NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Note 1. General Organization and Business
On the Move Systems Corp. (“we”, “us”, “our”, “OMVS”, or the “Company”) was incorporated in Nevada on March 25, 2010. We reincorporated into Nevada on February 17, 2015. Our business focus is transportation services. We are currently exploring the on-demand logistics market by developing a network of logistics partnerships. Our year-end is February 28. The company is located at 701 North Green Valley Parkway, Suite 200, Henderson, Nevada 89074. Our telephone number is 702-990-3271.
Our business focus is transportation-related technology services. We are currently exploring the online, on-demand logistics market by developing a shared economy network of trucking partnerships. We are in the process of building a shared economy app designed to put independent drivers and brokers together for more efficient pricing and booking, optimized operations and quick delivery turnarounds. We have signed a letter of intent with a Houston-area software design firm regarding development of such a platform. This app, when released, will revolutionize the trucking industry by connecting national and local carriers, enabling each to maximize revenues and reduce costs.
Note 2. Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
For the three months ended May 31, 2016, the Company had a net loss of $205,368 and negative cash flow from operating activities of $28,328. As of May 31, 2016, the Company had negative working capital of $1,186,422. 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.
The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.
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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 29, 2016 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 three month period ended May 31, 2016 are not necessarily indicative of the results to be expected for the full fiscal year ending February 28, 2017.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, On the Move Experience, LLC and OMV Transports, LLC. Intercompany transactions have been eliminated in consolidation. The fiscal year-end for the Company and its subsidiaries is February 28.
Note 4. Advances
During the three months ended May 31, 2016, Vista View Ventures, Inc. (“Vista View”) paid $35,100 of expenses on behalf of the company. These funds were paid from Vista View to KMDA and then by KMDA to the Company on behalf of Vista View. At the end of the quarter, we issued a convertible promissory note to Vista View for $35,100. See Note 5 and Note 6.
At May 31, 2016 and February 29, 2016, we did not owe Vista View. anything for advances provided to us or expenses paid on our behalf.
At May 31, 2016 and February 29, 2016, we owed a third party. $1,594 and $1,594, respectfully, for advances provided to us.
Note 5. Related Party Transactions
Our officers and 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. We have not formulated a policy for the resolution of such conflicts.
Services Provided by KM Delaney & Assoc.
During the three months ended May 31, 2016 and 2015, KM Delaney & Associates (“KMDA”) provided certain administrative functions to us. The services provide include accounting and bookkeeping services, treasury and cash management services, financial reporting, and other support staffing requirements. As part of the services provided to the Company, KMDA receives the advances from the lender (See note 4) and disburses those funds to us. We discontinued our arrangement with KMDA on April 30, 2016. During the three months ended May 31, 2016 and 2015, KMDA billed us $35,100 and $73,119, respectively, for those services. As of May 31, 2016 and February 29, 2016, we owed KMDA $183,568 and $198,568, respectively. These amounts are included in accounts payable on the consolidated balance sheets.
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Note 6. Convertible Notes Payable
Convertible notes payable consist of the following as of May 31, 2016 and February 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
Maturity
|
|
Interest
Rate
|
|
Conversion
Rate per
Share
|
|
Balance
May 31,
2016
|
|
Balance
February 29,
2016
|
|
February 28, 2011
|
|
February 27, 2013
|
|
7%
|
|
$0.015
|
|
$
|
32,600
|
|
$
|
32,600
|
|
January 31, 2013
|
|
February 28, 2017
|
|
10%
|
|
$0.01
|
|
|
119,091
|
|
|
120,562
|
|
May 31, 2013
|
|
November 30, 2016
|
|
10%
|
|
$0.01
|
|
|
261,595
|
|
|
261,595
|
|
November 30, 2013
|
|
November 30, 2017
|
|
10%
|
|
$0.01
|
|
|
396,958
|
|
|
396,958
|
|
August 31, 2014
|
|
August 31, 2016
|
|
10%
|
|
$0.002
|
|
|
355,652
|
|
|
355,652
|
|
November 30, 2014
|
|
November 30, 2016
|
|
10%
|
|
$0.002
|
|
|
103,950
|
|
|
103,950
|
|
February 28, 2015
|
|
February 28, 2017
|
|
10%
|
|
$0.001
|
|
|
63,357
|
|
|
63,357
|
|
May 31, 2015
|
|
May 31, 2017
|
|
10%
|
|
$1.00
|
|
|
65,383
|
|
|
65,383
|
|
August 31, 2015
|
|
August 31, 2017
|
|
10%
|
|
$0.30
|
|
|
91,629
|
|
|
91,629
|
|
November 30, 2015
|
|
November 30, 2018
|
|
10%
|
|
$0.30
|
|
|
269,791
|
|
|
269,791
|
|
February 3, 2016
|
|
February 3, 2017
|
|
5%
|
|
49% discount
|
|
|
46,000
|
|
|
46,000
|
|
February 29, 2016
|
|
February 28, 2019
|
|
10%
|
|
60% discount
|
|
|
95,245
|
|
|
95,245
|
|
March 22, 2016
|
|
March 22, 2017
|
|
5%
|
|
49% discount
|
|
|
40,000
|
|
|
—
|
|
