On August 1, 2013, the holder of the convertible promissory note dated January 31, 2013, elected to convert principal and interest in the amount of $18,000 into 1,800,000 shares of common stock. As of August 31, 2013 and February 28, 2013, the remaining balance of the convertible note payable was $277,213 and $281,192, respectively.
On May 31, 2013, the Company signed a convertible promissory note which refinanced non-interest bearing advances in the amount of $261,595 into a convertible note payable. The convertible promissory note bears interest at 10% per annum and is payable along with accrued interest on May 31, 2015. The convertible promissory note is convertible into common stock at the option of the holder at the rate of $0.01 per share.
The Company evaluated the terms of the convertible notes in accordance with ASC 815 – 40,Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion feature did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized a beneficial conversion feature in the amount of $261,595. The beneficial conversion feature is being amortized to interest expense over the life of the note using the effective interest method.
During the six months ended August 31, 2013, the Company received advances in the amount of $255,790 for working capital. These advances are non-interest bearing and payable on demand.
Management has evaluated subsequent events through the date the financial statements were issued. Based on our evaluation no events have occurred requiring adjustment or disclosure.
PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
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 plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
OVERVIEW OF THE COMPANY
On the Move Systems Corp. (“we”, “us”, “our”, “OMVS”, or the “Company”) was incorporated in the State of Florida on March 25, 2010. The Company’s business focus is in the mobile electronics markets but it is currently investigating business opportunities within the personal and business safety and protection products. The Company’s fiscal year ends on February 28. The Company is located at 3001 North Rocky Point Drive East, Suite 200, Tampa, Florida 33607. Our telephone number is 941-586-3938.
On March 25, 2011, Crawford Mobile Installation Corp. (“CMIC”), a wholly owned subsidiary of the Company, acquired all of the assets and assumed certain liabilities of Crawford Mobile Install (“CMI”). The assets of CMI included cash, inventory, a vehicle and installation equipment. On the date of the acquisition, a material relationship existed between the parties, because John Crawford was the sole officer and director of the Company and CMIC as well as being the sole proprietor of CMI. The purchase price for the assets and liabilities of CMI was $100,000. From the date of inception, March 25, 2010, through the date of the acquisition of CMI on March 25, 2011, the Company was in the development stage as defined in ASC 915, “Accounting and Reporting by Development Stage Enterprises”. As a result of the acquisition of CMI, the Company has begun to generate revenue from operations and has emerged from the development stage.
We currently provide mobile electronic services under the trade name “On the Move Systems Corporation.” Our services include the sale, installation, and servicing of after-market electronic and audio/video upgrades for markets such as auto, recreational vehicle and boat dealerships, and for government agencies and corporations that administer vehicle fleets for law enforcement, security, emergency response, sanitation, public utility, limousine, taxi, and other services.
To this end, we have created relationships with a multitude of dealerships to provide on-site electronics sales, installation and servicing for vehicles purchased by them or by their customers. We also provide services directly to individual consumers. We currently offer all of our services from our sales and installation vehicle, eliminating the need for our customers to travel to our place of business. Although we maintain a small inventory of the electronic products that we offer to our customers, we anticipate that we will continue to order a majority of these products on an as-needed basis.
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We provide our clients with electronic accessories and installation services that allow them and their customers to personalize vehicles for enhanced aesthetics and electronic performance. We believe that our service allows dealerships and other wholesale vehicle purchasers to order models with fewer options from their manufacturers, thereby reducing vehicle inventory costs. The corollary to this is that the dealerships’ retail customers can be given the alternative to select personalized electronic systems for their vehicles that are better suited to their individual budgets, tastes and needs.
