(0.00

)

$

(0.00

)

$

(0.00

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share

$

(0.02

)

$

(0.02

)

$

(0.01

)

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMON SHARES OUTSTANDING –
Basic and diluted

 

26,904,130

 

 

18,793,478

 

 

29,249,565

 

 

19,093,407

 


The accompany notes are an integral part of these unaudited consolidated financial statements.


5



ON THE MOVE SYSTEMS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


 

 

Six months ended August 31,

 

 

 

2014

 

2013

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(530,538

)

$

(311,680

)

Loss from discontinued operations

 

 

21,909

 

 

16,717

 

Loss from continuing operations

 

 

(508,629

)

 

(294,963

)

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Amortization of discount on convertible notes payable

 

 

74,233

 

 

7,364

 

Depreciation

 

 

2,749

 

 

 

Preferred stock issued for services

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,250

)

 

 

Prepaid expenses

 

 

(302

)

 

 

Accounts payable and accrued expenses

 

 

90,485

 

 

96,310

 

Accrued interest payable

 

 

50,738

 

 

20,736

 

Assets and liabilities of discontinued operations

 

 

(32,503

)

 

(26,928

)

NET CASH USED IN OPERATING ACTIVITIES

 

 

(225,479

)

 

(197,481

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(15,000

)

 

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(15,000

)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Proceeds from advances

 

 

225,615

 

 

255,790

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

225,615

 

 

255,790

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

(14,864

)

 

58,309

 

 

 

 

 

 

 

 

 

CASH, at the beginning of the period

 

 

30,183

 

 

15,670

 

 

 

 

 

 

 

 

 

CASH, at the end of the period

 

$

15,319

 

$

73,979

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

 

$

 

Taxes

 

$

 

$

 

 

 

 

 

 

 

 

 

Noncash investing and financing transaction:

 

 

 

 

 

 

 

Refinancing of advances into convertible notes payable

 

$

355,652

 

$

261,595

 

Beneficial conversion on convertible notes payable

 

$

355,652

 

$

261,595

 

Common stock issued for conversion of convertible notes  payable and accrued interest

 

$

80,800

 

$

18,000

 

Automobile acquired under capital lease

 

$

32,004

 

$

 

Equipment acquired with accounts payable

 

$

45,000

 

$

 


The accompany notes are an integral part of these unaudited consolidated financial statements.


6



ON THE MOVE SYSTEMS CORP.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 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 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.


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 returned 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 six months ended August 31, 2014, the Company had a net loss of $530,538 and negative cash flow from operating activities of $225,479. As of August 31, 2014, the Company had a working capital deficit of $740,316. 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 six month period ended August 31, 2014 are not necessarily indicative of the results to be expected for the full fiscal year ending February 28, 2015.


Principals of Consolidation


The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Crawford Mobile Installation Corp. Significant intercompany transactions have been eliminated in consolidation. The fiscal year-end for the Company and its subsidiary is February 28.


7



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 maturity of three months or less. Cash and cash equivalents were $15,319 and $30,183 at August 31, 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 six months ended August 31, 2014.


Revenue and Cost 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 August 31, 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.


8



The Company’s convertible debt is considered anti-dilutive due to the Company’s net loss for the six months ended August 31, 2014 and 2013. As a result, the Company did not have any potentially dilutive common shares for those periods. For the periods ended August 31, 2014 and 2013, potentially issuable shares as a result of conversions of convertible notes  payable have been excluded from the calculation. At August 31, 2014, the Company had 271,273,043 potentially issuable 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.

 

 

 

 

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.

 

 

 

 

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 August 31, 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, other current assets, 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, August 31, 2014, and through the date when the consolidated financial statements were available to be issued for disclosure.


9



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.


