GREENWAVE TECHNOLOGY SOLUTIONS, INC. As ofMarch 31, 2020 , the Company had cash of$850 and a working capital deficit (current liabilities in excess of current assets) of$68,501,692 . During the three months endedMarch 31, 2020 , the net loss available to common stockholders was$126,955,829 and net cash used in operating activities was$109,352 . These conditions raise substantial doubt about the Company's ability to continue as a going concern for one year from the issuance of the condensed consolidated financial statements.
During the three months ended
The Company's primary source of operating funds since inception has been cash
proceeds from the public and private placements of the Company's securities,
including debt and equity securities, and proceeds from the exercise of warrants
and options. 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's ability to continue its operations is
dependent upon its ability to obtain additional capital through public or
private equity offerings, debt financings or other sources; however, financing
may not be available to the Company on acceptable terms, or at all. The
Company's failure to raise capital as and when needed could have a negative
impact on its financial condition and its ability to pursue its business
strategy, and the Company may be forced to curtail or cease operations.
Management's plans regarding these matters encompass the following actions: 1)
obtain funding from new and current investors to alleviate the Company's working
capital deficiency; and 2) implement a plan to generate revenues. The Company's
continued existence is dependent upon its ability to translate its audience into
revenues. However, the outcome of management's plans cannot be determined with
any degree of certainty.
Accordingly, the accompanying condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business for one
year from the date the condensed consolidated financial statements are issued.
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 condensed consolidated financial statements
do not include any adjustments that might result should the Company be unable to
continue as a going concern.
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In March 2020 , the World Health Organization declared COVID-19 a global
pandemic. This contagious disease outbreak, which has continued to spread, and
any related adverse public health developments, has adversely affected
workforces, customers, economies, and financial markets globally, leading to an
economic downturn. It has also disrupted the normal operations of many
businesses, including ours. It is not possible for us to predict the duration or
magnitude of the adverse results of the outbreak of COVID-19 and its effects on
our business including our financial condition, liquidity, or results of
operations at this time. Management is actively monitoring the global situation
and its impact on the Company's financial condition, liquidity, operations,
customers, industry, and workforce. Given the daily evolution of the COVID-19
outbreak and the global responses to curb its spread, the Company is not able to
estimate the effects that the COVID-19 outbreak will have on its results of
operations, financial condition, or liquidity for fiscal year 2020. As of the
date of this Quarterly Report on Form 10-Q, the Company has experienced delays
in securing new customers and related revenues and the longer this pandemic
continues there may be additional impacts. Furthermore, the COVID-19 outbreak
has and may continue to impact the Company's ability to raise capital. Although
the Company cannot estimate the length or gravity of the impact of the COVID-19
outbreak at this time, if the pandemic continues, it may have a material adverse
effect on the Company's results of future operations, financial position,
liquidity, and capital resources, and those of the third parties on which the
Company relies in fiscal year 2020.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America ("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, fair value of payroll tax liabilities, deemed dividends and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Fair Value of Financial Instruments
The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 825-10, "Financial Instruments" ("ASC 825-10") requires disclosure of the fair value of certain financial instruments. The estimated fair value of certain financial instruments, including cash, accounts payable and accrued liabilities are carried at historical cost basis, which approximates their 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 condensed consolidated 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 For purposes of the condensed consolidated statements of cash flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. As ofMarch 31, 2020 andDecember 31, 2019 , the Company had no cash equivalents. The Company maintains its cash in banks insured by theFederal Deposit Insurance Corporation in accounts that at times may be in excess of the federally insured limit of$250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. AtMarch 31, 2020 andDecember 31, 2019 , the uninsured balances amounted to$0 . -6- Property and Equipment Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives of three to five years. Repair and maintenance costs are expensed as incurred. 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.
Accounts Receivable and Allowance for Doubtful Accounts
The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The allowance for doubtful accounts is estimated based on an assessment of the Company's ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts, and if the financial condition of the Company's customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. Revenue Recognition
The Company recognizes revenue when services are realized or realizable and earned less estimated future doubtful accounts.
The Company's revenues are accounted for under ASC Topic 606, "Revenue From
Contracts With Customers" ("ASC 606") and generally do not require significant
estimates or judgments based on the nature of the Company's revenue streams. The
sales prices are generally fixed at the point of sale and all consideration from
contracts is included in the transaction price. The Company's contracts do not
include multiple performance obligations or material variable consideration.
In accordance with ASC 606, the Company recognizes revenue to depict the
transfer of promised goods or services to customers in an amount that reflects
the consideration to which the Company expects to be entitled in exchange for
those goods or services. MassRoots recognizes revenue in accordance with that
core principle by applying the following:
(i) Identify the contract(s) with a customer;
(ii) Identify the performance obligation in the contract;
(iii) Determine the transaction price;
(iv) Allocate the transaction price to the performance obligations in the
contract; and
(v) Recognize revenue when (or as)
The Company primarily generates revenue by charging businesses to advertise on the Company's website and social media channels. In cases where clients enter advertising contracts for an extended period of time, the Company only recognizes revenue for services provided during that quarter and defers the remaining unearned revenue to future periods. Advertising The Company charges the costs of advertising to expense as incurred. For the three months endedMarch 31, 2020 and 2019, the Company charged to operations$0 and$27,208 , respectively, as advertising expense. -7- Stock-Based Compensation Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For stock-based awards to employees, non-employees and directors, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Income Taxes
The Company follows ASC Subtopic 740-10, "Income Taxes" ("ASC 740-10") for
recording the provision for income taxes. Deferred tax assets and liabilities
are computed based upon the difference between the financial statement and
income tax basis of assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the changes in
the asset or liability during each period.