We provide our services on-site at vehicle dealerships and directly to individuals. Mr. John B. Crawford, President of CMIC, and our former Chief Executive Officer, applies his 18 years of mobile electronic accessory sales and installation experience to identify the latest in mobile audio-visual, GPS, and telecommunications technology, and to consult with our clients to select technology best suited to their specific performance requirements and budgets. Our base of operations is in the city of Sarasota, Florida and we primarily market our services in and around that city. In keeping with future demand and as our capacity allows, we will market and provide our services further afield in adjacent cities and states.
The Company has since expanded into the area of private jet service. As a result, the Company has developed its ISTx platform in order to offer private jet service for the charter, inter-modal freight and animal/exotic transport segments.
In addition, the Company is currently investigating the opportunities in the personal and business safety and protection markets.
Our auditor issued a going concern opinion on our audited financial statements for the year ended February 28, 2013. This means there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. Accordingly, we must raise cash from sources other than loans we undertake.
Our ability to continue to implement our business plan is dependent on our ability to generate positive cash flow from operations and to secure sufficient financing; however there is no guarantee that we will be successful in this regard. In order to implement our business plan, we anticipate that we will require at least $425,000 in financing. We have taken no steps to secure the $425,000 in additional financing that we will need to implement our business plan. Furthermore, even if we successfully execute our business, there is no guarantee that there will be a significant market for our services or that we will achieve significant revenues, if any.
Results of Operations
Six months ended August 31, 2013 compared to the six months ended August 31, 2012
Revenue
During the six months ended August 31, 2013, we recognized revenue of $45,010 compared to $63,047 during the six months ended August 31, 2012. There is typically a seasonal decrease in revenue during the second fiscal quarter of the year. There was no such decrease during the second quarter of the previous year. As a result, income was higher for the six months ended August 31, 2012 than the same period of 2013.
Cost of Goods Sold
During the six months ended August 31, 2013, we recognized cost of goods sold of $28,886 compared to $21,098 for the six months ended August 31, 2012. Cost of goods sold increased although revenue decreased. There was a significant increase in the costs of installed components.
Gross Profit
Gross profit decreased to $16,124 for the six months ended August 31, 2013 from $41,949 for the six months ended August 31, 2012. The decrease was the result of decreased revenue and increased cost of goods sold as discussed above.
General and administrative expenses
We recognized general and administrative expenses in the amount of $301,704 and $204,938 for the six months ended August 31, 2013 and 2012, respectively. The increase is the result of increased spending for investor relations.
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Interest expense
We incurred interest expense of $28,100 and $3,294 for the six months ended August 31, 2013 and 2012, respectively. The increase in interest expense was the result of refinancing non-interest bearing advances into interest bearing convertible notes and the amortization of the debt discount.
Net Loss
Net loss for the six months ended August 31, 2013 increased to $313,680 from $166,283 for the six months ended August 31, 2012. The increase in the net loss was primarily the result of the decrease in gross profit and the increase in general and administrative expense and interest expense.
Three months ended August 31, 2013 compared to the three months ended August 31, 2012
Revenue
During the three months ended August 31, 2013, we recognized revenue of $23,155 compared to $37,444 during the three months ended August 31, 2012. There is typically a seasonal decrease in revenue during the second fiscal quarter of the year. There was no such decrease during the second quarter of the previous year.
Cost of Goods Sold
During the three months ended August 31, 2013, we recognized cost of goods sold of $14,123 compared to $12,179 for the three months ended August 31, 2012. Cost of goods sold increased although revenue decreased. There was a significant increase in the costs of installed components.
Gross Profit
Gross profit decreased to $9,032 for the three months ended August 31, 2013 from $25,265 for the three months ended August 31, 2012. The increase was the result of decreased revenue and increased cost of goods sold as discussed above.
General and administrative expenses
We recognized general and administrative expenses in the amount of $210,961 and $86,764 for the three months ended August 31, 2013 and 2012, respectively. The increase is the result of increased spending for investor relations.
Interest expense
We incurred interest expense of $21,012 and $570 for the three months ended August 31, 2013 and 2012, respectively. The increase in interest expense was the result of refinancing non-interest bearing advances into interest bearing convertible notes and the amortization of the debt discount.
