MVE Smart Move,

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from                      to                     

Commission File Number: 001-32951

5990 Greenwood Plaza Blvd., Suite 390, Greenwood Village, CO 80111
(Address of Principal Executive Offices)

Issuer’s telephone number: 720-488-0204

N/A

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 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.
Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ .

As of October 29, 2007, the Registrant had outstanding 10,979,699 shares of common stock, $0.0001 par value per share.

Transitional Small Business Disclosure Format (check one) Yes o No þ

 

 

Index		Page Number
PART 1. FINANCIAL INFORMATION			3
Item 1. Financial Statements (unaudited)			3
Balance Sheets			3
Statements of Operations			4
Statements of Cash Flows			6
Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation			18
Item 3. Qualitative and Quantitative Disclosures about Market Risk			35
Item 4. Controls and Procedures			36
PART II. OTHER INFORMATION			38
Item 1. Legal Proceedings			38
Item 1A Risk Factors			38
Item 2. Unregistered Sales of Securities and Use of Proceeds from Sale of Registered Securities			40
Item 3. Defaults Upon Senior Securities			41
Item 4. Submission Of Matters To A Vote Of Security Holders			41
Item 5. Other Information			41
Item 6. Exhibits			41
SIGNATURES			42
EXHIBIT INDEX			42
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

Cautionary Note regarding Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-QSB contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. In many, but not all, cases you can identify forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “potential,” “should,” “will” and “would” or the negative of these terms or other similar expressions. These forward-looking statements include statements regarding our expectations, beliefs, or intentions about the future, and are based on information available to us at this time. We assume no obligation to update any of these statements and specifically decline any obligation to update or correct any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect changes in our expectations or future events. Such forward-looking statements involve a number of risks and uncertainties that may significantly affect our liquidity and results in the future, causing our actual results to differ materially from those expressed in any forward-looking statements. These risks include, but are not limited to, certain specific risks, contingencies and other factors discussed under “Risk Factors” or elsewhere in this Quarterly Report on Form 10-QSB, such as the inadequacy of our cash flow to meet our ongoing operational needs and our dependence on the availability of financing, which may cause our actual results, level of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements, or projected by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. Please consider our forward-looking statements in light of those risks as you read this report.

PART 1. FINANCIAL INFORMATION

Smart Move, Inc.
Statements of Operations

		Three Months Ended
		September 30,
		2007				2006
		(unaudited)
Sales		$	2,311,168			$	1,490,934
Cost of moving and storage (exclusive of depreciation, amortization and impairment shown separately below)			2,243,459				1,623,627
Depreciation, amortization and impairment			1,110,848				275,278
Total cost of moving and storage			3,354,307				1,898,905
Gross loss			(1,043,139	)			(407,971	)
Selling, general and administrative expenses (exclusive of depreciation and amortization shown separately below)			1,477,407				848,420
Depreciation and amortization			45,325				26,166
Write-off of deferred offering costs			—				602,262
Total selling, general and administrative expenses			1,522,732				1,476,848
Operating loss			(2,565,871	)			(1,884,819	)
Other income (expense):
Interest income			23,465				9,805
Interest expense			(615,729	)			(604,880	)
Total other expense			(592,264	)			(595,075	)
Net loss		$	(3,158,135	)		$	(2,479,894	)
Net loss per share:
Basic and diluted		$	(0.29	)		$	(0.45	)
Shares used to compute net loss per share:
Basic and diluted			10,854,716				5,522,706

The accompanying notes are an integral part of these financial statements.

Smart Move, Inc.
Statements of Operations

		Nine Months Ended September 30,
		2007				2006
		(unaudited)
Sales		$	4,603,287			$	3,227,403
Cost of moving and storage (exclusive of depreciation, amortization and impairment shown separately below)			4,908,590				3,804,936
Depreciation, amortization and impairment			2,421,573				706,810
Total cost of moving and storage			7,330,163				4,511,746
Gross loss			(2,726,876	)			(1,284,343	)
Selling, general and administrative expenses (exclusive of depreciation and amortization shown separately below)			4,691,760				4,952,611
Depreciation and amortization			112,944				71,968
Impairment of note receivable			—				47,000
Write-off of deferred offering costs			—				602,262
Total selling, general and administrative expenses			4,804,704				5,673,841
Operating loss			(7,531,580	)			(6,958,184	)
Other income (expense):
Interest income			283,195				80,481
Interest expense			(2,255,648	)			(1,229,975	)
Total other expense			(1,972,453	)			(1,149,494	)
Loss before income tax benefit			(9,504,033	)			(8,107,678	)
Income tax (benefit)			(2,367,000	)			—
Net loss		$	(7,137,033	)		$	(8,107,678	)
Net loss per share:
Basic and diluted		$	(0.68	)		$	(1.67	)
Shares used to compute net loss per share:
Basic and diluted			10,502,378				4,854,846

The accompanying notes are an integral part of these financial statements.

