NOTE
2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of June 30, 2018, the Company had cash of $15,948 and working capital deficit (current liabilities in excess of current assets)
of $2,814,788. During the six months ended June 30, 2018, the Company used net cash in operating activities of $4,441,379. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance
of the financial statements.
During
the six months of 2018, the Company received $323,000, $3,304,000, $106,000 and $397,500 approximately from the exercise of
common stock warrants, sale of common stock, issuances of debt notes, and proceeds from simple agreements for future
tokens, respectively. The Company does not have cash sufficient to fund operations for the next fiscal year.
The
Company’s primary source of operating funds since inception has been cash proceeds from private placements of common stock,
proceeds from the exercise of warrants and options and issuance of notes payable. The Company has experienced net losses and negative
cash flows from operations since inception and expects these conditions to continue for the foreseeable future. The Company will
require additional financing to fund future operations.
Management’s
plans with regard to these matters encompass the following actions: 1) obtain funding from new and potentially current investors
to alleviate the Company’s working capital deficiency, and 2) implement a plan to generate sales. The Company’s continued
existence is dependent upon its ability to translate its user base into sales. However, the outcome of management’s plans
cannot be ascertained with any degree of certainty.
Accordingly,
the accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP,
which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of
liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed
consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying interim unaudited consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Securities
Exchange Commission (“SEC”) Form 10-Q and Article 8 of Regulation S-X of the Securities Act of 1933, and reflect
the accounts and operations of the Company and those of our subsidiaries..
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
All
intercompany accounts and transactions have been eliminated in consolidation. Accordingly, the accompanying interim
unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of the unaudited condensed consolidated financial position of the
Company as of June 30, 2018, the unaudited condensed consolidated results of operations for the three and six months ended
June 30, 2018 and 2017, and the unaudited condensed consolidated results of cash flows for the six months ended June 30, 2018
and 2017 have been included. These interim unaudited condensed consolidated financial statements do not include all of the
information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction
with the consolidated financial statements and related notes contained in the Company’s most recent Annual Report on
Form 10-K/A filed with the SEC on April 29, 2018. The December 31, 2017 balances reported herein are derived from the audited
consolidated financial statements included in the Company’s Annual Report on Form 10-K/A for the year ended December
31, 2017, filed with the SEC on April 29, 2018. The results for the interim periods are not necessarily indicative of results
to be expected for the full year.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant estimates include stock-based compensation,
fair values relating to derivative liabilities and the valuation allowance related to deferred tax assets. Actual results may
differ from these estimates.
Fair
Value of Financial Instruments
ASC
subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities as reflected in
the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial
assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements
together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit
risk.
The
Company follows ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at
fair value.
Cash
and Cash Equivalents
For
purposes of the Statement of Cash Flows, the Company considers highly liquid investments with an original maturity of three months
or less to be cash equivalents.
Property
and Equipment
Property
and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.
Repair and maintenance costs are expensed as occurred. When retired or otherwise disposed, the related carrying value and accumulated
depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected
in earnings.
Acquisitions
and Subsidiaries
Subsidiaries
are all entities over which MassRoots has the power to govern the financial and operating policies generally accompanying a shareholding
of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether MassRoots controls another entity. Subsidiaries are fully consolidated from
the date on which control is transferred to MassRoots.
The
purchase method of accounting is used to account for the acquisition of subsidiaries by MassRoots. The cost of an acquisition
is measured as the fair value of the assets transferred in consideration, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the MassRoots’
share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
Inter-company
transactions, balances and unrealized gains on transactions between MassRoots’ companies are eliminated. Unrealized losses
are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Advertising
The
Company follows the policy of charging the costs of advertising to expense as incurred. For the three months ended June 30, 2018
and 2017, the company charged to operations $367,974 and $368,812, respectively, as advertising expense. For the six months ended
June 30, 2018 and 2017, respectively, the company charged to operations $432,551 and $562,243 as advertising expense.
Stock
Based Compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of
the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete.
The fair value amount is then recognized over the period during which services are required to be provided in exchange for the
award, usually the vesting period.
Long-Lived
Assets
The
Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management
at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Intangible assets are stated at cost and reviewed annually to examine any impairments, usually assuming an estimated useful lives
of 3 to 5 years. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from
the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
Indefinite
Lived Intangibles and Goodwill Assets
The
Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business
Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and
liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available,
and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset
valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the
tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The
Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events
or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.
Segment
Reporting
Operating
segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly
by the Chief Executive Officer, or decision-making group, in deciding the method to allocate resources and assess performance.
The Company currently has one reportable segment for financial reporting purposes, which represents the Company’s core business.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
Net
Earnings (Loss) Per Common Share
The
Company computes earnings (loss) per share under ASC subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the year. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion
of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted”
methods as applicable.
The
computation of basic and diluted income (loss) per share, for the three and six months ended June 30, 2018 and 2017 excludes potentially
dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market
price of the common stock during the period.
