UNITED STATES
SECURITYSECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-K/A10-K
Amendment No. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 20172018
or
[_] ] TRANSITION REPORT UNDERPURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number:file number: 000-55079
ON THE MOVE SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
Nevada |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code:702-990-3271(702) 990-3271
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to section 12(g) of the Act:
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Common stock, $0.001 par value | OTC QB |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [_][X] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [_][X] No [X]
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.
[X] Yes [X][ ] No [_]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website,Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [X][ ] No [_]
Indicate by check mark if disclosuresdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes [X] No [_][X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” company,“and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Non-accelerated filer | [ | Smaller reporting company | [X] | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
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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 [_][X] No [X]
The Aggregateaggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference toof the price at which the common equity was last sold, or the average bid and asked price of such common equity,registrant as of August 31, 2017 based upon the last business dayclosing price reported on such date was approximately $17,439,944. Shares of voting stock held by each officer and director and by each person who, as of August 31, 2017, may be deemed as have beneficially owned more than 10% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.
As of June 12, 2018, there were 165,340,897 shares of the registrant’s most recently completed second fiscal quarter, August 31, 2016 was $383,408.common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
There were 43,791,804 shares
Table of the Registrant’s common stock outstanding as of June 9, 2017.Contents
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EXPLANATORY NOTE
The purpose of this Amendment No. 1 to our Annual Report on Form 10-K for the year ended February 28, 2017 (“Form 10-K”) is to submit Exhibit 101 to the Form 10-K in accordance with Rule 405 of Regulation S-T. Exhibit 101 consists of the Interactive Data Files relating to our Form 10-K for the year ended February 28, 2017, filed with the Securities and Exchange Commission on June 16, 2017.
Additionally, on page 26,Note 9. Debt Payment Obligations, we corrected typographical errors as follows:
1) On the line item labeled “Note payable” under the “2019” column, the incorrect number “$365,036” has been corrected to “$—”.
2) On the line item labeled “Note payable” under the “2020” column, the incorrect number “35,100” has been corrected to “$—”.
ON THE MOVE SYSTEMS CORP.
TABLE OF CONTENTS
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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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, 2015.2018. 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 Nevada corporation.
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PART I
ITEM 1. BUSINESS
Business Overview
On the Move Systems Corp. (“we”, “us”, “our”, “OMVS”, or the “Company”OMVS”) was incorporated in NevadaFlorida on March 25, 2010. WeOMVS 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-endOMVS’s fiscal year end is February 28. The companyOMVS is located at 701 North Green Valley Parkway, Suite 200, Henderson, Nevada 89074. Our89074, and the telephone number is 702-990-3271.
OurOMVS’s prior business focus is transportation-related technology services. We are currentlywas transportation services, and we were previously exploring the online, on-demand logistics market by developingseeking to develop a shared economy network of truckinglogistics partnerships. We areOn August 28, 2017, OMVS acquired all of the outstanding shares of Robotic Assistance Devices, Inc. (“we,” “us,” “our,” “RAD” or the “Company”). Following the RAD acquisition, our business consists of delivering artificial intelligence (“AI”) based solutions to solve complex enterprise problems and challenges while delivering an immediate return on investment. Our initial goal is to disrupt and capture a significant portion of the $30+ billion human security guard market(1) and the $20+ billion physical security market (cctv, access control, intercom) and become a key driver in the process$1+ billion managed security services market(2) through its innovative RAD Software Suite and manufactured solutions which combine the most desired features of buildingboth industries in 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.compact, cloud based mobile environment.
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(1) https://www.statista.com/statistics/294206/revenue-of-security-services-in-the-us/
(2) https://www.securitymagazine.com/articles/80145-managed-wireless-security-services-market-to-top-1-billion-in-2014-1
EmployeesRecent Developments
On August 28, 2017, OMVS entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with RAD and Employment AgreementsSteve Reinharz, as sole stockholder of RAD. Pursuant to the terms of the Stock Purchase Agreement, on August 28, 2017, OMVS acquired 10,000 shares of RAD’s common stock, representing all of RAD’s issued and outstanding capital stock, from Mr. Reinharz in exchange for the issuance of (i) 3,350,000 shares of its Series E Preferred Stock and (ii) 2,450 shares of its Series F Convertible Preferred Stock. As a result of the RAD acquisition, RAD became a wholly owned subsidiary of OMVS. RAD was considered the acquirer for accounting and financial reporting purposes.
Business
Our CEObusiness consists of seeking to deliver AI based solutions to solve complex enterprise problems and challenges while delivering an immediate return on investment. We have initially targeted the security industry, which utilizes electronic systems and further involves approximately 1.1 million security guards in the U.S. alone. We plan to provide our AI robotic solutions to companies and governments so that they can employ such solutions for the purposes of protecting their assets, whether those assets are government, commercial or industrial. We believe that our security guard solutions combine both robotic and AI solutions to provide a superior solution to our clients which can save them money on their security needs.
RAD was incorporated as a limited liability corporation under the laws of the State of Wyoming in July 2016 and later reincorporated (as a C corp.) in the State of Nevada in July 2017. RAD’s mission is to deliver artificial intelligence solutions to solve complex and expensive enterprise organizational challenges. We believe that RAD’s robotic solutions can improve the security services of any enterprise due to advanced technology that is always on, compared to human guarding where it is difficult to maintain non-stop attention in mundane or dangerous guarding roles.
Founded by Mr. Steve Reinharz in the summer of 2016, RAD originally partnered with SMP Robotics Systems Corp (SMP) to commercialize the SMP S5 Robot for the security industry. RAD’s commercialization of the platform focused on integrating traditional security industry manufacturers’ solutions onto the robotics platform. After two paid proof of concepts for large utility companies (under an NDA) and over 18 months of development and testing, RAD began deployments with various Fortune 500 customers. These deployments were scheduled to begin in October 2017, but were delayed until December 2017 due to various supply chain challenges.
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By April 2017 it was apparent that the S5 platform promotion and development was not sustainable and RAD pulled its robots from service. With over 40 attempted deployments, it appeared that the S5 Robots were being rejected by customers due to their unreliability and certain technical flaws which could not be solved despite full efforts by both SMP and RAD. SMP has shared that they expect to solve these technical issues with an updated version to their S5 Robot but no firm date of the release has been provided. As a result, RAD has shifted its solutions to its Security Control and Observation Tower (“SCOT™”), its RAD Software Suite and future solutions 100% developed and owned by RAD. It is possible moving forward that RAD will cease to be an SMP dealer, however it expects no impact on its’ business if the SMP relationship ends. RAD calls its current lineup of solutions the ’2nd Generation of electronic guarding solutions.’
RAD’s primary strategy has always been to use AI technology and modern systems to transform the security industry. Mobile robots, indoor and outdoor, are a part of that strategy. RAD will continue to pursue such avenues but sees SCOT™ and its forthcoming derivatives as its primary source of revenue for the remainder of 2018.
The development of SCOT™ began in August 2017. SCOT™ performs many of the same functions of a stationary human security guard, plus many features that human guards cannot perform, at approximately 15% of the cost. We are unaware of any comparable solution available today that blends technology, usability, special features and cost. This is why SCOT™ has seen growing demand and has received considerable accolades. As a result, the Company has accelerated SCOT™’s development and the RAD Software Suite.
SCOT™ runs on the RAD Software Suite, as all current and future RAD security solutions will. This software suite is a cloud and mobile based solution that is at the heart of RAD’s security solution.
The beta release of SCOT™ took place in Ohio at the end of February 2018. Security representatives from Cincinnati Reds, Bengals, Cincinnati Police Department and the County of Hamilton Sheriff’s Department were present and gave SCOT™ and the preliminary RAD Software Suite a tremendous endorsement. SCOT™ was officially launched on April 2, 2018, a week before the ISC West show, the largest security show in the U.S. SCOT™’s first three deployments were made on April 9 to two clients. Both clients have since requested additional SCOT™ units for their facilities.
At the ISC West show in April 2018, SCOT™ won three awards: (1) a SIA New Product Award for Law Enforcement/Guarding, (2) 2018 Secure Campus Award from Campus Security and Life Safety and (3) a ‘Govie’ award for government security solutions from Security Today. We were notified we won a ‘money saving’ award from an additional, non-industry organization which was made public in June 2018.
The Security Industry Association’s (SIA) New Product Showcase recognizes innovative products, services and solutions in electronic physical security, and SCOT™’s award comes in the Law Enforcement/Guarding Systems category. Technologies within the program are used in the protection of life and property in residential, commercial and institutional settings, displaying SCOT™’s importance in long-range human detection and acting as a force multiplier for safety and defense against outside threats.
RAD’s business shift to SCOT™ and its future derivatives is complete and current facilities can produce up to 100 units per month with moderate additional investment in equipment, space and manpower. The SCOT™s are primarily furnished to customers using a Solutions-as-a-Service (“SaaS”) recurring revenue model.
The Company’s mission is to improve customer security services of all types of enterprises while providing significant operating cost reduction through deployment of AI based solutions and systems. We believe that RAD’s solutions can improve an enterprise security services due to advanced technology that is always on, compared to human guarding where it is difficult to maintain non-stop attention in mundane guarding roles. The security guard industry suffers from low client satisfaction, high turnover and can be a source of new liabilities for clients. Security guards often just ‘punch the clock’ and sometimes perform functions that are little more than ‘being there’.
Our belief that RAD Solutions are positioned to provide improved performance and lower costs to create a major disruption to the security industry are well substantiated by the interest and partnerships from major US corporations including Allied Universal Services. Discussions with the top 5 US guarding companies further substantiates that new electronic solutions must be adopted to improve customer service, to meet growing demand, to allow flexibility in meeting new government employment requirements, to respond to customer requests for lower costs, and to provide modern solutions and enhanced performance.
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SCOT™
The SCOT™ is a standalone remote, portable, self-sufficient security observation tower designed to expand an organization’s security reach instantly. RAD’s unique power system allows SCOT™ to be quickly placed virtually anywhere for short- or long-term deployments with zero investment/planning in any supporting infrastructure.
Its use of AI based technology allows it to deliver guarding services at a fraction of the cost and it is considerably more affordable than any human or automated solution on the market.
SCOT™ is equipped with AI that powers human detection analytics, featuring the longest-range detection at low false alarm rates. In addition, SCOT™ debuts the RAD Software Suite, which is a collection of integrated software applications hosted in Microsoft’s Azure Cloud services and allows immediate and mobile access to alerts and controls generated by SCOT™. Each tower is equipped with the latest artificial intelligence technologies:
▪ | Human detection analytics – SuspectSpotter |
▪ | License plate recognition – LicenseSpoter |
▪ | Standalone power – RAD Power Systems |
▪ | MAC Tracker™ capabilities – through BOLO Technologies |
▪ | Long-range paging |
▪ | Close-range video intercom |
▪ | Customizable wraparound LED panels |
▪ | Long-range high deterrence visibility |
▪ | Cellular connectivity and WiFi standard |
▪ | Credential validation and access control (optional) |
▪ | 24/7 equipment monitoring from RAD through the Robot Monitoring Center |
▪ | 24/7 security functions monitoring by 3rd parties or by the end users (or any combination thereof) |
▪ | Security/Help/Panic button |
▪ | Large Tablet featuring security and concierge services PLUS video conferencing with the SOC or guards in the field |
▪ | Over-the-air software updates |
▪ | Digital signage for concierge services or emergency/security messaging |
▪ | Cloud processing |
▪ | Various physical and anti-tamper security features |
▪ | Self-powering option for up to 10 days |
RAD has completed development of two iterations of the SCOT™:
▪ | Wally™ is a wall-mounted version of SCOT. It features a single camera and speaker (versus 4 for SCOT™) and was created from feedback by SCOT™’s Ohio presentations. Wally™ is designed to perform lobby guard activities as well as be mounted inside parking structures and block walls. Wally™ is indoor/outdoor rated and, like SCOT™, is IP65 rated and can operate up to 8 days on battery power. Wally™ uses the RAD Software Suite while connecting to the third-party monitoring of the customer’s choice. Instead of SCOT™’s LED digital signage, Wally™ uses a 10” HD screen that can display digital signage and full video as desired by the end user. Wally™ integrates with RAD’s Visitor Management system and Facial Recognition system just as SCOT™ does. Wally™’s official introduction will be in June, 2018. |
▪ | Facial Recognition Entry Device (“FRED”) is an add-on to the RAD Software Suite that uses facial recognition to grant access through gates and doors. This was specifically requested by several customers and prospects. FRED is designed to perform facial recognition for outdoor gate applications, main entry applications and general high security applications. FRED is a purpose-built RAD Software Suite device meaning that it does not run the entire Software Suite. FRED focuses on Visitor enrollment and entry, employee entry, help and information. |
The RAD Software Suite
RAD’s Software Suite encompasses a suite of software applications that replace functionality for the most used security legacy hardware and software. Implemented in RAD’s hardware solutions, the RAD Software Suite delivers security services plus concierge, marketing and data collection services.
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Introduced on April 2,2018, the software suite is based on the following principles:
▪ | Legacy security technology such as video management systems do not take full advantage of modern technology because their pricing model restricts implementing new technologies, specifically cloud-based recording and serving of video equipment. RAD’s software can be taught to an operator in less than 15 minutes, significantly less time than many other legacy solutions. This is due to a complete ground-up software design that did not need legacy connections plus the application of security industry specific experience. |
▪ | Modern cloud focused software design can be applied to provide dramatic functional improvement to electronic security systems. Specifically, AI based human detection, facial recognition and pattern behavior. Using AI based solutions is essential given its reliability, accuracy and low cost. |
▪ | The Security Operations Center that has been an industry stalwart can be augmented and/or replaced by better systems at a fraction of the cost. |
▪ | Intelligent solutions such as those offered by RAD collect and provide useable data, in real time, to clients. This is in contrast to many traditional industry solutions that typically offer forensic features and benefits. |
The RAD Software Suite is 100% designed, developed and owned by RAD. RAD’s primary software solution includes but is not limited to the following:
▪ | RADGuard™: This is the primary software that provides visitor and/or customer with links to Help, Entry functions and other customized features requested by the customer. |
▪ | RADSoC™: Cloud-served complete Security Operations Center Communications software application that allows monitoring at the Security Operating Center (SOC) to see and communicate with SCOT |
▪ | RAD Mobile Control™: This software platform allows end users to access and monitor SCOT™ features from any portable device |
▪ | Where’s My SCOT™: For placing and tracking SCOT™ from order, through production to delivery status. It is also a tool to use for planning SCOT™ placements. |
RAD’s ’Where’s My SCOT™’ was custom developed so that RAD dealers and end users can have access so that new rental orders can be entered via self-serve.
Sales & Marketing Strategy
RAD solutions’ primary use cases include the following:
▪ | Critical infrastructure -Boosting the protection of any critical infrastructure site where the end user needs more control over an expansive area. Example applications: Vehicle/manned gates, perimeters, difficult-to-staff locations |
▪ | Home Owner’s Associations -Providing an inexpensive way to bolster security without breaking the bank, providing eyes and ears to the entrance of a neighborhood without the infrastructure or investment of a human guard. |
▪ | Recreational & shopping facilities -RAD’s technological capabilities and customizable alerts make it the perfect security solution for high-trafficked recreational facilities such as sports arenas or malls. Example applications: parking areas, entrance areas |
▪ | Corporate Campuses -Security and credential validation capabilities make RAD’s solutions the perfect security solution for employee and visitor access control. Example applications: parking areas, entrance areas |
▪ | Distribution Centers -SCOT™ can work for vehicle, visitor and employee entrances, as well as interior/perimeter areas. |
RAD will primarily use its guarding dealer channel to deliver solutions to the market. Guarding companies are cognizant of the fact that failure to adopt new technology will severely impact their business in the future. The guarding partnership model is valuable as it provides RAD with instant access to the largest consumers of guarding services, the Company’s primary target market. RAD’s dealer network currently totals over 800 reps.
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Solutions-As-A-Service Rental Program
RAD is focused on providing cost-effective, customized options to help organizations achieve their operational and security goals.
Our “Solutions-as-a-Service” program includes:
▪ | Comprehensive training for operators and staff that may interact with SCOT™ through a combination of online and in-person certification programs. |
▪ | Multiple options for customer training with a focus on positive end user solution adoption. |
▪ | In-person SOP integration for SCOT™ and robot protocols. |
▪ | RAD offers complete maintenance and service through the life of the contract. 24/7 technical service support is available online or through RAD sales contacts.RAD’s goal is easy integration of its security solutions that keep an enterprises security team functioning 100% of the time. |
“Solutions-as-a-Service” terms are from 12 months to 48 months, with incentives for longer term rental commitments. Available channels include:
▪ | Direct to end user: RAD manages all aspects of deployment. |
▪ | Guarding Company Dealer: RAD works with a number of excellent guarding companies that can help ensure its security solutions augment an enterprise’s guarding force. |
▪ | Integrator Dealer: RAD solutions are currently offered to the integrator channel through a partnership with PSA Network. Sales networks: Sales organizations that carry a wide range of solutions through independent sales representatives. |
RAD’s software is provided free to customers with a RAD hardware solution. RAD’s software strategy is to create as many connections as possible, at low cost, so that the RAD Software Suite becomes the dominant control system for security and other systems.
Artificial Intelligence: Object Recognition
RAD’s neural network can be customized to a variety of customer needs and utilizes best-in-breed AI algorithms from a variety of vendors. RAD’s use of base level algorithms allows for easy integration of different features for different uses and ensures that RAD is never reliant on any one vendor. RAD maintains complete control over its Software Suit and the ability to enhance its features and options.
Competition and Competitive Strengths
We are unaware of any comparable solution available today that blends technology, usability, special features and cost while focusing on partnering with industry and law enforcement to effect realistic improvements to security while providing a return on investment.
As the robotics industry continues to grow one can expect a number of new ventures, start-ups, and university research programs to develop products that could compete with the Company. Some outside of the security industry believe security robots, stand alone or mobile, compete against closed-circuit television providers, but cameras do not provide a physical presence, are typically used for forensics after an event, and do not offer a client the plethora of capabilities available in the RAD Software Suit/SCOT™/SOC combination. The Company believes that having these systems working together provides a more effective approach.
The Company also competes indirectly with private physical security firms that provide clients with security personnel and other security services. There are more than 8,000 such firms in the U.S. alone. The Company’s SCOT™ offers clients a significant cost reduction compared to traditional security guards. In addition, the Company’s SCOT™ offers significantly more capabilities, such as license plate detection, data gathering, and people detection that are delivered consistently, on a 24/7 basis, without human intervention. In most cases, the Company’s technology complements and improves the operations of traditional security firms.
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Manufacturing
RAD manufactures and assembles its SCOT™ in the U.S. The Company has developed a local ecosystem of suppliers with multiple vendors for each category of material, however some items are only available overseas, specifically the tablets and some battery technology. Other items that are purchased in the U.S. have substantial portions built overseas, including, for example, the cameras and speakers. RAD is committed to North American sourcing and manufacturing.
RAD has begun development for manufacturing plans in Michigan, which will allow flexibility for high volume production.
Research and Development
RAD is continuously engaged in research and development. Its family of products is continuously evolving. The first production run, SCOT™ version 1.0, and its subsequent deployments, has resulted in SCOT™ version 1.2. This latest version of SCOT™ includes significant improvements to power, processing and other physical enhancements. RAD is continuously working towards improving the design and construction of its SCOT™’s and is working to be GDPR compliant by the end of RAD’s second fiscal quarter. In addition, RAD is pursuing additional cost savings optimized for mass production.
Intellectual Property Protection
There are no patents filed as of the date of this report. RAD plans to file various applications for protection of certain aspects of its intellectual property in the United States.
Government Approvals
The Company is not aware of any government approvals applicable to its business and further is not aware of any pending or threatened investigation, proceeding or action by foreign, federal, state or local agencies, or third parties involving its current operations.
Environmental Matters
The Company is not aware of any environmental regulations applicable to its business and further is not aware of any pending or threatened environmental investigation, proceeding or action by foreign, federal, state or local agencies, or third parties involving its current operations.
Description of the Industry
The Security Guard Industry
We believe that the outlook for the private security services industry in the U.S. and abroad continues to be upbeat. Worldwide annual spending on private contract security services was estimated at $244 billion for 2016, with the U.S. being the biggest consumer, accounting for 26% or $63.4 billion(1). Security guard services are expected to attract the largest share of overall U.S. security spending through 2019 with security guard and patrol services estimated at $19.4 billion in 2016(1). According to the Bureau of Labor Statistics, there are currently over 1 million security guards employed in the U.S. generating $31.2 billion per year in wages.
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(1) Summit Security reportwww.summitsecurity.com/looking-forward-security-industry-trends-and-outlook-for-2016-and-beyond/.
According to The Freedonia Group, U.S. demand for private contracted security services is expected to rise 4.2% annually through 2019 to $66.9 billion. Systems integration and security consulting is expected to be the fastest growing services, while guarding and alarm monitoring is expected to remain dominant. The non-residential market is expected to remain the largest segment, while the institutional market grows the fastest.