Smart Move, Inc.
Statements of Cash Flows

		Nine Months Ended
		September 30,
		2007				2006
Cash flows from operating activities:		(unaudited)
Net loss		$	(7,137,033	)		$	(8,107,678	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			2,128,506				778,778
Impairment of fixed assets			406,011				—
Non-cash compensation			174,555				2,500,000
Write-off of deferred offering costs			—				602,262
Bad debt expense			94,474				—
Amortization of debt discount			1,214,253				268,643
Impairment of notes receivable			—				47,000
Amortization of warrants for services			—				8,839
Value of additional shares issued upon conversion of debt to equity			185,482				36,670
Value of additional warrants issued upon conversion of debt to equity			64,955				124,470
Loss on asset disposal			—				7,446
Deferred income tax benefit			(2,367,000	)			—
Change in operating assets and liabilities:
Accounts receivable			(204,018	)			(221,806	)
Prepaid and other			57,145				(11,084	)
Packing supplies			(96,247	)			—
Contracts in process			(103,354	)			(234,573	)
Accounts payable			1,194,728				815,043
Accrued interest			382,589				379,358
Deferred revenue			236,478				(3,652	)
Net cash used in operating activities			(3,768,476	)			(3,010,284	)
Cash flows from investing activities:
Additions of property and equipment (excluding items under capital lease)			(9,775,964	)			(4,528,007	)
Deposits			(39,200	)			(44,000	)
Notes receivable			—				(47,000	)
Net cash used in investing activities			(9,815,164	)			(4,619,007	)
Cash flows from financing activities:
Proceeds from issuance of member shares			—				2,125,008
Offering costs on sale and conversion of member shares or common stock			—				(176,766	)
Proceeds from issuance of notes payable			1,757,500				6,832,500
Notes payable issuance costs			(152,775	)			(532,113	)
Proceeds from bank debt			—				500,000
Payments on bank debt			(497,641	)			(483,755	)
Bank debt issuance costs			—				(4,500	)
Payments on obligations under capital leases			(73,873	)			(63,176	)
Checks drawn in excess of available bank balances			—				(199,802	)
Deferred offering (costs) recovery			—				(520,279	)
Net cash provided by financing activities			1,033,211				7,477,117
Net decrease in cash and cash equivalents			(12,550,429	)			(152,174	)
Cash and cash equivalents at beginning of period			14,235,823				3,344,071
Cash and cash equivalents at end of period		$	1,685,394			$	3,191,897

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

Smart Move, Inc.
Notes to Financial Statements (unaudited)

Organization and Description of Business

Smart Move, Inc., a Delaware corporation (“Smart Move” or the “Company”), is a moving services company which offers an alternative method of moving household and other goods using the Company’s proprietary, tracking technology-enabled container, called a SmartVault ^tm . Smart Move provides intrastate, interstate and international containerized moving services on behalf of a diverse client base, including arranging for packing and unpacking, shipping, insurance and storage of customers’ household, commercial, and other goods. The Company also is engaged in developing tracking solutions using bundled GPS and wireless telephone technology components to be marketed separately to selected customer categories or as a component of the Company’s moving services provided to certain clients.

In connection with Smart Move’s initial public offering (“IPO”) in December 2006, the Company’s predecessor entity, A Smart Move, L.L.C., a Colorado limited liability company which began business operations in June 2005, merged into Smart Move. When the merger became effective on December 6, 2006, all issued and outstanding shares of membership interest in A Smart Move, L.L.C. automatically converted into two shares of the Company’s common stock, and all previously issued and outstanding options, warrants and notes with rights to purchase or convert into shares of membership interest in A Smart Move, L.L.C. automatically became eligible to purchase or convert into two shares of Smart Move, Inc. common stock. As of the date of the merger the accumulated deficit of A Smart Move, L.L.C. was treated as a constructive distribution and reflected as a reduction in additional paid-in capital. All references to share amounts in this report for pre-merger time periods have been retroactively adjusted to reflect the merger as if the merger had taken place as of the beginning of the earliest period presented.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to quarterly reports on Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-and nine-month periods ended September 30, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The condensed balance sheet at December 31, 2006, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in Smart Move’s annual report on Form 10-KSB for the year ended December 31, 2006.