Potentially
dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Options to purchase common stock
|
|
|
15,371,765
|
|
|
|
17,248,942
|
|
Warrants to purchase common stock
|
|
|
34,626,339
|
|
|
|
7,793,847
|
|
Totals
|
|
|
49,998,104
|
|
|
|
25,042,789
|
|
Reclassification
Certain
reclassifications have been made to the prior years’ data to conform to the current year presentation. These reclassifications
had no effect on reported income (losses).
Recent
Accounting Pronouncements
There
are other various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations
or cash flows.
FASB
ASU 2017-01
(Topic 805), “Business Combinations: Clarifying the Definition of a Business” –
Issued in January 2017, ASU 2017-01 revises the definition of a business and provides new guidance in evaluating when a set of
transferred assets and activities is a business. This guidance was effective for the Company in the first fiscal quarter of 2018.
The Company believes the standard does not have a material impact on our consolidated financial statements and related disclosures.
FASB ASU 2016-15,
“Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)”
–
Issued in August 2016, the amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are
required to present a statement of cash flows under ASC Topic 230,
“Statement of Cash Flows”
. The amendments
in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The Company has adopted this guidance and does not believe it materially impacts its consolidated financial
statements and related disclosures.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
FASB
ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers”
– Issued in May 2014, ASU
2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step
model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued
ASU No. 2015-14,
“Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”
.
This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08,
“Principal
versus Agent Considerations (Reporting Gross versus Net)”,
which amends the principal versus agent guidance and
clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred
to the customer. In addition, the FASB issued ASU Nos. 2016-20,
“Technical Corrections and Improvements to Topic
606, Revenue from Contracts with Customers”
and 2016-12,
“Narrow-Scope Improvements and Practical
Expedients”
, both of which provide additional clarification of certain provisions in Topic 606. These ASC updates are
effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted
only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or cumulative
effect transition method.
The
Company expects to apply the guidance using the modified retrospective transition method. The Company does not expect the adoption
of ASU 2014-09 to have a material impact on the Company’s financial position or results of operations but will result in
additional disclosures regarding the Company’s revenue recognition policies. The Company also does not expect the adoption
of ASU 2014-09 will require material or significant changes to its internal controls over financial reporting. In connection with
the application of that guidance and the adoption of ASU 2014-09, the Company expects that it will expand its revenue recognition
inquiries and update its questionnaires primarily to identify matters that would signal variable consideration implications under
the new guidance.
FASB
ASU No. 2014-15,
“Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern,
which is included in Accounting Standards Codification (ASC) 205, Presentation of Financial Statements” -
Issued
August 2014, this update provides an explicit requirement for management to assess an entity’s ability to continue as an ongoing
concern, and to provide related footnote disclosures in certain circumstances.
The
amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods
beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which
the financial statements have not previously been issued. The Company has adopted this standard and included the necessary disclosures
in the footnotes to our financial
FASB
ASU 2016-02, Leases (Topic 842)
- ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise
from operating 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. For leases with
a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize
lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning
of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments
in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e.,
January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic
business entities upon issuance. The adoption of this standard is not expected to have a material impact on the Company’s
financial position and results of operations.
FASB
ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”
- The amendment is part
of the FASB’s simplification initiative and is intended to simplify the accounting around share-based payment award transactions.
The amendments include changing the recording of excess tax benefits from being recognized as a part of surplus capital to being
charged directly to the income statement, changing the classification of excess tax benefits within the statement of cash flows,
and allowing companies to account for forfeitures on an actual basis, as well as tax withholding changes. The amendments in this
update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal
years. The adoption of this standard has not had a material impact on the Company’s financial position and results of operations.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
FASB
issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
–
Adopted in November 2016, this ASU requires that the reconciliation of the beginning-of-period and end-of-period amounts shown
in the statement of cash flows include cash and restricted cash equivalents. This ASU is effective for public business entities
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this
standard is not expected to have a material impact on the Company’s financial position and results of operations.
FASB
issued ASU 2017-11, Earnings Per Share (“ASC 260”), Distinguishing Liabilities from Equity (“ASC
480”), and Derivatives and Hedging (“ASC 815”)
-- Adopted in July 2017, A
SU
No. 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among
the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock;
(ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and
(iii) identifying mandatorily redeemable non-controlling interests. The Company has adopted ASU No. 2017-11 effective for the
Company on January 1, 2018. The adoption of ASU No. 2017-11 has eliminated the derivative liabilities from the Company’s
financial statements.
There
are other various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations
or cash flows.
NOTE
4 – INVESTMENTS
As
of June 30, 2018, the carrying value of our investments in privately held companies totaled $403,249. These investments are accounted
for as cost method investments, as we own less than 20% of the voting securities and do not have the ability to exercise significant
influence over operating and financial policies of the entities.
During
the twelve months ended December 31, 2017, the Company acquired 23,810 shares of Class A common stock of Hightimes Holding Corp.
for $100,002, or $4.20 per share. As a result of a forward share split of 1.93:1 on January 15th, 2018, MassRoots currently has
45,974 shares of Class A Common Stock. The acquired Class A common stock are considered non-marketable securities.