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The Robotics Industry
International Data Corporation (“IDC”) has identified robotics as one of six Innovation Accelerators that will drive digital transformation by opening new revenue streams and changing the way work is performed. In the new Worldwide Commercial Robotics Spending Guide, IDC forecasts global spending on robotics and related services to grow at a Compounded Annual Growth Rate (“CAGR”) of 17% from more than $71 billion in 2015 to $135.4 billion in 2019. Such broad-based growth in robotic adoption is being driven by increasing labor costs, shortage of skilled labor, and an increasing emphasis on repeatable quality in conjunction with a reduction in prices of robotic systems and strategic national initiatives. There were over 41,000 professional service robots sold in 2015 valued at $4.6 billion, up 25% from the year before.
The service robotics market is expected to reach $23.9 billion by 2022, growing at a CAGR of 15.2% between 2016 and 2022 with professional service robots holding the largest market share of the service robotics market in 2015. Professional service robotics is currently the most widely developed and deployed application area of service robots in terms of market value. The market is expected to be driven by the increase in demand for logistics applications. However, other emerging professional applications such as telepresence and inspection and maintenance are expected to fuel the overall service robotics market during the forecast period. The security robots market is expected to reach $2.4 billion by 2022, at a CAGR of 8.6% between 2016 and 2022 with North America expected to hold the largest share during this period.
Employees
As of June 11 2018, we had 15 full-time employees and 21 contracted employees. None of our sole employee. He does not haveemployees are represented by a written agreement.union. We consider our relations with our employees to be excellent.
Legal Proceedings
See Item 3—Legal Proceedings.
ITEM 1A. RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS TRANSITIONAL REPORT ON FORM 10-K BEFORE DECIDING WHETHER TO INVEST IN THE REGISTRANT’S COMMON STOCK. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO THE REGISTRANT OR THAT THE REGISTRANT CURRENTLY DEEMS IMMATERIAL MAY ALSO IMPAIR THE REGISTRANT’S BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE REGISTRANT’S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING PRICE OR THE REGISTRANT’S COMMON STOCK COULD DECLINE AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
THE FOLLOWING ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. PLEASE SEE “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS”.
Risks Related to Our Industry and Our Company
Our business is at an early stage and we have not yet generated any profits or significant revenues.
RAD was formed in 2016 and made its first sale in 2016. Accordingly, the Company has a limited operating history upon which to evaluate its performance and future prospects. Our current and proposed operations are subject to all the business risks associated with new enterprises. These include likely fluctuations in operating results as the Company makes significant investments in research, development and product opportunities, and reacts to developments in its market, including purchasing patterns of customers, and the entry of competitors into the market. We cannot assure you that we will generate sufficient revenue to be profitable in the next three years or at all, which could lead to a loss of part or all of an investment in the Company.
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We have a limited number of deployments and our success depends on an unproven market.
The market for advanced physical security technology is relatively new and unproven and is subject to a number of risks and uncertainties. In order to grow our business and extend our market position, we will need to place into service additional robots, expand our service offerings, and expand our presence. Our ability to expand the market for our products depends on a number of factors, including the cost, performance and perceived value associated with our products and services. Furthermore, the public’s perception of the use of robots to perform tasks traditionally reserved for humans may negatively affect demand for our products and services. Ultimately, our success will depend largely on our customers’ acceptance that security services can be performed more efficiently and cost effectively through the use of our robots and ancillary services, of which there can be no assurance.
We cannot assure you that we can effectively manage our growth.
RAD expects to continue hiring additional employees. The growth and expansion of our business and products create significant challenges for our management, operational, and financial resources, including managing multiple relationships and interactions with users, distributors, vendors, and other third parties. As the Company continues to grow, our information technology systems, internal management processes, internal controls and procedures and production processes may not be adequate to support our operations. To ensure success, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base. As we continue to grow, and implement more complex organizational and management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our current team’s efficiency and expertise, which could negatively affect our business performance.
Our costs may grow more quickly than our revenues, harming our business and profitability.
We expect our expenses to continue to increase in the future as we expand our product offerings, expand production capabilities and hire additional employees. We expect to continue to incur increasing costs, in particular for working capital to purchase inventory, marketing and product deployments as well as costs associated with customer support in the field. Our expenses may be greater than we anticipate which would have a negative impact on our financial position, assets and ability to invest further in the growth and expansion of our business.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.
RAD currently depends on the continued services and performance of key members of the management team, in particular, founder and CEO, Steven Reinharz, and Chief Technology Officer, Aziz Sekander. If we cannot call upon them or other key management personnel for any reason, our operations and development could be harmed. The Company has not yet developed a succession plan. Furthermore, as the Company grows, it will be required to hire and attract additional qualified professionals such as accounting, legal, finance, production, service and engineering experts. The Company may not be able to locate or attract qualified individuals for such positions, which will affect the Company’s ability to grow and expand its business.
We have no employment agreements in place with our executive officers or directors.
We currently do not have any employment agreements in place with our only executive officer and director. Since the Company has no such agreements currently in place, there is a risk that our only executive officer and director may terminate their association with the Company. The loss of our only executive officer and director would have a material and adverse effect on our Company and our business prospects. Further, in the future, the Company may attract additional persons to serve as its executive officers and directors and may negotiate and consummate employment agreements with its executive officers and directors and such agreements may contain issuance of the Company’s securities as part of the compensation, which would lead our shareholders to experience dilution.
Because we do not currently have an audit committee, compensation committee or any other form of corporate governance committee, shareholders will have to rely on our only director, who is not independent, to perform these functions.
We do not have an audit committee, compensation committee or any form of corporate governance committees comprised of an independent director. The Board, which currently consists of our only director, performs these functions as a whole and the only member of the Board is not an independent director.
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If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished and our business may be adversely affected.
RAD relies and expects to continue to rely on a combination of confidentiality agreements with its employees, consultants, and third parties with whom it has relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect its proprietary rights. As of the date of this report, there are no patents filed on behalf of the Company. The Company plans to file various applications in the United States for protection of certain aspects of its intellectual property. However, third parties may knowingly or unknowingly infringe our proprietary rights, may challenge proprietary rights held by us and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we intend to operate in the future. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we plan to take measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to those of RAD and compete with our business. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could have an adverse effect on our business and financial results.
Our financial results will fluctuate in the future, which makes them difficult to predict.
RAD’s financial results may fluctuate in the future. Additionally, we have a limited operating history with the current scale of our business, which makes it difficult to forecast future results. As a smaller reporting company,result, you should not rely upon the Company’s past financial results as indicators of future performance. You should take into account the risks and uncertainties frequently encountered by rapidly growing companies in evolving markets. Our financial results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including, but not limited to the following:
▪ | Our ability to maintain and grow our client base; |
▪ | Our clients may suffer downturns, financial instability or be subject to mergers or acquisitions; |
▪ | The development and introduction of new products by RAD or our competitors; |
▪ | Increases in marketing, sales, service and other operating expenses that we may incur to grow and expand our operations and to remain competitive; |
▪ | RAD ability to maintain gross margins and operating margins; |
▪ | Changes affecting our suppliers and other third-party service providers; |
▪ | Adverse litigation judgments, settlements, or other litigation-related costs; and |
▪ | Changes in business or macroeconomic conditions including regulatory changes. |
Our business is subject to data security risks, including security breaches.
Our products employ technologies which are subject to various data security risks including security breaches and hacking and we cannot guarantee that our products may not be negatively affected by these risks causing them to suffer damages. Any occurrence of the foregoing may damage our brand and increase our costs. Any of these events or circumstances could materially adversely affect our business, financial condition and operating results.
Economic factors generally may negatively affect our operations.
The Company is subject to the general risks of the marketplace in which the Company does business. Moreover, the results of operations of the Company will depend on a number of factors over which the Company will have no control, including changes in general economic or local economic conditions, changes in supply of or demand for similar and/or competing products and services, and changes in tax and governmental regulations that may affect demand for such products and services. Any significant decline in general economic conditions or uncertainties regarding future economic prospects that affect industrial and consumer spending could have a material adverse effect on the Company’s business. For these and other reasons, no assurance of profitable operations can be given.
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Our business success depends on large part on the success of our efforts to rent our products through dealerships.
The Company plans to primarily look to rent its robots through dealerships with guarding companies. The Company believes that the guarding partnership model is valuable. The Company currently has such partnerships with 5 dealers and plans to sign on additional dealers. However, there can be no assurance that the Company can successfully secure agreements with dealerships for the use of our products, which could materially impair our sales and our business prospects.
We may not be able to develop automatic charging four our products, which could negatively affect our growth strategy.
Part of the Company’s growth strategy is to implement automatic charging for our products. The Company plans to implement autonomous charging capabilities for its products as part of its long-term efforts. The Company believes that adding this feature would allow companies to add security to areas that are either not suitable for humans or cost effective for permanent security and thus expanding the market for our products. If the Company cannot implement automatic charging for its products it would impact the size of the market for its products and could negatively affect its growth strategy.
We currently face some competition and may face additional competition in the future and if we are not able to compete effectively, our business prospects and operations would be harmed.
We are aware of a number of other companies that are already active in our industry and others that are developing physical security technology in the U.S. and abroad that may potentially compete with our technology and services. These, or new, competitors may have more resources than us or may be better capitalized, which may give them a significant advantage, for example, in offering better pricing than the Company, surviving an economic downturn or in reaching profitability. We cannot guarantee that we will be able to compete successfully against existing or emerging competitors. Additionally, existing private security firms may also compete on price by lowering their operating costs, developing new business models or providing other incentives. We cannot give any assurance that we can adequately compete with existing or new competitors which could lead us to expend additional funds toward our marketing efforts and would further adversely affect our business operations.
Our ability to operate and collect digital information on behalf of our clients is dependent on the privacy laws of jurisdictions in which our machines operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets.
Our robots collect, store and analyze certain types of personal or identifying information regarding individuals that interact with the machines. While we maintain stringent data security procedures, the regulatory framework for privacy and security issues is rapidly evolving worldwide and is likely to remain uncertain for the foreseeable future. Federal and state government bodies and agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, which in turn affect the breadth and type of features that we can offer to our clients. In addition, our clients have separate internal policies, procedures and controls regarding privacy and data security with which we may be required to comply. Because the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted or applied in a manner that is inconsistent with our current data management practices or the features of our products. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our clients may limit the use and adoption of, and reduce the overall demand for, our products. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries. If we are not able to adjust to changing laws, regulations, our business may be harmed.
Our success depends on the growth of our industry and specifically on the growing adoption and use of physical security technology in general and of our products.
The market for products and for physical security technology is relatively unproven and new, as well as being subject to many risks and uncertainties. Our ability to gain growing market acceptance and adoption of our products, depends on the market’s acceptance of physical security technology in general. If we are unable to increase acceptance of our products and if the market for physical security technology generally does not develop we will not be able to sell our products and our financial performance will be adversely affected.
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Our shareholders do not have voting control over the Company due to the Company’s issued and outstanding shares of its Series E Preferred Stock.
Mr. Parsons, the Company’s President, Chief Executive Officer and Chief Financial Officer currently owns 1,000,000 shares of our Series E Preferred Stock and; Steve Reinharz is the CEO of RAD, and is currently the holder of 3,350,000 shares of our Series E Preferred 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 common stock. As a result, the holders of Series E Preferred Stock have 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders, and therefore our other shareholders do not have voting control over the Company.
Risks Related to our Common Stock
The Company’s continued operations may be dependent on the Company raising additional capital.
To the extent that the cash flow from operations are insufficient to fund the Company’s operations, we will be required to raise additional capital through equity or debt financing. Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve significant restrictive covenants. The Company’s failure or inability to raise capital when needed, or on terms acceptable to the Company and our shareholders, could have a material adverse effect on the Company’s business, financial condition and results of operations. There can be no assurance that such financing will be available on terms satisfactory to the Company, if at all. If we are unable to obtain such financing when needed, in addition to having an adverse effect on our business operations, it would also have a negative adverse effect on the price of our Common Stock.
The Company may conduct further offerings in the future, in which case your shareholdings will be diluted.
The Company may rely on equity sales of common stock to fund operations. The Company may conduct further equity and/or convertible debt offerings in the future to finance operations or other projects that it decides to undertake. If common stock is issued in return for additional funds, or upon conversion or exercise of outstanding convertible debentures or warrants, the price per share could be lower than that paid by existing common stockholders. The Company anticipates continuing to rely on equity sales of common stock and issuances of convertible debt and/or warrants convertible or exercisable into shares of common stock in order to fund its business operations. If the Company issues additional shares of common stock, your percentage interest in the Company will be lower. This is often referred to as “dilution,” which could result in a reduction in the per share value of your shares of common stock.
The trading price of our common stock may fluctuate significantly.
Volatility in the trading price of our common stock may prevent our shareholders from being able to sell their shares of our common stock at prices equal to or greater than their purchase price. The trading price of our common stock could fluctuate significantly for various reasons, including:
▪ | our operating and financial performance and prospects; |
▪ | our quarterly or annual earnings or those of other companies in our industry; |
▪ | the public’s reaction to our press releases, other public announcements and filings with the Securities and Exchange Commission; |
▪ | changes in earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies in our industry; |
▪ | strategic actions by us or our competitors; |
▪ | new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
▪ | changes in accounting standards, policies, guidance, interpretations or principles; |
▪ | changes in general economic conditions in the U.S. and global economies or financial markets, including such changes resulting from war or incidents of terrorism; and |
▪ | sales of our common stock by us or members of our management team. |
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In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the trading price of securities issued by many companies. The changes frequently occur irrespective of the operating performance of the affected companies. Hence, the trading price of our common stock could fluctuate based upon factors that have little or nothing to do with our business.
The Company does not anticipate paying dividends in the future.
We have never declared or paid any cash dividends on our common stock. Our current policy is to retain earnings to reinvest in our business. Therefore, we do not anticipate paying cash dividends in the foreseeable future. The Company’s dividend policy will be reviewed from time to time by the Board of Directors in the context of its earnings, financial condition and other relevant factors. Until the Company pays dividends, which it may never do, its shareholders will not be able to receive a return on shares of our common stock unless they are able to sell them, of which there can be no assurance. In addition, there is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares or that our stockholders will be able to sell their shares of our common stock at all.
Our shares are subject to the Securities and Exchange Commission’s “penny stock” rules that limit trading activity in the market, which may make it more difficult for our shareholders to sell their common stock.
Penny stocks generally are equity securities with a price of less than $5.00. Since our common stock is trading at less than $5.00 per share, we are subject to the penny stock rules adopted by the Securities and Exchange Commission that require broker-dealers to deliver extensive disclosure to its customers prior to executing trades in penny stocks not otherwise exempt from the rules. The broker-dealer must also provide its customers with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held by the customer. Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse, is considered an accredited investor. The additional burdens from the penny stock requirements may deter broker-dealers from effecting transactions in our securities, which could limit the liquidity and market price of our securities. These disclosure requirements may cause a reduction in the trading activity of our common stock, which likely would make it difficult for our stockholders to resell their securities.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information requiredabout the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Because we are a small company with a limited operating history, stockholders may find it difficult to sell their common stock in the public markets.
The number of persons interested in purchasing our common stock s at any given time may be relatively small. This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would likely be reluctant to follow an unproven company such as ours. Additionally, many brokerage firms may not be willing to effect transactions in our securities. As a consequence, there may be periods when trading activity in our common stock is minimal or even non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.
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We will continue to incur significant costs to ensure compliance with United States corporate governance and accounting requirements.
We will continue to incur significant costs associated with our public company reporting requirements, costs associated with applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by this item.the Securities and Exchange Commission. We expect all of these applicable rules and regulations will result in significant legal and financial compliance costs and to make some activities more time consuming and costly. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
An investment in the Company’s common stock is extremely speculative and there can be no assurance of any return on any such investment.
An investment in the Company’s common stock is extremely speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in the Company, including the risk of losing their entire investment. The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market and other factors, many of which we have little or no control over. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
Our shareholders’ percentage of ownership may become diluted upon conversion of shares of our Series F convertible preferred stock, 1,000 shares of which are currently issued and outstanding and held by Garett Parsons, our President, Chief Executive Officer and Chief Financial Officer and 2,450 shares of which are currently issued and outstanding and held by Steve Reinharz, the CEO of RAD.
Garett Parsons, our President, Chief Executive Officer and Chief Financial Officer, is the current holder of 1,000 shares of the Company’s Series F Convertible Preferred Stock, and Steve Reinharz, the CEO of RAD, is currently the holder of 2,450 shares of Series F Convertible Preferred Stock. As the holders of such stock, Mr. Parsons and Mr. Reinharz, can each, at any time, convert all, but not less than all of their shares of Series F Convertible Preferred Stock into a number of fully paid and nonassessable shares of the Company’s common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45). The conversion of such shares shall cause substantial dilution to the Company’s current shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a smaller reporting company, we are not required to provide the information required by this item.Not applicable.
ITEM 2. PROPERTIES
We maintain our corporate offices at 701 North Green Valley Parkway,1 East Liberty. 6th Floor, Reno, Nevada 89501, pursuant to a month-to-month lease. Our annual rental cost for this facility is approximately $936 annually. RAD maintains its offices at 23121 La Cadena Suite 200, Henderson, Nevada 89074. Our telephone numberB/C Laguna Hills, California 92675, pursuant to a five-year term ending March 31, 2022. Its annual rental cost for this facility is 702-990-3271. Thisapproximately $65,000, plus a proportionate share of operating expenses of approximately $35,000 annually. The Company also leases premises in northern California. The lease is for three years, beginning in August 2017, and expires in August 2020. The Company shares these premises with a monthsupplier who is the co-lessee. Through agreement with the supplier, the Company will pay 75% of the lease costs and the supplier will pay 25%. The Company’s share of rent costs approximately $43,000 annually.
On February 1, 2018 the Company entered into an additional lease for premises for a robotic control center. The lease runs from February 1, 2018 to month lease.January 31, 2021 for $6,600 annually.
ITEM 3. LEGAL PROCEEDINGS
On October 12, 2015,From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are no legal proceeding pending at this time.
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In February 2016, OMVS received notice that the Company had been sued in the United States District Court for the Central District of California. The plaintiff alleges that we obtained certain trade secrets through a third party also named in the suit. The case was dismissed in December 2015 for lack of jurisdiction.
In February 2016, we received notice that the Companyit had been sued in the Clark County District Court of Nevada. The plaintiff alleges that weOMVS obtained certain trade secrets through a third party also named in the suit. We believeOMVS believes the suit is without merit and intend to vigorously defend it. An Arbitration was conducted on May 9, 2017, Plaintiff filed a Notice of trialTrial de Novo, seeking a review of the merit dismissal. It is counsel’s opinion this Trial de Novo is without merit and the CompanyOMVS should prevail.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESPURCHASE OF EQUITY SECURITIES
Market Information
OurOMVS’s common stock began trading on the “Over the Counter” Bulletin Board (“OTC”) under the symbol “OMVS” in June 2011. The following table sets forth, for the period indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by OTC Markets Group, Inc. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. There is an absence of an established trading market for the Company’s common stock, as the market is limited, sporadic and highly volatile, which may affect the prices listed below.
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Fiscal Year Ended February 28, 2017 |
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Quarter ended February 28, 2017 |
| $ | 0.02 |
| $ | 0.00 |
Quarter ended November 30, 2016 |
| $ | 0.10 |
| $ | 0.01 |
Quarter ended August 31, 2016 |
| $ | 0.20 |
| $ | 0.07 |
Quarter ended May 31, 2016 |
| $ | 0.50 |
| $ | 0.14 |
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Fiscal Year Ended February 29, 2016 |
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Quarter ended February 29, 2016 |
| $ | 0.72 |
| $ | 0.09 |
Quarter ended November 30, 2015 |
| $ | 1.70 |
| $ | 0.43 |
Quarter ended August 31, 2015 |
| $ | 4.76 |
| $ | 0.25 |
Quarter ended May 31, 2015 |
| $ | 11.04 |
| $ | 0.55 |
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Fiscal Year Ended February 28, 2018: |
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Quarter ended February 28, 2018 |
| $ | 0.12 |
| $ | 0.05 |
Quarter ended November 30, 2017 |
| $ | 0.14 |
| $ | 0.04 |
Quarter ended August 31, 2017 |
| $ | 0.27 |
| $ | 0.03 |
Quarter ended May 31, 2017 |
| $ | 0.08 |
| $ | 0.02 |
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Fiscal Year Ended February 28, 2017: |
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Quarter ended February 28, 2017 |
| $ | 0.02 |
| $ | 0.00 |
Quarter ended November 30, 2016 |
| $ | 0.10 |
| $ | 0.01 |
Quarter ended August 31, 2016 |
| $ | 0.20 |
| $ | 0.07 |
Quarter ended May 31, 2016 |
| $ | 0.50 |
| $ | 0.14 |
Holders
AsOn June 8, 2018, the closing price per share of the date of this filing, there were fifty five holders of record of ourCompany’s common stock.stock as quoted on the OTC was $0.01.