Liquidity

Our ability to continue operations depends on having adequate funds to cover our expenses. We will require approximately $5 million in additional capital to fund our operations in accordance with our current operating model until our operations become self-funding, which is expected to occur during the third quarter of 2008. The availability of additional capital will depend on a number of factors, some of which are outside our control. These include general market conditions, conditions in the private equity markets where we have historically raised capital, the then-current market price of our common stock, our ability to enter into major contracts for the sale of our products, and our perceived future prospects.

We also caution that our cash requirements may vary and are difficult to predict. We are marketing an alternative solution to the moving industry, we have little historical data to accurately predict our sales volumes, and we are entering new relationships with established van lines. The nature of these relationships makes it difficult to predict revenues. Events that we cannot anticipate such as our prospective customers’ ability to execute their plans, may result in delayed orders or order cancellations which may increase our capital needs. Thus, our actual cash requirements may be greater than we currently anticipate.

If we are unable to obtain sufficient financing for our business operations when it is required we may be unable to take advantage of market opportunities as they arise and jeopardize our relationships with certain customers and strategic partners, causing negative impact on our ability to obtain financing for operations and growth in the future. We may not have adequate funds available in the near term to cover our expenses, and if we cannot obtain necessary financing we will be forced to cut back operations, or to sell operating assets. Management’s plans with respect to these matters include ongoing efforts to obtain financing, and may also include efforts to secure vendor approval to defer payables and to reduce operating expenses without impairing our ability to continue to execute our business plan. Management cannot provide any assurance that its plans will be successful in alleviating its liquidity concerns and bringing the Company to the point of sustained profitability. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We are in discussions with several sources to obtain financing for our short and long-term needs. While we are optimistic about securing additional capital in the near term, and have signed commitments for approximately $670,000 of additional short term financing, we are in negotiations for additional capital for our long-term needs and as of the date of this filing we do not have any formal binding commitments to provide these long-term funds. Our ability to execute our business plan and continue in operation is dependant on obtaining some level of additional financing within the next 60 to 90 days. Without this financing, we may not have the ability to continue as a going concern.

Accounting Policies

Reference is made to Note 2 of Notes to Financial Statements in Smart Move’s ’s Annual Report on Form 10-KSB for the summary of the Company’s significant accounting policies.

Advanced Billings

Smart Move recognizes advanced billings and the related deferred revenue of contracts in process on a net basis. Cash payments totaling $349,942 were received on advanced billings for moves in process and are included in the financial statements as deferred revenue as of September 30, 2007. The Company has advanced billings of approximately $441,000, as of September 30, 2007, which have not been recognized in accounts receivable or deferred revenue at September 30, 2007.

Customer Concentrations

At September 30, 2007, one customer accounted for 16% of the Company’s accounts receivable. For the nine months ended September 30, 2007, one customer accounted for 10% of net sales and no single customer accounted for more than 10% of the Company’s net sales for the nine months ended September 30, 2006.

Stock Based Compensation

There were 182,000 options granted to new employees and no options were exercised during the nine months ended September 30, 2007. In accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), compensation costs related to share-based payments that vested during the nine months ended September 30, 2007 and recognized in the Statements of Operations was $144,555. The Company has recognized $30,000 of expense for the nine months ended September 30, 2007, relating to the vested portion of restricted stock grants made to non-employee directors in January, 2007. During the nine months ended September 30, 2006, the Company issued 500,000 shares of stock valued at $2,500,000 to certain officers.

Options exercisable into 342,000 shares of common stock have vesting subject to performance conditions. As of September 30, 2007 management determined the performance conditions are not probable of being achieved and accordingly no compensation expense has been recognized for these options. 114,000 of these were subject to vesting at September 30, 2007, and have been forfeited as the performance conditions were not satisfied at the vesting date.

Loss Per Share

Loss per share is computed based on the weighted average number of shares outstanding during each period. Convertible notes, stock options, unvested grants of restricted stock and warrants are not considered in the calculation, however, as the impact of the potential dilution (11,614,469 shares at September 30, 2007, as compared with 5,899,512 shares at September 30, 2006) would be to decrease the basic loss per share. Consequently, the diluted loss per share indicated for each period is equivalent to basic loss per share for all periods shown.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS 157 will be effective for fiscal years beginning after November 15, 2007, which for the Company will be the 2008 calendar (and fiscal) year. The Company is assessing the impact the adoption of SFAS 157 will have on the Company’s financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option of Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that use different measurements for similar assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption allowed if SFAS 157 is also adopted. The Company is currently evaluating the impact of adopting SFAS 159 on its financial statements.

