Due to the Company’s net losses, there were no provisions for income taxes for the year ended February 28, 2018.
On December 22, 2017, new federal tax reform legislation was enacted in the United States (the “2017 Tax Act”), resulting in significant changes from previous tax law. The 2017 Tax Act reduces the federal corporate income tax rate to 21% from 34% effective January 1, 2018. The rate change, along with certain immaterial changes in tax basis resulting from the 2017 Tax Act, resulted in a reduction of the Company’s deferred tax assets of 202,948 and a corresponding reduction in the valuation allowance. The following table reconciles the U.S. federal statutory income tax rate in effect for the year ended February 28, 2018, and the Company’s effective tax rate:
Deferred income tax assets as of February 28, 2018 and 2016 are as follows (in thousands):
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, management has applied a full valuation allowance against its net deferred tax assets at February 28, 2018. The net change in the total valuation allowance from February 28, 2017 and February 28, 2018 was an increase of $1,561,140
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of February 28, 2018, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company did not have associated accrued interest or penalties, nor was any interest expense or penalties recognized for the year ended February 28, 2018.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of February 28, 2018, the Company has federal net operating loss carryforwards of approximately $3,914,000 (not subject to limitations) and $3,520,000 (subject to limitations), which if not utilized, will expire beginning in 2038 and 2030, respectively.
Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.
17. SUBSEQUENT EVENTS
On March 14, 2018, the Company amended a note issued to a lender on January 5, 2018 to include the issuance of warrants to purchase 333,333 shares of the Company’s common stock with an exercise price of $0.15, with a 3-year maturity, and to change the date of the note to March 14, 2018, coinciding with the payment of the first tranche of $50,000 including cash proceeds of $43,000, fees of $2,000 and an original issue discount of $5,000. The original note issued on January 5, 2018 was issued with an aggregate principal amount of $250,000, for cash proceeds of $225,000 payable in tranches, with an original issue discount of $25,000. Each tranche matures one year after disbursement. The promissory note is convertible into common shares of the Company and a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 25 trading days prior to conversion, and has a 10% per annum interest rate commencing on March 14, 2018.
On March 16, 2018, the Company issued a convertible redeemable note to a lender with an aggregate principal amount of $95,000, due on March 16, 2019 for cash proceeds of $95,000. The promissory note is convertible into units of the Company comprised of one share of common stock and one warrant to purchase a share of common stock with a three-year maturity and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion, and has a 15% per annum interest rate commencing on March 16, 2018.
On April 9, 2018, the Company issued a convertible redeemable note to a lender with an aggregate principal amount of $55,000, due on April 9, 2019 for cash proceeds of $55,000. The promissory note is convertible into units of the Company comprised of one share of common stock and one warrant to purchase a share of common stock with a three-year maturity and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion, and has a 15% per annum interest rate commencing on April 9, 2018.
In March and April 2018, the Company received $200,000 in proceeds from the June 7, 2018 collateralized promissory note for $200,000 from a lender maturing June 7, 2018, bearing interest at 8%.
On April 23, 2018, the Company received $76,000 of proceeds from a lender on the two March 21, 2018 collateralized promissory notes of $40,000, each including fess of $4,000, bearing interest at 8% and maturing on March 21, 2018.
On April 9, 2018, the Company issued a convertible redeemable note to a lender with an aggregate principal amount of $55,000, due on April 9, 2019 for cash proceeds of $55,000. The promissory note is convertible into units of the Company comprised of one share of common stock and one warrant to purchase a share of common stock with a three-year maturity and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion, and has a 15% per annum interest rate commencing on April 9, 2018.
On May 3, 2018, the Company received $66,500 of proceeds from a lender on a $70,000 promissory note that matured on May 31, 2018. The note has an original issue discount of $3,500 and bears interest at 15% per annum. The loan was repaid in May 2018.
On May 2, 2018, the Company issued a convertible redeemable note to a lender with an aggregate principal amount of $77,000, due on May 2, 2019 for cash proceeds of $70,000. The promissory note is convertible into one share of common stock and a conversion price equal to 40% of the lowest bid price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 10% per annum interest rate commencing on May 2, 2018.
F-21
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On May 4, 2018, the Company issued a convertible redeemable note to a lender with an aggregate principal amount of $82,500, due on May 4, 2019 for cash proceeds of $71,500. The principal amount includes an original issue discount of $7,500 and fees of $3,500. The promissory note is convertible into one share of common stock and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 12% per annum interest rate commencing on May 2, 2018.
Subsequent to year-end, convertible note holders converted $317,433 in principal and $1,500 in fees for 29,256,243 shares of the Company’s common stock.
On April 16, 2018, the Company issued warrants with a fair value of $472,960 to purchase 6,400,000 shares of the Company’s common stock with a three year maturity and an exercise price of $0.0265 per share.
F-22