On
July 13, 2017, the Company purchased an unsecured convertible promissory note in the principal amount of $300,000 from Cannaregs,
Ltd, a Colorado limited liability company (“Cannaregs”). The note bears interest at a rate of 5% per annum and matures
on at December 19, 2019. In the event Cannaregs consummates an equity financing in excess of $2,000,000 prior to the maturity
date of the note, the outstanding principal and any accrued and unpaid interest automatically converts to equity securities of
the same class or series issued by Cannaregs at the lesser of: a) 90% of the price paid per equity security or b) a price reflecting
a valuation cap of $4,500,000.
On
July 17, 2017, MassRoots converted the note to 430,622 shares of CannaRegs’ common stock, approximately 4.31% of
CannaRegs’ issued and outstanding shares as of June 30, 2018.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment as of June 30, 2018 and December 31, 2017 is summarized as follows:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Computers
|
|
$
|
57,000
|
|
|
$
|
55,244
|
|
Office equipment
|
|
|
45,657
|
|
|
|
43,590
|
|
Subtotal
|
|
|
102,657
|
|
|
|
98,834
|
|
Less accumulated depreciation
|
|
|
(59,104
|
)
|
|
|
(43,688
|
)
|
Property and equipment, net
|
|
$
|
43,553
|
|
|
$
|
55,146
|
|
Depreciation
expense for the three months ended June 30, 2018 and 2
017 was $5,189 and
$6,158,
respectively;
and $15,415 and $11,934 for the six months ended June 30, 2018 and 2017, respectively.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
NOTE
6 – SOFTWARE COSTS
On
December 15, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
Whaxy Inc., a wholly-owned subsidiary of the Company (“Merger Subsidiary”), DDDigtal Inc., a Colorado corporation
(“DDDigtal”), Zachary Marburger, an individual acting solely in his capacity as Stockholder Representative, and all
of the stockholders of DDDigtal. Pursuant to the Merger Agreement, the parties agreed to merge Merger Subsidiary with and into
DDDigtal, whereby DDDigtal survived as a wholly-owned subsidiary of MassRoots (the “Merger”).
On
January 25, 2017 (the “Effective Date”), the Merger was completed and became effective upon the filing of certificates
of merger with the respective Secretary of State of the States of Delaware and Colorado, in such forms as required by, and executed
in accordance with, the relevant provisions of the Delaware General Corporation Law and the Colorado Business Corporation Act.
Pursuant
to the terms of the Merger Agreement, each share of DDDigtal’s common stock was to be exchanged for a number of shares of
the Company’s common stock (or a fraction thereof), based on an exchange ratio, as ultimately calculated, equal to approximately
5.273-for-1, such that 1 share of the Company’s’ common stock was issued for every 5.273 shares of DDDigtal’s
common stock.
On
the Effective Date, the Company issued 2,926,830 shares of the Company’s common stock
pro rata
to all stockholders
of DDDigtal (the “Share Consideration”) in exchange for all of their shares of DDDigtal’s common stock. At the
same time, each share of the common stock of Merger Subsidiary was converted into and exchanged for one share of common stock
of DDDigtal held by the Company, and all shares of DDDigtal common stock outstanding immediately prior to the Effective Date automatically
cancelled and retired. DDDigtal continued as a surviving wholly-owned subsidiary of the Company, and Merger Subsidiary ceased
to exist.
Also
pursuant to the terms of the Merger Agreement, the Company paid cash consideration, in December 2016, of $40,000 to Zachary Marburger
and $20,000 to Micah Davidson, as repayment of outstanding debts owed by DDDigtal to the individuals.
As
a condition to the closing of the Merger, the Company hired Zachary Marburger as its Vice President of Strategy, and engaged Micah
Davidson as a Senior Software Engineer. As a condition of Mr. Marburger’s employment and pursuant to the Merger Agreement,
the Company will pay Mr. Marburger an additional $40,000 following the one-year anniversary of his constant employment with the
Company.
Cash (paid in December 2016)
|
|
$
|
60,000
|
|
2,926,830 shares of the Company’s common stock
|
|
|
2,883,220
|
|
Liabilities assumed
|
|
|
40,140
|
|
Total purchase price
|
|
$
|
2,983,360
|
|
|
|
|
|
|
Cash
|
|
$
|
8,672
|
|
Accounts receivable
|
|
|
3,583
|
|
Property and equipment
|
|
|
3,333
|
|
|
|
|
|
|
Software
|
|
|
1,253,000
|
(1)
|
|
|
|
|
|
Goodwill
|
|
|
1,714,772
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
2,983,360
|
|
(1)
|
The
estimated useful life for Software development is assumed at 3 years. The acquisition was completed in January 2017, however the
allocation of proceeds to identifiable assets was recognized during fourth quarter.
|
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
NOTE
7 – CONVERTIBLE NOTES PAYABLE
On
August 17, 2017, the Company issued secured convertible notes to certain accredited investors in the aggregate principal amount
of $1,045,000. The notes mature on February 18, 2018 and accrue no interest. Net proceeds received were $942,500 after deduction
of legal and other fees. If the Company exercises its right to prepay the notes, the Company shall make payment to the investors
in an amount equal to the sum of the then outstanding principal amount of the notes that the Company desires to prepay, multiplied
by (a) 1.1, during the first ninety (90) days after the execution of the note, or (b) 1.25, at any point thereafter. The notes
are convertible into shares of the Company’s common stock at a price per share equal to the lower of (i) $0.75 and (ii)
a 25% discount to the price at which the Company next conducts an offering after the issuance date of the notes; provided, however,
if any part of the principal amount of the notes remains unpaid at its maturity date, the conversion price will be equal to 65%
of the average of the three trading days with the lowest daily weighted average prices of the Company’s common stock occurring
during the fifteen days prior to the notes’ maturity date.