If available evidence suggests that it is more likely than not that some portion
or all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of change. Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods.
Convertible Instruments
U.S. GAAP requires companies to bifurcate conversion options from their host
instruments and account for them as freestanding derivative financial
instruments according to certain criteria. The criteria include circumstances in
which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) the hybrid instrument that embodies both the
embedded derivative instrument and the host contract is not re-measured at fair
value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur, and (c) a separate
instrument with the same terms as the embedded derivative instrument would be
considered a derivative instrument. An exception to this rule is when the host
instrument is deemed to be conventional, as that term is described under ASC
480, "Distinguishing Liabilities From Equity."
When the Company has determined that the embedded conversion options should not
be bifurcated from their host instruments, the Company records, when necessary,
discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value
of the underlying common stock at the commitment date of the note transaction
and the effective conversion price embedded in the note. Debt discounts under
these arrangements are amortized over the term of the related debt to their
stated date of redemption using the effective interest method.
Deemed Dividends and Beneficial Conversion Features
The Company records, when necessary, deemed dividends for: (i) warrant price
protection, based on the difference between the fair value of the warrants
immediately before and after the repricing (inclusive of any full ratchet
provisions); (ii) the exchange of preferred shares for convertible notes, based
on the amount of the face value of the convertible notes in excess of the
carrying value of the preferred shares; and (iii) the settlement of warrant
provisions, based on the fair value of the common shares issued. The Company
also records, when necessary, a contingent beneficial conversion resulting from
price protection of the conversion price of Series A Preferred Stock, based on
the change in the intrinsic value of the conversion options embedded in such
preferred stock.
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Derivative Financial Instruments
The Company classifies as equity any contracts that: (i) require physical settlement or net-share settlement; or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that: (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company's freestanding derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and the sale of common shares, and of embedded conversion options within convertible notes. The Company evaluated these derivatives to assess their proper classification in the balance sheet as ofMarch 31, 2020 andDecember 31, 2019 using the applicable classification criteria enumerated under ASC 815, "Derivatives and Hedging." The Company determined that certain embedded conversion and/or exercise features did not contain fixed settlement provisions. The convertible notes contained a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands. As such, the Company was required to record the derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period. The Company also records derivative liabilities for instruments, including convertible notes, preferred stock, and warrants, in which the Company does not have sufficient authorized shares to cover the conversion of these instruments into shares
of common stock. 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 life of three to five 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
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.
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Net Loss Per Common Share
Net loss per share is computed by dividing the net loss by the weighted average
number of shares of common stock outstanding during the period. 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.
Potentially dilutive securities outstanding at March 31, 2020 and 2019 were not
included in the computation of diluted net loss per share because the effects
would have been anti-dilutive. The convertible notes, options and warrants are
considered to be common stock equivalents and are only included in the
calculation of diluted earnings per common share when their effect is dilutive.
Potentially dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:
March 31 ,March 31, 2020 2019
Common stock issuable upon conversion of convertible notes 21,729,616,410 11,531,315 Options to purchase common shares
27,621,765 27,621,765
Warrants to purchase common shares 17,161,927,276 72,160,002
Totals 38,919,165,451 111,313,082
Reclassifications
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
InAugust 2020 , the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase reported net income for the Company's convertible instruments falling under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning afterDecember 15, 2021 , with early adoption permitted no earlier than fiscal years beginning afterDecember 15, 2020 . The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements. InAugust 2018 , the FASB issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement"("ASU 2018-13"). ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 became effective for us onJanuary 1, 2020 . The adoption of this update did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.
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 - PROPERTY AND EQUIPMENT
Property and equipment as ofMarch 31, 2020 andDecember 31, 2019 is summarized as follows: March 31, December 31, 2020 2019 Computers$ 6,366 $ 6,366 Office equipment 17,621 17,621 Subtotal 23,987 23,987 Less accumulated depreciation (23,987 ) (23,987 ) Property and equipment, net $ - $ -
Depreciation expense for the three months ended
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NOTE 5 - ADVANCES AND NON-CONVERTIBLE NOTES PAYABLE
During the three months endedMarch 31, 2020 and 2019, the Company received aggregate proceeds from advances of$0 and$140,000 and repaid an aggregate of$0 and$0 , respectively, of advances. The advances were primarily for Simple Agreements for Future Tokens, entered into with eight accredited investors issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and/or Regulation D thereunder in 2017 and 2018. As ofMarch 31, 2020 andDecember 31, 2019 , the Company owed$337,500 and$337,500 in principal and$10,500 and$10,500 in accrued interest, respectively. During the three months endedMarch 31, 2020 and 2019, the Company did not receive any proceeds from the issuance of non-convertible notes and repaid an aggregate of$21,750 and$0 , respectively, of non-convertible notes. The non-convertible notes have maturity dates ranging fromMarch 21, 2019 toSeptember 15, 2019 and accrue interest at rates ranging from 0%-36% per annum. As ofMarch 31, 2020 andDecember 31, 2019 , the Company owed$149,000 and$165,750 in principal and$194,735 and$158,143 in accrued interest, respectively.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As ofMarch 31, 2020 andDecember 31, 2019 , the Company owed accounts payable and accrued expenses of$6,200,147 and$5,455,063 , respectively. These are primarily comprised of payments to vendors, accrued interest on debt and accrued legal bills.