May 31, 2016
|
|
May 31, 2019
|
|
10%
|
|
60% discount
|
|
|
35,100
|
|
|
—
|
|
Total convertible notes payable
|
|
|
|
$
|
1,976,351
|
|
$
|
1,902,722
|
|
|
|
|
|
|
|
|
|
|
|
Less: short-term convertible notes payable
|
|
|
|
|
(86,000
|
)
|
|
(46,000
|
)
|
Less: current portion of convertible notes payable
|
|
|
|
|
(1,001,628
|
)
|
|
(937,716
|
)
|
Less: discount on noncurrent convertible notes payable
|
|
|
|
|
(461,692
|
)
|
|
(500,485
|
)
|
Long-term convertible notes payable, net of discount
|
|
|
|
$
|
427,031
|
|
$
|
418,521
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of convertible notes payable
|
|
|
|
|
1,001,628
|
|
|
937,716
|
|
Less: discount on current portion of convertible notes payable
|
|
|
|
|
(409,732
|
)
|
|
(422,298
|
)
|
Current portion of convertible notes payable, net of discount
|
|
|
|
$
|
591,896
|
|
$
|
515,418
|
|
|
|
|
|
|
|
|
|
|
|
Short-term convertible notes
|
|
|
|
|
86,000
|
|
|
46,000
|
|
Less: discount on short-term convertible notes
|
|
|
|
|
(11,000
|
)
|
|
(7,333
|
)
|
Short-term convertible notes, net of discount
|
|
|
|
$
|
75,000
|
|
$
|
38,667
|
|
All of the notes above are unsecured. The note dated February 28, 2011 is currently in default and bears default interest at 18% per annum.
Convertible notes issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
Maturity
|
|
Interest Rate
|
|
Conversion Rate per Share
|
|
Amount of Note
|
|
Original Issue Discount
|
|
Beneficial Conversion Feature
|
|
March 22, 2016
|
|
March 22, 2017
|
|
5%
|
|
$
|
49% discount (1)
|
|
$
|
40,000
|
|
$
|
6,500
|
|
$
|
—
|
|
May 31, 2016
|
|
May 31, 2019
|
|
10%
|
|
|
60% discount (2)
|
|
|
35,100
|
|
|
—
|
|
|
35,100
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
75,100
|
|
$
|
6,500
|
|
$
|
35,100
|
|
|
|
|
|
(1)
|
This note is convertible at 49% discount to the lowest trading price over the preceding 20 trading days. The note becomes convertible 180 days after issuance.
|
|
|
|
|
(2)
|
This note is convertible at a 60% discount to the volume weighted average closing price over the preceding five trading days, subject to the condition that the conversion price shall never be less than $0.01 per share.
|
- 10 -
Advances Refinanced into Convertible Notes
During the three months ended May 31, 2016, we refinanced $35,100 of non-interest bearing advances into a convertible note. 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. We 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. We 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, we recognized a discount for the beneficial conversion features of $35,100, in aggregate, on the date the notes were signed. We amortize the discounts for the notes dated May 31, 2016 at an effective interest rates of 317.38%. 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. During the three months ended May 31, 2016 and 2015, we amortized discount on convertible notes payable of $89,292 and $147,100, respectively, to interest expense.
Convertible Notes Issued for Cash
On March 22, 2016, we issued a convertible promissory note for $40,000. The note has an original issue discount of $6,500. The note matures on March 22, 2017, and bears interest at 5% per annum. The terms on the note allow the noteholder to convert principal and accrued interest into share of our common stock beginning 180 days after issuance. The variable conversion rate is a 49% discount to the lowest trading price over the preceding 20 trading days.
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. Once the note becomes convertible 180 days after issuance, the conversion features will meet the definition of a liability and therefore we will need to bifurcate the conversion feature and account for it as a separate derivative liability. We amortize the discounts for the notes dated May 31, 2016 at an effective interest rates of 26.12%. The original issue discount to the convertible notes payable will be amortized to interest expense over the life of the note.
Conversions to common stock
During three months ended May 31, 2016, the holders of the Convertible Note Payable dated January 31, 2013 elected to convert principal and accrued interest in the amounts show below into shares of common stock at a rate of $0.01 per share. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
|
|
|
|
|
|
Date
|
|
Amount Converted
|
|
Number of Shares Issued
|
March 1, 2016
|
|
$
|
1,900
|
|
190,000
|
Total
|
|
$
|
1,900
|
|
190,000
|
Note 7. Debt Payment Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended May 31,
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Total
|
|
Convertible notes
|
|
$
|
1,087,628
|
|
$
|
488,587
|
|
$
|
400,136
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,976,351
|
|
Capital lease
|
|
|
3,818
|
|
|
3,993
|
|
|
2,414
|
|
|
—
|
|
|
—
|
|
|
10,225
|
|
Total
|
|
$
|
1,091,446
|
|
$
|
492,580
|
|
$
|
402,550
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,986,576
|
|
Note 8. Subsequent Events
On June 28, 2016, we issued 196,000 shares of common stock upon conversion of principal and interest on a convertible promissory note.
On July 18, 2016, we issued a convertible promissory note for $9,000. The note matures on July 18, 2017, bears interest at 8% per year, and is convertible into common stock at a 49% discount to the lowest trading price over the preceding 20 trading days.
- 11 -