In
connection with the issuance of the notes, the Company and the investors also entered into a security agreement pursuant to which
the notes are secured by all of the assets of the Company currently held or thereafter acquired.
In
connection with the issuance of the notes, the Company issued five-year warrants to purchase an aggregate of 2,090,000 shares
of Company’s common stock with an initial exercise price of $0.50. The warrants contain certain anti-dilutive (reset) provisions.
From
January 1 to January 16, 2018, the Company made payment to the Holders of the August 2017 convertible debt in an aggregate of
(i) $510,937.50 in cash and (ii) pursuant to the right of conversion of the Notes, issued an aggregate of 3,742,648 shares of
the Company’s common stock. The Company believes that it has completed all of its obligations under the Notes and they are
retired.
NOTE
8 – CAPITAL STOCK
Preferred
Stock
The Company is authorized
to issue 10,000,000 shares of Blank Check Preferred Stock, par value $0.001 per share. As of June 30, 2018, there were no shares
of Blank Check Preferred Stock issued and outstanding.
Common
Stock
The Company is authorized to issue 500,000,000
shares of common stock, par value $0.001 per share. As of June 30, 2018, there were 155,787,534 shares of common stock issued and
outstanding and 130,000 shares of common stock to be issued.
The
following common stock transactions were recorded during the six months ended June 30, 2018:
The
Company issued an aggregate of 14,362,500 shares of its common stock recorded as to be issued on December 31, 2017.
The
Company retired an aggregate of 1,790,000 shares of its common stock recorded as to be retired on December 31, 2017.
The
Company issued an aggregate of 4,494,000 shares of its common stock, having an aggregate fair value of $2,430,347, for services.
The
Company issued an aggregate of 95,134 shares for its common stock upon the cashless exercise of common stock options.
The
Company issued an aggregate of 7,647,413 shares of its common stock for the cashless exercise of common stock warrants.
The
Company issued an aggregate of 3,742,648 shares of its common stock for the settlement of convertible debt.
The
Company issued an aggregate of 1,370,000 shares of its common stock upon the exercise of common stock warrants for net proceeds
of $323,000.
The
issued an aggregate of 13,700,000 shares of common stock for cash.
The Company received $564,000 recorded as subscription
receivable as of December 31, 2017.
The
Company recorded as to be issued an aggregate of 130,000 shares for interest on convertible debt.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
NOTE
9- WARRANTS
In
January 2018, the Company issued warrants to purchase 250,000 shares of common stock at $0.20 per share to a service provider
of the Company. The estimated fair value of $86,483 was charged to current period operations. The fair market value was calculated
using the Black Scholes Option Pricing Model, assuming approximately 2.49% risk-free interest, 0% dividend yield, 112.14% volatility,
and expected life of 5 years.
In
January 2018, in conjunction with the sale of the Company’s common stock, the Company granted 13,700,000 warrants to purchase
the Company’s common stock at $0.40 per share, exercisable through January 31, 2023.
Warrants
outstanding and exercisable at June 30, 2018 are as follows:
Exercise
Price
|
|
|
Warrants
Outstanding
|
|
|
Weighted Avg.
Remaining Life
|
|
|
Warrants
Exercisable
|
|
$
0.01 – 0.25
|
|
|
|
9,782,660
|
|
|
4.30
|
|
|
|
9,782,660
|
|
0.26 – 0.50
|
|
|
|
19,140,002
|
|
|
4.52
|
|
|
|
19,140,002
|
|
0.51 – 0.75
|
|
|
|
50,000
|
|
|
1.78
|
|
|
|
50,000
|
|
0.76 – 1.00
|
|
|
|
5,100,002
|
|
|
1.25
|
|
|
|
5,100,002
|
|
1.01 – 2.00
|
|
|
|
146,200
|
|
|
0.48
|
|
|
|
146,200
|
|
2.01 and up
|
|
|
|
407,475
|
|
|
0.36
|
|
|
|
407,475
|
|
|
|
|
|
34,626,339
|
|
|
|
|
|
|
34,626,339
|
|
A
summary of the warrant activity for the six months ended June 30, 2018 is as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding at December 31, 2017
|
|
|
35,187,847
|
|
|
$
|
0.41
|
|
|
|
2.3
|
|
|
$
|
9,314,959
|
|
Grants
|
|
|
13,950,000
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(14,139,508
|
)
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(372,000
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2018
|
|
|
34,626,339
|
|
|
$
|
0.45
|
|
|
|
3.9
|
|
|
$
|
381,306
|
|
Exercisable at June 30, 2018
|
|
|
34,626,339
|
|
|
$
|
0.45
|
|
|
|
3.9
|
|
|
$
|
381,306
|
|
The
aggregate intrinsic value outstanding stock warrants was $381,306, based on warrants with an exercise price less than the Company’s
stock price of $0.24 as of June 30, 2018, which would have been received by the warrant holders had those warrant holders exercised
their warrants as of that date.