NOTE 7 - ACCRUED PAYROLL AND RELATED EXPENSES
The Company is delinquent in filing its payroll taxes, primarily related to stock compensation awards in 2016 and 2017, but also including payroll for 2018 and 2019. AtMarch 31, 2020 andDecember 31, 2019 , the Company owed payroll tax liabilities, including penalties, of$3,773,064 and$3,724,050 , respectively, to federal and state taxing authorities. The actual liability may be higher or lower due to interest or penalties assessed by federal and state taxing authorities. The Company expects to settle these liabilities byDecember 31, 2020 .
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is occasionally involved in lawsuits incidental to its business, including litigation related to its convertible notes. Although it is difficult to predict the ultimate outcome of these cases, management believes that any ultimate liability would not have a material adverse effect on the Company's condensed consolidated financial condition or results of operations. However, any unforeseen unfavorable development in any of these cases could have a material adverse effect on the Company's condensed consolidated financial condition. The Company records the potential effects on operations or cash flows in the period in which such effects are probable and reasonably estimable. OnOctober 11, 2019 ,Power Up Lending Group, Ltd. ("Power Up") filed a complaint against the Company andIsaac Dietrich , an officer and director of the Company, in theSupreme Court of the State of New York , County ofNassau . The complaint alleges, among other things, (i) the occurrence of events of default in certain notes (the "Power Up Notes") issued by the Company to Power Up, (ii) misrepresentations by the Company including, but not limited to, with respect to the Company's obligation to timely file its required reports with theSEC and (iii) lost profits as a result of the Company's failure to convert the Power Up Notes in accordance with the terms thereof. In addition, the complaint alleges, among other things, thatMr. Dietrich took affirmative steps to deliberately cause the Company to breach its financial obligations. As a result of the foregoing, Power Up has requested (i) the greater of$312,000 and the "parity value" as such term is defined in the Power Up Notes together with$2,000 per day until the Company issues shares upon conversion of the Power Up Notes together with applicable interest thereon; (ii)$165,000 as a result of the misrepresentations; (iii) an amount of lost profits to be determined by the court, but in no event less than$312,000 ; (iv)$312,000 as againstMr. Dietrich ; (v) an award for reasonable legal fees and costs of litigation; (vi) a judgment awarding specific performance under the Power Up Notes; and (vii) the costs and disbursement of the action, pre-judgment interest, default interest and such other further relief as the court deems proper.
NOTE 9 - CONVERTIBLE NOTES PAYABLE
OnJuly 5, 2018 , the Company issued secured convertible notes to certain accredited investors in the aggregate principal amount of$1,650,000 . The notes matured onJanuary 5, 2019 and accrued no interest. Net proceeds received by the Company were$1,492,500 after deduction of legal and other fees. During 2019, the remaining principal amount of$390,000 and accrued interest of$22,831 were converted into shares of the Company's common stock. In connection with the issuance of theJuly 2018 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 held as ofJuly 5, 2018 and acquired thereafter. The Company also issued five-year warrants to purchase an aggregate of 6,600,000 shares of Company's common stock with an initial exercise price of$0.25 . The warrants contain certain anti-dilutive provisions. -11- OnDecember 17, 2018 , the Company issued a secured convertible promissory note in the principal amount of$2,225,000 (including an original issuance discount of$225,000 ) that matured onDecember 17, 2019 and bears interest at a rate of 8% per annum (which increased to 22% onJuly 16, 2019 upon the occurrence of an event of default). The note is secured by the Security Agreement (as defined below). The noteholder shall have the right to convert the Outstanding Balance (as defined in the note) of the note at any time into shares of common stock of the Company at a conversion price of$0.35 per share, subject to adjustment. Commencing onJune 17, 2019 , the investor shall have the right to redeem all or any portion of the note; provided, however, the investor may not request redemption in an amount that exceeds$350,000 during any single calendar month; provided, further however, upon the occurrence of an event of default, the redemption amount in any calendar month may exceed$350,000 . Payments on redemption amounts may be made in cash, by converting the redemption amount into shares of the Company's common stock at a conversion price of the lesser of: (a)$0.35 per share, subject to adjustment; and (b) the Market Price (as defined in the note), or a combination thereof. Upon the occurrence of an event of default, the investor may accelerate the note pursuant to which the Outstanding Balance will become immediately due and payable in cash at the Mandatory Default Amount (as defined in the note). The Company is prohibited from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, 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 investor up to, but not exceeding, 9.99%.