Depreciation expense was $2,128,506 and $778,778 for the nine months ended September 30, 2007, and 2006, respectively. Depreciation expense was $874,226 and $301,444 for the three months ended September 30, 2007, and 2006, respectively.

During the nine months ended September 30, 2007, the Company began assembling a majority of its SmartVault™ containers at its Denver warehouse. The Company receives the components required to be assembled or affixed, consisting of the plastic walls, top, aluminum base, signage and GPS units and then assembles or attaches the components to create a completed container. The completed SmartVault™ container is then shipped to a terminal for use. At September 30, 2007, the container components consisted of $585,901 of sides, bases and tops, $383,600 of GPS units, $142,613 of signage and $86,834 of various additional, miscellaneous components.

The Company accounts for internal-use software development costs in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 98-1, “Accounting for the Cost of Software Developed or Obtained for Internal Use,” or SOP 98-1. SOP 98-1 specifies that software costs, including internal payroll costs incurred in connection with the development or acquisition of software for internal use, is charged to technology development expense as incurred until the project enters the application development phase. Costs incurred in the application development phase are capitalized and will be depreciated using the straight-line method over an estimated useful life of three years, commencing on the date when the software is ready for use. During the nine months ended September 30, 2007 the Company capitalized software development costs of $199,763 in accordance with SOP 98-1.

Long-Lived Asset Impairments

Smart Move, Inc. evaluates whether long-lived assets, have been impaired when circumstances indicate the carrying value of those assets may not be recoverable. For such long-lived assets, an impairment exists when its carrying value exceeds the sum of estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, a probability-weighted approach is used for developing estimates of future undiscounted cash flows. If the carrying value of the long-lived asset is not recoverable based on these estimated future undiscounted cash flows, the impairment loss is measured as the excess of the asset’s carrying value over its fair value, such that the asset’s carrying value is adjusted to its estimated fair value. The assumptions used by management in its projections of undiscounted cash flows involves significant judgment of material estimates of future revenue and customer acceptance. If the assumptions utilized in the projections do not materialize the SmartVault™ , GPS equipment, vault mold, rolling stock and trailers and container components carrying values could become impaired resulting in a substantial impairment expense in the future.

Management assesses the fair value of long-lived assets using commonly accepted techniques, and may use more than one source. Sources to determine fair value include, but are not limited to, recent third party comparable sales, internally developed discounted cash flow analysis and analysis from outside advisors. Significant changes in market conditions resulting from events such as changes in commodity prices or the condition of an asset, or a change in management’s intent to utilize the asset would generally require management to re-assess the cash flows related to the long-lived assets.

During the second quarter of 2007 the Company was notified by its GPS analog providers that the FCC had ruled that service providers of analog signals will be allowed to discontinue service when the so-called “analog sunset” takes effect in February 2008. As of March 1, the Company had 2,660 of analog GPS units in service. Beginning March 1, these units will be depreciated over their remaining 11 month useful life. This accelerated rate of depreciation resulted in an increase of $153,516 in depreciation for the three months ended September 30, 2007. During the quarter ended June 30, 2007, the Company impaired the $75,094 full net book value of 333 analog GPS units that are no longer in use and have no known salvage value.

During the quarters ended June 30, 2007 and September 30, 2007 the Company retired and recycled a portion of its inventory of the older prototype “SmartVault™-Version I” units that were damaged and recorded an asset impairment of $48,970 and $281,947, respectively as these components were recycled. The remaining prototype “SmartVault™-Version I are used exclusively in local storage environment. A portion of Version I vaults have shown damage to the plastic base and corner joint that are positioned at a ninety degree angle on the Version I prototype. The all plastic base is subject to damage from forklifts. The ninety degree corners and joints have shown signs of stress under load. The new version vaults have a solid aluminum base proven to handle significant stress and the new construction vaults also feature a one piece rounded molded corner and the over all design provides significant strength to the container compared to the Version I prototype.

Valuation allowance for net deferred tax assets

Deferred income taxes are provided for temporary differences between financial reporting and income tax basis of assets and liabilities, and are measured using currently enacted tax rates and laws. Deferred income taxes also arise from the future benefits of net operating loss carry forwards. A valuation allowance equal to 100% of the net deferred tax assets has been recognized at September 30, 2007 due to uncertainty regarding future realization.