Dividends
To date, we have not paid dividends on shares of ourthe Company’s common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, ourOMVS’s financial condition, and other factors deemed relevant by ourits Board of Directors.
Holders of Common Stock
As of June 8, 2018, there were 13 holders of OMVS’s common stock. The number of foregoing holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Common Stock
We areThe Company is authorized to issue 480,000,000 shares of common stock, with a par value of $0.001. The closing price of ourits common stock on June 9, 2017,8, 2018, as quoted by OTC Markets Group, Inc., was $0.078.$0.01. There were 43,791,804154,260,797 shares of common stock issued and outstanding as of June 9, 2017.8, 2018. All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of the Company’sits assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.
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Our Articles of Incorporation, our Bylaws, and the applicable statutes of the state of Nevada contain a more complete description of the rights and liabilities of holders of our securities.
During the year ended February 28, 2017,2018, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
On March 5, 2015, weOMVS effected a 500-for-1 reverse split, upon ourits reincorporation in Nevada. Each common shareholder received one common share in the Nevada company for every 500 common shares they held in the Florida company. Fractional shares were rounded up, and each share shareholder received at least 5 shares.
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Non-cumulative voting
Holders of shares of ourthe Company’s common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
Securities Authorized for Issuance under Equity Compensation Plans
The following table shows the number of shares of common stock that could be issued upon exercise of outstanding options and warrants, the weighted average exercise price of the outstanding options and warrants, and the remaining shares available for future issuance as of February 29, 2016.issuance.
Plan Category |
| Number of Securities to be issued upon exercise of outstanding options, warrants and rights |
| Weighted average exercise price of outstanding options, warrants and rights |
| Number of securities remaining available for future issuance |
Equity compensation plans approved by security holders. |
| — |
| — |
| 9,000 |
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Equity compensation plans not approved by security holders. |
| — |
| — |
| — |
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Total |
| — |
| — |
| 9,000 |
Preferred Stock
We areThe Company is authorized to issue up to 20,000,000 shares of $0.001 par value preferred stock. The board of directors is authorized to designate any series of preferred stock up to the total authorized number of shares.
Series E Preferred Stock
The board of directors has designated 4,350,000 shares of Series E preferred stock.Preferred Stock. As of the date of this report, there are 1,000,0004,350,000 shares of Series E preferred stockPreferred Stock outstanding. The Series E preferred stockPreferred Stock ranks subordinate to the Company’s common stock. The Series E preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. The outstanding shares of Series E preferred stockPreferred 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 common stock. As a result, the holder of Series E preferred stockPreferred Stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.
Series F Convertible Preferred Stock
The board of directors has designated 4,350 shares of Series F convertible preferred stockConvertible Preferred Stock with a facepar value of $1.00 per share. As of the date of this report, there are 1,0004,350 shares of Series F convertible preferred stockConvertible Preferred Stock outstanding. The Series F convertible preferred stockConvertible Preferred Stock is non-redeemable, does not have rights upon liquidation of the Company, does not have voting rights and does not receive dividends. The each holder may, at any time and from time to time convert all, but not less than all.all, of itstheir shares of Series F convertible preferred stockConvertible Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45). on a pro rata basis. So long as any shares of Series F convertible preferred stockConvertible Preferred Stock are outstanding, the Company shall
- 15 -
not, without first obtaining the approval of the majority of the holders: (a) alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series F convertible preferred stock; (b) create any Senior Securities; (c) create any pari passu Securities; (d) do any act or thing not authorized or contemplated by the Certificate of Designation which would result in any taxation with respect to the Series F convertible preferred stockConvertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended, (or otherwise suffer to exist any such taxation as a result thereof).
Series G Preferred Stock
The board of directors has designated 1,000 shares of Series G preferred stock.Preferred Stock. As of the date of this report, there are no shares of Series G preferred stockPreferred Stock outstanding. The Series G preferred stock is does not have voting rights, does not have rights upon liquidation of the Company and does not receive dividends. These shares were created after February 28, 2017.
- 7 -Transfer Agent and Registrar
The Transfer Agent for our capital stock is Island Stock Transfer with an address at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760. Their telephone number is Office phone: 727-289-0010.
Recent Sales of Unregistered Securities
The following is a summary of transactions by OMVS involving sales of its securities that were not registered under the Securities Act.
On August 28, 2017, OMVS entered into a Stock Purchase Agreement with RAD and Steve Reinharz, as sole stockholder of RAD. Pursuant to the terms of the Stock Purchase Agreement, OMVS acquired, on August 28, 2017, 10,000 shares of RAD’s common stock, representing all of RAD’s issued and outstanding capital stock, from Mr. Reinharz in exchange for the issuance by OMVS of (i) 3,350,000 shares of our Series E Preferred Stock and, (ii) 2,450 shares of our Series F Convertible Preferred Stock. In connection with the foregoing, the Registrant relied upon the exemption from registration under the Securities Act of 1933, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, in reliance upon Section 4(a)(2) thereof and Regulation D thereunder.
During the quarter ended February 28,period from June 1, 2017 the Companythrough July 25, 2017, OMVS issued 8,922,279 shares of common stock as a resultupon cashless exercise of warrants held by one of the conversionCompany’s lenders who also converted $3,358 in interest and principal for 395,667 shares for a total of Convertible Promissory Notes, as detailed in the following table:9,317,946 shares issued.
|
|
|
|
|
|
|
|
Date |
| Amount Converted |
| Shares of Common Stock Converted |
| ||
December 2, 2016 |
|
| 2,986 |
|
| 891,304 |
|
December 19, 2016 |
|
| 3,702 |
|
| 892,173 |
|
December 28, 2016 |
|
| 2,670 |
|
| 1,057,808 |
|
January 5, 2017, 2017 |
|
| 580 |
|
| 580,000 |
|
January 24, 2017 |
|
| 1,922 |
|
| 1,130,723 |
|
January 25,2017 |
|
| 1,077 |
|
| 621,000 |
|
January 27, 201 |
|
| 774 |
|
| 455,005 |
|
January 30, 2017 |
|
| 600 |
|
| 600,000 |
|
February 7, 2017 |
|
| 1,630 |
|
| 761,000 |
|
February 13, 2017 |
|
| 1,711 |
|
| 799,000 |
|
February 22, 2017 |
|
| 1,754 |
|
| 839,000 |
|
Total |
| $ | 19,406 |
|
| 8,637,013 |
|
On July 8, 2017, OMVS issued a convertible note payable for $200,000 which bears interest at 8% per annum and is due July 6, 2018. The note is convertible into common stock of the Company at a 40% discount to the lowest trading price in during the 20 trading days prior to conversion.
Each issuance of securities was issued without registration in reliance ofIn connection with the foregoing, the Registrant relied upon the exemption from registration Section 3(a)9 ofunder the Securities Act of 1933.1933, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, in reliance upon Section 4(a)(2) thereof and Regulation D thereunder.
On February 16, 2017, OMVS closed on a Share Purchase Agreement with Capital Venture Holdings LLC (“Capital Venture”), a Wyoming Limited Liability Company, whereby OMVS issued Capital Venture 1,000 shares of Series F Convertible Preferred Stock, representing all of the issued and outstanding shares of Series F Convertible Preferred Stock to Capital Venture in consideration for $5,000. Mr. Garett Parsons is the sole and managing member of Capital Venture.
In connection with the foregoing, OMVS relied upon the exemption from registration under the Securities Act of 1933, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, in reliance upon Section 4(a)(2) thereof and Regulation D thereunder.
Penny Stock Regulations
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock falls within the definition of penny stock and therefore is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes
- 16 -
exceeding $200,000 individually, or $300,000, together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. In addition, the broker-dealer must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market. In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the investors’ ability to buy and sell our stock.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
We have not repurchased any shares of our common stock during the fiscal year ended February 28, 2018.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information required by this item.Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and planresults of operations should be read in conjunction with ourthe consolidated financial statements and relatedthe notes appearingto those financial statements that are included elsewhere herein. Thisin this report. Our discussion and analysis containsincludes forward-looking statements including information about possible or assumed results ofbased upon current expectations that involve risks and uncertainties, such as our financial conditions, operations, plans, objectives, expectations and performance that involve risk, uncertainties,intentions. Actual results and assumptions. The actual results maythe timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Forward-Looking Statements and Business sections in this report. We use words such forward-looking statements. For example, when we indicate that we expect to increase our product salesas “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicateidentify forward-looking statements.
Background of our CompanyOverview
We are a companyOMVS was incorporated in NevadaFlorida on March 25, 2010. OMVS reincorporated into Nevada on February 17, 2015. OMVS’ fiscal year end is February 28. OMVS is located at 1 East Liberty, 6th Floor, Reno, NV 89501 and our telephone number is 702-990-3271.
- 8 -
OurOMVS’ prior business focus is in the transportation-related technology services. We are currentlywas transportation services and it was exploring the online, on-demand logistics market by developing a shared economy network of truckinglogistics 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. As well, on May 11,
On August 28, 2017, the company announced that it hasOMVS entered into a binding letter of intentStock Purchase Agreement (the “Stock Purchase Agreement”) with Robotic Assistance Devices (RAD - www.roboticassistancedevices.com) to acquire 100%RAD and Steve Reinharz, as sole stockholder of RAD. AccordingPursuant to the binding LOI,terms of the Stock Purchase Agreement, OMVS acquired, on August 28, 2017, 10,000 shares of RAD’s common stock, representing all of RAD’s issued and outstanding capital stock, from Mr. Reinharz in exchange for the issuance by OMVS of (i) 3,350,000 shares of its Series E Preferred Stock and, (ii) 2,450 shares of its Series F Convertible Preferred Stock. As a result of the RAD and OMVS will enter into a definitive agreement within the next 90 days to consummate the acquisition.acquisition, RAD is specializeda wholly owned subsidiary of OMVS. As a result of the closing of the RAD acquisition, OMVS has succeeded to the business of RAD, in which it purchased all of the outstanding shares of capital stock of RAD. As a result, OMVS’ business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.
- 17 -
The RAD acquisition is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of our prior operations were disposed of as part of the consummation of the transaction and therefore no goodwill or other intangible assets were recorded. RAD is initially targetingtreated as the security industry, which uses electronic systems,accounting acquirer as its stockholders control the Company after the RAD Acquisition, even though the Company was the legal acquirer. As a result, the assets and approximately 1.1 million security guardsliabilities and the historical operations that are reflected in these financial statements are those of RAD as if RAD had always been the US. The RAD robot security guard solution combines the best of both solutions to provide superior security at a price that delivers to its clients an immediate ROI.
Plan of Operations
We believe we do not have adequate funds to fully execute our business plan for the next twelve months unless we obtain additional funding. However, should we not raise this capital, we will allocate our funding to first assure that all State, Federal and SEC requirements are met.
As of February 28, 2017, we had cash on hand of $ 3,100.
We intend to pursue capital through public or private financing, as well as borrowing and other sources in order to finance our business activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.reporting company.
Results of Operations
We recognized net incomeThe following table shows our results of $33,845,898operations for the year ended February 28, 2017. We had a working capital deficit of $2,237,627, excluding2018, the derivatives of $12,938,795 as oftwo months ended February 28, 2017. We do2017 and period from inception (July 26, 2016) through December 31, 2016. The historical results presented below are not anticipate having positive net income innecessarily indicative of the immediate future. Net cash used by operating activitiesresults that may be expected for any future period.
|
| Period |
| |||||||
|
| Year Ended |
| Two Months Ended |
| Period from Inception |
| |||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 106,476 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 61,476 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
| 3,578,301 |
|
| 81,203 |
|
| 79,921 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (3,516,825 | ) |
| (81,203 | ) |
| (79,921 | ) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
| (20,732,176 | ) |
| (2,732 | ) |
| (1,183 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (24,249,001 | ) | $ | (83,935 | ) | $ | (81,104 | ) |
Revenue
The Company began to earn revenues of for the year ended February 28, 2017 was $184,831.
Fiscal year2018 of $106,476, but had no revenues for the period from inception (July 26, 2016) through December 31, 2016 and for the two months ended February 28, 2017, compared tosince the fiscal year ended February 29, 2016.Company had just begun operations and was still in product development.
General and Administrative ExpensesOperating expenses
We recognized general and administrativeOperating expenses in the amount of $301,575 and $572,471 for the years ended February 28, 2017 and 2016, respectively. The reduction in general and administrative expenses was due to reduced professional fees.
Interest Expense
Interest expense increased from $647,990 for the year ended February 29, 2016 to $811,383 for the year ended February 28, 2018, the two months ended February 28, 2017 and period from inception (July 26, 2016) through December 31, 2016, were comprised of the following:
|
| Period |
| |||||||
|
| Year Ended |
| Two Months Ended |
| Period from Inception |
| |||
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| $ | 493,000 |
| $ | 20,153 |
| $ | 30,572 |
|
General and administrative |
|
| 2,391,664 |
|
| 54,856 |
|
| 49,349 |
|
Depreciation and amortization |
|
| 130,081 |
|
| 6,194 |
|
| — |
|
Loss on impairment of fixed assets |
|
| 563,556 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
| $ | 3,578,301 |
| $ | 81,203 |
| $ | 79,921 |
|
- 18 -
Our operating expenses were comprised of general and administrative expenses, research and development, depreciation and amortization, and a loss on impairment of fixed assets. General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and rent. Our operating expenses during the year ended February 28, 2018 and the two months ended February 28, 2017 were $3,578,301 and $81,203, respectively. The overall $3,497,098 increase in operating expenses was primarily attributable to the following increases in operating expenses of:
● | General and administrative expenses – $2,336,808 |
● | Research and development – $472,847 |
● | Depreciation and amortization –$123,887 |
● | Loss on impairment of fixed assets – $563,556 |
The $3,497,098 increase in operating expenses are a result of the start of RAD’s operations in 2017. Interest
Our operating expenses during the year ended February 28, 2018 and the period from inception (July 26, 2016) through December 31, 2016 were $3,578,301 and $79,921, respectively. The overall $3,498,380 increase in operating expenses was primarily attributable to the following increases in operating expenses of:
● | General and administrative expenses – $2,342,315 |
● | Research and development – $462,428 |
● | Depreciation and amortization –$130,081 |
● | Loss on impairment of fixed assets – $563,556 |
The $3,498,380 increase in operating expenses are a result of the start of RAD’s operations in 2017.
Other income (expense)
Other income (expense) consisted of the change of fair value of derivative liabilities, gain on settlement of debt, and interest expense, amortization of debt issuance costs and discounts. Other income (expense) for the year ended February 28, 2017 included amortization of discount on convertible notes payable in2018, the amount of $603,957, compared to $481,220 for the comparable period of 2016. The remaining increase is the result of the Company entering into interest-bearing convertible notes payable.
Gain on Asset Disposal
During the yeartwo months ended February 28, 2017 we recognized a $5,789 gain on the disposal an asset and a gain of $1,808 for the year ended February 29,period from inception (July 26, 2016) through December 31, 2016
Impairment of Long Lived Assets
During the year ended February 29, 2016, we recognized a $49,302 impairment of the value of our trailers was ($20,732,176), ($2,732) and leased delivery van. We recognized no impairment during the corresponding period($1,183), respectively. The significant increases in 2017.
Net Gain/Loss
We incurred a net gain of $33,845,898 for the year ended February 28, 2017 as compared to a net loss of $1,267,955 for the comparable period of 2016. The increase in the net incomeother expense was primarily attributable to the resultinterest expense and amortization of debt issuance costs and discounts, partially offset by a gain on financial derivative instruments.
- 9 -
Liquidity and Capital Resources
We anticipate needing additional financing to fund our operations and to effectively execute our business plan over the next eighteen months. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instrumentschange in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
We raised the cash amounts to be used in these activities from the sale of common stock and from advances. We currently have negative working capital of $2,237,627, excluding the derivatives of $12,938,795.
As of February 28, 2017, we had $3,100 of cash on hand. This amount of cash will be adequate to fund our operations for less than one month.
We have no known demands or commitments and are not aware of any events or uncertainties as of February 28, 2017 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
Capital Resources
We had no material commitments for capital expenditures as of February 28, 2017 and 2016. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financing in addition to what is required to fund our present operation.
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.
Critical Accounting Policies and Estimates
Derivative Liability - Beneficial Conversion Discount
Beneficial conversion feature is a non-detachable conversion feature that is in the money at the commitment date. The Company follows the guidance of ASC Subtopic 470-20 Debt with Conversion and Other Options to evaluate as to whether beneficial conversion feature exists. Pursuant to Section 470-20-30 an embedded beneficial conversion feature recognized separately under paragraph 470-20-25-5 shall be measured initially at its intrinsic value at the commitment date (see paragraphs 470-20-30-9 through 30-12) as the difference between the conversion price (see paragraph 470-20-30-5) and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. When the Company issues a debt or equity security that is convertible into common stock at a discount from the fair value of the common stock at the date the debt or equity security counterparty is legally committed to purchase such a security (Commitment Date), a beneficial conversion charge is measured and recorded on the Commitment Date for the difference between the fair value of the Company’s common stockderivatives and the effective conversion pricegain on settlement of the debt or equity security. If the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the debt or equity security, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the debt or equity security.debt.
- 10 -Going Concern
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions 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 financial statements are prepared; actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies, which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.
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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
GOING CONERN - 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 year ended February 28, 2017,2018, the Company had a net gain of $33,822,898 and generated negative cash flow from operating activities of $3,309,230. As of February 28, 2018, the Company has an accumulated deficit of $35,504,029 and negative working capital of $34,292,202. Management does not anticipate having positive cash flow from operations in the amount of $157,831. In view of these matters,near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements.
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 dependent upon its abilityno 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 a level of profitability or to obtain additional capital to finance its operations. The Company intends on financing its future activities and its working capital needs largely fromraises doubts about the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unableCompany’s ability to continue as a going concern.
New Accounting Pronouncements- 19 -
Capital Resources
ForThe following table summarizes total current assets, liabilities and working capital for the period indicated:
|
| February 28, 2018 |
| February 28, 2017 |
| Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
Current assets |
| $ | 491,989 |
| $ | 214,685 |
| $ | 277,304 |
|
Current liabilities |
|
| 34,784,191 |
|
| 103,149 |
|
| 34,681,042 |
|
Working capital (deficit) |
| $ | (34,292,202 | ) | $ | 111,536 |
| $ | (34,403,738 | ) |
As of February 28, 2018, we had a descriptioncash balance of recent accounting standards,$24,773.
Summary of Cash Flows
|
| Year Ended |
| Two Months Ended |
| Period from Inception |
| |||
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
| $ | (3,309,230 | ) | $ | (225,153 | ) | $ | (58,749 | ) |
Net cash used in investing activities |
| $ | (239,490 | ) | $ | (85,050 | ) | $ | — |
|
Net cash provided by financing activities |
| $ | 3,516,586 |
| $ | 317,514 |
| $ | 108,345 |
|
Net cash used in operating activities
Net cash used in operating activities for the year ended February 28, 2018 was $3,309,230. This included a net loss of $24,249,001, gain on settlement of debt of $1,175,028 and a change in operating assets of $89,010. These instances of decreases in cash are offset by a change in fair value of derivative financial instruments of $9,495,321 (non-cash), interest expense related to derivative liability on excess of face value of debt change of $10,797,663, amortization of debt discounts of $1,214,348, a loss on impairment of fixed assets of $563,556, stock-based compensation of $2,840 and depreciation and amortization of $130,081.
Net cash used in investing activities
Net cash used in investing activities for the year ended February 28, 2018, was $239,490, which consisted primarily of capital expenditures of $228,371, cash paid for security deposit of $30,141 and was offset by cash proceeds from the WeSecure transaction of $17,000 and cash acquired in reverse capitalization of $2,022.
Net cash provided by financing activities
Net cash provided by financing activities for the year ended February 28, 2018, was $3,516,586, which resulted from proceeds from the issuance of convertible notes of $2,558,345, net borrowings from loan payable-related party $219,613, loan from OMVS to RAD prior to reverse recapitalization of $752,500, proceeds from vehicle loan $47,661 and was reduced by principal repayment on convertible note payable of $50,000 and payments on a vehicle loan of $11,533.
Off-Balance Sheet Arrangements
We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
- 20 -
Significant Accounting Policies
Robot Parts Inventory
Robot parts inventory is stated at the lower of cost or market using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these robot parts in the assembly of revenue earning robots and demo robots as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development. A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted.
Revenue Earning Robots
Revenue earning robots are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 48 months. The Company continually evaluates revenue earning robots to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the robot should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from two to five years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.
Demo robots | 4 years | |
Computer equipment | 3 years | |
Office equipment | 4 years | |
Vehicles | 3 years | |
Leasehold improvements | 5 years, the life of the lease |
The Company periodically evaluates the fair value of fixed assets whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income.