Note 4. Discontinued Operations


The Company has 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 recognized 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


 

 

August 31, 2014

 

February 28, 2014

 

Assets of discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

171

 

$

2,435

 

Accounts receivable

 

 

1,701

 

 

755

 

Inventory

 

 

 

 

3,815

 

Fixed assets

 

 

12,260

 

 

17,751

 

Total assets of discontinued operations

 

$

14,132

 

$

24,756

 

 

 

 

 

 

 

 

 

Liabilities of discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,300

 

$

16,898

 

Notes payable to related party

 

 

10,832

 

 

18,452

 

Total liabilities of discontinued operations

 

$

14,132

 

$

35,350

 


Income and Expenses of Discontinued Operations


 

Six months ended
August 31,

 

Three months ended
August 31,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

(Restated)

 

 

 

(Restated)

 

Revenue

$

50,027

 

$

45,010

 

$

24,497

 

$

21,855

 

Cost of goods sold

 

28,677

 

 

28,886

 

 

10,947

 

 

14,764

 

Gross profit

 

21,350

 

 

16,124

 

 

13,550

 

 

7,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

43,259

 

 

32,841

 

 

21,182

 

 

13,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

$

(21,909

)

$

(16,717

)

$

(7,632

)

$

(5,988

)


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 six months ended August 31, 2013 to reverse amortization for intangible assets of $2,000 during the six months ended August 31, 2014 and to reverse amortization for intangible assets of $1,000 during the three months ended August 31, 2014.  


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 paid a $15,000 down payment and the remaining $45,000 owed is included in accounts payable at August 31, 2014.


The Company recognized depreciation expense of $2,749 and $0 during the six months ended August 31, 2014 and 2013, respectively.


Note 6. Joint Venture


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 six months ended August 31, 2014, the Company funded $30,000 to this joint venture for operating expenses. The Company funded an additional $21,178 of costs related to auto racing events and the use of assets owned by the joint venture partner.


The Company’s investment in this joint venture is accounted for on the equity method of accounting. The joint venture generated a net loss of approximately $70,000 for the six months ended August 31, 2014.


Note 7. Capital Lease Obligation


 

 

August 31, 2014

 

February 28, 2014

 

 

 

 

 

 

 

 

 

Capital lease – race car, interest at 10%, payments of $680 per month, term 5 years

 

$

32,004

 

$

 

 

 

 

 

 

 

 

 

Current portion of capital lease obligations

 

 

(6,906

)

 

 

Long-term capital lease obligation

 

$

25,098

 

$

 


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 Lease-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 August 31, 2014 are as follows:


For the periods ending August 31,

 

 

 

2015

 

$

10,200

 

2016

 

 

8,160

 

2017

 

 

8,160

 

2018

 

 

8,160

 

2019

 

 

5,440

 

Total minimum lease payments

 

$

40,120

 

 

 

 

 

 

Total minimum lease payments

 

$

40,120

 

Less: Interest

 

 

(8,116

)

Present value of net minimum lease and debt payments

 

 

32,004

 

Less: Current maturities of lease obligation and debt

 

 

(6,906

)

Long-term capital lease obligation

 

$

25,098

 


11



Note 8. Related Party Transactions


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.  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 and recorded a disposition for this segment of the business.


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 stock issued. This transaction gave Masclo voting control of the Company.


Note 9. Advances


During the six months ended August 31, 2014 and 2013, the Company received advances from Vista View Ventures Inc. totaling $225,615 and $255,790, respectively. These advances are non-interest bearing and payable on demand.


At August 31, 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 due to Vista View Ventures Inc. consist of the following as of August 31, 2014 and February 28, 2014:


Issued

 

Maturity

 

Interest
Rate

 

Conversion
Rate per
Share

 

Balance
August 31,
2014

 

Balance
February 28,
2014

 

February 28, 2011

 

February 27, 2013

 

18%

 

$0.015

 

$

32,600

 

$

32,600

 

January 31, 2013

 

February 28, 2015

 

10%

 

$  0.01

 

 

194,839

 

 

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

 

 

 

Total convertible notes payable

 

 

 

 

1,241,644

 

 

953,424

 

 

 

 

 

 

 

 

 

 

 

Less: current portion of convertible notes payable

 

 

 

 

(297,986

)

 

(294,871

)

Less: discount on current portion of convertible notes payable

 

 

 

 

(191,048

)

 

 

Less: discount on non-current convertible notes payable

 

 

 

 

(705,395

)

 

(615,024

)

Long-term convertible notes payable, net of discount

 

 

 

$

47,215

 

$

43,529

 


The note dated February 28, 2011 is currently is in default.