NOTE
10 – STOCK OPTIONS
The
Company’s stockholders approved our 2014 Equity Incentive Plan in June 2014 (the “2014 Plan”), our 2015 Equity
Incentive Plan in December 2015 (the “2015 Plan”), our 2016 Equity Incentive Plan (“2016 Plan”) in October
2016 and our 2017 Equity Incentive Plan in December 2016 (“2017 Plan”, and together with the 2014 Plan, 2015 Plan
and 2016 Plan, the “Plans”). The Plans are identical, except for number of shares reserved for issuance under each.
As of December 31, 2017, the Company had granted an aggregate of 39,500,000 securities under the plans, with 0 available for future
issuances.
The
Plans provide for the grant of incentive stock options to our employees and our parent and subsidiary corporations’ employees,
and for the grant of non-statutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other
forms of stock compensation to our employees, including officers, consultants and directors. Our Plans also provide that the grant
of performance stock awards may be paid out in cash as determined by the committee administering the Plans.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
During
the six months ended June 30, 2018, the Company granted ten-year options outside of our Plans to purchase up to 1,250,000 shares
of common stock. The fair value of $459,834, was determined using the Black-Scholes Option Pricing Model, assuming approximately
2.78% - 2.94% risk-free interest, 0% dividend yield, 116.08% - 116.28% volatility, and expected life of ten years and will be
charged to operations over the vesting terms of the options.
The
summary terms of the issuances are as follows:
Exercise
Price
|
|
|
Number of
Options
|
|
|
Vesting Terms
|
$
|
0.36
|
|
|
|
250,000
|
|
|
Immediately
|
|
0.40
|
|
|
|
1,000,000
|
|
|
Immediately
|
Stock
options outstanding and exercisable on June 30, 2018 are as follows:
Exercise
Price
|
|
|
Number of
Options
|
|
|
Remaining Life
In Years
|
|
|
Number of Options
Exercisable
|
|
$0.01 – 0.25
|
|
|
|
1,056,786
|
|
|
|
5.93
|
|
|
|
1,056,786
|
|
0.26 - 0.50
|
|
|
|
1,939,631
|
|
|
|
8.77
|
|
|
|
1,939,631
|
|
0.51 – 0.75
|
|
|
|
1,820,112
|
|
|
|
8.18
|
|
|
|
1,820,112
|
|
0.76 - 1.00
|
|
|
|
9,926,072
|
|
|
|
8.21
|
|
|
|
9,854,072
|
|
1.01 - 2.00
|
|
|
|
629,164
|
|
|
|
8.11
|
|
|
|
629,164
|
|
|
|
|
|
15,371,765
|
|
|
|
|
|
|
|
15,299,765
|
|
A
summary of the stock option activity for the six months ended June 30, 2018 is as follows:
|
|
Shares
|
|
|
Weighted-Average Exercise Price
|
|
|
Weighted-Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2017
|
|
|
14,378,432
|
|
|
$
|
0.76
|
|
|
|
8.48
|
|
|
$
|
771,359
|
|
Grants
|
|
|
1,250,000
|
|
|
|
0.39
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(256,667
|
)
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
Forfeiture/Canceled
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
15,371,765
|
|
|
|
0.73
|
|
|
|
8.12
|
|
|
$
|
147,950
|
|
Exercisable at June 30, 2018
|
|
|
15,299,765
|
|
|
$
|
0.73
|
|
|
|
8.12
|
|
|
$
|
147,950
|
|
The
aggregate intrinsic value outstanding stock options was $147,950, based on options with an exercise price less than the Company’s
stock price of $0.24 as of June 30, 2018, which would have been received by the option holders had those option holders exercised
their options as of that date.
Due
to a clerical error, MassRoots’ Annual Report on Form 10-K filed on April 16, 2018, as amended on April 30, 2018, stated
that 2,454,761 options were canceled/expired for the twelve months ending December 31, 2017 and the options outstanding as of
December 31, 2017 were 14,377,570. It should have stated that 2,863,7125 options were canceled/expired for the twelve months ending
December 31, 2017 and the options outstanding as of December 31, 2017 were 14,378,432. While we are correcting this error in this
Quarterly Report on Form 10-Q and subsequent filings, we do not believe it has a material impact on our fiscal 2017 financial
statements.
Option
valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated
using the Black-Scholes option model with a volatility figure derived historical data. The Company accounts for the expected life
of options based on the contractual life of options for non-employees.
MASSROOTS,
INC.
Notes to Condensed
Financial Statements
June 30, 2018
(unaudited)
NOTE
11 – RELATED PARTY TRANSACTIONS
None.
NOTE
12 – SUBSEQUENT EVENTS
The
Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.
