GWAV 10-Q Quarter ended June 30, 2017

Delaware	46-2612944
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☒
Emerging growth company	☒

PART I.	FINANCIAL INFORMATION
	ITEM 1.	Financial Statements
		Condensed consolidated balance sheets as of June 30, 2017 (unaudited) and December 31, 2016		1
		Condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 (unaudited)		2
		Condensed consolidated statement of stockholders’ equity (deficit) for the six months ended June 30, 2017 (unaudited)		3
		Condensed  consolidated statements of cash flows for the six months ended June 30, 2017 and 2016 (unaudited)		4
		Notes to condensed consolidated financial statements (unaudited)		5-20
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21-25
	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		26
	ITEM 4.	Controls and Procedures		26
PART II.	OTHER INFORMATION
	ITEM 1.	Legal Proceedings		27
	ITEM 1A.	Risk Factors		27
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27
	ITEM 3.	Defaults Upon Senior Securities		27
	ITEM 4.	Mine Safety Disclosures		27
	ITEM 5.	Other Information		27
	ITEM 6.	Exhibits		28
	SIGNATURES			29

•

the growth of our business and revenues and our expectations about the factors that influence our success;

•

our plans to continue to invest in systems, facilities, and infrastructure, increase our hiring and grow our business;

•

our strategy and timing of any plans to monetize our network, including the paid conversion rates and the willingness of businesses to continue to advertise on our platform;

•

our user growth expectations;

•

our ability to attain funding and the sufficiency of our sources of funding;

•

our expectation that our cost of revenues, development expenses, sales and marketing expenses, and general and administrative expenses will increase;

•

fluctuations in our capital expenditures; and

•

other statements regarding our future operations, financial condition and prospects, and business strategies. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under “Risk Factors” in our Prospectus filed August 23, 2016, and any other risks described in any other filings we make with the United States Securities and Exchange Commission (“SEC”). Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.

MASSROOTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
		June 30,				December 31,
		2017				2016
		(unaudited)
ASSETS
Current assets:
Cash		$	31,247			$	374,490
Accounts receivable			-				3,306
Total current assets			31,247				377,796
Property and equipment, net			124,762				77,322
Other assets:
Goodwill			2,967,772				-
Investments			100,002				235,000
Deposits and other assets			33,502				33,502
Total other assets			3,101,276				268,502
Total assets		$	3,257,285			$	723,620
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	300,637			$	382,550
Loan payable			9,511				-
Due to related parties			49,503				-
Deferred revenue			-				27,010
Derivative liability			338,187				1,301,138
Total current liabilities			697,838				1,710,698
Long term debt:
Convertible notes payable, long term			-				108,100
Total liabilities			697,838				1,818,798
Stockholders’ equity (deficit):
Common stock, $0.001 par value; 200,000,000 shares authorized; 96,072,981 and 71,908,370 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively			96,073				71,908
Common stock to be issued, 226,769 and 1,740,000 shares, respectively			227				1,740
Common stock subscription			35,000				-
Additional paid in capital			51,368,623				28,693,819
Accumulated deficit			(48,940,476	)			(29,862,645	)
Total stockholders’ equity (deficit)			2,559,447				(1,095,178	)
Total liabilities and stockholders’ equity (deficit)		$	3,257,285			$	723,620

MASSROOTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
		Three months ended June 30,								Six months ended June 30,
		2017				2016				2017				2016
Revenues:		$	142,873			$	492,233			$	277,614			$	585,618
Operating expenses:
Advertising			368,812				369,132				562,243				557,419
Payroll and related expenses			1,069,276				640,546				1,921,136				1,236,044
Stock based compensation			9,140,970				690,590				14,371,973				1,693,309
Other general and administrative expenses			1,567,556				622,325				2,927,078				1,214,388
Total operating expense			12,146,614				2,322,593				19,782,430				4,701,160
Loss from operations			(12,003,741	)			(1,830,360	)			(19,504,816	)			(4,115,542	)
Other income (expense):
Gain on sale of securities			75,000				-				75,000				-
Gain on change in fair value of derivative liabilities			298,087				537,153				351,985				314,296
Interest expense			-				(873,050	)			-				(1,001,234	)
Total other income (expense):			373,087				(335,897	)			426,985				(686,938	)
Net loss before income taxes			(11,630,654	)			(2,166,257	)			(19,077,831	)			(4,802,480	)
Provision of income taxes (benefit)			-				-				-				-
NET LOSS		$	(11,630,654	)		$	(2,166,257	)		$	(19,077,831	)		$	(4,802,480	)
Net loss per common share-basic and diluted		$	(0.13	)		$	(0.04	)		$	(0.22	)		$	(0.10	)
Weighted average number of common shares outstanding-basic and diluted			91,784,190				48,509,071				86,057,738				47,920,007

MASSROOTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 2017
										Common stock								Common				Additional
		Common stock								To be issued								Stock				Paid in				Accumulated
		Shares				Amount				Shares				Amount				Subscription				Capital				Deficit				Total
Balance, December 31, 2016			71,908,370			$	71,908				1,740,000			$	1,740			$	-			$	28,693,819			$	(29,862,645	)		$	(1,095,178	)
Common stock issued for services rendered			12,886,898				12,887				(1,625,731	)			(1,626	)			-				8,831,619				-				8,842,880
Common stock issued upon exercise of warrants for cash			6,873,041				6,873				112,500				113				-				4,716,210				-				4,723,196
Common stock issued upon cashless exercise of options			41,153				41				-				-				-				(41	)			-				-
Common stock issued upon cashless exercise of warrants			355,689				356				-				-				-				(356	)			-				-
Common stock issued in settlement of convertible notes			1,081,000				1,081				-				-				-				107,019				-				108,100
Common stock issued to acquire DDDigtal LLC.			2,926,830				2,927				-				-				-				2,880,293				-				2,883,220
Proceeds from common stock subscription			-				-				-				-				35,000				-				-				35,000
Reclassify fair value of derivative liability to equity upon warrant exercise(s)			-				-				-				-				-				610,967				-				610,967
Change in fair value of re-priced and modified options			-				-				-				-				-				2,680,888				-				2,680,888
Stock based compensation			-				-				-				-				-				2,848,205				-				2,848,205
Net loss			-				-				-				-				-				-				(19,077,831	)			(19,077,831	)
Balance, June 30, 2017 (unaudited)			96,072,981			$	96,073				226,769			$	227			$	35,000			$	51,368,623			$	(48,940,476	)		$	2,559,447

MASSROOTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
		Six months ended June 30,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(19,077,831	)		$	(4,802,480	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			11,934				8,725
Amortization of debt discounts			-				992,599
Stock based compensation			11,691,085				1,693,309
Gain on sale of securities			(75,000	)			-
Change in fair value of re-priced and modified options			2,680,888				-
Change in fair value of derivative liabilities			(351,985	)			(314,296	)
Changes in operating assets and liabilities:
Accounts receivable			6,889				(37,252	)
Note receivable			-				-
Prepaid and other			-				(7,062	)
Accounts payable and other liabilities			(63,039	)			333,255
Deferred revenue			(27,010	)			-
Net cash used in operating activities			(5,204,069	)			(2,133,202	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from acquisition of DDDigtal LLC			8,672				-
Proceeds from sale of securities			250,000				-
Purchase of equity investment			(100,002	)			-
Purchase of equipment			(56,041	)			(19,100	)
Net cash provided by (used in) investing activities			102,629				(19,100	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible note			-				1,420,000
Proceeds from common stock subscription			35,000				-
Proceeds from exercise of warrants			4,723,197				371,507
Proceeds from exercise of options			-				25,000
Net cash provided by financing activities			4,758,197				1,816,507
Net decrease in cash			(343,243	)			(335,795	)
Cash, beginning of period			374,490				386,316
Cash , end of period		$	31,247			$	50,521
Supplemental disclosures of cash flow information:
Cash paid during period for interest		$	-			$	-
Cash paid during period for taxes		$	-			$	-
Non cash investing and financing activities:
Convertible note issued in payment of liabilities		$	-			$	35,000
Common stock issued in settlement of debt		$	108,100			$	-
Common stock issued to acquire DDDigtal LLC		$	2,883,220			$	-
Net assets acquired from acquisition of DDDigtal LLC		$	15,448			$	-
Reclassification of derivative liability to equity upon warrant exercise(s)		$	610,967			$	-

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
Goodwill			2,967,772
Assets acquired		$	2,983,360

		Three months ended June 30, 2017				Three months ended June 30, 2016
Total revenues		$	142,873			$	510,943
Net loss			(11,630,654	)			(2,177,965	)
Basic and diluted net loss per common share		$	(0.13	)		$	(0.04	)

		Six months ended June 30, 2017				Six months ended June 30, 2016
Total revenues		$	277,614			$	608,928
Net loss			(19,077,831	)			(4,904,311	)
Basic and diluted net loss per common share		$	(0.22	)		$	(0.10	)

	(i)	persuasive evidence of an arrangement exists,
	(ii)	the services have been rendered and all required milestones achieved,
	(iii)	the sales price is fixed and determinable, and
	(iv)	collectability is reasonably assured.