Research and Development
Research and development costs are expensed in the period they are incurred, unless they meet specific criteria related to technical, market and financial feasibility, as determined by Management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected datesuseful life or written off if a product is abandoned. At February 28, 2018, the Company had no deferred development costs.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, goods are delivered for rental and/or services are rendered, sales price is determinable, and collection is reasonably assured.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 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).
- 21 -
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 under ASC Topic 820 are described as follows:
● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |
● | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include 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; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
● | Level 3 – Inputs that are unobservable for the asset or liability. |
The carrying amounts of RAD’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. The Company has elected to early adopt ASU 2017-01 and estimated effects, ifto apply it to any on ourtransaction, which occurred prior to the issuance date that has not been reported in financial statements see “Note 3: Significant Accounting Polices: that have been issued or made available for issuance.
Recently Issued Accounting Pronouncements”Pronouncements
In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard is effective for fiscal years and interim reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenuefrom Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and is now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that period. Topic 606 is effective for the Company in the first quarter of Fiscal 2019. The Company is currently evaluating the new revenue recognition guidance. The Company has completed its initial impact assessment and has commenced an in-depth evaluation of the adoption impact, which involves review of selected revenue arrangements. Based on the Company’s preliminary review, the Company believes that the timing and measurement of revenue for its customers will be similar to the Company’s current revenue recognition. However, this view is preliminary and could change based on further analysis associated with the conversion and implementation phases of our ASU 2014-09 project.
From March 2016 through September 2017, the FASB issued ASU 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11,Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606):Narrow-Scope Improvements and Practical Expedients, ASU No. 2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customersand ASU No. 2017-13,Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. These amendments are intended to improve and clarify the implementation guidance of Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of ASU No. 2014-09 and ASU No. 2015-14.
- 22 -
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), which is effective for public entities for annual reporting periods beginning after December 15, 2018. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company is currently evaluating the effects of ASU 2016-02 on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The guidance is effective for the Company beginning after December 15, 2017, although early adoption is permitted. The Company is currently evaluating the effects of ASU 2016-15 on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18,Statement of Cash Flows (Topic 230) Restricted Cash a consensus of the FASB Emerging Issues Task Force. ASU 2016-18 requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement cash flows. The new standard is expected to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effects of ASU 2016-18 on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigatingTopic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II Item 8 of this Form 10-K.update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its consolidated financial statements and related disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
AsWe do not have any financial instruments that are exposed to significant market risk. We maintain our cash and cash equivalents in bank deposits and short-term, highly liquid money market investments. A hypothetical 100-basis point increase or decrease in market interest rates would not have a smaller reporting company, we are not required to providematerial impact on the information required by this item.fair value of our cash equivalents securities, or our earnings on such cash equivalents.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
On the Move Systems Corp.See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 through F-22 of this annual report on Form 10-K.
Consolidated Financial Statements
February 28, 2017
Contents
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- 11 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
On The Move Systems Corp.
Henderson, Nevada
We have audited the accompanying consolidated balance sheets of On The Move Systems Corp. and subsidiaries (collectively, the “Company”) as of February 28, 2017 and February 29, 2016 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of On The Move Systems Corp. and subsidiaries as of February 28, 2017 and February 29, 2016 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered losses from operations and has negative operating cash flows, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
June 13, 2017
- 12 -
ON THE MOVE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
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| February 28, 2017 |
| February 29, 2016 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 3,100 |
| $ | 2,223 |
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Prepaid expenses |
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| — |
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| 3,484 |
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Total current assets |
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| 3,100 |
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| 5,707 |
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Fixed assets, net of accumulated depreciation of $182 as of February 29, 2016 |
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| — |
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| 3,739 |
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TOTAL ASSETS |
| $ | 3,100 |
| $ | 9,446 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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CURRENT LIABILITIES |
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Accounts payable and accrued liabilities |
| $ | 98,214 |
| $ | 302,136 |
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Advances payable |
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| 1,594 |
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| 1,594 |
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Current portion of convertible notes payable, net of discount of $80,420 and $429,631, respectively |
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| 1,549,734 |
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| 554,085 |
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Short term note payable - related party |
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| 85,000 |
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| — |
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Short term note payable |
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| 50,000 |
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| — |
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Current portion of accrued interest payable |
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| 456,185 |
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| 185,447 |
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Current portion of capital lease |
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| — |
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| 3,775 |
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Derivative liability |
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| 12,938,795 |
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| — |
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Total current liabilities |
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| 15,179,522 |
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| 1,047,037 |
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Convertible notes payable, net of discount of $358,159 and $500,339, respectively. |
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| 41,977 |
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| 418,521 |
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Capital lease obligation |
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| — |
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| 7,378 |
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Accrued interest payable |
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| 41,093 |
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| 105,492 |
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TOTAL LIABILITIES |
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| 15,262,592 |
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| 1,578,428 |
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COMMITMENTS AND CONTINGENCIES |
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| — |
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| — |
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STOCKHOLDERS’ DEFICIT |
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Common Stock, $0.001 par value; 480,000,000 shares authorized; 17,656,844 and 4,908,816 shares issued and outstanding at February 28, 2017 and February 29, 2016, respectively |
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| 17,657 |
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| 4,909 |
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Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 1,000,000 shares issued and outstanding at February 28, 2017 and February 29, 2016, respectively |
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| 1,000 |
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| 1,000 |
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Series F Convertible Preferred Stock, $1.00 par value per share; 4,350 shares authorized; 1,000 shares issued and outstanding at February 28, 2017 |
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| 1,000 |
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| — |
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Preferred Stock, undesignated; 15,645,650 shares authorized; no shares issued and outstanding at February 28, 2017 and February 29, 2016, respectively |
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| — |
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| — |
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Additional paid-in capital |
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| (41,477,284 | ) |
| 6,072,872 |
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Accumulated deficit |
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| 26,198,135 |
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| (7,647,763 | ) |
Total stockholders’ deficit |
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| (15,259,492 | ) |
| (1,568,982 | ) |
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| $ | 3,100 |
| $ | 9,446 |
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The accompanying notes are an integral part of these consolidated financial statements.
- 13 -
ON THE MOVE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
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| Year ended, |
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| February 28, 2017 |
| February 29, 2016 |
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REVENUE | $ | — |
| $ | — |
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OPERATING EXPENSES |
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General and administrative expenses |
| 301,575 |
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| 572,471 |
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Gain on disposal of fixed assets |
| (5,789 | ) |
| (1,808 | ) |
Impairment of fixed assets |
| — |
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| (49,302 | ) |
Operating loss |
| (295,786 | ) |
| (619,965 | ) |
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OTHER INCOME (EXPENSE) |
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Interest expense |
| (811,383 | ) |
| (647,990 | ) |
Gain on financial derivatives |
| 34,966,067 |
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| — |
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Gain on debt forgiveness |
| 30,000 |
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| — |
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Loss on debt covenant violations |
| (43,000 | ) |
| — |
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Total other income (expense) |
| 34,141,684 |
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| (647,990 | ) |
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NET INCOME (LOSS) | $ | 33,845,898 |
| $ | (1,267,955 | ) |
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NET INCOME (LOSS) PER COMMON SHARE |
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Basic | $ | 4.47 |
| $ | (0.44 | ) |
Diluted | $ | 0.07 |
| $ | (0.44 | ) |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
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Basic |
| 7,580,137 |
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| 2,881,703 |
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Diluted |
| 492,480,090 |
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| 2,881,703 |
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The accompanying notes are an integral part of these consolidated financial statements.
- 14 -
ON THE MOVE SYSTEMS CORP.
CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS’ DEFICIT
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| Series E |
| Series F |
| Additional |
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| Common Stock |
| Preferred Stock |
| Preferred Stock |
| Paid-In |
| Accumulated |
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| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Total |
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BALANCE, February 28, 2015 |
| 75,360 |
| $ | 75 |
| 1,000,000 |
| $ | 1,000 |
| — |
| $ | — |
| $ | 5,351,237 |
| $ | (6,379,808 | ) | $ | (1,027,496 | ) |
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Common stock issued for debt conversion |
| 4,822,667 |
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| 4,823 |
| — |
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| — |
| — |
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| — |
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| 195,006 |
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| — |
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| 199,829 |
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Common stock issued for services |
| 10,556 |
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| 11 |
| — |
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| — |
| — |
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| — |
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| 4,581 |
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| — |
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| 4,592 |
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Share rounding on reverse split |
| 233 |
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| — |
| — |
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| — |
| — |
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| — |
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| — |
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| — |
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| — |
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Beneficial conversion discount on issuance of convertible note payable |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| 522,048 |
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| — |
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| 522,048 |
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Net loss |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| — |
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| (1,267,955 | ) |
| (1,267,955 | ) |
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BALANCE, February 29, 2016 |
| 4,908,816 |
| $ | 4,909 |
| 1,000,000 |
| $ | 1,000 |
| — |
| $ | — |
| $ | 6,072,872 |
| $ | (7,647,763 | ) | $ | (1,568,982 | ) |
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Common stock issued for debt conversion |
| 12,748,028 |
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| 12,748 |
| — |
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| — |
| — |
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| — |
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| 54,402 |
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| — |
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| 67,150 |
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Preferred stock issued for cash |
| — |
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| — |
| — |
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| — |
| 1,000 |
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| 1,000 |
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| 4,000 |
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| — |
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| 5,000 |
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Beneficial conversion discount on issuance of convertible note payable |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| 35,100 |
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| — |
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| 35,100 |
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Derivative liabilities reclassified from additional paid-in capital |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| (47,967,909 | ) |
| — |
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| (47,967,909 | ) |
Release of derivative liability on conversion of convertible notes payable |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| 122,547 |
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| — |
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| 122,547 |
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Related party debt forgiveness |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| 201,704 |
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| — |
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| 201,704 |
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Net income |
| — |
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| — |
| — |
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| — |
| — |
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| — |
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| — |
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| 33,845,898 |
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| 33,845,898 |
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BALANCE, February 28, 2017 |
| 17,656,844 |
| $ | 17,657 |
| 1,000,000 |
| $ | 1,000 |
| 1,000 |
| $ | 1,000 |
| $ | (41,477,284 | ) | $ | 26,198,135 |
| $ | (15,259,492 | ) |
On March 5, 2015, the Company effected a 500-for-1 reverse split. All share and per share amounts have been restated to reflect the reverse split.
The accompanying notes are an integral part of these consolidated financial statements.
- 15 -
ON THE MOVE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| Year ended February 29, |
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| 2017 |
| 2016 |
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CASH FLOW FROM OPERATING ACTIVITIES: |
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Net income (loss) |
| $ | 33,845,898 |
| $ | (1,267,955 | ) |
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|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Amortization of discount on convertible note payable |
|
| 603,957 |
|
| 481,220 |
|
Gain on derivative liability |
|
| (34,966,067 | ) |
| — |
|
Gain on debt forgiveness |
|
| (30,000 | ) |
| — |
|
Loss on debt covenant violation |
|
| 43,000 |
|
| — |
|
Common stock issued for services |
|
| — |
|
| 4,592 |
|
Depreciation |
|
| 767 |
|
| 18,583 |
|
Gain on disposal of fixed assets |
|
| (5,789 | ) |
| (1,808) |
|
Impairment of fixed assets |
|
| — |
|
| 49,302 |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
| — |
|
| 5,250 |
|
Prepaid expenses |
|
| 3,484 |
|
| (3,484) |
|
Accounts payable and accrued liabilities |
|
| 112,782 |
|
| (5,706) |
|
Accrued interest payable |
|
| 207,137 |
|
| 164,166 |
|
NET CASH USED IN OPERATING ACTIVITIES |
|
| (184,831 | ) |
| (555,840 | ) |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from advances |
|
| 35,100 |
|
| 523,642 |
|
Proceeds from convertible promissory note |
|
| 100,500 |
|
| 38,000 |
|
Proceeds from sale of Series F Preferred Stock |
|
| 5,000 |
|
| — |
|
Proceeds from promissory note |
|
| 50,000 |
|
| — |
|
Repayment of convertible note payable |
|
| (2,500 | ) |
| — |
|
Repayment of capital lease |
|
| (2,392 | ) |
| (6,258 | ) |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
| 185,708 |
|
| 555,384 |
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH |
|
| 877 |
|
| (456 | ) |
|
|
|
|
|
|
|
|
CASH, at the beginning of the period |
|
| 2,223 |
|
| 2,679 |
|
|
|
|
|
|
|
|
|
CASH, at the end of the period |
| $ | 3,100 |
| $ | 2,223 |
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest |
| $ | 291 |
| $ | 2,602 |
|
Income taxes |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
Noncash investing and financing transaction: |
|
|
|
|
|
|
|
Refinancing of advances into convertible notes payable |
| $ | 35,100 |
| $ | 522,048 |
|
Beneficial conversion discount on convertible note payable |
| $ | 35,100 |
| $ | 522,048 |
|
Original issue discount on convertible notes payable |
| $ | — |
| $ | 6,000 |
|
Conversion of convertible notes payable and accrued interest |
| $ | 67,150 |
| $ | 199,829 |
|
Derivative liabilities reclassified from additional paid in capital |
| $ | 47,967,909 |
| $ | — |
|
Release of derivative liability on conversion of convertible note payable |
| $ | 122,547 |
| $ | — |
|
Note payable issued for reduction of accounts payable |
| $ | 85,000 |
| $ | — |
|
Related party forgiveness of accounts payable |
| $ | 201,704 |
| $ | — |
|
Automobile acquired under capital lease |
| $ | — |
| $ | 11,766 |
|
Termination of capital lease for automobiles |
| $ | 2,972 |
| $ | — |
|
Debt discount recognized from derivative liabilities |
| $ | 59,500 |
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
- 16 -
ON THE MOVE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2016
Note 1. Background Information
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 year-end is February 28.
Our business focus is in the 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. As well, on May 11, 2017 the company announced that it has entered into a binding letter of intent with Robotic Assistance Devices (RAD - www.roboticassistancedevices.com) to acquire 100% of RAD. According to the binding LOI, RAD and OMVS will enter into a definitive agreement within the next 90 days to consummate the acquisition. RAD is specialized in the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs. RAD is initially targeting the security industry, which uses electronic systems, and approximately 1.1 million security guards in the US. The RAD robot security guard solution combines the best of both solutions to provide superior security at a price that delivers to its clients an immediate ROI.
Note 2. Going Concern
For the fiscal year ended February 28, 2017, the Company had a net gain of $33,845,898 and negative cash flow from operating activities of $184,831. As of February 28, 2017, the Company has negative working capital of $15,176,422.
These factors raise a substantial doubt about the Company’s ability to 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.
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.
Note 3. Significant Accounting Policies
The significant accounting policies that the Company follows are:
Basis of Presentation
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the rules of the Securities and Exchange Commission (“SEC”)
- 17 -
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.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 $3,100 and $2,223 at February 28, 2017 and February 29, 2016, respectively.
Fixed Assets
Fixed assets of the Company include vehicles and are stated at cost. In accordance with ASC Topic 360Property, Plant and Equipment, expenditure 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 the asset for. Our delivery van is depreciated over three years.
Impairment of long-lived assets
Long-lived assets, including fixed assets and intangible 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. During the year ended February 28, 2017, we determined that we needed to
Revenue and cost recognition
In accordance with ASC 605, Revenue Recognition, the Company recognizes 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. Revenue is generated from advertising on our race car and from delivery services. Revenue is recognized net of sales returns and allowances. We invoiced customers for revenue of $0 and $9,143 during the years ended February 28, 2017 and February 29, 2016, respectively; however, we have not recognized any revenue for that time period since collectability of the revenue was not reasonable 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 740Income 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 February 28, 2017 and 2016, respectively.
- 18 -
Earnings (Loss) Per Share
Basic loss per share is computed in accordance with ASC Topic 260,Earnings per Share, by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per 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.
In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The Company’s convertible debt is considered anti-dilutive due to the Company’s net loss for the year ended February 29, 2016. As a result, the Company did not have any potentially dilutive common shares for that period. At February 28, 2017, the Company had 536,321,460 potentially issuable shares upon the conversion of convertible notes payable and interest. Based on our stock price on February 28, 2017, the value of these shares if exercised would be $13,294,122. The company also has 900,000 warrants.
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) 820Fair 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:
|
| |
|
| |
|
|
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 28, 2017 and February 29, 2016. 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 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.
- 19 -
Commitments and Contingencies
The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. See Note 13 for a discussion of the Company’s commitments and contingencies.
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
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.
In April 2015, the FASB issued ASU No. 2015-03,Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the amendments in ASU No. 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company is required to adopt the provisions of ASU 2015-03 beginning with the fiscal year ending February 28, 2017. The Company has chosen to adopt this ASU during the year ended February 29, 2016. As a result, we reclassified debt issuance costs of $2,000 from current assets to current liabilities.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modifies the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, which is the year ending February 29, 2020 for the Company. Early application is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on their financial position and results of operations.
Note 4. Advances
During the years ended February 28, 2017 and February 29, 2016, the Company received unsecured advances totaling $35,100 and $522,048, respectively. These advances are non-interest bearing and payable on demand. Vista View Ventures, Inc. provided $35,100 and $522,048 of these advances for years ended February 28, 2017 and February 29, 2016, respectively. As discussed in Note 5, the advances were paid from Vista View Ventures Inc. to KMDA and then by KMDA to the Company on behalf of Vista View Ventures, Inc. These advances are typically converted to convertible notes on a quarterly basis.
During the years ended February 28, 2017 and February 29, 2016, we refinanced $35,100 and $522,048, respectively, of non-interest bearing advances into convertible notes. See Note 6.
At February 28, 2017 and February 29, 2016, we did not owe Vista View Ventures Inc. anything for advances provided to us.
At February 28, 2017 and February 29, 2016, we owed a third party $1,594 and $1,594, respectively, for advances provided to us.
- 20 -
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.
During the years ended February 28, 2017 and February 29, 2016, we paid Robert Wilson $33,846 and $108,461, respectively, for his services as CEO.
During the year ended February 28, 2017, Garett Parsons made $2,000 for his services as CEO.
During the year ended February 28, 2017, Garett Parsons purchased the outstanding 1,000,000 shares of Series E Preferred Stock from Panama iPhone Corp. for $10,000. During the year ended February 28, 2017, the Company issued 1,000 shares of Series F Preferred Stock to Mr. Parsons for cash proceeds of $5,000.
Conversion of Related Party Convertible Note
On April 1, 2015, Panama iPhone Corp. (formerly Masclo Investment Corporation), a significant shareholder of the Company, converted $100,000 of principal and accrued interest on the convertible note dated January 31, 2015 into 1,000,000 shares of common stock.
On June 25, 2015, Panama iPhone Corp. converted $68,447 of principal and accrued interest on the convertible note dated January 31, 2015 into 684,467 shares of common stock. As of February 29, 2016, there was remaining principal balance or accrued interest on the convertible note.
Services Provided by KM Delaney & Assoc.
During the year ended February 28, 2017 and 2016, KM Delaney & Associates (“KMDA”), a service provider to the Company, has provide office space and certain administrative functions to us under a management services agreement. The services provide include a furnished executive suite, use of office equipment and supplies, accounting and bookkeeping services, treasury and cash management services, financial reporting, and other support staffing requirements. The management services agreement calls for monthly payments of $18,000 during calendar year 2015 and $17,550 during calendar year 2016. 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. During the years ended February 28, 2017 and 2016, KMDA billed us $105,330 and $202,354, respectively, for those services. As of February 29, 2016, we owed KMDA $195,568 which was included in accounts payable on the balance sheet.
During the year ended February 28, 2017, the Company had a total forgiveness of debt of $201,704. KMDA forgave $85,934 and Robert Wilson forgave 44,616 and an accrued salary of 71,154. We paid KMDA $50,000 for prior outstanding accounts payable and We issued a note payable to KMDA in the amount of $85,000 to settle with various vendors., resulting in gain on settlement of $201,704 recognized as additional paid in capital. The note is non-interest bearing and requires five monthly principal payments of $17,000 beginning June 1, 2017.
Lease of Delivery Van
In December 2015, we leased a delivery van from an individual. The lessor is a relative of the owner of KMDA. The lease calls for monthly payments of $350 for a period of three years. The lease cost includes the operating cost and insurance on the van. We determined that the lease should be accounted for as a capital lease. We recorded the van as a fixed asset based on the present value of the future lease payments of $11,766. We immediately impaired the value of the van by comparing the present value of the future lease payments to the fair market value of the van and recognized impairment of $7,844. During the year ended February 28, 2017, this lease was terminated and the asset was returned to the lessor by mutual agreement of the parties.