In April 2005 and in January 2006 Smart Move borrowed funds from a financial institution (“Bank Notes”). As of September 30, 2007, the remaining principal balances on these notes were $343,841 and $222,222, respectively. The Bank Notes are secured by all business assets excluding the Smart Vaults ^TM and the tool mold and are payable in monthly installments of approximately $55,000 plus interest, and mature through January 2009. In August of 2007 the Bank amended the loan agreements by waiving all of the Company’s previous loan covenant violations and providing for one covenant requiring the Company to maintain a minimum liquidity ratio coverage of 2.5 to 1.0 determined by the ratio of cash and net accounts receivable to the outstanding loan balance with the bank. As of September 30, 2007 the Company was in compliance with the loan covenant. Additionally the Bank amended the interest rate on the Bank Notes by increasing the interest to a fixed rate of 9.25%. The amendments to the bank notes are considered modifications of the existing debt under EITF 96-19 “ Debtors Accounting for a Modification or Exchange of Debt Instruments”. In conjunction with this modification, the Company incurred bank fees of $5,000.

 

- 13 -

In August 2007 Smart Move sold in a private placement note units (the “2007 August Notes”) for $1,217,500 issued at a discount of 1%. The 2007 August Notes are secured by a first lien on all of our container assets, bear interest at 12% and are due September 1, 2009. In connection with the offering, the 2007 August Note holders were granted warrants to purchase 121,750 shares of the Company’s common stock (collectively the “August 2007 PPM Warrants”) and exercisable at price of $7.50 per share for a period of 4.2 years. The 2007 August Notes are convertible into Smart Move shares at a conversion price of $2.00. The fair market value of the as converted shares on the commitment date was less than the $2.00 conversion price and therefore there was no beneficial conversion feature to record. In accordance with EITF No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, the values assigned to both the 2007 August Notes and the August 2007 PPM Warrants were allocated based on their relative fair values. The fair value of the August 2007 PPM Warrants was determined using the Black-Scholes option-pricing model. The face value of $1,217,500 (before cash offering costs of $109,575) was allocated $3,238 to the August 2007 PPM Warrants and $1,214,262 to the 2007 August Notes based on their relative fair values. In connection with the offering, the placement agent was issued warrants to purchase 48,700 Smart Move shares at an exercise price of $2.00 per share with a five year term. The relative fair value of the placement agent warrants of $18,506 at the time of issuance, which was determined using the Black-Scholes option-pricing model was recorded as a debt discount and corresponding increase to paid in capital. Interest on the 2007 August Notes is payable quarterly on the first day of March, June, September and December beginning December 1, 2007. The principal is due and payable September 1, 2009.

In September 2007 Smart Move sold in a private placement an unsecured note (the “2007 September Note”) for $540,000. The 2007 September Note bears interest at 7% and is due September 2, 2010. In connection with the offering, the 2007 September Note holder was granted warrants (collectively the “September 2007 PPM Warrants”) to purchase 100,000 Smart Move shares at an exercise price of $7.50 per share, 100,000 Smart Move shares at an exercise price of $3.25 per share, and 100,000 Smart Move shares at an exercise price of $2.50 per share. All the warrants are exercisable for a period of 5 years. The 2007 September Notes are convertible into Smart Move shares at a conversion price of $1.80. The fair market value of the as converted shares on the commitment date was less than the $1.80 conversion price and therefore there was no beneficial conversion feature to record. In accordance with EITF No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, the values assigned to both the 2007 September Note and the September 2007 PPM Warrants were allocated based on their relative fair values.The fair value of the September 2007 PPM Warrants was determined using the Black-Scholes option-pricing model. The face value of $540,000 (before cash offering costs of $43,200) was allocated $61,863 to the September 2007 PPM Warrants and $478,137 to the 2007 September Note based on their relative fair values. Interest on the 2007 September Note is payable quarterly on the first day of March, June, September and December beginning December 1, 2007. The principal is due and payable September 2, 2010.

Income Taxes

On December 6, 2006, the Company’s predecessor entity, A Smart Move, L.L.C. merged into Smart Move, Inc. Upon the merger of the limited liability company predecessor entity with the C-Corporation, the Company recorded a net deferred tax liability and income tax expense of $2,652,000.