		June 30, 2017				June 30, 2016
Common stock issuable upon conversion of convertible debentures			—				4,252,333
Options to purchase common stock			17,248,942				5,584,880
Warrants to purchase common stock			7,793,847				9,742,044
Totals			25,042,789				19,579,257

		June 30, 2016				December 31, 2016
Computers		$	123,771			$	72,124
Office equipment			44,577				36,850
Subtotal			168,348				108,974
Less accumulated depreciation			(43,586	)			(31,652	)
Property and equipment, net		$	124,762			$	77,322

		June 30, 2017				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Derivative liability		$	338,187			$	—			$	—			$	338,187

		December 31, 2016				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Derivative liability		$	1,301,138			$	—			$	—			$	1,301,138

Balance, January 1, 2017		$	1,301,138
Transfers out due to warrant exercise			(610,966	)
Mark to market to June 30, 2017			(351,985	)
Balance, June 30, 2017		$	338,187
Gain on change in warrant liabilities for the six months ended June 30, 2017		$	351,985

Warrants Outstanding													Warrants Exercisable
									Weighted
									Average				Exercisable
Exercise					Number of				Remaining Life				Number of
Price					Warrants				In Years				Warrants
	$	0.40				287,500				0.24				287,500
		0.50				936,670				3.60				936,670
		0.60				50,000				2.78				50,000
		0.83				100,000				3.55				100,000
		0.90				5,070,002				2.23				5,070,002
		1.00				796,000				0.43				796,000
		1.06				146,200				1.48				146,200
		3.00				407,475				1.36				407,475
						7,793,847				2.09				7,793,847

										Weighted-Average
						Weighted-Average				Remaining				Aggregate
		Shares				Exercise Price				Contractual Term				Intrinsic Value
Outstanding at December 31, 2016			15,448,056			$	0.81				2.4				4,225,936
Grants			—												—
Exercised			(7,238,668	)			0.68
Expired			(415,541	)			0.40
Outstanding at June 30, 2017			7,793,847			$	0.95				2.1			$	111,626
Vested and expected to vest at June 30, 2017			7,793,847			$	0.95				2.1			$	111,626
Exercisable at June 30, 2017			7,793,847			$	0.95				2.1			$	111,626

Exercise				Number of			Vesting
Price				Options			Terms
$	0.50				80,000		Immediately
	0.50				100,000		Quarterly over one year
	0.50				605,000		Quarterly over two years
	0.81				5,000		Immediately
	0.82				150,000		Quarterly over two years
	0.85				150,000		Quarterly over one year
	0.87				125,000		Immediately
	0.89				425,000		Monthly over one year
	0.89				90,000		Quarterly over two years
	0.95				400,000		Quarterly over two years
	0.98				24,000		Monthly over two years
	1.05				50,000		Immediately
	1.05				95,000		Monthly over two years
	1.05				60,000		Monthly over one year
	1.06				60,000		Monthly over one year
	1.07				110,000		Monthly over one year
	1.07				325,000		Monthly over two years
	0.83				2,854,000

Exercise				Number of				Remaining Life				Number of
Price				Options				In Years				Options Exercisable
$	0.10				1,500,000				6.93				1,250,000
	0.50				13,602,163				9.20				10,311,295
	0.51				2,041,779				9.27				1,761,779
	0.60				105,000				7.78				105,000
					17,248,942				9.00				13,428,074

										Weighted-Average
						Weighted-Average				Remaining				Aggregate
		Shares				Exercise Price				Contractual Term				Intrinsic Value
Outstanding at December 31, 2016			14,824,158				0.52				9.37			$	4,566,717
Grants			2,854,000				0.50				9.71				—
Exercised			(79,214	)			0.50				8.80
Forfeiture/Canceled			(350,002	)		$	0.50				8.80				—
Outstanding at June 30, 2017			17,248,942			$	0.47				9.00			$	1,740,227
Exercisable at June 30, 2017			13,428,074			$	0.46				8.90			$	1,384,354

		Three months ended June 30,
		2017				2016				$ Change				% Change
Revenues:		$	142,873			$	492,233			$	(349,360	)			(71	)%
Total operating expense			12,146,614				2,322,593				9,824,021				423	%
Loss from operations			(12,003,741	)			(1,830,360	)			(10,173,381	)			556	%
Total other income (expense):			373,087				(335,897	)			708,984				211	%
NET LOSS		$	(11,630,654	)		$	(2,166,257	)		$	(9,464,397	)			437	%

		Six months ended June 30,
		2017				2016				$ Change				% Change
Revenues:		$	277,614			$	585,618			$	(308,004	)			(53	)%
Total operating expense			19,782,430				4,701,160				15,081,270				321	%
Loss from operations			(19,504,816	)			(4,115,542	)			(15,389,274	)			374	%
Total other income (expense):			426,985				(686,938	)			1,113,923				162	%
NET LOSS		$	(19,077,831	)		$	(4,802,480	)		$	(14,275,351	)			297	%

31.2

Certification of Principal Executive Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Accounting Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Accounting Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

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