- 21 -
Note 6. Convertible Notes Payable
Convertible notes payable consist of the following as of February 28, 2017 and February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued |
| Maturity |
| Interest Rate |
| Conversion |
| Balance February 28, 2017 |
| Balance February 29, 2016 |
| ||
February 28, 2011 |
| February 27, 2013 * |
| 7% |
| $0.015 |
| $ | 32,600 |
| $ | 32,600 |
|
January 31, 2013 |
| February 28, 2016 * |
| 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 |
|
| 394,458 |
|
| 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 |
|
| 5,299 |
|
| 46,000 |
|
February 29, 2016 |
| February 28, 2019 |
| 10% |
| 60% discount |
|
| 95,245 |
|
| 95,245 |
|
March 22, 2016 |
| March 22, 2017 |
| 10% |
| .003 |
|
| 60,000 |
|
| — |
|
May 31, 2016 |
| May 31, 2019 |
| 10% |
| .003 |
|
| 35,100 |
|
| — |
|
July 18,2016 |
| July 18,2017 |
| 10% |
| .003 |
|
| 6,500 |
|
| — |
|
August 30,2016 |
| August 30,2017 |
| 10% |
| .003 |
|
| — |
|
| — |
|
September 6, 2016 |
| September 6, 2017 |
| 10% |
| .003 |
|
| 31,320 |
|
| — |
|
January 4, 2017 |
| January 4, 2018 |
| — |
| — |
|
| 1,320 |
|
| — |
|
January 13, 2017 |
| October 13, 2017 |
| — |
| — |
|
| 38,000 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable |
|
|
| $ | 2,030,290 |
| $ | 1,902,722 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Noncurrent convertible notes payable |
|
|
|
| 400,136 |
|
| 919,006 |
| ||||
Less: discount on noncurrent convertible notes payable |
|
|
|
| (358,159 | ) |
| (500,485 | ) | ||||
Noncurrent convertible notes payable, net of discount |
|
|
| $ | 41,977 |
| $ | 418,521 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Current portion of convertible notes payable |
|
|
|
| 1,630,154 |
|
| 983,716 |
| ||||
Less: discount on current portion of convertible notes payable |
|
|
|
| (80,420 | ) |
| (429,631 | ) | ||||
Current portion of convertible notes payable, net of discount |
|
|
| $ | 1,549,734 |
| $ | 554,085 |
| ||||
* The indicated notes were is in default as of February 28, 2017 and bear default interest of between 18% and 25% per annum.
During the year ended February 28, 2017, we incurred original issue discounts of $17,820 and derivative discount of $59,500 on convertible notes issued during that period. These amounts are included in discounts on convertible notes payable and are being amortized to interest expense over the life of the notes.
During the year ended February 28, 2017, we incurred default penalties of $46,000 on the notes dated February 3, 2016 and March 22, 2016. The penalties were added to the principal of the notes.
We also issued a note of $75,000 to an individual for proceeds of $50,000 and a fee of $25,000 that was not paid as of February 28, 2017. The note is non-interest bearing.
All of the notes above are unsecured. As of February 28, 2017, we had accrued interest payable of $497,278.
- 22 -
Convertible notes issued
During the year ended February 28, 2017, we refinanced $35,100 of non-interest bearing advances into a convertible note. All principal and accrued interest is payable on the maturity date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued |
| Maturity |
| Interest Rate |
| Conversion |
| Amount |
| Original Issue Discount |
| Beneficial Conversion Feature |
| ||||
May 31, 2016 |
| May 31, 2017 |
| 10% |
| $ | 0.30 |
| $ | 35,100 |
| $ | — |
| $ | 35,100 |
|
Total |
|
|
|
|
|
|
|
| $ | 35,100 |
| $ | 0 |
| $ | 35,100 |
|
During the year ended February 29, 2016, we refinanced $522,048 of non-interest bearing advances into a convertible note. All principal and accrued interest is payable on the maturity date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issued |
| Maturity |
| Interest Rate |
| Conversion Rate per Share |
| Amount of Note |
| Original Issue Discount |
| Beneficial Conversion Feature |
| |||||
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 (1) |
|
| 46,000 |
|
| 6,000 |
|
| — |
| |
February 29, 2016 |
| February 28, 2019 |
| 10% |
|
| 60% discount (2) |
|
| 95,245 |
|
| — |
|
| 95,245 |
| |
Total |
|
|
|
|
|
|
|
| $ | 568,048 |
| $ | 6,000 |
| $ | 522,048 |
| |
_________ | ||||||||||||||||||
(1) | This note is convertible beginning six months after the date of issuance at 49% discount to the lowest trading price over the preceding 20 trading days | |||||||||||||||||
|
| |||||||||||||||||
(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. | |||||||||||||||||
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. The convertible note payable dated February 3, 2016 is not convertible until six months after the date of issuance; therefore, it is not considered a derivative until August 3, 2016. The convertible note payable dated February 29, 2016 has a minimum conversion price of $0.01 per share and does not meet the definition of a derivative. 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, during the years ended February 28, 2017 and February 29, 2016, we recognized a discount for the beneficial conversion features of $35,100 and $522,048, respectively and in aggregate, on the date the notes were signed. 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 year ended February 28, 2017 and 2016, we amortized discount on convertible notes payable of $603,957 and $481,220, respectively, to interest expense.
- 23 -
Conversions to common stock
During year ended February 28, 2017, the holders of certain Convertible Note Payable elected to convert principal and accrued interest in the amounts shown below into shares of common stock. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion |
| Principal |
| Interest |
| Total Amount |
| Shares |
| |||
Date |
| Converted |
| Converted |
| Converted |
| Converted |
| |||
March 1, 2016 |
| $ | 1,471 |
| $ | 429 |
| $ | 1,900 |
| 190,000 |
|
August 8, 2016 |
|
| 9,870 |
|
| — |
|
| 9,870 |
| 175,000 |
|
August 26, 2016 |
|
| 9,425 |
|
| — |
|
| 9,425 |
| 264,000 |
|
September 8, 2016 |
|
| 6,000 |
|
| 3 |
|
| 6,003 |
| 193,633 |
|
September 9, 2016 |
|
| 7,268 |
|
| — |
|
| 7,268 |
| 285,000 |
|
September 22, 2016 |
|
| 3,065 |
|
| — |
|
| 3,065 |
| 299,000 |
|
September 29, 2016 |
|
| 1,550 |
|
| 8 |
|
| 1,558 |
| 259,635 |
|
September 29, 2016 |
|
| 1,928 |
|
| — |
|
| 1,928 |
| 315,000 |
|
October 7, 2016 |
|
| 973 |
|
| — |
|
| 973 |
| 360,000 |
|
October 10, 2016 |
|
| 1,700 |
|
| 13 |
|
| 1,713 |
| 339,142 |
|
November 7, 2016 |
|
| 1,870 |
|
| 25 |
|
| 1,895 |
| 715,249 |
|
November 23, 2016 |
|
| 2,110 |
|
| 36 |
|
| 2,146 |
| 715,356 |
|
December 2, 2016 |
|
| 2,930 |
|
| 56 |
|
| 2,986 |
| 891,304 |
|
December 19, 2016 |
|
| 3,620 |
|
| 82 |
|
| 3,702 |
| 892,173 |
|
December 28, 2016 |
|
| 2,605 |
|
| 65 |
|
| 2,670 |
| 1,067,808 |
|
January 5, 2017 |
|
| 580 |
|
| — |
|
| 580 |
| 580,000 |
|
January 24, 2017 |
|
| 1,865 |
|
| 57 |
|
| 1,922 |
| 1,130,723 |
|
January 25, 2017 |
|
| 1,077 |
|
| — |
|
| 1,077 |
| 621,000 |
|
January 27, 2017 |
|
| 750 |
|
| 24 |
|
| 774 |
| 455,005 |
|
January 30, 2017 |
|
| 600 |
|
| — |
|
| 600 |
| 600,000 |
|
February 7, 2017 |
|
| 1,630 |
|
| — |
|
| 1,630 |
| 761,000 |
|
February 13, 2017 |
|
| 1,711 |
|
| — |
|
| 1,711 |
| 799,000 |
|
February 22, 2017 |
|
| 1,754 |
|
| — |
|
| 1,754 |
| 839,000 |
|
Total |
| $ | 66,352 |
| $ | 798 |
| $ | 67,150 |
| 12,748,028 |
|
- 24 -
During year ended February 29, 2016, the holders of certain Convertible Note Payable elected to convert principal and accrued interest in the amounts shown below into shares of common stock. 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 | |
April 22, 2015 |
| $ | 500 |
| 50,000 |
April 23, 2015 |
|
| 500 |
| 50,000 |
May 20, 2015 |
|
| 1,650 |
| 165,000 |
May 21, 2015 |
|
| 250 |
| 25,000 |
June 11, 2015 |
|
| 600 |
| 60,000 |
June 19, 2015 |
|
| 400 |
| 40,000 |
July 1, 2015 |
|
| 1,200 |
| 120,000 |
July 10, 2015 |
|
| 450 |
| 45,000 |
July 16, 2015 |
|
| 940 |
| 94,000 |
July 17, 2015 |
|
| 950 |
| 95,000 |
August 3, 2015 |
|
| 1,450 |
| 145,000 |
August 5, 2015 |
|
| 1,670 |
| 167,000 |
August 10, 2015 |
|
| 1,930 |
| 193,000 |
August 13, 2015 |
|
| 1,000 |
| 100,000 |
August 24, 2015 |
|
| 540 |
| 54,000 |
August 25, 2015 |
|
| 800 |
| 80,000 |
September 11, 2015 |
|
| 1,200 |
| 120,000 |
September 17, 2015 |
|
| 875 |
| 87,500 |
September 24, 2015 |
|
| 1,720 |
| 172,000 |
September 29, 2015 |
|
| 600 |
| 60,000 |
October 2, 2015 |
|
| 1,290 |
| 129,000 |
October 14, 2015 |
|
| 1,020 |
| 102,000 |
October 16, 2015 |
|
| 3,014 |
| 301,400 |
December 22, 2015 |
|
| 3,010 |
| 301,000 |
January 7, 2016 |
|
| 800 |
| 80,000 |
January 18, 2016 |
|
| 1,493 |
| 149,300 |
February 17, 2016 |
|
| 1,530 |
| 153,000 |
Total |
| $ | 31,382 |
| 3,138,200 |
- 25 -
Note 7. Fixed Assets
Racecar Lease
On February 29, 2016, we came to a mutual agreement with our vendor to discontinue the lease on our racecar. We had originally leased the racecar on May 1, 2014. The lease called for 60 monthly payments of $680. Upon disposal of the racecar, we recognized a gain on the disposal of $1,808.
Tri-axel Trailers
On August 14, 2014, we purchased ten 53-foot tri-axle trailers for $60,000 to be used in its specialty transportation segment. We paid a $15,000 down payment and have paid an additional $15,000 toward this purchase. The remaining $30,000 is included in accounts payable as of February 28, 2015.
On August 14, 2014, we purchased ten 53-foot tri-axle trailers for $60,000 to be used in our specialty transportation segment. As of February 29, 2016, we determined that the value of the trailers was impaired and recognized loss on impairment of $41,458. We have paid $30,000 toward this purchase. The remaining $30,000 is included in accounts payable as of February 29, 2016 and subsequently realized as a gain when the debt was forgiven on August 17, 2016.
Delivery Van Lease
On December 23, 2015, we agreed to lease for a delivery van, beginning January 10, 2015. The lease agreements stipulated 36 monthly payments of $350. The lease for the delivery van meets the accounting criteria for a capital lease covering over 75% of the economic life of the asset.
Upon the start of the lease, we determined that the present value of minimum lease payments exceeded the fair market value, and we recorded the delivery van asset at $3,921 and recognized an impairment expense of $7,844. During the year ended February 28, 2017, this lease was terminated by mutual agreement of the parties and we recognized a gain of $5,789.
Depreciation
Depreciation on the leased vehicle is provided on the straight-line method over the five-year term of the lease. Depreciation of the trailers is calculated on the straight-line method over the estimated useful lives of five years. The Company recognized depreciation expense of $767 and $18,583 during the years ended February 28, 2017 and February 29, 2016, respectively.
Note 8. Capital Lease Obligations
|
|
|
|
|
|
|
|
| February 28, 2017 |
| February 29, 2016 | ||
Capital lease – race car, interest at 10%, payments of $680 per month, term 5 years |
| $ | — |
| $ | 11,153 |
Capital lease – delivery van, interest at 4.5%, payments of $350 per month, term 3 years. |
|
| — |
|
| — |
|
|
|
|
|
|
|
Less: current portion of capital lease obligations |
|
| — |
|
| 3,775 |
|
| $ | — |
| $ | 7,378 |
Note 9. Debt Payment Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ending February 28, |
| ||||||||||||||||
|
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Total |
| ||||||
Convertible notes |
| $ | 1,630,154 |
| $ | 365,036 |
| $ | 35,100 |
| $ | — |
| $ | — |
| $ | 2,030,290 |
|
Note payable - related party |
| $ | 85,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 85,000 |
|
Note payable |
| $ | 50,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 50,000 |
|
- 26 -
Note 10. Derivative Liabilities
On July 18, 2016, we issued a convertible promissory note with embedded variable price conversion options and reset provision that is determined to be derivative instrument (see Note 6). We recognized a derivative liability of $19,894, which was recorded as a $7,000 discount to the note and a loss on derivative instruments of $12,894.
The same note required us to issue 900,000 warrants, which are also valued as a derivative instrument. Therefore, we recognized a derivative liability $117,058. This was recorded as a $117,058 loss on derivative instruments.
The embedded derivative in the July 18, 2016 convertible note tainted our outstanding convertible notes issues prior to that period and during the remaining period ended February 28, 2017. We calculated a $47,967,909 derivative liability related to those notes, which we reclassified from additional paid-in capital.
During the year ended February 28, 2017, we released $122,547 of our derivative liability to equity due to conversions of principal on the associated notes.
On February 28, 2017, we revalued the fair value all of our derivative instruments and determined that we had total derivative liabilities of $12,938,795. During the year ended February 28, 2017, we recognized gain on derivative of $34,966,067.
The Company estimated the fair value of the derivative liabilities using the Black-Scholes option pricing model using the following key assumptions during the year ended February 28, 2017:
|
|
| |
|
| ||
|
|
| |
|
|
|
The following fair value hierarchy table presents information about the Company’s financial liabilities measured at fair value on a recurring basis as of February 28, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) |
| Balance at February 28, 2017 |
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
| — |
|
| — |
|
| 12,938,795 |
|
| 12,938,795 |
|
Total liabilities |
| $ | — |
| $ | — |
| $ | 12,938,795 |
| $ | 12,938,795 |
|
Note 11. Stockholders’ Equity
Conversion of convertible notes payable
During the year ended February 29, 2016, we issued 1,684,467 shares of common stock to Panama iPhone Corp., a significant shareholder in the Company, upon conversion of principal and accrued interest on a convertible note payable of $168,447. See Note 6.
During the year ended February 29, 2016, we issued 3,138,200 shares of common stock upon the conversion of principal and accrued interest on a convertible note for $31,382. During the year ended February 28, 2017, we issued 12,748,028 shares of common stock upon the conversion of principal and accrued interest on a convertible note for $67,150. See Note 6.
Common stock issued for Services
On February 18, 2016 we issued 10,556 shares of common stock as a finder’s fee for the convertible promissory note issued February 3, 2016. The shares were valued at $4,592 based on the fair market value of the stock on the date it was issued. We recognized a expense of finder’s fee of $4,592.
- 27 -
Preferred Stock
Series E Preferred Stock
The board of directors has designated 4,350,000 shares of Series E preferred stock. As of the date of this report, there are 1,000,000 shares of Series E preferred stock outstanding. The Series E preferred stock ranks subordinate to the Company’s common stock. The Series E preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. 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 common stock. As a result, the holder of Series E preferred stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.
Series F Preferred Stock
The board of directors has designated 4,350 shares of Series F convertible preferred stock with a face value of $1.00 per share. As of the date of this report, there are 1,000 shares of Series F convertible preferred stock outstanding. The Series F convertible preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. The holder may, at any time and from time to time convert all, but not less than all of its shares of Series F convertible preferred stock into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45). The original designation was 2.22 conversion rate and was subsequently amended to 3.45. So long as any Series F convertible preferred stock are outstanding, the Company shall not, without first obtaining the approval of the majority of the holders: (a) alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series F convertible preferred stock; (b) create any Senior Securities; (c) create any pari passu Securities; (d) do any act or thing not authorized or contemplated by the Certificate of Designation which would result in any taxation with respect to the Series F convertible preferred stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended, (or otherwise suffer to exist any such taxation as a result thereof).
Series G Preferred Stock
The board of directors has designated 1,000 shares of Series G preferred stock. As of the date of this report, there are no shares of Series G preferred stock outstanding. The Series G preferred stock is does not have voting rights, does not have rights upon liquidation of the Company and does not receive dividends.
Note 12. Income Taxes
There is no current or deferred income tax expense or benefit for the period ended February 28, 2017 and February 29, 2016.
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference for the years ended February 28, 2017 and February 29, 2016 are as follows.
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Tax benefit at U.S. statutory rate |
| $ | 1,232,074 |
| $ | 443,784 |
|
Valuation allowance |
|
| (1,232,074 | ) |
| (443,784 | ) |
|
| $ | — |
| $ | — |
|
The Company has not recognized an income tax benefit for the period based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefit for the current period presented is offset by a valuation allowance (100%) established against deferred tax assets arising from operating losses and other temporary differences, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not.
The tax returns for fiscal years 2011 through 2017 are still open for review by the Internal Revenue Service.
As of February 28, 2017, the Company had United States net operating loss carryforwards (“NOLs”) of approximately $3,520,000 which begin to expire in 2023. These NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an ownership change as defined in Section 382. We may be found to have experienced an ownership change under Section 382 as a result of events in the past or the issuance of shares of common stock upon a conversion of notes. If so, the use of our NOLs against our future taxable income may be subject to an annual limitation under Section 382.
- 28 -
Note 13. Commitments and Contingencies
Litigation
On October 12, 2015, we received notice that the Company had been sued in the United States District Court for the Central District of California. The plaintiff alleges that we obtained certain trade secrets through a third party also named in the suit. The case was dismissed in December 2015 for lack of jurisdiction.
In February 2016, we received notice that the Company had been sued in the Clark County District Court of Nevada. The plaintiff alleges that we obtained certain trade secrets through a third party also named in the suit. We believe the suit is without merit and intend to vigorously defend it. We have not accrued any liability for this lawsuit as we believe that the likelihood of an unfavorable outcome is remote.
Note 14. Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is similarly calculated except that the common shares outstanding for the period is increased to reflect the potential dilution that could occur if outstanding warrants and convertible debt were exercised and stock awards were vested at the end of the applicable period. Anti-dilutive shares represent potentially dilutive securities that are excluded from the computation of diluted income or loss per share as their impact would be anti-dilutive.
The following is a calculation of basic and diluted weighted-average shares outstanding:
|
|
|
|
|
|
|
| Year Ended February 28, | |||
|
| 2017 |
| 2016 | |
Weighted-average shares - basic |
| 7,580,137 |
| 2,881,703 | |
Dilution effect of potentially issuable shares related to convertible notes payable at end of period |
| 492,480,090 |
| — | |
Dilution effect of warrants at end of period |
| 900,000 |
| — | |
Weighted-average shares – diluted |
| 493,380,090 |
| 2,881,703 | |
Note 15. Subsequent Events
On March 1, 2017, we issued a Convertible Promissory Note with a face value of $75,000 for cash proceeds of $71,250. The note is secured and bears interest at 8% per year. It is payable along with interest on November 1, 2017. This is the initial note and funded and there is another back end note dated March 1, 2017 but not funded yet.
On March 8, 2017, we issued a Convertible Promissory Note with a face value of $100,000 for cash proceeds of $42,500 for the first tranche. The note is unsecured and bears interest at 8% per year. It is payable along with interest on March 8, 2018. The note is convertible beginning six months after the date of issuance at a 40% discount to the lowest trading price during the 20-day period prior to conversion.
On March 21, 2017, we issued a Convertible Promissory Note with a face value of $40,000 for cash proceeds of $38,000. The note is unsecured and bears interest at 8% per year. It is payable along with interest on March 21, 2018. The note is convertible beginning six months after the date of issuance at a 40% discount to the lowest trading price during the 20-day period prior to conversion. This is the initial note and funded and there is another back end note dated March 1, 2017 but not funded yet.
On April 4, 2017, we issued a Convertible Promissory Note with a face value of $33,000 for cash proceeds of $30,000. The note is unsecured and bears interest at 10% per year. It is payable along with interest on December 4, 2017. The note is convertible beginning six months after the date of issuance at a 40% discount to the lowest trading price during the 20-day period prior to conversion.
On April 19, 2017, we issued a Convertible Promissory Note with a face value of $96,250 for cash proceeds of $70,000. The note is unsecured and bears interest at 15% per year. It is payable along with interest on April 19, 2018. The note is convertible beginning six months after the date of issuance at a 50% discount to the lowest trading price during the 30-day period prior to conversion.
On April 20, 2017, we issued a Convertible Promissory Note with a face value of $28,000 for cash proceeds of $25,000. The note is unsecured and bears interest at 8% per year. It is payable along with interest on January 30, 2018. The note is convertible beginning six months after the date of issuance at a 40% discount to the lowest trading price during the 20-day period prior to conversion.