Net loss
Net loss for the three months ended August 31, 2013 increased to $222,941 from $62,069 for the three months ended August 31, 2012. The increase in the net loss was primarily the result of the decrease in gross profit and the increase in general and administrative expense and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended August 31, 2013, we had net cash used in operating activities of $184,412. As of August 31, 2013, we had cash on hand of $81,506 and negative working capital of $457,401. We expect that this cash will be adequate to fund our operations for less than three months. We will require additional funding to continue our business plan.
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We anticipate needing a minimum of $425,000 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 instruments 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.
As of the date of this report, the current funds available to the Company will not be sufficient to continue maintaining a reporting status. Management believes if the Company cannot maintain its reporting status with the SEC it will have to cease all efforts directed towards the Company. As such, any investment previously made would be lost in its entirety.
The Company currently has no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.
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
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 and 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.
IMPAIRMENT OF LONG-LIVED ASSETS – Long-lived assets, including fixed assets and identifiable 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. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
GOODWILL – Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and intangible assets of businesses acquired. Goodwill is not amortized, but it is evaluated for impairment at least annually, or more frequently if events or circumstances indicate impairment may exist.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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Item 4. Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of and for the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective. Material weaknesses noted are: lack of a functioning audit committee due to a lack of a majority of independent members; lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; inadequate segregation of duties consistent with control objectives and affecting the functions of authorization, recordkeeping, custody of assets, and reconciliation; and, management dominated by a single individual/small group without adequate compensating controls.
Currently, management contracts with a professional services firm to assist with the preparation of the filings. However, until the Company has received additional funding, they are unable to remediate the above material weaknesses.
For a full discussion of our internal control over financial reporting, please refer to Item 9, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the period ended February 28, 2013 on Form 10-K.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the six months ended August 31, 2013, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this Quarterly Report, neither we nor any of our officers or directors is involved in any litigation either as plaintiffs or defendants. As of this date, there is not any threatened or pending litigation against us or any of our officers or directors.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 1, 2013, the Company issued 1,800,000 shares of common stock as a result of the conversion of a Convertible Note Payable in the amount of $18,000.
During the three month period ended August 31, 2013, 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.
Item 3. Defaults upon Senior Securities
There was a default of convertible note payable during the six months ended August 31, 2013.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The Company does not have any other material information to report with respect to the three month period ended August 31, 2013.
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Item 6. Exhibits
(a) Exhibits included herewith are:
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2.1 | Asset Purchase Agreement, dated as of March 25, 2011, by and among Crawford Mobile Installation Corporation and Crawford Mobile Install (sole proprietorship). (2) |
3.1 | Articles of Incorporation of On The Move Systems Corporation (1) |
3.2 | Bylaws of On The Move Systems Corporation (1) |
3.3 | Articles of Incorporation of Crawford Mobile Installation Corporation (2) |
3.4 | Bylaws of Crawford Mobile Installation Corporation (2) |
10.1 | Convertible Note from On the Move Systems Corporation to Global Equities Limited (2) |
10.2 | Note from Crawford Mobile Installation to John Crawford (2) |
10.3 | Note from Crawford Mobile Install to Greg Crawford dated September 28, 2010 (2) |
10.4 | Note from Crawford Mobile Install to Greg Crawford dated February 11, 2011 (2) |
31.1 * | Section 302 Certification |
32.1 * | Section 906 Certification |
101 ** | XBRL Interactive Data |
* Filed or furnished herewith
** In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
(1) Incorporated by reference to the comparable exhibit filed with our Registration Statement on Form S-1
(2) Incorporated by reference to the Form 8-K filed on March 28, 2011
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized:
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| ON THE MOVE SYSTEMS CORP |
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Dated: October 21, 2013 | By: | /s/ Robert Wilson |
| | Robert Wilson President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and Director |
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