On January 1, 2007, Smart Move, Inc. adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. As a result of the implementation of Interpretation 48, the Company recognized an $80,000 increase in its unrecognized tax liability, which increase was accounted for as an addition to the Company’s January 1, 2007, accumulated deficit. A reconciliation of the beginning and ending amount of unrecognized tax liabilities (unaudited) follows:

We classify interest on tax deficiencies as interest expense, and we classify income tax penalties as an operating expense. As of September 30, 2007, we have not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

Tax years 2004 through 2006 remain open to examination by the major taxing jurisdictions to which we are subject. There are no pending examinations by any federal or state taxing jurisdictional authority and the Company has not been notified by any taxing jurisdictions of any proposed or planned examination.

The federal and state income tax (benefit) are summarized as follows (unaudited):

A reconciliation of the income tax (benefit) with amounts determined by applying the statutory U.S. federal income tax rate to loss before tax benefit is as follows (unaudited):

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax reporting purposes. The significant components of the Company’s deferred tax assets and liabilities are as follows:

At September 30, 2007, the Company had available certain unused operating loss carryforwards that expire in 2021 and 2022 and maybe subject to Internal Revenue Code section 382 limitations. These carryforwards may be applied against the Company’s future taxable income to the extent of approximately $9.7 million.

Equity

In May 2007, holders of the Company’s January 2006 Convertible Notes converted $1,932,500 of the principal amount ($1,373,867, net of offering costs) into shares of the Company’s common stock at a conversion price of $3.75 per share. At the date of conversion the unamortized beneficial conversion discount of $870,523 was recorded as interest expense. As a result of this conversion of debt to equity, the Company issued an additional 515,332 shares of previously authorized but unissued common stock.

On January 3, 2007, Smart Move, Inc. granted 8,676 shares of restricted common stock of the Company in accordance with the Company’s compensation plan for non-employee directors. The 8,676 shares of common stock so issued were valued at $40,000, and became vested as to 4,338 shares as of June 30, 2007, with the remaining shares to vest on December 31, 2007.

In August of 2007, holders of the July 2006 Convertible Notes converted $406,484 of accrued interest into 195,425 shares of the common stock of the Company. As an inducement to convert the accrued interest to equity the note holders were issued an additional 89,174 shares of the Company’s common stock and and were issued warrants to purchase 120,440 shares of the Company’s common stock exercisable at $3.375 for a period of five years. Additionally in connection with this transaction the Company issued 11,852 warrants to placement agents to purchase shares of the Company’s common stock exercisable at $3.375 for a period of five years. The inducement shares and warrants were recorded as additional interest expense and additional paid in capital totaling $250,437.

Subsequent Events

On November 9, 2007 we entered into subscription agreements with certain accredited investors to purchase an aggregate of $670,000 of our $25,000 per unit Subordinated Secured Convertible Notes due October 31, 2008 for the face value thereof. Interest accrues on the notes at the rate of 12% per annum and is payable at maturity. The notes are convertible into shares of the Company’s common stock at a conversion price of $1.00 per share. Each note was issued with a warrant permitting the holder to purchase 25,000 shares of the Company’s common stock at an exercise price of $1.25 and 25,000 shares of the Company’s common stock at an exercise price of $1.50 per share. These notes and attached warrants (“November 2007 Notes”) are restricted securities issued and sold in reliance upon the exemption from registration contained in Rule 506 of Regulation D under the Securities Act of 1933.

On November 14, 2007, Smart Move, Inc. (the “Company”), confirmed that the holders of the Company’s 2005 Secured Convertible Notes aggregating $3 million principal amount (“2005 Notes”) had agreed with the Company to defer the scheduled amortization of the principal of the 2005 Notes which mature on September 30, 2012, and also to amend interest payment terms of the 2005 Notes. The 2005 Notes had been scheduled to begin amortization on a sixty (60) months schedule. The Company and the holders of the 2005 Notes also agreed that, as consideration for the deferrals, the holders will be granted additional warrants to purchase common stock of the Company, par value $.0001 per share aggregating 540,000 shares exercisable at $1.50.

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

Cautionary Note Regarding Forward Looking Statements

Forward looking statements contained in this Item 2 are based largely on the Company’s current expectations and are subject to a number of risks and uncertainties including, among others (i) continued customer acceptance of the Company’s moving solution and services, (ii) the acceptance of the Company’s existing and proposed tracking technology service component and the possible emergence of competing technologies, and (iii) depending on results of operations, the Company’s ability to obtain additional financing required to implement its business plan and continue its operations. Actual results could differ materially from these forward looking statements. In view of these risks and uncertainties, there can be no assurance that the forward looking statements contained in the discussion which follows or elsewhere in this Quarterly Report on Form 10-QSB will in fact transpire.