- 29 -
On April 26, 2017, we entered into a non-interest bearing convertible debenture agreement for principal amount of $50,000, due on April 26, 2018. The conversion price is at $0.001 per share. The note is due on demand and payable in cash upon default.
On May 4, 2017, we issued a Convertible Promissory Note with a face value of $150,000 for cash proceeds of $142,500. The note is unsecured and bears interest at 8% per year. It is payable along with interest on May 4, 2018. The note is convertible beginning six months after the date of issuance at a 40% discount to the lowest trading price during the 20-day period prior to conversion.
On June 7, 2017, we issued a Convertible Promissory Note with a face value of $200,000 for cash proceeds of $190,000. The note is unsecured and bears interest at 8% per year. It is payable along with interest on February 7, 2018. The note is convertible beginning six months after the date of issuance at a 40% discount to the lowest trading price during the 20-day period prior to conversion. This is the initial note and funded and there is another back end note dated March 1, 2017 but not funded yet.
On March 13, 2017, we loaned $100,000 under a promissory note with principal due on April 13, 2017. The note and interest are secured by the company’s assets at an interest rate of 1.5%. the note has not been paid as of June 15, 2017 but is accrueing interest.
On April 27, 2017, we loaned Robotic Assitance Devices, LLC $50,000 under two entered two promissory notes of $25,000 each principal.. The note is due on August 27, 2017 and is not interest bearing.
On May 11, 2017, we loaned Robotic Assistance Devices, LLC $100,000 principal under a promissory note. The note is due on August 22, 2017 and is not interest bearing.
On June 8, 2017, we loaned Robotic Assistance Devices, LLC $150,000 principal under a promissory note. The note is due on August 22, 2017 and is not interest bearing.
On May 17, 2017, The Company exchanged its $50,000 promissory note into an $85,000 convertible note with $35,000 OID. The convertible note bears interest at 10% per annum and is convertible from 1/15/2018 to 5/17/2020 at 50% of the lowest closing price for 5 days prior to conversion. There is no consideration for the modification of the promissory note into the convertible note
On May 11, 2017 the Company entered into a binding letter of intent with Robotic Assistance Devices which both parties agreed that OMVS shall purchase the whole equity of RAD with 3,350,000 shares of Series E preferred stock and 2,450 shares of Series F preferred stock.
On May 11, 2017, The Company amended the designation of Series E Preferred stock that the number of authorized shares shall be 4,350,000. The Company also amended the designation of Series F preferred stock that the number of authorized shares shall be 3,450 which face amount of $1.00 per share and all Series F PS can be converted into the Company’s common shares by multiplying the number of outstanding CS on the date of conversion by 3.45.
On May 11, 2017, the Company announced that it has entered into a binding letter of intent with Robotic Assistance Devices (RAD - www.roboticassistancedevices.com) to acquire 100% of RAD. According to the binding LOI, RAD and OMVS will enter into a definitive agreement within the next 90 days to consummate the acquisition.
RAD is specialized in the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs. RAD is initially targeting the security industry, which uses electronic systems, and approximately 1.1 million security guards in the US. The RAD robot security guard solution combines the best of both solutions to provide superior security at a price that delivers to its clients an immediate ROI.
Conversions to common stock
During the period from March 1, 2017 through the date of issuance of this report, the Company issued 26,134,960for the conversion of principal of $81,565 and interest of $6456.
- 30 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in AccountsOn February 19, 2018, our Board of Directors approved and ratified the engagement of GBH CPAs, PC (“GBH”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended February 28, 2018, effective immediately, and dismissed Friedman, LLP (“Friedman”) as the Company’s independent registered public accounting firm.
None.From September 25, 2017 to February 19, 2018, there were (i) no disagreements (as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Friedman on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
Disagreements with Accountants- 23 -
Prior to the appointment of GBH, on September 25, 2017, our Board of Directors approved and ratified the engagement of Friedman LLP (“Friedman”) as our independent registered public accounting firm for the Company’s fiscal year ending February 28, 2018, effective immediately, and dismissed MaloneBailey, LLP (“MaloneBailey”) as our independent registered public accounting firm.
ThereMaloneBailey’s audit report on OMVS’ consolidated financial statements as of and for the fiscal year ended February 28, 2017, did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, other than an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern.
During the two months ended February 28, 2017, and the subsequent interim periods through September 25, 2017, there were (i) no disagreements with accountants(as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and MaloneBailey on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to MaloneBailey’s satisfaction, would have caused MaloneBailey to make reference thereto in their report on the financial statements for such year, and financial disclosures for(ii) no “reportable events” within the yearsmeaning of Item 304(a)(1)(v) of Regulation S- K.
During the two months ended February 29, 201628, 2017, and 2015.the subsequent interim periods through September 25, 2017, neither the Company nor anyone acting on its behalf has consulted with Friedman regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements or the effectiveness of internal control over financial reporting, and neither a written report or oral advice was provided to the Company that Friedman concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
WeAs of February 28, 2018, 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)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report,February 28, 2018, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed 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.
Limitations on Systems of Controls
Our management, including our principal executive officer and principal financial officer, 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. To address the material weaknesses identified in our evaluation, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’sCompany’s principal executive and principal financial officers and effected by the company’sCompany’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
- 24 -
• | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the |
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• | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
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• | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. |
- 31 -
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of February 28, 2017,2018, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of USU.S. GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: lack of a functioning audit committee; lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; inadequate segregation of duties consistent with control objectives; and, management is dominated by a single individual. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of February 28, 20172018.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
No changes were made to our internal control over financial reporting during the quarter ended February 28, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
- 25 -
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report. Our sole officerdirectors serve for one year and director will serve until a successor istheir successors are elected and qualified. Our officers are elected by the board of directors to a term of one (1) year and serve until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.
The name, address, age and position of our president, secretary/treasurer, and director and vice president is set forth below:
Name |
| Age |
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Garett Parsons
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| 34 |
| President, Chief Executive Officer, Chief Financial Officer |
Biographical information concerning our director and executive officer listed above is set forth below.
Garett Parsons.Mr. Parsons was appointedhas served as CEOour President, Chief Executive Officer, Chief Financial Officer and a member of theour board of directors onsince February 16, 2017.
Biographies
Mr. Parsons hasover 10 years of financial consulting for both private and public equity markets,markets. Mr. Parsons has muchextensive experience in the field of asset valuation, funding structures and public release document generation. His education includes a Bachelor of Arts in Political Science/Economics from California State University Sacramento Sacramento, Ca. and an Associate of Arts in Liberal Studies/ Business San Joaquin Delta College and West Hills College, Stockton/ Coalinga Ca.
- 32 -
Family RelationshipsCollege.
There are no family relationships among our directors,between any of the executive officers or persons nominated to become executive officers orand directors.
Involvement in Certain Legal Proceedings
During the past ten (10)10 years, none of our directors, persons nominated to become directors, executive officers, promoters or control personsMr. Parsons was involved in any of the legal proceedings listenlisted in Item 401 (f)401(f) of Regulation S-K.
Arrangements
There are no arrangements or understandings between an executive officer, director or nomineeMr. Parsons and any other person pursuant to which he was or is to be selected as an executive officer or director.
Board Committees of the Board of Directorsand Director Independence
OurAs Mr. Parsons serves as our sole director, haswe do not established any committees, including an Audit Committee,have a Compensation Committee,separately designated audit committee, compensation committee or a Nominating Committee, any committee performing a similar function.nominating and corporate governance committee. The functions of those committees are being undertaken by our sole director. Because we do not have any independent directors and have only one director, our sole director believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.
We currently do not have a policy regardingany non-employee or independent directors, as such term is defined in the considerationlisting standards of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifyingThe NASDAQ Stock Market, and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendationappointing additional directors in the near future.
While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.
Our sole director is not an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:
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Our Board of Directors is comprised of solely of Mr. Wilson who is involved in our day-to-day operations. We would prefer to have an audit committee financial expert on our board of directors. As with most small, early stage companies until such time our company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officer’s insurance, the Company does not have any immediate prospects to attract independent directors. When the Company is able to expand our Board of Directors to include one or more independent directors, the Company intends to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent, and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
- 33 -Procedures for Nominating Directors
There have been no material changes to the procedures by which security holders may recommend nominees to the Board since the most recently completed fiscal quarter. We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future.
WE DO NOT HAVE ANY INDEPENDENT DIRECTORS AND THE COMPANY HAS NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST, AND SIMILAR MATTERS.While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.
- 26 -
Director Qualifications
Mr. Parsons was appointed to our board in February 2017. Mr. Parsons has significant operational experience in our industry and brings both a practical understanding of the industry and as well as hands-on experience in our business sector to our board and a greater understanding of certain of the challenges we face in executing our growth strategy.
Code of Ethics and Business Conduct and Ethics
We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic.
ITEM 11. EXECUTIVE COMPENSATION
Mr. Parsons is paid $24,000 per year for his services to the company. He does not have a written employment agreement with the company.
The table below summarizes all compensation awards to, earned by, or paid to our named executive officer for all service rendered in all capacities to us for the fiscal years ended February 28, 2017 and 2016.
SUMMARY COMPENSATION TABLE
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Name and Principal Position |
| Fiscal Year |
| Salary ($) |
| Bonus ($) |
| Stock Awards ($) |
| Option Awards ($) |
| Non-Equity Incentive Plan Compensation ($) |
| Nonqualified Deferred Compensation ($) |
| All Other Compensation ($) |
| Total |
Garett Parsons |
| 2017 |
| 2,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,000 |
Chief Executive |
| 2016 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Officer |
| 2015 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
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Robert Wilson |
| 2017 |
| 120,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| 120,000 |
Former Chief |
| 2016 |
| 108,461 |
| — |
| — |
| — |
| — |
| — |
| — |
| 108,461 |
Executive Officer |
| 2015 |
| 130,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| 130,000 |
OUTSTANDING EQUITY AWARDS AT FEBRUARY 28, 2017
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- 34 -
Employment Agreements & Retirement Benefits
None of our executive officers is subject to employment agreements, but we may enter into such agreements with them in the future. We have no plans providing for the payment of any retirement benefits.ethics.
Director Compensation
DirectorsMr. Parsons, our sole director, does not receive noany additional compensation for serving on the Board. We have no non-employee directors.
Our Board of Directors is comprised of Garett Parsons. Mr. Parsons also serveshis services as the CEO of the Company. None of our directors has or had a compensation arrangement with the Company for director services, nor have any of them been compensated for director services since the Company’s inception.
director. We reimburse our directors for all reasonable ordinary and necessary business relatedbusiness-related expenses, but we did not pay director’s fees or other cash compensation for services rendered as a director induring the year ended February 29,28, 2018 or the two months ended February 28, 2017 to any of the individuals serving on our Board during that period. We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. We may pay fees for services rendered as a director when and if additional directors are appointed to the Board of Directors.
Director IndependenceCompliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation recorded by us in the past two fiscal years for Mr. Parsons, our President, Chief Executive Officer and Chief Financial Officer and Mr. Wilson, our former Chief Executive Officer.
2018 SUMMARY COMPENSATION TABLE
Name and Principal Position |
| Year |
| Salary |
| Bonus |
| Stock |
| Option |
| Non-Equity |
| Non-Qualified |
| All Other |
| Total |
Garett Parsons, |
| 2018 |
| 69,768 |
| — |
| — |
| — |
| — |
| — |
| — |
| 69,768 |
President, Chief Executive Officer and Chief Financial Officer (1) |
| 2017 |
| 2,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,000 |
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Robert Wilson, |
| 2018 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Former Chief Executive Officer (2) |
| 2017 |
| 120,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| 120,000 |
__________
(1) | Mr. Parsons was appointed President, Chief Executive Officer and Chief Financial Officer on February 16, 2017. |
(2) | Mr. Wilson ceased to be an executive officer on February 16, 2017. |
Employment Agreements
We doare not currently have any independent directors and we do not anticipate appointing additional directorsa party to an employment agreement with Mr. Parsons, our sole executive officer. We may enter into an employment agreement with Mr. Parsons in the foreseeable future. If we engage further directors and officers, however, we plan to develop a definitionfuture, however. We have no plans providing for the payment of independence.any retirement benefits.
- 27 -
Outstanding Equity Awards at 2018 Fiscal Year-End
The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for Mr. Parsons, our sole executive officer outstanding as of February 28, 2018:
OPTION AWARDS |
| STOCK AWARDS |
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Name |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
| Number of Securities Underlying Unexercised Options (#) Unexercisable |
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
| Option Exercise Price |
| Option Expiration Date |
| Number of Shares or Units of Stock That Have Not Vested (#) |
| Market Value of Shares or Units of Stock That Have Not Vested ($) |
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
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Garett Parsons |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
We do not currently have aAt February 28, 2018, OMVS had 125,004,554 shares of its common stock option plan in favor of any director, officer, consultant, or employee of our company. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to our sole directorissued and officer since our inception; accordingly, no stock options have been granted or exercised by our sole director and officer since we were founded.
outstanding. The following table sets forth certain information as of June 9, 2017, with respect toregarding the beneficial ownership of our common stock by as of February 28, 2018, and reflects:
● | each of our executive officers; |
● | each of our directors; |
● | all of our directors and executive officers as a group; and |
● | each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock. |
Information on beneficial ownership of securities is based upon a record list of our stockholders and we have determined beneficial ownership in accordance with the rules of the outstanding shares of common stock ofSEC. We believe, based on the Company, each director, each executive officerinformation furnished to us, that the persons and entities named in the “Summary Compensation Table” and all executive officers and directors of the Company as a group, and sets forth the number of shares of common stock owned by each such person and group. Unless otherwise indicated, the ownerstable below have sole voting and investment power with respect to their respective shares.all shares of common stock that they beneficially own, subject to applicable community property laws, except as otherwise provided below.
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Name of Beneficial Owner |
| Number of Shares Beneficially Owned |
| Percentage of Outstanding Common Stock Owned | |
Panama iPhone Corp. |
| 1,684,467 |
| 34.4 | % |
San Francisco, 65 East Street, House No. 35 |
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Panama City, Panama |
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Robert Wilson, former CEO |
| — |
| 0.0 | % |
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Garett Parsons, CEO * |
| — |
| 0.0 | % |
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All directors and executive officers as a group (1) person. |
| — |
| 0.0 | % |
Name |
| Amount and Nature of Beneficial Ownership (1) |
| Percent of |
Named Executive Officers and Directors: |
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Garett Parsons (3) |
| 125,004,554 |
| 22.47% |
Robert Wilson (4) |
| — |
| 0.0% |
All executive officers and directors as a group (1 persons) |
| 125,004,554 |
| 22.47% |
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5% Stockholders: |
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Steve Reinharz (5) |
| 306,261,157 |
| 55.06% |
23121 La Cadena Suite B/C, |
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__________
(1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this table. In determining the percent of common stock owned by a person or entity as of the date of this Report, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on as of the date of this Report 125,004,554 shares, and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the derivative securities. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares. |
Mr. Parsons owns 1,000,000 shares of our Series E Preferred Stock and 1,000 shares of our Series F Preferred Stock.- 28 -
(2) | Based on 125,004,554 shares of the Company’s common stock issued and outstanding as of the date of this report. |
(3) | Mr. Wilson ceased to be an officer and director in February 2017 and sold his shares in the market to unrelated parties. |
(4) | Mr. Parsons is the Company’s President, Chief Executive Officer and Chief Financial Officer and owns 1,000,000 shares of our Series E Preferred Stock and 1,000 shares of our Series F Preferred Stock. If Mr. Parsons converted the 1,000 shares of the Company’s Series F Preferred stock, he would receive 431,265,711 shares of the Company’s common stock, which is included in the chart above as if such conversion has occurred. Further, 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 common stock. As a result, the holder of Series E preferred stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders. |
(5) | Steve Reinharz is the CEO of RAD and is the holder of (i) 3,350,000 shares of our Series E Preferred Stock and, (ii) 2,450 shares of our Series F Convertible Preferred Stock. If Mr. Reinharz converted the 2,450 shares of the Company’s Series F Convertible Preferred Stock, he would receive 306,261,157 shares of the Company’s common stock, which is included in the chart above as if such conversion has occurred. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
None.We do not have a written policy for the review, approval or ratification of transactions with related parties or conflicted transactions. When such transactions arise, they are referred to our board of directors for its consideration.
- 35 -The sole shareholder and owner of RAD loaned RAD certain funds to pay for RAD’s expenses. The loans are non-interest bearing and unsecured, with no specific terms of repayment or collateral. For the year ended February 28, 2018, the Company received net advances of $219,613 from its loan payable to a related party. At February 28, 2018 and 2017, the balance due to the related party was $316,142, and $62,529, respectively.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
On September 25, 2017, our Board of Directors approved and ratified the engagement of GBH CPAs, PC (“GBH CPAs”) as our independent registered public accounting firm for the Company’s fiscal year ending February 28, 2018, effective immediately, and dismissed MaloneBailey as the Company’s independent registered public accounting firm.
The following table summarizeshows the fees that were billed tofor the Companyaudit and other services provided by its independent accountants, MaloneBailey LLP, and its former independent accountants, GBH CPAs PC, for the fiscal years ended February 28, 20172018 and February 29, 2016:2017.
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| 2017 |
| 2016 | ||
Audit Fees |
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Paid to MaloneBailey, LLP |
| $ | 30,000 |
| $ | 18,000 |
Paid to GBH CPAs, PC |
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| 1,525 |
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Audit Related Fees (1) |
| $ | — |
| $ | — |
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Tax Fees (2) |
| $ | — |
| $ | — |
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All Other Fees (3) |
| $ | — |
| $ | — |
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Total Fees |
| $ | 30,000 |
| $ | 19,525 |
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| 2018 |
| 2017 | ||
Audit Fees |
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MaloneBailey |
| $ | — |
| $ | 30,000 |
GBH CPAs |
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| 25,000 |
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| — |
Total Audit Fees |
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| 25,000 |
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| 30,000 |
Audit-Related Fees |
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| — |
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| — |
Tax Fees |
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| — |
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| — |
All Other Fees |
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| — |
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| — |
Total |
| $ | 25,000 |
| $ | 30,000 |
NotesAudit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the Accountants Fees Table:performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category would include consultation regarding correspondence with the SEC, other accounting consulting and other audit services.
- 29 - Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice. All Other Fees - This category consists of fees for other miscellaneous items. | |
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As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the services provided by MaloneBailey LLP; and GBH CPAs PC described above were approved by our Board.
The Company’s principal accountant did not engage any other persons or firms other than the principal accountant’s full-time, permanent employees.
- 36 -
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the Index to Financial Statements and Financial Statement Schedules on page F-1 and included on pages F-2 through F-22.
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
- 30 -
(3) Exhibits.
Exhibit No. | Description of Document | ||
2.1 | Stock Purchase Agreement, dated August 28, 2017, by and among the registrant, Steve Reinharz and Robotic Assistance Devices Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on August 31, 2017). | ||
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3.1 | Articles of Incorporation of the registrant filed with the Nevada Secretary of State on September 8, 2014. | ||
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3.2 |
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3.5 | Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017. (incorporated by reference to Exhibit 3.5 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | ||
3.6 | Amendment to Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the Commission on May 12, 2017). | ||
10.1 | Preferred Stock Purchase Agreement dated January 31, 2017 and entered into between the Company and Capital Venture Holdings LLC. (incorporated by reference to Exhibit 10.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | ||
14.1 | Code of Ethics (incorporated by reference to Exhibit 14.1 to the registrant’s registrant statement on Form S-1 (File No. 333-168530) , filed with the Commission on August 4, 2010). | ||
21.1 | |||
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31.1 | |||
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32.1 | |||
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| XBRL |
__________
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| |
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| XBRL Taxonomy Extension Schema ** |
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| |
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| XBRL Taxonomy Extension Calculation ** |
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| XBRL Taxonomy Extension Definition ** |
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| XBRL Taxonomy Extension Labels ** | |
101.PRE | XBRL Taxonomy Extension Presentation ** |
__________
* | Filed or furnished herewith. |
* | |
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- 31 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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Date: June |
| /s/ Garett Parsons |
| Garett Parsons | |
| President, Chief Executive Officer and Chief Financial Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Garett Parsons | President, Chief Executive Officer, Chief Financial Officer, | June 13, 2018 | ||
Garett Parsons |
- 3732 -
ON THE MOVE SYSTEMS CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets | F-3 |
Consolidated Statements of Operations | F-4 |
Consolidated Statement of Changes in Stockholders’ Deficit | F-5 |
Consolidated Statements of Cash Flows | F-6 |
Notes to the Consolidated Financial Statements | F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of
On The Move Systems Corp.
Reno, Nevada
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of On The Move Systems Corp. (the “Company”) as of February 28, 2018 and 2017, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended February 28, 2018 and for the two months ended February 28, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2018 and 2017, and the results of its operations and its cash flows for the year ended February 28, 2018 and for the two months ended February 28, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Other Matters
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
We have served as the Company’s auditor since 2018.