In connection with theDecember 2018 note, the Company also entered into a security agreement (the "Security Agreement") on the closing date pursuant to which the Company granted the investor a security interest in the Collateral (as defined in the Security Agreement). OnJuly 16, 2019 , the Company received a notice from an investor indicating that events of default had occurred and asserting default penalties of$761,330 . During the year endedDecember 31, 2019 , the noteholder converted$345,000 of principal into an aggregate of 53,522,295 shares of common stock. During the three months endedMarch 31, 2020 , the holder converted$22,000 of principal into an aggregate of 12,359,551 shares of common stock. As ofMarch 31, 2020 andDecember 31, 2019 , the remaining carrying value of the note was$1,858,000 and$1,880,000 , respectively, net of debt discount of$0 . As ofMarch 31, 2020 andDecember 31, 2019 , accrued interest payable of$1,438,306 and$1,327,110 , respectively, was outstanding on the note.
From January toJune 2019 , the Company issued convertible promissory notes in the aggregate principal amount of$389,000 (including aggregate original issuance discount of$39,000 ) maturing at dates ranging fromJuly 15, 2019 toJune 6, 2020 and accruing interest at rates ranging from 5% to 12% per annum. The Company shall have the right to prepay the notes for an amount equal to 130% multiplied by the portion of the Outstanding Balance (as defined in the notes) being prepaid. The investors shall have the right to convert the Outstanding Balance of the notes at any time into shares of common stock of the Company at a conversion price of$0.075 per share, subject to adjustment. Upon maturity, payment may be made in cash, by converting the redemption amount into shares of the Company's common stock at a conversion price of the lesser of: (a)$0.075 per share, subject to adjustment; and (b) the Market Price (as defined in the notes), or a combination thereof. Upon the occurrence of an event of default, the investors may accelerate the note pursuant to which the Outstanding Balance will become immediately due and payable in cash at the Mandatory Default Amount (as defined in the notes). The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, 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 investor up to, but not exceeding, 9.99%. InJanuary 2020 , one of the promissory notes was amended whereby the conversion price for$9,202 which is a portion of the principal amount of the note was amended to$0.0004 per share. The amendment was deemed a debt modification and accounted for accordingly. During the year endedDecember 31, 2019 , the holders of the convertible promissory notes converted$31,180 of principal and$8,000 of accrued interest into an aggregate of 10,000,000 shares of common stock. During the three months endedMarch 31, 2020 , one of the noteholders converted$24,826 of principal into an aggregate of 35,005,850 shares of common stock. As ofMarch 31, 2020 andDecember 31, 2019 , the remaining carrying value of the notes was$277,297 and$247,746 , net of debt discount of$55,697 and$110,074 , respectively. As ofMarch 31, 2020 andDecember 31, 2019 , accrued interest payable of$550,256 and$456,900 , respectively, was outstanding on the notes. -12- OnNovember 13, 2019 , the Company issued convertible promissory notes in the aggregate principal amount of$108,900 , having an aggregate original issuance discount of$9,900 , resulting in cash proceeds of$99,000 . The notes matureMay 13, 2020 and accrue interest at a rate of 12% per annum. During the first 180 days the notes are outstanding, the Company shall have the right to prepay the notes for an amount equal to 120% (during the first 90 days) or 135% (during the subsequent 90 days) of the Outstanding Balance (as defined in the notes) being prepaid. The investors shall have the right to convert the Outstanding Balance of the notes at any time into shares of common stock of the Company at a conversion price of$0.01 per share, subject to adjustment. In the event of default, the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company's common stock during the 20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, 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 if the Market Capitalization falls below$2,500,000 , but not exceeding, 9.99%. As ofMarch 31, 2020 andDecember 31, 2019 , the remaining carrying value of the notes was$57,680 and$14,871 , net of debt discount of$51,220 and$94,029 , respectively. As ofMarch 31, 2020 andDecember 31, 2019 , accrued interest payable of$79,347 and$48,789 , respectively, was outstanding on the notes. OnDecember 6, 2019 , the Company issued convertible promissory notes in the aggregate principal amount of$110,000 , having an aggregate original issuance discount of$10,000 , resulting in cash proceeds of$100,000 . The notes matureJune 6, 2020 and accrue interest at a rate of 12% per annum. During the first 180 days the notes are outstanding, the Company shall have the right to prepay the notes for an amount equal to 120% (during the first 90 days) or 135% (during the subsequent 90 days) of the Outstanding Balance (as defined in the notes) being prepaid. The investors shall have the right to convert the Outstanding Balance of the notes at any time into shares of common stock of the Company at a conversion price of$0.01 per share, subject to adjustment. In the event of default, the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company's common stock during the 20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, 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 if the Market Capitalization (as defined in the notes) falls below$2,500,000 , but not exceeding, 9.99%. As ofMarch 31, 2020 andDecember 31, 2019 , the remaining carrying value of the notes was$69,727 and$15,027 , net of debt discount of$40,273 and$94,973 , respectively. As ofMarch 31, 2020 andDecember 31, 2019 , accrued interest payable of$60,395 and$38,904 , respectively, was outstanding on the notes. InDecember 2019 , the Company