The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended,
|
|
|
February 28, 2017
|
|
February 29, 2016
|
|
|
|
|
|
|
REVENUE
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
General and administrative expenses
|
|
301,575
|
|
|
572,471
|
|
Gain on disposal of fixed assets
|
|
(5,789
|
)
|
|
(1,808
|
)
|
Impairment of fixed assets
|
|
|
|
|
(49,302
|
)
|
Operating loss
|
|
(295,786
|
)
|
|
(619,965
|
)
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
Interest expense
|
|
(811,383
|
)
|
|
(647,990
|
)
|
Gain on financial derivatives
|
|
34,966,067
|
|
|
|
|
Gain on debt forgiveness
|
|
30,000
|
|
|
|
|
Loss on debt covenant violations
|
|
(43,000
|
)
|
|
|
|
Total other income (expense)
|
|
34,141,684
|
|
|
(647,990
|
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
33,845,898
|
|
$
|
(1,267,955
|
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
Basic
|
$
|
4.47
|
|
$
|
(0.44
|
)
|
Diluted
|
$
|
0.07
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
Basic
|
|
7,580,137
|
|
|
2,881,703
|
|
Diluted
|
|
492,480,090
|
|
|
2,881,703
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E
|
|
Series F
|
|
Additional
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
Preferred Stock
|
|
Paid-In
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, February 28, 2015
|
|
75,360
|
|
$
|
75
|
|
1,000,000
|
|
$
|
1,000
|
|
|
|
$
|
|
|
$
|
5,351,237
|
|
$
|
(6,379,808
|
)
|
$
|
(1,027,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion
|
|
4,822,667
|
|
|
4,823
|
|
|
|
|
|
|
|
|
|
|
|
|
195,006
|
|
|
|
|
|
199,829
|
|
Common stock issued for services
|
|
10,556
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
4,581
|
|
|
|
|
|
4,592
|
|
Share rounding on reverse split
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion discount on issuance of convertible note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522,048
|
|
|
|
|
|
522,048
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,267,955
|
)
|
|
(1,267,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, February 29, 2016
|
|
4,908,816
|
|
$
|
4,909
|
|
1,000,000
|
|
$
|
1,000
|
|
|
|
$
|
|
|
$
|
6,072,872
|
|
$
|
(7,647,763
|
)
|
$
|
(1,568,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion
|
|
12,748,028
|
|
|
12,748
|
|
|
|
|
|
|
|
|
|
|
|
|
54,402
|
|
|
|
|
|
67,150
|
|
Preferred stock issued for cash
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
1,000
|
|
|
4,000
|
|
|
|
|
|
5,000
|
|
Beneficial conversion discount on issuance of convertible note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,100
|
|
|
|
|
|
35,100
|
|
Derivative liabilities reclassified from additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,967,909
|
)
|
|
|
|
|
(47,967,909
|
)
|
Release of derivative liability on conversion of convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,547
|
|
|
|
|
|
122,547
|
|
Related party debt forgiveness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,704
|
|
|
|
|
|
201,704
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,845,898
|
|
|
33,845,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 29,
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
33,845,898
|
|
$
|
(1,267,955
|
)
|
|
|
|
|
|
|
|
|
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 Companys 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 Companys financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to implement the Companys business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Companys 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 Companys ability to continue as a going concern.
In the long term, management believes that the Companys projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Companys future growth. However, there can be no assurances that the Companys planned activities will be successful, or that the Company will ultimately attain profitability. The Companys 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 360
Property, 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 Companys policy is to expense advertising costs when they are incurred.
Income Taxes
The Company accounts for income taxes under ASC 740
Income Taxes
. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of 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 Companys convertible debt is considered anti-dilutive due to the Companys 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 Companys balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period between the origination of these instruments and their expected realization.
FASB Accounting Standards Codification (ASC) 820
Fair Value Measurements and Disclosures
(ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
|
|
|
|
|
Level 1 -
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2 -
|
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
|
Level 3 -
|
Inputs that are both significant to the fair value measurement and unobservable.
|
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of 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 Companys 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 Companys 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 corporations 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
Rate per Share
|
|
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
Rate per Share
|
|
Amount
of Note
|
|
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 Entitys Own Stock
and determined that the underlying common stock is indexed to the Companys 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:
|
|
|
|
|
|
|
|
Expected dividends
|
|
|
%
|
Expected term (years)
|
|
0.25 4.39
|
|
Volatility
|
|
317% 632
|
%
|
Risk-free rate
|
|
0.53% 2.38
|
%
|
The following fair value hierarchy table presents information about the Companys 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 finders 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 finders 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 Companys 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 corporations 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 companys 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 Companys 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 -