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
June 13, 2018
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
CONSOLIDATED BALANCE SHEETS
|
| February 28, 2018 |
| February 28, 2017 |
| ||
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
| $ | 24,773 |
| $ | 56,907 |
|
Accounts receivable |
|
| 28,000 |
|
| 7,778 |
|
Robot parts inventory |
|
| 316,113 |
|
| — |
|
Deposits on robots |
|
| — |
|
| 150,000 |
|
Prepaid expenses |
|
| 83,103 |
|
| — |
|
Note receivable |
|
| 40,000 |
|
| — |
|
Total current assets |
|
| 491,989 |
|
| 214,685 |
|
Revenue earning robots, net of accumulated depreciation of $0 and $3,544, respectively |
|
| — |
|
| 81,506 |
|
Fixed assets, net of accumulated depreciation of $36,632 and $2,650, respectively |
|
| 158,205 |
|
| 45,052 |
|
Intangible asset, net |
|
| 56,248 |
|
| — |
|
Security deposit |
|
| 30,141 |
|
| — |
|
Total assets |
| $ | 736,583 |
| $ | 341,243 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 487,243 |
| $ | 12,720 |
|
Advances payable |
|
| 1,594 |
|
| — |
|
Balance due on acquisition of WeSecure |
|
| 25,000 |
|
| — |
|
Customer deposits |
|
| 10,000 |
|
| 20,000 |
|
Current portion of convertible notes payable, net of discount of $3,418,636 and $0, respectively |
|
| 2,117,946 |
|
| — |
|
Loan payable - related party |
|
| 316,142 |
|
| 62,529 |
|
Vehicle loan - current portion |
|
| 17,830 |
|
| 7,900 |
|
Current portion of accrued interest payable |
|
| 694,592 |
|
| — |
|
Derivative liability |
|
| 31,113,844 |
|
| — |
|
Total current liabilities |
|
| 34,784,191 |
|
| 103,149 |
|
Convertible notes payable, net of discount of $505,039 and $0, respectively |
|
| 95,060 |
|
| 365,000 |
|
Accrued interest payable |
|
| 55,917 |
|
| — |
|
Vehicle loan |
|
| 64,332 |
|
| 38,134 |
|
Total liabilities |
|
| 34,999,500 |
|
| 506,283 |
|
|
|
|
|
|
|
|
|
Shareholders’ deficit: |
|
|
|
|
|
|
|
Preferred Stock, undesignated; 15,645,650 shares authorized; no shares issued and outstanding at August 31, 2017 and February 28, 2017, respectively |
|
| — |
|
| — |
|
Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 4,350,000 and 3,350,000 shares issued and outstanding ,respectively |
|
| 4,350 |
|
| 3,350 |
|
Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 3,450 and 2,450 shares issued and outstanding, respectively |
|
| 3,450 |
|
| 2,450 |
|
Common Stock, $0.001 par value; 480,000,000 shares authorized 124,004,554 and no shares issued and outstanding, respectively |
|
| 125,004 |
|
| — |
|
Additional paid-in capital |
|
| 1,108,308 |
|
| 13,857 |
|
Accumulated deficit |
|
| (35,504,029 | ) |
| (184,697 | ) |
Total shareholders’ deficit |
|
| (34,262,917 | ) |
| (165,040 | ) |
Total liabilities and shareholders’ deficit |
| $ | 736,583 |
| $ | 341,243 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Year Ended |
| Two Months Ended |
| Period from Inception |
| |||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 106,476 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
| 45,000 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 61,476 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 493,000 |
|
| 20,153 |
|
| 30,572 |
|
General and administrative |
|
| 2,391,664 |
|
| 54,856 |
|
| 49,349 |
|
Depreciation and amortization |
|
| 130,081 |
|
| 6,194 |
|
| — |
|
Loss on impairment of fixed assets |
|
| 563,556 |
|
| — |
|
| — |
|
Total operating expenses |
|
| 3,578,301 |
|
| 81,203 |
|
| 79,921 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (3,516,825 | ) |
| (81,203 | ) |
| (79,921 | ) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities |
|
| (9,495,321 | ) |
| — |
|
| — |
|
Interest expense |
|
| (12,411,883 | ) |
| (4,658 | ) |
| (1,183 | ) |
Gain on settlement of debt |
|
| 1,175,028 |
|
| — |
|
| — |
|
Other income |
|
| — |
|
| 1,926 |
|
| — |
|
Total other income (expense), net |
|
| (20,732,176 | ) |
| (2,732 | ) |
| (1,183 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (24,249,001 | ) | $ | (83,935 | ) | $ | (81,104 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic |
| $ | (0.39 | ) |
| NA |
|
| NA |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - diluted |
| $ | (0.39 | ) | $ | — |
|
| NA |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
|
| 61,578,290 |
|
| NA |
|
| NA |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - diluted (1) |
|
| 61,578,290 |
|
| 60,916,122 |
|
| NA |
|
__________
(1) | The weighted average number of common shares outstanding was computed by multiplying the number of common shares of OMVS outstanding as of February 28, 2017 by 3.45 based on the terms listed under the amended Certificate of Designation for OMVS’s Series F Convertible Preferred Stock. |
The accompanying notes are an integral part of these consolidated financial statements.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE YEAR ENDED FEBRUARY 28, 2018, THE TWO MONTHS ENDED FEBRUARY 28, 2017
AND THE PERIOD FROM INCEPTION (JULY 26, 2016) THROUGH DECEMBER 31, 2016
|
| Series E |
| Series FConvertible |
|
|
| Additional |
|
|
| Total |
| ||||||||||||
|
| Preferred Stock |
| Preferred Stock |
| Common Stock |
| Paid-In |
| Accumulated |
| Stockholders’ |
| ||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit |
| ||||||
Balance at Inception |
| 3,350,000 |
| $ | 3,350 |
| 2,450 |
| $ | 2,450 |
| — |
| $ | — |
| $ | — |
| $ | — |
| $ | 19,657 |
|
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (100,762 | ) |
| (100,762 | ) |
Balance at |
| 3,350,000 |
| $ | 3,350 |
| 2,450 |
| $ | 2,450 |
| — |
| $ | — |
| $ | 13,857 |
| $ | (100,762 | ) | $ | (81,105 | ) |
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (83,935 | ) |
| (83,935 | ) |
Balance at |
| 3,350,000 |
| $ | 3,350 |
| 2,450 |
| $ | 2,450 |
| — |
| $ | — |
| $ | 13,857 |
| $ | (184,697 | ) | $ | (165,040 | ) |
Common stock and preferred stock issued for recapitalization by RAD |
| 1,000,000 |
|
| 1,000 |
| 1,000 |
|
| 1,000 |
| 101,987,887 |
|
| 101,987 |
|
| 306,588 |
|
| (11,070,331 | ) |
| (10,659,756 | ) |
Common stock issued for debt conversion |
| — |
|
| — |
| — |
|
| — |
| 23,016,667 |
|
| 23,017 |
|
| 785,023 |
|
| — |
|
| 808,040 |
|
Stock based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 2,840 |
|
| — |
|
| 2,840 |
|
Net loss |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (24,249,001 | ) |
| (24,249,001 | ) |
Balance at |
| 4,350,000 |
| $ | 4,350 |
| 3,450 |
| $ | 3,450 |
| 125,004,554 |
| $ | 125,004 |
| $ | 1,108,308 |
| $ | (35,504,029 | ) | $ | (34,262,917 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Year Ended |
| Two Months Ended |
| Period from Inception |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (24,249,001 | ) | $ | (83,935 | ) | $ | (81,104 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 130,081 |
|
| 6,194 |
|
| — |
|
Stock-based compensation |
|
| 2,840 |
|
| — |
|
| — |
|
Loss on impairment of fixed assets |
|
| 563,556 |
|
| — |
|
| — |
|
Change in fair value of derivative liabilities |
|
| 9,495,321 |
|
| — |
|
| — |
|
Interest expense related to derivative liability in excess of face value of debt |
|
| 10,797,663 |
|
| — |
|
| — |
|
Amortization of debt discounts |
|
| 1,214,348 |
|
| — |
|
| — |
|
Gain on settlement of debt |
|
| (1,175,028 | ) |
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (20,222 | ) |
| (7,778 | ) |
| — |
|
Deposits on robots and other current assets |
|
| (424,363 | ) |
| (130,000 | ) |
| (20,000 | ) |
Robot parts inventory |
|
| (270,014 | ) |
| — |
|
| — |
|
Accounts payable and accrued expenses |
|
| 344,297 |
|
| (9,634 | ) |
| 42,355 |
|
Accrued interest payable |
|
| 291,292 |
|
| — |
|
| — |
|
Customer deposits |
|
| (10,000 | ) |
|
|
|
| — |
|
Net cash used in operating activities |
|
| (3,309,230 | ) |
| (225,153 | ) |
| (58,749 | ) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
| (228,371 | ) |
| (85,050 | ) |
| — |
|
Cash proceeds from the WeSecure transaction |
|
| 17,000 |
|
| — |
|
| — |
|
Cash paid for security deposit |
|
| (30,141 | ) |
| — |
|
| — |
|
Cash acquired in reverse recapitalization |
|
| 2,022 |
|
| — |
|
| — |
|
Net cash used in investing activities |
|
| (239,490 | ) |
| (85,050 | ) |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable, net |
|
| 2,558,345 |
|
| 315,000 |
|
| 50,000 |
|
Principal payment on convertible notes payable |
|
| (50,000 | ) |
| — |
|
| — |
|
Net borrowings on loan payable - related party |
|
| 219,613 |
|
| 3,842 |
|
| 58,687 |
|
Loan from OMVS to RAD prior to the reverse recapitalization |
|
| 752,500 |
|
| — |
|
| — |
|
Proceeds from vehicle loan |
|
| 47,661 |
|
| — |
|
| — |
|
Repayment of vehicle loan |
|
| (11,533 | ) |
| (1,328 | ) |
| (342 | ) |
Net cash provided by financing activities |
|
| 3,516,586 |
|
| 317,514 |
|
| 108,345 |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| (32,134 | ) |
| 7,311 |
|
| 49,596 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year |
|
| 56,907 |
|
| 49,596 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
| $ | 24,773 |
| $ | 56,907 |
| $ | 49,596 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash and non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 24,193 |
| $ | 1,058 |
| $ | 1,183 |
|
Cash paid for taxes |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
Transfer of robots from deposits to fixed assets and revenue earning robots |
| $ | 491,260 |
| $ | — |
| $ | — |
|
Vehicle purchased by loan |
| $ | — |
| $ | — |
| $ | 47,704 |
|
Debt discount from derivative liabilities |
| $ | 3,106,385 |
| $ | — |
| $ | — |
|
Conversion of convertible notes and interest to shares of common stock |
| $ | 808,040 |
| $ | — |
| $ | — |
|
Settlement and exchange of convertible notes payable |
| $ | 837,070 |
| $ | — |
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
On the Move Systems Corp. (“OMVS”) was incorporated in Florida on March 25, 2010 and reincorporated in Nevada on February 17, 2015.
Robotic Assistance Devices, LLC (“RAD”) was incorporated in the State of Nevada on July 26, 2016 as an LLC. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc. through the issuance of 10,000 common shares to its sole shareholder.
On August 28, 2017, OMVS completed the acquisition of RAD (the “Acquisition”), whereby OMVS acquired all the ownership and equity interest in RAD for 3,350,000 shares of OMVS Series E Preferred Stock and 2,450 shares of Series F Convertible Preferred Stock. OMVS’s prior business focus was transportation services, and OMVS was exploring the on-demand logistics market by developing a network of logistics partnerships. As a result of the closing of the Acquisition, OMVS has succeeded to the business of RAD, in which OMVS purchased all of the outstanding shares of capital stock of RAD. As a result, OMVS’s business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.
The Acquisition is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of OMVS’s operations were disposed of as part of the consummation of the transaction and therefore no goodwill or other intangible assets were recorded by the Company as a result of the Acquisition. RAD is treated as the accounting acquirer as its stockholders control the Company after the Acquisition, even though OMVS was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of RAD as if RAD had always been the reporting company.
On April 18, 2018 OMVS’ board of directors approved a name change to Artificial Intelligence Solutions Inc. As at the filing date of these financial statements, this change is not yet effective.
2. GOING CONERN
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 year ended February 28, 2018, the Company had negative cash flow from operating activities of $3,309,230. As of February 28, 2018, the Company has an accumulated deficit of $35,504,029 and negative working capital of $34,292,202. 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 for the twelve months following the issuance of these financial statements.
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.
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.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the instructions on Form 10-K and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Robotic Assistance Devices, Inc., On the Move Experience, LLC and OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements.
Cash
RAD considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments. RAD places its cash and cash equivalents with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances.
Accounts Receivable
Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances.
Robot Parts Inventory
Robot parts inventory is stated at the lower of cost or market using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these robot parts in the assembly of revenue earning robots and demo robots as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development. A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted.
Deposits
Deposits are comprised of deposits of $0 and $150,000 as of February 28, 2018 and 2017, respectively, on robots that are expected to be received within one year.
Revenue Earning Robots:
Revenue earning robots are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 48 months. The Company continually evaluates revenue earning robots to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the robot should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from two to five years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Demo robots | 4 years | |
Computer equipment | 3 years | |
Office equipment | 4 years | |
Vehicles | 3 years | |
Leasehold improvements | 5 years, the life of the lease |
The Company periodically evaluates the fair value of fixed assets whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income.
Research and Development
Research and development costs are expensed in the period they are incurred, unless they meet specific criteria related to technical, market and financial feasibility, as determined by Management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life or written off if a product is abandoned. At February 28, 2018, the Company had no deferred development costs.
Contingencies
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. RAD records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on RAD’s financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, goods are delivered for rental and/or services are rendered, sales price is determinable, and collection is reasonably assured.
Income Taxes
On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc. through the issuance of 10,000 common shares to its sole shareholder. Prior to the conversion on July 25, 2017, income taxes are not provided in the financial statements as presented as RAD was an LLC and the income or loss flowed through to the shareholder for the two months ended February 28, 2017. Thereafter, income taxes will be accounted for under the asset and liability method from that date forward. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and net operating loss and other tax credit carry-forwards. These items are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. RAD will record a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized.
Leases
Lease agreements are evaluated to determine if they are capital leases meeting any of the following criteria at inception: (a) transfer of ownership; (b) bargain purchase option; (c) the lease term is equal to 75 percent or more of the estimated economic life of the leased property; or (d) the present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.
If, at its inception, a lease meets any of the four lease criteria above, the lease is classified by the Company as a capital lease; and if none of the four criteria are met, the lease is classified by RAD as an operating lease.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term, whereby an equal amount of rent expense is attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in the later years. The difference between rent expense recognized and actual rental payments is recorded as deferred rent and included in liabilities.
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement – Financial Instruments Classified as Liabilities
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income (expenses).
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 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 under ASC Topic 820 are described as follows:
● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |
● | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include 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; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
● | Level 3 – Inputs that are unobservable for the asset or liability. |
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Measured on a Recurring Basis
The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell:
|
| Fair Value Measurement Using |
| ||||||||||
|
| Amount at |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
February 28, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – conversion features pursuant to convertible notes payable |
| $ | 31,113,844 |
| $ | — |
| $ | — |
| $ | 31,113,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – conversion features pursuant to convertible notes payable |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS excluded all dilutive potential shares if their effect was anti-dilutive.
Basic net loss per share is based on the weighted average number of common and common-equivalent shares outstanding. For the period from inception (July 26, 2016) through February 28, 2017, there were no common shares outstanding. Potential common shares includable in the computation of fully-diluted per share results are not presented in the consolidated financial statements for year ended February 28, 2018 and period from inception (July 26, 2016) through February 28, 2017 as their effect would be anti-dilutive.
Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss per share, except the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of convertible debt and other such convertible instruments. Diluted loss per share contemplates a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.
The anti-dilutive shares of common stock outstanding for the year ended February 28, 2018, the two months ended February 28, 2017 and for the period from inception (July 26, 2016) through February 28, 2017 were as follows:
|
| Year Ended |
| Two Months Ended |
| Period from Inception |
| |||
Potentially dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Convertible notes payable and embedded warrants |
|
| 114,994,181 |
|
| — |
|
| — |
|
Series F Convertible Preferred Stock |
|
| 431,265,711 |
|
| 351,858,210 |
|
| — |
|
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. The Company has elected to early adopt ASU 2017-01 and to apply it to any transaction, which occurred prior to the issuance date that has not been reported in financial statements that have been issued or made available for issuance.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard is effective for fiscal years and interim reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenuefrom Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and is now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that period. Topic 606 is effective for the Company in the first quarter of Fiscal 2019. The Company is currently evaluating the new revenue recognition guidance. The Company has completed its initial impact assessment and has commenced an in-depth evaluation of the adoption impact, which involves review of selected revenue arrangements. Based on the Company’s preliminary review, the Company believes that the timing and measurement of revenue for its customers will be similar to the Company’s current revenue recognition. However, this view is preliminary and could change based on further analysis associated with the conversion and implementation phases of our ASU 2014-09 project.
From March 2016 through September 2017, the FASB issued ASU 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11,Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606):Narrow-Scope Improvements and Practical Expedients, ASU No. 2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customersand ASU No. 2017-13,Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. These amendments are intended to improve and clarify the implementation guidance of Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of ASU No. 2014-09 and ASU No. 2015-14.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), which is effective for public entities for annual reporting periods beginning after December 15, 2018. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company is currently evaluating the effects of ASU 2016-02 on its consolidated financial statements.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The guidance is effective for the Company beginning after December 15, 2017, although early adoption is permitted. The Company is currently evaluating the effects of ASU 2016-15 on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18,Statement of Cash Flows (Topic 230) Restricted Cash a consensus of the FASB Emerging Issues Task Force. ASU 2016-18 requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement cash flows. The new standard is expected to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effects of ASU 2016-18 on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigatingTopic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its consolidated financial statements and related disclosures.
Subsequent Events
The Company has evaluated all transactions through the date the financial statements were issued for subsequent event disclosure consideration.
4. PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits on robots expected to be received within one year were comprised of the following:
|
| February 28, 2018 |
| February 28, 2017 |
| ||
Deposits on robots |
| $ | — |
| $ | 150,000 |
|
Prepaid insurance |
|
| 22,076 |
|
| — |
|
Prepaid travel |
|
| 10,488 |
|
| — |
|
Prepaid trade show expenses |
|
| 50,539 |
|
| — |
|
|
| $ | 83,103 |
| $ | — |
|
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. REVENUE EARNING ROBOTS
Revenue earning robots consisted of the following:
|
| February 28, 2018 |
| February 28, 2017 |
| ||
Revenue earning robots |
| $ | — |
| $ | 85,050 |
|
Less: Accumulated depreciation |
|
| — |
|
| (3,544 | ) |
|
| $ | — |
| $ | 81,506 |
|
During the year ended February 28, 2018, the Company made total additions to revenue earning robots of $384,588. Additions to revenue earning robots for the two months ended February 28, 2017 were $85,050 and for the period from inception (July 26, 2016) through December 31, 2016 were $0. Due to all the revenue earning robots becoming non-operational through February 28, 2018, the Company wrote down revenue earning robots with a net book value of $414,746 to $0 as loss on impairment of fixed assets.
Depreciation expense was $51,348 for the year ended February 28, 2018, $3,544 for the two months ended February 28, 2017 and $0 for the period from inception (July 26, 2016) through December 31, 2016.
6. FIXED ASSETS
Fixed assets consisted of the following:
|
| February 28, 2018 |
| February 28, 2017 |
| ||
Automobile |
| $ | 136,318 |
| $ | 47,702 |
|
Computer equipment |
|
| 17,361 |
|
| — |
|
Office equipment |
|
| 11,829 |
|
| — |
|
Leasehold improvements |
|
| 29,329 |
|
| — |
|
|
|
| 194,837 |
|
| 47,702 |
|
Less: Accumulated depreciation |
|
| (36,632 | ) |
| (2,650 | ) |
|
| $ | 158,205 |
| $ | 45,052 |
|
During the year ended February 28, 2018, the Company acquired total fixed assets of $335,043. Additions to fixed assets for the two months ended February 28, 2017 were $ and for the period from inception (July 26, 2016) through December 31, 2016 were $0. Due to all the demo robots becoming non-operational through February 28, 2018, the Company wrote down fixed assets with a net book value of $148,810 to $0 as loss on impairment of fixed assets.
Depreciation expense was $73,080 for the year ended February 28, 2018, $2,650 for the two months ended February 28, 2017, and $0 for the period from inception (July 26, 2016) through December 31, 2016.
7. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
| February 28, 2018 |
| February 28, 2017 |
| ||
Intangible asset |
| $ | 61,901 |
| $ | — |
|
Less accumulated amortization |
|
| (5,653 | ) |
| — |
|
|
| $ | 56,248 |
| $ | — |
|
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On October 2, 2017, the Company acquired goods and other intangibles through an asset purchase agreement with WeSecure Robotics, Inc. (“WeSecure”) in exchange for $125,000 payable in 5 monthly $25,000 installments commencing in October 2017 and ending February 2018. The intangible asset primarily consisted of customer relationships and lists acquired as a part of the asset purchase agreement. The Company is treating this transaction as a business combination The Company is treating this transaction as a business combination under ASU 2017-01 – Business Combinations: Clarifying the Definition of a Business.