12



On August 31, 2014, the Company refinanced $355,652 of non-interest bearing advances into a convertible note payable. The convertible note payable matures on August 31, 2016; it bears interest at 10% and is convertible into common shares at a rate of $0.002 per share. All principal and accrued interest is payable on the maturity date.


During six months ended August 31, 2014, the holders of our convertible notes elected to convert principal and interest of $80,800 into 8,080,000 shares of common stock.


On August 1, 2013, the holder of the convertible promissory note dated January 31, 2013, elected to convert principal and interest in the amount of $18,000 into 1,800,000 shares of common stock.  


On May 31, 2013, the Company refinanced $261,695 of non-interest bearing advances into a convertible note payable. The convertible note payable matures on May 31, 2015; it bears interest at 10% and is convertible into common shares at a rate of $0.01 per share. All principal and accrued interest is payable on the maturity date.


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 $355,652, in aggregate, on August 31, 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 six months ended August 31, 2014, the holders of our convertible notes elected to convert principal and interest of $80,800 into 8,080,000 shares of common stock.


On August 1, 2013, the holder of the convertible promissory note dated January 31, 2013, elected to convert principal and interest in the amount of $18,000 into 1,800,000 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 as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. 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 valued at $100,000.  Masclo owned 9,000,000 shares of common stock of the Company prior to this transaction.


Note 12. Business Segments


The Company has two reportable operating segments: (1) CMIC and (2) specialized travel and transportation. These reportable segments are managed separately due to differences in their products.


Management evaluates and monitors performance of this segment primarily through, among other measures, gross profit.


13



The result of operations and financial position of the two reportable operating segments and corporate were as follows:


 

 

Six months
ended August 31,

 

Three months
ended August 31,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

(restated)

 

 

 

(restated)

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

CMIC

 

$

50,027

 

$

45,010

 

$

24,497

 

$

21,855

 

Specialized travel and transportation

 

 

2,250

 

 

 

 

2,250

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

Total

 

$

52,277

 

 

45,010

 

$

26,747

 

$

21,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

 

 

 

 

 

 

 

 

 

 

 

CMIC

 

$

21,350

 

$

16,124

 

$

13,550

 

$

7,091

 

Specialized travel and transportation

 

 

2,250

 

 

 

 

2,250

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

Total

 

$

23,600

 

$

16,124

 

$

15,800

 

$

7,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

CMIC

 

$

43,259

 

$

32,841

 

$

21,842

 

$

13,079

 

Specialized travel and transportation

 

 

51,178

 

 

 

 

27,392

 

 

 

Corporate

 

 

334,729

 

 

266,863

 

 

135,930

 

 

194,841

 

Total

 

$

429,166

 

$

299,704

 

$

184,504

 

$

207,920

 


Corporate operating expense includes general and administrative costs not allocated to operating segments.


 

 

August 31,

 

February 28,

 

 

 

2014

 

2014

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

 

 

 

 

CMIC

 

$

14,132

 

$

24,756

 

Specialized travel and transportation

 

 

89,255

 

 

 

Corporate

 

 

17,871

 

 

30,183

 

Total

 

$

121,258

 

$

54,939

 


Note 13. Subsequent Events


On September 24, 2014, the holder of the convertible promissory note dated January 31, 2013 elected to convert $15,000 of principal and accrued interest into 1,500,000 shares of our common stock.


The Company has defaulted on the $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. 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.  