On
July 5, 2018 (the “Effective Date”), MassRoots, Inc. (the “Company”) entered into separate securities
purchase agreements (each a “Securities Purchase Agreement”) with certain accredited investors (the “Investors”)
pursuant to which it sold an aggregate of $1,650,000 in principal amount of convertible secured promissory notes (each a “Note”
and collectively, the “Notes”) (including an original issuance discount of 10%) together with warrants (each a “Warrant”
and collectively, the “Warrants”) to purchase up to 6,600,000 shares of the Company’s common stock (the “Offering”).
Pursuant
to the terms of the Securities Purchase Agreement, from a period of twelve months from the Effective Date, the Company and its
subsidiaries are prohibited from entering into an agreement to effect any offer or sale of any securities involving a Variable
Rate Transaction (as defined in the Securities Purchase Agreement). In addition, from the Effective Date until such time that
no principal amount of the Notes remains outstanding, upon any issuance by the Company or any of its subsidiaries of common stock,
Common Stock Equivalents (as defined in the Securities Purchase Agreement) or debt for cash consideration, indebtedness or a combination
thereof (a “Subsequent Financing”), the Investors shall, collectively, have the right to participate in the Subsequent
Financing in an amount equal to up to 50% of the Subsequent Financing on the same terms, conditions and price provided for in
the Subsequent Financing; provided, however, such right shall not apply with respect to an Exempt Issuance (as defined in the
Securities Purchase Agreement). Furthermore, pursuant to the terms of the Securities Purchase Agreement, if the Company does not
repay amounts due pursuant to the Notes by the Maturity Date (as defined herein), then the Company shall issue to the Investors
up to 250,000 shares of the Company’s common stock on a pro rata basis.
Pursuant
to the Offering, the Company issued the Investors Notes in the aggregate principal amount of $1,650,000 (including an original
issuance discount of 10%). The Notes are due and payable on January 5, 2019 (the “Maturity Date”), bear no interest
and are convertible into shares of the Company’s common stock at the Conversion Price, subject to adjustment. “Conversion
Price” means the lower of (i) $0.25 and (ii) a 15% discount to the price at which the Company next issues common stock or
Common Stock Equivalents (as defined in the Securities Purchase Agreement) after the Effective Date; provided, however, in the
event that any principal amount of the Note remains outstanding after the Maturity Date, the Conversion Price shall equal 65%
of the average of the three lowest daily volume weighted average prices during the 15 days prior to the Maturity Date. The Company
is prohibited from effecting a conversion of any Note to the extent that, as a result of any such conversion, the holder, together
with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon conversion of the Note, which beneficial ownership
limitation may be increased by the holder up to, but not exceeding, 9.99%. In the event the Company issues shares of common stock
or Common Stock Equivalents (as defined in the Securities Purchase Agreement), other than Exempted Issuances (as defined in the
Securities Purchase Agreement), for a consideration which is less than the Conversion Price then in effect, then thereafter successively
upon each such issuance, the Conversion Price shall be reduced to such lower price. If any Event of Default (as defined in the
Note) occurs, then the outstanding principal amount of the Note and other amounts owing in respect thereof shall, at the holder’s
election, become immediately due and payable in cash at the Mandatory Default Amount (as defined in the Note). In addition, after
the occurrence of any Event of Default that results in the acceleration of the Note, the Note shall accrue interest at an interest
rate equal to the lesser of (i) 2% per month or (ii) the maximum rate permitted under applicable law. The Notes may be prepaid
at any time upon five days prior written notice to the holder in an amount equal to the following: (i) during the first 90 days
after the Effective Date, an amount equal to the principal amount of the Note multiplied by 110% and (ii) after the first 90 days
after the Effective Date, an amount equal to the principal amount of the Note multiplied by 125% (collectively, the “Prepayment
Multiplier”). If the Company participates in any Subsequent Financing, receives cash proceeds from warrant exercises, or
sells any of its assets other than in the ordinary course, while any portion of the Notes remains outstanding, any proceeds of
such Subsequent Financing, warrant exercise or asset sale must be applied toward repayment of the Notes, subject to the Prepayment
Multiplier.
Pursuant
to the Offering, the Company issued the Investors Warrants to purchase up to 6,600,000 shares of the Company’s common
stock. The Warrants are exercisable at any time on or after the initial issuance date at a price of $0.25 per share, subject
to adjustment (the “Exercise Price”), and expire five years from the date of issuance. Under certain
circumstances, holders of the Warrants may exercise the Warrants on a cashless basis and the Company is prohibited from
effecting an exercise of any Warrant to the extent that, as a result of any such exercise, the holder, together with its
affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon exercise of such Warrant, which beneficial
ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. In the event the Company issues shares
of common stock or Common Stock Equivalents (as defined in the Securities Purchase Agreement), other than Exempted Issuances
(as defined in the Securities Purchase Agreement), for a consideration which is less than the Exercise Price then in effect,
then thereafter successively upon each such issuance, the Exercise Price shall be reduced to such lower price.
In
July 2018, the Company issued 130,000 shares recorded as to be issued as of June 30, 2018.