Under the asset purchase agreement, the two principals of WeSecure were also hired on at will basis: one as a sales director for a salary of $8,000 per month and the other as a consultant at $1,000 per month. The salary has been committed to until September 1, 2019, regardless of employment within the Company. In addition, the two principals will receive collectively a commission of $500/month for each SMP robot rented by an identified customer for one year, as long as the customer stays with the Company for two years and an additional year of commission if the two principals remain employed with the Company through September 1, 2020. They will also receive a commission of 5% net revenues on sales to identified customers for non-SMP robots for 2 years. In addition, the Company agreed to issue 450,000 options to the two principals to purchase shares its common stock at an exercise price of $0.05 per share that vest on October 2, 2021 (see further discussion in Note 14).
The Company acquired the following net assets and liabilities as a part of this transaction:
Assets Acquired: |
|
|
|
|
Cash |
| $ | 17,000 |
|
Robots, parts, and equipment |
|
| 46,099 |
|
Intangible assets |
|
| 61,901 |
|
Total assets acquired |
| $ | 125,000 |
|
|
|
|
|
|
Liabilities Assumed: |
|
|
|
|
Acquisition cost |
| $ | 125,000 |
|
Total liabilities assumed |
| $ | 125,000 |
|
Amortization expense was $5,653 for the year ended February 28, 2018, and $0 both for the two months ended February 28, 2017 , and for the period from inception (July 26, 2016) through December 31, 2016.
At February 28, 2018, the Company had made four payments totaling $100,000, with a remaining balance due of $25,000 that has been included on the balance sheet as balance due on acquisition to WeSecure. The acquisition was to be fully paid at February 28, 2018 per the agreement, however no notices have been sent.
8. NOTE RECEIVABLE
On March 13, 2017, the Company loaned $40,000 to a third party. The note bore interest at 18% per annum and was payable on April 13, 2017. The note was not repaid by the due date. The note was subsequently amended to bear interest of 2% per month plus a $10,000 fee. The note was payable on December 31, 2017 and is secured in senior rank on all assets of the borrower. The Company evaluated the note receivable to determine whether its lending activities create a variable interest entity that would require consolidation and determined that it does not create a variable interest entity. The third party is in the process of repaying the loan and expects to have the funds available as a result of the commencement of principal business operations in the near term.
9. CUSTOMER DEPOSITS
As of February 28, 2017, the Company received a $10,000 deposit from a customer towards the rental of equipment with an expected delivery in the third quarter of calendar year 2018.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
|
|
|
|
|
|
|
| Balance |
| Balance |
| ||
|
|
|
| Interest |
| Conversion | February 28, |
| February 28, |
| |||
Issued |
| Maturity |
| Rate |
| Rate per Share | 2018 |
| 2017 |
| |||
February 28, 2011 |
| February 26, 2013 * |
| 7% |
| $0.015 |
| $ | 32,600 |
| $ | — |
|
January 31, 2013 |
| February 28, 2017 * |
| 10% |
| $0.010 |
|
| 119,091 |
|
| — |
|
May 31, 2013 |
| November 30, 2016 * |
| 10% |
| $0.010 |
|
| 261,595 |
|
| — |
|
November 30, 2013 |
| November 30, 2017 |
| 10% |
| $0.010 |
|
| — |
|
| — |
|
August 31, 2014 |
| November 30, 2016 * |
| 10% |
| $0.002 |
|
| 355,652 |
|
| — |
|
November 30, 2014 |
| November 30, 2016 * |
| 10% |
| $0.002 |
|
| 103,950 |
|
| — |
|
February 28, 2015 |
| February 28, 2017 * |
| 10% |
| $0.001 |
|
| 63,357 |
|
| — |
|
May 31, 2015 |
| August 31, 2017 |
| 10% |
| $1.000 |
|
| 65,383 |
|
| — |
|
August 31, 2015 |
| August 31, 2017 |
| 10% |
| $0.300 |
|
| 91,629 |
|
| — |
|
November 30, 2015 |
| November 30, 2018 |
| 10% |
| $0.300 |
|
| 269,791 |
|
| — |
|
February 3, 2016 |
| February 3, 2017 * |
| 5% |
| 49% discount | (2) |
| — |
|
| — |
|
February 29, 2016 |
| February 28, 2019 |
| 10% |
| 60% discount | (2) |
| 95,245 |
|
| — |
|
March 22, 2016 |
| March 22, 2017 |
| 10% |
| $0.003 |
|
| — |
|
| — |
|
May 31, 2016 |
| May 31, 2019 |
| 10% |
| $0.003 |
|
| 35,100 |
|
| — |
|
July 18, 2016 |
| July 18, 2017 |
| 10% |
| $0.003 |
|
| 3,500 |
|
| — |
|
September 6, 2016 |
| September 6, 2017 |
| 10% |
| $0.003 |
|
| — |
|
| — |
|
December 31, 2016 |
| December 31, 2020 |
| 8% |
| 35% discount | (2) |
| 65,000 |
|
| 65,000 |
|
January 4, 2017 |
| January 4, 2018 |
| 0% |
| — |
|
| — |
|
| — |
|
January 13, 2017 |
| October 13, 2017 |
| 0% |
| 50% discount | (1) |
| — |
|
| — |
|
January 15, 2017 |
| January 15, 2021 |
| 8% |
| 35% discount | (2) |
| 50,000 |
|
| 50,000 |
|
January 15, 2017 |
| January 15, 2021 |
| 8% |
| 35% discount | (2) |
| 100,000 |
|
| 100,000 |
|
January 16, 2017 |
| January 16, 2021 |
| 8% |
| 35% discount | (2) |
| 150,000 |
|
| 150,000 |
|
March 1, 2017 |
| March 1, 2018 |
| 8% |
| 40% discount | (2) |
| — |
|
| — |
|
March 3, 2017 |
| October 3, 2017 |
| 8% |
| 40% discount | (1) |
| — |
|
| — |
|
March 8, 2017 |
| March 8, 2018 |
| 8% |
| 40% discount | (2) |
| — |
|
| — |
|
March 8, 2017 |
| March 8, 2020 |
| 10% |
| 40% discount | (2) |
| 100,000 |
|
| — |
|
March 9, 2017 |
| March 9, 2021 |
| 8% |
| 35% discount | (2) |
| 50,000 |
|
| — |
|
March 21, 2017 |
| March 21, 2018 |
| 8% |
| 40% discount | (2) |
| 30,000 |
|
| — |
|
April 4, 2017 |
| December 4, 2017 |
| 10% |
| 40% discount | (2) |
| 12,066 |
|
| — |
|
April 19, 2017 |
| April 19, 2018 |
| 15% |
| 50% discount | (2) |
| 96,250 |
|
| — |
|
April 20, 2017 |
| January 30, 2018 |
| 8% |
| 40% discount | (1) |
| 28,000 |
|
| — |
|
April 26, 2017 |
| April 26, 2018 |
| 0% |
| $0.001 |
|
| 67 |
|
| — |
|
May 1, 2017 |
| May 1, 2021 |
| 8% |
| 35% discount | (2) |
| 50,000 |
|
| — |
|
May 4, 2017 |
| May 4, 2018 |
| 8% |
| 40% discount | (2) |
| 150,000 |
|
| — |
|
May 15, 2017 |
| May 15, 2018 |
| 0% |
| $0.001 |
|
| 1,280 |
|
| — |
|
May 17, 2017 |
| May 17, 2020 |
| 10% |
| 40% discount | (1) |
| 85,000 |
|
| — |
|
June 7, 2017 |
| June 7, 2018 |
| 8% |
| 40% discount | (2) |
| 200,000 |
|
| — |
|
June 16, 2017 |
| June 16, 2018 |
| 0% |
| $0.001 |
|
| 750 |
|
| — |
|
July 12, 2017 |
| July 12, 2018 |
| 0% |
| $0.001 |
|
| — |
|
| — |
|
July 8, 2017 |
| July 8, 2018 |
| 8% |
| 40% discount |
|
| 200,000 |
|
| — |
|
July 28, 2017 |
| July 28, 2018 |
| 15% |
| $0.001 |
|
| — |
|
| — |
|
July 31, 2017 |
| July 31, 2018 |
| 8% |
| 40% discount | (2) |
| — |
|
| — |
|
August 8, 2017 |
| August 8, 2018 |
| 8% |
| 40% discount | (2) |
| 125,000 |
|
| — |
|
July 28, 2017 |
| July 28, 2018 |
| 15% |
| 50% discount | (2) |
| 116,875 |
|
| — |
|
August 29, 2017 |
| August 29, 2018 |
| 15% |
| 50% discount | (2) |
| 247,500 |
|
| — |
|
September 1, 2017 |
| September 1, 2018 |
| 0% |
| lower of 50% discount/$0.005 |
|
| 187,000 |
|
| — |
|
September 12, 2017 |
| September 12, 2018 |
| 8% |
| 40% discount | (2) |
| 128,000 |
|
| — |
|
September 25, 2017 |
| September 25, 2018 |
| 15% |
| 50% discount | (2) |
| 398,750 |
|
| — |
|
October 4, 2017 |
| May 4, 2018 |
| 8% |
| 40% discount | (2) |
| 150,000 |
|
| — |
|
October 16, 2017 |
| October 16, 2018 |
| 15% |
| 50% discount | (2) |
| 345,000 |
|
| — |
|
November 22, 2017 |
| November 22, 2018 |
| 15% |
| 50% discount | (2) |
| 500,250 |
|
| — |
|
December 28, 2017 |
| December 28, 2017 |
| 10% |
| 40% discount | (2) |
| 60,500 |
|
| — |
|
December 29, 2017 |
| December 29, 2018 |
| 15% |
| 50% discount | (2) |
| 330,000 |
|
| — |
|
January 9, 2018 |
| January 9, 2019 |
| 8% |
| 40% discount | (2) |
| 82,500 |
|
| — |
|
January 30, 2018 |
| January 30, 2019 |
| 15% |
| 50% discount | (2) |
| 300,000 |
|
| — |
|
February 21, 2018 |
| February 21, 2019 |
| 15% |
| 50% discount | (2) |
| 300,000 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,136,681 |
|
| 365,000 |
| |||||||
Less: current portion of convertible notes payable |
| (5,536,582 | ) |
| — |
| |||||||
Less: discount on noncurrent convertible notes payable |
| (505,039 | ) |
| — |
| |||||||
Noncurrent convertible notes payable, net of discount | $ | 95,060 |
| $ | 365,000 |
| |||||||
|
|
|
|
|
|
| |||||||
Current portion of convertible notes payable | $ | 5,536,582 |
| $ | — |
| |||||||
Less: discount on current portion of convertible notes payable |
| (3,418,636 | ) |
| — |
| |||||||
Current portion of convertible notes payable, net of discount | $ | 2,117,946 |
| $ | — |
| |||||||
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
__________
* | The indicated notes were in default as of February28, 2018 and bear default interest of between 18% and 25% per annum. |
(1) | The note is convertible beginning six months after the date of issuance. |
(2) | The notes are accounted for and evaluated under ASC 480 as discussed in Note 3. |
During the year ended February 28, 2018, the Company incurred total original issue discounts of $251,500 and derivative discounts of $3,106,385. These amounts are included in discounts on convertible notes payable and are being amortized to interest expense over the life of the convertible notes payable. During the year ended February 28, 2018, the Company recognized interest expense related to the amortization of debt discount of $1,102,430.
All of the notes above are unsecured. As of February 28, 2018, the Company had total accrued interest payable of $750,509, of which $694,592 is classified as current and $55,917 is classified as noncurrent.
In September 2017, the Company settled the March 8, 2017 note and paid $72,762, including the remaining $50,000 of principal balance and $1,929 in accrued interest, and a prepayment penalty of $20,833. The Company incurred this penalty to avoid additional costs related to the conversion of this note. The Company recorded a gain on settlement of debt of $84,507 related to the write-off of the associated derivative liability.
During the year ended February 28, 2018, the Company repaid principal on convertible notes payable of $50,000.
During the year ended February 28, 2018, a debt holder transferred debt of $337,958 and accrued interest of $147,713 to a third party who exchanged it for new convertible note for $300,000, maturing September 1, 2018 and bearing no interest. A gain on settlement of debt of $1,090,521 was recorded that includes the amount of associated derivative liability that was written off.
Conversions to common stock
During the year ended February 28, 2018, holders of certain convertible note payables elected to convert principal and accrued interest in the amounts shown below into shares of common stock. No gain or loss was recognized on conversions as they occurred within the terms of the agreement that provided for conversion.
Conversion Date |
| Principal |
| Interest |
| Total Amount |
| Shares |
| ||||
September 5, 2017 |
| $ | 26,250 |
| $ | — |
| $ | 26,250 |
|
| 5,250,000 |
|
September 18, 2017 |
|
| 27,250 |
|
| — |
|
| 27,250 |
|
| 5,450,000 |
|
September 27, 2017 |
|
| 29,000 |
|
| — |
|
| 29,000 |
|
| 5,800,000 |
|
October 16, 2017 |
|
| 30,500 |
|
| — |
|
| 30,500 |
|
| 6,100,000 |
|
October 16, 2017 |
|
| 10,000 |
|
| — |
|
| 10,000 |
|
| 416,667 |
|
|
| $ | 123,000 |
| $ | — |
| $ | 123,000 |
|
| 23,016,667 |
|
During the year ended February 28, 2018 and prior to the reverse merger, the Company canceled 600,000 shares of common stock. The shares had been issued during the year ended February 28, 2017 for the conversion of principal of a convertible note payable of $600. As a result of the shares being canceled, $600 was added back to the principal of the note.
11. RELATED PARTY TRANSACTIONS
For the year ended February 28, 2018, the Company received net advances of $219,613 from its loan payable to a related party. At February 28, 2018, the balance due to the related party was $316,142, and $62,529 at February 28, 2017.
During the year ended February 28, 2018, the Company paid $236,853 in consulting fees for research and development to a company owned by a principal shareholder.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. OTHER DEBT – VEHICLE LOANS
In December 2016, RAD entered into a vehicle loan for $47,704 secured by the vehicle. The loan is repayable over 5 years maturing November 9, 2021 and repayable $1,019 per month including interest and principal. In November 2017, the Company entered into another vehicle loan secured by the vehicle for $47,704. The loan is repayable over 5 years, maturing October 24, 2022 and repayable at $923 per month including interest and principal. The principal repayments were $11,533 for the year ended February 28, 2018. The balances of the amounts owed on the vehicle loan were $82,162 and $46,034 as of February 28, 2018 and February 28, 2017, respectively, of which $17,830 and $7,900 were classified as current and $64,332 and $38,134 as long-term, respectively.
13. DERIVATIVE LIABILITES
As of February 28, 2018, the Company revalued the fair value of the Company’s derivative liabilities associated with the conversion features on the convertible notes payable and determined that it had total derivative liabilities of $31,113,844.
The Company estimated the fair value of the derivative liabilities using the Monte-Carlo model using the following key assumptions during the year ended February 28, 2018:
Strike price | $1.00 - $0.001 |
Fair value of Company common stock | $0.17 |
Dividend yield | 0.00% |
Expected volatility | 85% - 65% |
Risk free interest rate | 1.01% - 1.57% |
Expected term (years) | 0.26 - 4.00 |
During the year ended February 28, 2018, the Company released $685,040 of the Company’s derivative liability to equity due to the conversions of principal and interest on the associated notes.
The changes in the derivative liabilities (Level 3 financial instruments) measured at fair value on a recurring basis for the year ended February 28, 2018 were as follows:
Addition of derivative liability pursuant to reverse recapitalization | $ | 9,035,437 |
|
Release of derivative liability on conversion of convertible notes payable recorded to equity |
| (685,040 | ) |
Debt discount due to derivative liabilities |
| 3,106,385 |
|
Derivative liability in excess of face value of debt recorded to interest expense |
| 10,797,663 |
|
Reduction in derivative liability due to debt settlement |
| (635,922 | ) |
Change in fair value of derivative liabilities |
| 9,495,321 |
|
Balance as of February 28, 2018 | $ | 31,113,844 |
|
14. SHAREHOLDERS’ EQUITY (DEFICIT)
Summary of Common Stock Activity
During the year ended February 28, 2018 and prior to the Acquisition, OMVS issued the following shares of common stock:
● | Issued 76,008,764 shares of its common stock totaling $76,009 in connection with debt converted during the period; |
● | Cancelled 600,000 shares of its common stock totaling $600; and |
● | Issued 8,922,279 shares of its common stock totaling $8,922 in connections with warrants exercised during the period. |
Following the Acquisition through February 28, 2018, the Company issued 23,016,667 shares of its common stock for the conversion of $123,000 of outstanding convertible debt.
On April 18, 2018, the board of directors approved a 100:1 reverse stock split on the issued and outstanding common shares. As of the filing date this change is not yet effective.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Summary of Preferred Stock Activity
During the year ended February 28, 2018, OMVS issued 1,000,000 and 1,000 shares of its Series E and Series F preferred stock, respectively, totaling $1,000 and $1,000, respectively, in connection with the recapitalization of OMVS by RAD.
Summary of Stock Option Activity
As part of the asset purchase agreement described in Note 7, the Company issued 450,000 options to purchase shares at an exercise price of $0.05 per share that vest on October 2, 2021.
The options have a fair value of $27,843, based on the Black-Scholes Option Pricing model with the following assumptions:
Strike price | $0.05 |
Fair value of Company’s common stock | $0.06 |
Dividend yield | 0.00% |
Expected volatility | 303.81% |
Risk free interest rate | 1.94% |
Expected term (years) | 4.00 |
The Company will amortize the $27,843 over the four-year term on a straight line basis as stock based compensation. During the year ended February 28, 2018, the company recorded $2,840 of stock-based compensation with a corresponding increase in paid-in capital. At February 28, 2018, the unamortized expense was $25,003 and the intrinsic value was $0.
15. COMMITMENTS AND CONTINGENCIES
Litigation
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
In February 2016, OMVS received notice that it had been sued in the Clark County District Court of Nevada. The plaintiff alleges that OMVS obtained certain trade secrets through a third party also named in the suit. OMVS believes the suit is without merit and intend to vigorously defend it. An arbitration was conducted on May 9, 2017, Plaintiff filed a Notice of Trial de Novo, seeking a review of the merit dismissal. It is counsel’s opinion this Trial de Novo is without merit and OMVS should prevail.
Operating Lease
The Company’s principal facility is located in Orange County, California. The lease agreement includes, escalating lease payments, renewal provisions and other provisions. The lease began in April 2017 and expires in March 2022. Rent expense is recorded over the lease terms on a straight-line basis. The security deposit of $25,747 was recorded as a long-term asset as of August 31, 2017.
The Company also leases premises in northern California. The lease began in August 2017 and expires in August 2020. The security deposit of $5,126 was paid on September 1, 2017. The Company shares premises with a supplier who is the co-lessee. Through agreement with the supplier, the Company will pay 75% of the lease costs and the supplier will pay 25%.
On February 1, 2018, the Company entered into an additional lease for premises for a robotic control center. The lease runs from February 1, 2018 to January 31, 2021 for $550 per month.
The Company’s leases are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $90,582 for the year ended February 28, 2018 and $0 for both the two months ended February 28, 2017, and for the period from inception (July 26, 2016) through December 31, 2016.
ON THE MOVE SYSTEMS CORP.
(f/k/a ROBOTIC ASSISTANCE DEVICES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At February 28, 2018, the Company had deferred rent of $6,742 (February 28, 2017-$0).
At February 28, 2018, the Company’s future minimum payments are as follows:
February 28, 2019 | $ | 98,855 |
|
February 28, 2020 |
| 99,980 |
|
February 28, 2021 |
| 75,355 |
|
February 28, 2022+ |
| 62,647 |
|
| $ | 334,837 |
|
16. INCOME TAXES
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:
|
| Year Ended |
| |
U.S. federal statutory income tax |
| $ | (7,938,439 | ) |
Amortization of debt discount |
|
| 3,534,829 |
|
Fair value of derivative liabilities on issuance |
|
| 3,108,482 |
|
Change in fair value of derivative liabilities |
|
| 384,669 |
|
Gain on debt settlement |
|
| 397,541 |
|
Stock-based compensation |
|
| 930 |
|
Tax rate changes and other |
|
| 202,948 |
|
Valuation allowance for deferred income tax assets |
|
| 309,040 |
|
Effective income tax rate |
| $ | — |
|
Deferred income tax assets as of February 28, 2018 and 2016 are as follows (in thousands):
Deferred Tax Assets |
| February 28, 2018 |
| |
Net operating loss carry forwards |
| $ | 1,561,140 |
|
Less valuation allowance |
|
| (1,561,140 | ) |
Total deferred tax assets |
| $ | — |
|
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.
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