and the holders of all of the outstanding Series A and Series B Preferred Shares (the "Preferred Shares") entered into Exchange Agreements whereby 2,800 Series A Preferred Shares and 1,126 Series B Preferred Shares were cancelled in exchange for the issuance of an aggregate of$3,500,000 and$1,548,250 of convertible promissory notes, respectively. The notes have maturity dates ranging fromDecember 24, 2019 throughMay 18, 2020 and accrue interest at a rate of 12% per annum. During the first 180 days the notes are outstanding, the Company shall have the right to prepay the notes for an amount equal to 120% (during the first 90 days) or 135% (during the subsequent 90 days) of the Outstanding Balance (as defined in the notes) being prepaid. The investors shall have the right to convert the Outstanding Balance of the notes at any time into shares of common stock of the Company at a conversion price of$0.005 per share, subject to adjustment. In the event of default, the Outstanding Balance shall immediately increase to 130% of the Outstanding Balance and a penalty of$100 per day shall accrue until the default is remedied. For a period of two years from the issuance date, in the event the Company issues or sells any additional common shares or common stock equivalents at a price less than the Conversion Price (as defined in the notes) then in effect (a "Dilutive Issuance"), the Conversion Price of the notes shall be reduced to the Dilutive Issuance Price and the number of shares issuable upon conversion shall be increased on a full ratchet basis. The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially own more than 9.99% 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. During the year endedDecember 31, 2019 , the noteholders converted$185,500 of principal and$300 of accrued interest into an aggregate of 30,669,903 shares of common stock and 37,160,000 shares of common stock to be issued. During the three months endedMarch 31, 2020 , the noteholders converted$31,137 of principal and$128 of accrued interest into an aggregate of 6,253,056 shares of common stock. As ofMarch 31, 2020 andDecember 31, 2019 , the remaining carrying value of the notes was$4,811,386 and$4,781,395 , net of debt discount of$20,226 and$81,355 , respectively. As ofMarch 31, 2020 andDecember 31, 2019 , accrued interest payable of$1,846,673 and$1,583,795 , respectively, was outstanding on the notes. -13- From January andMarch 2020 , the Company issued convertible promissory notes in the aggregate principal amount of$145,200 , having an aggregate original issuance discount of$13,200 , resulting in cash proceeds of$132,000 . The notes mature during July andSeptember 2020 and accrue interest at a rate of 12% per annum. During the first 180 days the notes are outstanding, the Company shall have the right to prepay the notes for an amount equal to 120% (during the first 90 days) or 135% (during the subsequent 90 days) of the Outstanding Balance (as defined in the notes) being prepaid. The investors shall have the right to convert the Outstanding Balance of the notes at any time into shares of common stock of the Company at a conversion price of$0.01 per share, subject to adjustment. In the event of default, the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company's common stock during the 20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, 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 if the Market Capitalization (as defined in the notes) falls below$2,500,000 , but not exceeding, 9.99%. As ofMarch 31, 2020 , the remaining carrying value of the notes was$58,153 , net of debt discount of$87,047 . As ofMarch 31, 2020 , accrued interest payable of$58,180 was outstanding on the notes. Upon the issuance of certain convertible notes, the Company determined that the features associated with the embedded conversion option embedded in the notes, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. The Company does not have enough authorized and unissued common shares to convert all of the convertible promissory notes into common shares. As a result of this authorized shares shortfall, all of the convertible notes payable, including those where the maturity date has not yet been reached, are in default. Accordingly, (i) interest has been accrued at the default interest rate, if applicable, and (ii) the embedded conversion option has been accounted for, at fair value, as a derivative liability (See Note 10).
NOTE 10 - DERIVATIVE LIABILITIES AND FAIR VALUE MEASUREMENTS
The Company does not have enough authorized and unissued common shares to convert all of its outstanding convertible promissory notes into common shares. As a result of this authorized shares shortfall, the embedded conversion feature in all of the Company's outstanding convertible notes payable and convertible preferred shares as well as the Company's outstanding warrants have been accounted for as derivative liabilities, at fair value, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. During the three months endedMarch 31, 2020 , upon issuance of the instruments underlying the derivative liabilities and upon revaluation (immediately prior to conversion), the Company estimated the fair value of the embedded derivatives using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 119.51% to 122.40%, (3) risk-free interest rate of 0.24% to 1.56%, and (4) expected life of 0.5 years. OnMarch 31, 2020 , the Company estimated the fair value of the embedded derivatives of$50,898,006 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 122.48%, (3) risk-free interest rate of 0.05% to 0.29%, and (4) expected life of 0.02 to 2.84 years. During the year endedDecember 31, 2019 , upon issuance of the instruments underlying the derivative liabilities and upon revaluation (immediately prior to conversion), the Company estimated the fair value of the embedded derivatives using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 110.59% to 119.18%, (3) risk-free interest rate of 1.48% to 2.33%, and (4) expected life of 0.01 to
3.0 years.