Throughout this Current Report on Form 10-QSB, the terms “we,” “us,” “our” and “our company” refer to Smart Move, Inc. and its predecessor entity, A Smart Move, L.L.C., as applicable during the time period referenced.

The following discussion should be read in conjunction with the accompanying financial statements of Smart Move, Inc., including the notes thereto, included elsewhere in this Quarterly Report.

Our Business

Our predecessor entity, A Smart Move, L.L.C., was formed as a Colorado limited liability company (the “LLC”) on August 11, 2004. On December 6, 2006, the LLC merged into Smart Move, Inc. (“Smart Move or the Company”), a Delaware corporation. Smart Move provides an alternative method of moving household goods and commercial goods through the use of the Company’s proprietary SmartVault ^tm shipping containers. In June 2005, we began providing services to our customers. We provide intrastate and interstate moving services from 61 of the largest U.S. metropolitan centers, utilizing the terminals of our primary transportation provider, UPS Freight. We have been providing services to major van lines which include the use of SmartVault ^tm containers to fill orders for their smaller customers and customers whose shipments require an expedited or time-guaranteed service. The number of these major van lines continues to grow. In addition, we anticipate increased demand from corporate clients who need specialized transportation services for high value products that require specialized handling and tracking capabilities. We currently utilize UPS Freight for outsourcing our local pick up and delivery in all of our 61 markets in which we operate. This allows Smart Move to service all of our locations with less infrastructure cost burdens than traditional movers.

Smart Move Strategy

The Smart Move solution provides a flexible, competitively priced and secure moving alternative for the individual and business consumers utilizing our services. To compete in the multi-billion dollar annual US moving and storage market, we have designed our business model so that it provides for:

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Efficient utilization of our proprietary SmartVault tm containers, which is achieved by procedures designed to ensure that our containers are shipped back from the original destination to the nearest available terminal so that they are in position to be used in the next available move cost effectively and utilized more promptly and efficiently;

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Ability to control costs by outsourcing transportation, warehousing, and moving labor;

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Ability to open new markets with limited capital;

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Utilization of state of the art GPS tracking, barcode technology and cell phone technology; and

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Ability to expand markets and increase revenue opportunities.

Historically, a majority of our net sales have been to a large number of customers. In the third quarter of 2007, sales to Atlas Van Lines accounted for 11% of net sales. In the first nine months of 2007, sales to Atlas Van Lines accounted for 10% of net sales. Loss of this customer could have a material effect on our business, financial condition, results of operations and cash flow. In the first nine months of 2006 no customer had sales that accounted for more that 10% of sales.

Summary of Financial Results

We are an early stage company and reported our first revenues in July 2005. We believe that the rate and extent of growth of our property and equipment deployed for services and increase in our sales are key measurements of Smart Move’s financial results as we continue to implement our nationwide expansion. For the nine months ended September 30, 2007, sales were $4,603,287, compared to $3,227,403 in the same period during 2006, representing an increase of 43%. The net loss for the nine months ended June 30, 2007, was $7,137,033 compared to a net loss of $8,107,678 for the nine months ended September 30, 2006. The decrease in the loss is primarily due to: (i) a stock grant to certain officers and option grants to our employees made prior to our initial public offering for a total non-cash compensation cost incurred of $2,500,000 during the nine months ended September 30, 2006, as compared to $174,555 of non-cash compensation cost incurred for the nine months ended September 30, 2007; (ii) an income tax benefit of $2,367,000 realized by the Company for the nine months ended September 30, 2007, offset by increased interest expense of $1,025,673 (including an increase in noncash interest of $1,078,153), an increase in depreciation, amortization and fixed asset impairment expense of $1,755,739, and an increase in sales-related general and administrative expenses of $2,064,594 as compared with the prior period in 2006. The net basic loss per share for the nine months ended September 30, 2007, was $0.68, compared to a net basic loss per share of $1.67 reported for the same nine months during 2006.

Our investment in property and equipment increased for the nine months ended September 30, 2007, by over $10 million, to an aggregate $21 million investment (before accumulated depreciation). Approximately $14 million of this aggregate amount was attributable to purchases of additional SmartVault ^tm units and to the purchase of GPS units and other container components relating to final assembly of the units.