On July 26, 2018, the
Company issued options to purchase 12,000,000 shares of common stock at $0.20 per share, including 2,000,000 options to its
independent Directors, and 7,100,000 shares of common stock to employees under its 2018 Employee Stock Option Plan. These
issuances triggered a ratchet in the warrants to purchase 13,700,000 shares of common stock issued as part of the
Company’s January 2018 placement to fall from $0.40 to $0.20 per share.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion
and analysis in conjunction with our unaudited financial statements and related notes contained in Part I, Item 1 of this Quarterly
Report. Please also refer to the note about forward-looking information for information on such statements contained in this Quarterly
Report immediately preceding Item 1.
Overview
MassRoots was formed in April 2013 as a
technology platform for the cannabis industry. Powered by more than one million registered users, MassRoots enables consumers to
rate cannabis products and strains based on their efficacy (i.e., effectiveness for treating ailments such as back-pain or epilepsy)
and then presents this information in easy-to-use formats for consumers to make educated purchasing decisions at their local dispensary.
Businesses are able to leverage MassRoots by strategically advertising to consumers based on their preferences and tendencies.
Over the past five years, MassRoots has
established itself as a leading technology company in the emerging cannabis industry, building a user-base of one million registered
users, partnering with some of the most recognized brands in the industry and raising significant capital from institutional and
private investors. Since inception, the Company has generated approximately $1.2 million in revenue.
For much of our history, we have focused
on building a consumer-facing application and only recently shifting our efforts to developing our advertising portal. In
June 2018, we launched that enables dispensaries to list their location and key information on the MassRoots dispensary finder
as well as viewing analytics about their local consumers. We are charging dispensaries a minimum recurring monthly fee, per
location, for access to the portal.
With MassRoots’ wide-spread audience
and following in some of the leading medical cannabis markets in the country, we believe our business portal will be well-received
by our client base. According to New Frontier Financial, there are projected to be over 2,700 state-regulated dispensaries in the
United States by 2020.
User Growth and Product Distribution Channels
The MassRoots app is distributed free-of-charge
through the Apple App Store, the Google Play Marketplace and the Amazon App Store. The MassRoots network is also accessible through
desktop and mobile web browsers by navigating to
www.massroots.com
. Our business and adverting portal can be accessed
at
www.massroots.com/dispensaries
. Through this portal, companies can edit their profiles, distribute information to
Users and view analytics such as impressions, views and clicks.
Competitors
We compete with other cannabis information
platforms such as WeedMaps and Leafly, which provide information with respect to dispensary locations, strain information and news
relating to the cannabis industry. We believe our primary competitive advantage is the community we have created and the significant
reviews and data we have collected on key cannabis markets.
Blockchain Technology
In December 2017, we formed MassRoots Blockchain
Technologies, Inc., a wholly-owned subsidiary of MassRoots, to explore how blockchain technology may be utilized in the cannabis
industry.
For the three months ended June 30, 2018 and 2017
|
|
For the three months ended
|
|
|
|
30-June-18
|
|
|
30-June-17
|
|
|
$ Change
|
|
|
% Change
|
|
Gross revenue
|
|
$
|
2,237
|
|
|
$
|
142,873
|
|
|
$
|
(140,636
|
)
|
|
|
(98.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,892,255
|
|
|
|
12,146,614
|
|
|
|
(9,254,359
|
)
|
|
|
(76.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(2,890,018
|
)
|
|
|
(12,003,741
|
)
|
|
|
9,113,723
|
|
|
|
(75.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income /(Expense)
|
|
|
(47,996
|
)
|
|
|
373,087
|
|
|
|
(421,083
|
)
|
|
|
(112.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,938,014
|
)
|
|
$
|
(11,630,654
|
)
|
|
$
|
8,692,640
|
|
|
|
(74.7
|
%)
|
Revenues
For the three months ended June 30, 2018
and 2017, we generated revenues of $2,237 and $142,873, respectively, a decrease of $140,636. This was attributed to implementation
of a new sales strategy for the company in 2018, which included the deployment of a new online advertising portal for businesses
in late June 2018.
Operating Expenses
For the three months ended June 30, 2018
and 2017, our operating expenses were $2,892,255 and $12,146,614, respectively, a decrease of $9,254,359. The decreases during
the three months ended June 30, 2018 were mainly attributed to a decrease in stock-based compensation to our employees and key
consultants which, for 2018, was $75,398 as compared to $9,140,970 for the period ended June 30, 2017 (a non-cash decrease of $9,065,572).
There was an increase in payroll and related expenses of $333,977 as payroll and related expenses were $1,403,253 for the three
months ended June 30, 2018 as compared to $1,069,276 for the same period in 2017 related to taxes and penalties attributed to equity
issuances to employees not recorded previously, and the Company recorded amortization of software costs of $109,852 and $0, for
the three months ended June 30, 2018 and 2017, respectively.
Other Income (Expense)
For the three months ended June 30, 2018
and 2017, the Company recorded net interest expense of $47,996 and $0, respectively, related-to the Company’s convertible
debt issued in August 2017. As of June 30, 2018 the remaining notes payable had been paid in full. For the three months ended June
30, 2018 and 2017, respectively, the Company recognized a gain of $0 and $75,000 on the sale of securities, while for the three
months ended June 30, 2018 and 2017, respectively, the company had a $0 and $298,087 gain related to the fair value mark to market
adjustments of its derivative liabilities.