OnDecember 31, 2019 , the Company estimated the fair value of the embedded derivatives of$20,236,870 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 119.18%, (3) risk-free interest rate of 1.48% to 1.62%, and (4) expected life of 0.01 to 3.09 years. -14- ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset's or liability's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
? Level 1 - Quoted prices in active markets for identical assets or liabilities.
? Level 2 - Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived
valuations in which all significant inputs are observable or can be derived
principally from or corroborated by observable market data for substantially
the full term of the assets or liabilities.
? Level 3 - Unobservable inputs to the valuation methodology that are significant
to the measurement of fair value of assets or liabilities.
All items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement. The Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price of the underlying common
stock of the Company.
At
Items recorded or measured at fair value on a recurring basis in the
accompanying condensed consolidated financial statements consisted of the
following items as of
Quoted Prices Significant
in Active Other Significant
Markets for Observable Unobservable
March 31, Identical Assets Inputs Inputs
2020 (Level 1) (Level 2) (Level 3)
Derivative liabilities $ 50,898,006 $ - $ - $ 50,898,006
Quoted Prices Significant
in Active Other Significant
Markets for Observable Unobservable
December 31, Identical Assets Inputs Inputs
2019 (Level 1) (Level 2) (Level 3)
Derivative liabilities $ 20,236,870 $ - $ - $ 20,236,870
-15-
The following table provides a summary of changes in fair value of the Company's
Level 3 financial liabilities for the three months ended
Balance,December 31, 2019 $
20,236,870
Transfers in due to issuance of convertible notes and warrants with embedded conversion and reset provisions
103,255
Transfers out due to conversions of convertible notes and accrued interest into common shares
(244,152 )
Derivative liability due to authorized shares shortfall 31,129,095
Mark to market toMarch 31, 2020 (327,062 ) Balance,March 31, 2020 $
50,898,006
Gain on change in derivative liabilities for the three months ended March 31, 2020$ 327,062 Fluctuations in the Company's stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases/(decreases) for each of the related derivative instruments, the value to the holder of the instrument generally increases/(decreases), therefore increasing/(decreasing) the liability on the Company's balance sheet. Decreases in the conversion price of the Company's convertible notes are another driver for the changes in the derivative valuations during each reporting period. As the conversion price decreases for each of the related derivative instruments, the value to the holder of the instrument (especially those with full ratchet price protection) generally increases, therefore increasing the liability on the Company's balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company's derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company's expected volatility. Increases in expected volatility would generally result in higher fair value measurements. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.
NOTE 11 - STOCKHOLDERS' DEFICIT
Preferred Stock
The Company is authorized to issue 10,000,000 shares of blank check preferred
stock, par value
OnJuly 2, 2019 , the Company authorized the issuance of 6,000 Series A preferred stock, par value$0.001 per share. The Series A preferred stock have a$1,250 stated value and are convertible into shares of common stock at$0.05 per share, subject to certain adjustments. The Certificate of Designation for the Series A preferred stock was filed onJuly 9, 2019 .
As of
OnJune 24, 2019 , the Company authorized the issuance of 2,000 shares of Series B Preferred Stock, par value$0.001 per share. The Series B Preferred Stock have a$1,250 stated value and are convertible into shares of common stock at$0.05 per share, subjected to certain adjustments. The Certificate of Designation for the Series B Preferred Stock was filed onJuly 9, 2019 .
As of
OnJuly 16, 2019 , the Company authorized the issuance of 1,000 Series C Preferred Stock, par value$0.001 per share. The 1,000 Series C preferred shares automatically convert into an aggregate of 1,000,000 shares of common stock upon the Company listing on a national exchange or upon a Change in Control (as defined in the Series C Certificate of Designation). The Certificate of Designation for the Series C Preferred Stock was filed onJuly 19, 2019 .