Cash flows used in operations for the nine months ended September 30, 2007, were $3,768,476 compared to cash used of $3,010,284 during the same period in 2006. The required use of cash was primarily attributable to the current period operating loss, offset by non-cash items of depreciation expense of $2,128,506, amortization of debt discounts of $1,214,253, an increase in accounts payable of $1,194,728, and an increase in accrued interest of $382,589.

The following tabular presentation illustrates certain potentially favorable developments noted during the successive quarters of the current fiscal year of the Company relating to its cost of sales. The table below summarizes sales by quarter and the reduction in quarterly gross loss (exclusive of depreciation) expressed as a percentage of total sales volumes, and the table also shows the quarterly additions to property and equipment which occurred for the successive quarterly intervals (unaudited):

The Company reported its first quarterly gross profit (excluding depreciation, amortization and impairment) for the three months ended September 30, 2007 of $67,709. The Company’s quarterly gross loss increased for the three months ended June 30, 2007 compared to the three months ended March 31, 2007 because of repositioning and furniture pad expenditures of $300,517 (22% of sales) compared to $132,356 (14% of sales) for the three months ended March 31, 2007. The extent of the continuing reduction in gross loss is expressed in the table above as a percentage of sales exclusive of depreciation, amortization and impairment expense. This information reflects that the Company has been able to reduce its service cost associated with delivering moving and storage services, a majority of which has resulted from the Company’s ability to reduce its freight costs incurred for moves. This reduction in freight costs has been achieved through the utilization of better software tools to minimize the number of missed shipments and through a proactive effort to consolidate shipments into a full truck load rather than “LTL” or less than truck load freight in separate partial truckloads, normally enabling a lower freight cost for full loads. The Company also has been able to reduce its warehouse costs by actively seeking to conclude arrangements with lower priced providers. The Company’s labor costs also have declined as a percentage of sales as a result of Smart Move’s continuing efforts to expand its base of labor provider resources within the markets we serve. The increased utilization of our container assets comprising that fleet will help reduce our expenses associated with repositioning of the SmartVault™ containers.

During the nine months ended September 30, 2007, the Company added approximately 4,500 containers to its existing fleet of SmartVault™ units. As a result of this expansion, the Company incurred repositioning costs and furniture pad expenditures of $630,221 (representing 14% of Sales). The majority of the repositioning costs relate to positioning of the previous older Version I SmartVault™ units for use in our local storage operations. These costs are included in costs of moving and storage during the current period. We believe these costs will be reduced in subsequent periods as the Company reaches the appropriate vault capacity to meet market demand.

The following table summarizes total sales, completed moves and moves in progress (unaudited):

		At September 30, 2007								At June 30, 2007								At March 31, 2007
Moves in Progress			356			$	1,176,635				412			$	1,394,912				224			$	893,655

The majority of our sales through the end of the current period in fiscal 2007 were to the general public. As of September 30, 2007, we had 356 moves in progress (that includes advanced billings) which, when completed, will represent revenue of approximately $1,176,000. The Company recognizes revenue upon completion of all the moving services. The Company delineates a customer move into five stages, 1-5, based on the move status of the customer. Stage five is the final stage, retrieval of the empty vaults from the destination, indicating completion of all required services and triggers revenue recognition. A move in progress is a contracted customer move which has yet to reach stage five. The costs associated with moves in progress are reflected as deferred costs and any cash collected on a move in progress is reflected as deferred revenue.

The following table summarizes the components of cost of goods sold (unaudited):

Cost of goods sold (excluding depreciation, amortization and impairment) is comprised of the following cost categories: variable, fixed and furniture pads and repositioning. Included in variable is, freight, insurance, labor and service costs for which the Company will not incur a charge unless a move is started.

Fixed costs are monthly expenses on our containers that may or may not be involved in an actual move during the period. Included in fixed cost is GPS service and storage. Repositioning should be reduced as a percentage of sales as the units are positioned in markets based on demand. Furniture pads are expensed in the period purchased. As a result of our expansion of SmartVaults ^TM the cost of furniture pads to date is greater, as a percentage of revenue, than the normal replacement cost of pads expected in the future.

Principal Costs and Expenses:

Our principal operating costs and expenses incurred on a recurring basis consist of:

Cost of Revenues : Cost of moving and storage consist of both fixed and variable costs incurred for the acquisition, transportation, repositioning and storage associated with the SmartVault ^TM containers. During the expansion phase of the Company the fixed period costs, such as the depreciation, storage and other related cost incurred to build capacity have inequitably burdened the Company’s current period growth stage revenue.