Net Loss
For the three months ended June 30, 2018
and 2017, we had net losses of $2,938,014 and $11,630,654, respectively, a decrease of $8,692,640, for the reasons discussed above.
For the six months ended June 30, 2018 and 2017
|
|
For the six months ended
|
|
|
|
30-June-18
|
|
|
30-June-17
|
|
|
$ Change
|
|
|
% Change
|
|
Gross revenue
|
|
$
|
3,729
|
|
|
$
|
277,614
|
|
|
$
|
(273,885
|
)
|
|
|
(98.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
8,026,800
|
|
|
|
19,782,430
|
|
|
|
(11,755,630
|
)
|
|
|
(59.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(8,023,071
|
)
|
|
|
(19,504,816
|
)
|
|
|
11,481,745
|
|
|
|
(58.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income /(Expense)
|
|
|
(398,191
|
)
|
|
|
426,985
|
|
|
|
(825,176
|
)
|
|
|
(193.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,421,262
|
)
|
|
$
|
(19,077,831
|
)
|
|
$
|
10,656,570
|
|
|
|
(55.9
|
%)
|
Revenues
For the six months ended June 30, 2018
and 2017, we generated revenues of $3,729 and $277,614, a decrease of $273,885. This was attributed to implementation of a new
sales strategy for the company in 2018, which included the deployment of a new online advertising portal for businesses in late
June 2018.
Operating Expenses
For the six months ended June 30, 2018
and 2017, our operating expenses were $8,026,800 and $19,782,430, respectively, a decrease of $11,755,630. The decrease during
the six months ended June 30, 2018 were mainly attributed to a decrease in stock-based compensation to our employees and key consultants
which, for 2018, was $3,192,648 as compared to $14,371,973 for the period ended June 30, 2017 (a non-cash decrease of $11,179,325).
There was a decrease in payroll and related expenses of $92,153 as payroll and related expenses were $1,828,983 for the six months
ended June 30, 2018 as compared to $1,921,136 for the same period in 2017, and the Company recorded amortization of software costs
of $207,117 and $0, for the six months ended June 30, 2018 and 2017, respectively. The main factor attributed to the decrease in
the company’s operating expenses was due to a reduction in the Company’s employee work-force.
Other Income (Expense)
For the six months ended June 30, 2018
and 2017, the Company recorded net interest expense of $398,191 and $0, respectively, related-to the Company’s convertible
debt issued in August 2017. As of June 30, 2018 the remaining notes payable had been paid in full. For the six months ended June
30, 2018 and 2017, respectively, the Company recognized a gain of $0 and $75,000 on the sale of securities, while for the six months
ended June 30, 2018 and 2017, respectively, the company had a $0 and $351,985 gain related to the fair value mark to market adjustments
of its derivative liabilities.
Net Loss
For the six months ended June 30, 2018
and 2017, we had net losses of $8,421,262 and $19,077,831, respectively, a decrease of $10,656,569, for the reasons discussed above.
Liquidity and Capital Resources
Net cash used in operations for the
six months ended June 30, 2018 and 2017 was $4,441,379 and $5,204,069, respectively. This decrease was primarily caused by
net losses of $8,421,262 and $19,077,831 for the six months ended June 30, 2018 and 2017, respectively and the utilization of
$112,744 in cash for prepayments, security deposits and an increase in accounts payable and other liabilities as compared to
$294,255 during the same period in 2017. These reductions were offset by non-cash amounts for Depreciation and Amortization
and stock based compensation for the six months ended June 30, 2018 and 2017.
Net cash used and provided in investing
activities for the six months ended June 30, 2018 and 2017 was $3,822 and $102,629, respectively. These investing activities were
related to the purchase of equipment for the six months ended June 30, 2018. For the six months ended June 30, 2017 cash provided
was attributed to $56,041 of purchases of property and equipment and the purchase of an equity investment of $100,002 in HighTimes
Holdings Corp. These items were offset by proceeds from sale of securities and we received $8,672 in connection with the acquisition
of DDDigtal, LLC.
Net cash provided by financing activities
for the six months ended June 30, 2018 and 2017 was $3,259,562 and $4,758,197, respectively. During the six months ended June 30,
2018, these funds came mainly from sales of common stock while during the same period in 2017, these funds came mainly from warrant
and stock subscriptions, offset by repayments of advances.
These conditions raise substantial doubt
about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The
Company’s primary source of operating funds since inception has been cash proceeds from private placements of common stock,
proceeds from the exercise of warrants and options and issuance of notes payable. The Company has experienced net losses and negative
cash flows from operations since inception and expects these conditions to continue for the foreseeable future. The Company will
require additional financing to fund future operations. No assurance can be made that such financing will be obtained.
Capital Resources
As of June 30, 2018, we had cash on hand
of $15,948. We currently have no external sources of liquidity such as arrangements with credit institutions or off-balance sheet
arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate
access to capital.
Off-Balance Sheet Arrangements
As of June 30, 2018, we did not have any
off-balance sheet arrangements.
Critical Accounting Policies and Estimates
For a discussion of our accounting policies
and related items, please see the Notes to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of
this Quarterly Report.