As of
Common Stock
The Company is authorized to issue 500,000,000 shares of common stock, par value
The following common stock transactions were recorded during the three months
ended
On
On
-16-
During the three months ended March 31, 2020 , the Company issued an aggregate of
53,618,457 shares of its common stock, having an aggregate fair value of
$320,130 , upon the conversion of convertible notes with a principal amount of
$77,964 and accrued interest of $128 , which resulted in the elimination of
$244,152 of derivative liabilities and an aggregate gain on conversion of
convertible notes of $2,114 . Accordingly, common stock was increased by the par
value of the common shares issued of $53,619 and additional paid in capitalwas increased by$266,511 . NOTE 12 - WARRANTS
Warrants outstanding and exercisable at
Warrants Weighted Avg. Warrants
Exercise Price Outstanding Remaining Life Exercisable
$0.0001 - 0.25 17,161,137,274 2.71 17,161,137,274
0.26 - 0.50 465,002 1.44 465,002
0.51 - 0.75 50,000 0.02 50,000
0.76 - 1.00 275,000 0.50 275,000
17,161,927,276 2.71 17,161,927,276
A summary of the warrant activity for the three months ended March 31, 2020 is
as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term ValueOutstanding at January 1, 2020 3,342,376,365$ 0.00265 2.96$ 8,791,956 Grants 13,819,650,911 0.00040 Exercised - - Expired/Cancelled (100,000 ) 0.50000 Outstanding at March 31, 2020 17,161,927,276$ 0.00051 2.71$ 22,294,918 Exercisable at March 31, 2020 17,161,927,276$ 0.00051
2.71$ 22,294,218 The aggregate intrinsic value of outstanding stock warrants was$22,294,218 , based on warrants with an exercise price less than the Company's stock price of$0.0017 as ofMarch 31, 2020 , which would have been received by the warrant holders had those holders exercised the warrants as of that date. NOTE 13 - STOCK OPTIONS
Our stockholders approved our 2014 Equity Incentive Plan inJune 2014 (the "2014 Plan"), our 2015 Equity Incentive Plan inDecember 2015 (the "2015 Plan"), our 2016 Equity Incentive Plan inOctober 2016 ("2016 Plan"), our 2017 Equity Incentive Plan inDecember 2016 ("2017 Plan" and together with the 2014 Plan, 2015 Plan, 2016 Plan, the "Prior Plans") and our 2018 Equity Incentive Plan inJune 2018 (the "2018 Plan", and together with the Prior Plans, the "Plans"). The Prior Plans are identical, except for the number of shares reserved for issuance under each. As ofMarch 31, 2020 , the Company had granted an aggregate of 64,310,000 securities under the Plans, with 190,000 shares available for future issuances.
The Plans provide for the grant of incentive stock options to our employees and our subsidiaries' employees, and for the grant of 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. The Prior Plans also provide that the grant of performance stock awards may be paid out in cash as determined by the committee administering
the
Prior Plans.
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Stock options outstanding and exercisable as of March 31, 2020 are as follows:
Number of Remaining Life Number of Options
Exercise Price Options In Years Exercisable
$0.01 - 0.25 13,306,786 8.01 13,306,786
0.26 - 0.50 1,939,631 7.01 1,939,631
0.51 - 0.75 1,820,112 6.43 1,820,112
0.76 - 1.00 9,926,072 6.46 9,926,072
1.01 - 2.00 629,164 6.36 629,164
27,621,765 27,621,765
A summary of the stock option activity for the three months ended March 31, 2020
is as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term ValueOutstanding at January 1, 2020 27,621,765$ 0.49 7.49 $ - Grants - Exercised - Expired/Cancelled - Outstanding at March 31, 2020 27,621,765$ 0.49 7.24 $ - Exercisable at March 31, 2020 27,621,765$ 0.49
7.24 $ -
The aggregate intrinsic value of outstanding stock options was
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 pricing model with a volatility figure derived from historical data. The Company accounts for the expected life of options based on the contractual life of options for non-employees. The fair value of all options that vested during the three months ended ofMarch 31, 2020 and 2019 were$0 and$14,000 , respectively. Unrecognized compensation expense of$0 atMarch 31, 2020 will be expensed in future periods. NOTE 14 - SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued.
On
OnMay 3, 2020 , the Company received a loan in the principal amount of$50,000 pursuant to the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security Act. The PPP loan matures inMay 2022 and accrues interest at the rate of 1% per annum. Payments of principal and interest of any unforgiven balance commence inDecember 2020 .
On
On
OnJuly 8, 2020 , the Company issued a promissory note in the principal amount of$22,911 which note accrues interest at a rate of 10% per annum and matures
onDecember 31, 2020 .
On
OnAugust 31, 2020 andSeptember 1, 2020 , the Company issued convertible notes in the aggregate principal amount of$115,500 (including an aggregate of$10,500 original issuance discount) which notes accrue interest at a rate of 12% per annum and mature onMarch 1, 2021 . -18-
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 condensed consolidated 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 Part I, Item 1. COVID-19 Pandemic OnJanuary 30, 2020 , theWorld Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus, COVID-19 originating inWuhan, China (and the risks to the international community as the virus spread globally beyond its point of origin). InMarch 2020 , theWHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report on Form 10-Q. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company's financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation and its impact on the Company's financial condition, liquidity, operations, customers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak will have on its results of operations, financial condition, or liquidity for fiscal year 2020. As of the date of this Quarterly Report on Form 10-Q, the Company has experienced delays in securing new customers and related revenues and the longer this pandemic continues there may be additional impacts. Furthermore, the COVID-19 outbreak has and may continue to impact the Company's ability to raise capital.
Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company's results of future operations, financial position, liquidity, and capital resources, and those of the third parties on which the Company relies in fiscal year 2020. Overview
MassRoots, Inc. was formed inApril 2013 and over the past seven years has partnered with numerous cannabis-related brands to advertise products to its broad following across its website, MassRoots.com, and social media accounts. Management believes that our YouTube Channel has one of the largest followings in the regulated cannabis industry with more than 265,000 subscribers while our Instagram account is followed by 387,000 users. Additionally,MassRoots has 920,000 opt-in email subscribers, 172,500 followers on our verified Twitter account, and more than 200,000 monthly visitors to its website.
For much of our history,
While our long-term goal remains building a technology platform for the cannabis industry, we believe it will likely take significant capital to do so. Therefore, we believe it is in the best interests of our shareholders to focus on monetizing our existing media channels over the coming months with the goal of generating positive cash-flows from operations.