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; however, the Company is now developing two new business segments as a result of its decision to dispose of its interest in Crawford Mobile Installation Corp. The first segment is the specialized travel and transportation market. The Company plans to develop a network of niche travel, destination lodging, and international logistics partnerships. Revenue in this segment would be generated from commissions, revenue-sharing arrangements with travel partners or from sponsorships and advertising opportunities provided to other companies. The second segment is the trucking and transportation market. The Company has acquired ten trailers, which can be used to transport cargo for other companies. The Company is exploring opportunities to acquire additional assets or an existing business in order to enter this segment.


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 condensed 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 condensed 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


Six months ended August 31, 2014 compared to the six months ended August 31, 2013.


Revenue


Revenue increased to $2,250 for the six months ended August 31, 2014, compared to $0 for the six months ended August 31, 2013 due to the commencement of race car advertising sales in June 2014.


Cost of Goods Sold


Cost of goods sold was $0 for the six months ended August 31, 2014 and 2013. While we began advertising sales in June 2014, we had no cost of goods sold.


Gross Profit


Gross profit increased to $2,250 for the six months ended August 31, 2014, compared to $0 for the six months ended August 31, 2013. This was 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 $51,178 for the six months ended  August 31, 2014. There were no such expenses during the comparable period of 2013. These expenses are due to the commencement of operations of our XPerience segment.


15



General and Administrative Expenses


We recognized general and administrative expenses in the amount of $334,729 and $266,863 for the six months ended  August 31, 2014 and 2013, respectively. The increase was principally due to higher stock compensation for shares issued to Masclo.


Interest Expense


Interest expense increased from $28,100 for the six months ended August 31, 2013 to $124,972 for the six months ended August 31, 2014. Interest expense for the six months ended August 31, 2014 included amortization of discount on convertible notes payable for $74,233, compared to $7,634 for the comparable period of 2013. The remaining increase is the result of the Company entering into additional interest-bearing convertible notes payable.


Net Loss


We incurred a net loss of $530,538 for the six months ended August 31, 2014 as compared to $311,680 for the comparable period of 2013. The increase in the net loss was primarily the result of the increases in general and administrative expense and interest expense discussed above.


Three months ended August 31, 2014 compared to the three months ended August 31, 2013.


Revenue


Revenue increased to $2,250 for the three months ended August 31, 2014, compared to $0 for the three months ended August 31, 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 August 31, 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 six months ended August 31, 2014, compared to $0 for the three months ended August 31, 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 $23,786 for the three months ended August 31, 2014. There were no such expenses during the comparable period of 2013. These expenses are due to the commencement of operations of our XPerience segment.


General and Administrative Expenses


We recognized general and administrative expenses in the amount of $135,930 and $194,841 for the three months ended August 31, 2014 and ended 2013, respectively. The increase was principally due to higher stock compensation for shares issued to Masclo.


Interest Expense


Interest expense increased from $21,012 for the three months ended August 31, 2013 to $63,072 for the six months ended August 31, 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 higher interest expense.


Net loss


We incurred a net loss of $231,776 for the three months ended August 31, 2014 as compared to $221,841 for the comparable period of 2013. The increase in the net loss was primarily the result of the increase in interest expense discussed above.


16



Liquidity and Capital Resources


At August 31, 2014, we had cash on hand of $15,319. The company has negative working capital of $740,316. Net cash used in operating activities for the six months ended August 31, 2014 was $225,479. 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 attain fund 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 August 31, 2014.


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 August 31, 2014. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of August 31, 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 August 31, 2014, we did not maintain effective controls over the 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 August 31, 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 six months ended August 31, 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)

 

 

21

Subsidiaries of the Registrant (3)

 

 

31.1

Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and account officer. (3)

 

 

32.1

Section 1350 Certification of principal executive officer and principal financial accounting officer. (3)

 

 

101

XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (2),(4)

__________

(1)

Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on April 14, 2010

 

 

(2)

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.”

 

 

(3)

Filed or furnished herewith

 

 

(4)

To be submitted by amendment


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: October 20, 2014

BY: /s/ Robert Wilson

 

Robert Wilson

 

President, Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, Treasurer and Director


19