We are focused on monetizing our audience through product placements, display ads, and daily deals.
Competitors
We compete with other cannabis platforms such as WeedMaps and
-19-
For the three months ended
For the three months ended
March 31, March 31,
2020 2019 $ Change % Change
Revenue $ - $ 4,383 $ (4,383 ) (100 )%
Operating expenses 211,328 968,498 (757,170 ) (78.2 )%
Loss from Operations (211,328 ) (964,115 ) 752,787 (78.1 )%
Other Income /(Expense) (31,741,568 ) (532,384
) (31,209,184 ) 5,862.2 %
Net Loss available to Common Stockholders
Revenues
For the three months ended
Operating Expenses
For the three months endedMarch 31, 2020 and 2019, our operating expenses were$211,328 and$968,498 , respectively, a decrease of$757,170 . This decrease was attributable to a decrease in stock-based compensation of$187,200 from$187,200 for the three months endedMarch 31, 2019 to$0 for the same period in 2020. There was a decrease in payroll and related expenses of$88,583 due to reduction in the number of employees as payroll and related expenses decreased to$82,736 for the three months endedMarch 31, 2020 from$171,319 for same period in 2019. Advertising expense decreased to$0 for the three months endedMarch 31, 2020 from$27,208 for the same period in 2019, a decrease of$27,208 . For the three months endedMarch 31, 2020 and 2019, the Company recorded amortization of software costs of$0 and$12,850 , respectively, a decrease of$12,850 . This is primarily a result of the Company not incurring any software development costs. Other general and administrative expenses decreased by$437,799 from$566,391 for the three months endedMarch 31, 2019 to$128,592 for the three months endedMarch 31, 2020 . This reduction was attributable to lower overhead costs for office expenses, legal fees, rent expense and contractor services for the three months endedMarch 31, 2020 as compared to the same period in 2019. During the three months endedMarch 31, 2020 , we incurred losses of$211,328 from operations, as compared to losses of$964,115 during the same period in 2019, a difference of$752,787 , for the reasons stated above. Other Income (Expense) For the three months endedMarch 31, 2020 and 2019, the Company recorded interest expense of$941,649 and$238,787 , respectively, primarily related to Company's convertible notes. The Company recorded a$2,114 gain and$293,597 loss on the conversion of convertible notes payable for the three months endedMarch 31, 2020 and 2019, respectively. For the three months endedMarch 31, 2020 and 2019, the Company recorded$327,062 and$0 , respectively, of gain on change in fair value of derivative liabilities. For the three months endedMarch 31, 2020 and 2019, the Company recorded$31,129,095 and$0 , respectively, of changes in the fair value of the derivative liability for the authorized shares shortfall.
Net Loss Available to Common Stockholders
For the three months ended
Liquidity and Capital Resources
Net cash used in operations for the three months endedMarch 31, 2020 and 2019 was$109,352 and$286,583 , respectively. This$177,231 decrease was primarily caused by a decrease in stock-based compensation (non-cash items), a decrease in interest and amortization of debt discount, and a decrease in accounts payable and accrued expenses. Net cash used in operations for the three months endedMarch 31, 2019 was primarily based on the utilization of$444,133 in cash to reduce accounts payable and other liabilities and the loss for the three months endedMarch 31, 2019 which was offset by the increase in stock-based compensation (non-cash item). -20-
Net cash used in investing activities for the three months ended
Net cash provided by financing activities for the three months endedMarch 31, 2020 and 2019 was$109,082 and$290,000 , respectively. During the three months endedMarch 31, 2020 , these funds were derived mainly from proceeds related to the issuance of convertible notes. During the three months endedMarch 31, 2019 , net cash provided by financing activities was derived from the issuance of convertible notes and advances. Capital Resources As ofMarch 31, 2020 , the Company had cash of$850 and working capital deficit (current liabilities in excess of current assets) of$68,501,692 . During the three months endedMarch 31, 2020 , net cash used in operating activities was$109,352 . These conditions raise substantial doubt about our ability to continue as a going concern for one year from the issuance of the condensed consolidated financial statements. Our primary source of operating funds since inception has been cash proceeds from the public and private placements of our securities, including debt securities, and proceeds from the exercise of warrants and options. We have experienced net losses and negative cash flows from operations since inception and expect these conditions to continue for the foreseeable future. For the foreseeable future, our ability to continue our operations is dependent upon our ability to obtain additional capital through public or private equity offerings, debt financings or other sources ; however, financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy and we may be forced to curtail or cease operations. Management's plans regarding these matters encompass the following actions: 1) obtain funding from new and current investors to alleviate our working capital deficiency; and 2) implement a plan to generate revenues. Our continued existence is dependent upon our ability to translate our audience into revenues. However, the outcome of our plans cannot be determined with any degree of certainty. Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America , 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 for one year from the date the condensed consolidated financial statements are issued. 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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
As of
Contractual Obligations Our contractual obligations are included in our notes to the condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q. To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a
need arise.
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 on Form 10-Q.
-21-
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