Business Context and Reporting Period
This Form 8-K was filed by MassRoots, Inc. on March 18, 2016, reporting events that occurred on March 17, 2016. The filing details the completion of a private securities offering to accredited investors, facilitated by Chardan Capital Markets, LLC as the sole placement agent.
Key Financial Metrics and Transaction Details
- Instrument Issued: Six-month secured convertible original issue discount notes (Notes) and five-year warrants.
- Principal Amount: $1,461,333 in aggregate Notes.
- Gross Proceeds: $1,370,000.
- Net Proceeds: $1,221,600 (excluding legal fees).
- Placement Agent Commission: $123,400 paid to Chardan Capital Markets, LLC.
- Warrant Terms: Warrants to purchase shares equal to the conversion amount of the Notes at an exercise price of $1.00 per share.
- Security: Notes are secured by all assets of the Company, currently held or hereafter acquired.
Material Changes and Terms
The Company entered into a Securities Purchase Agreement (SPA) and a Security Agreement. Key terms include:
- Prepayment Penalty: If prepaid within the first 90 days, the Company must pay 120% of the outstanding principal; thereafter, 135%.
- Conversion Price: The lower of $1.00 or a 25% discount to the price of the next offering. If unpaid at maturity, the price resets to 65% of the average of the three lowest trading days in the 15 days prior to maturity.
- Repayment Priority: Net proceeds from any subsequent offerings must first be used to repay the Notes.
- Maturity Default: If not repaid by the Maturity Date, investors receive up to 500,000 shares of common stock pro rata.
- Lock-Up Agreement: Executive officers agreed not to sell shares until the Notes are fully repaid, redeemed, or converted.
- Share Reservation: The Company reserved shares equal to the greater of 300% of potential issuance upon conversion/warrant exercise or 19.9% of current shares outstanding.
Guidance, Risks, and Contingencies
The filing does not provide forward-looking financial guidance or management commentary regarding future operational performance. The document includes standard disclaimers stating that representations and warranties in the agreements are for the benefit of the contracting parties and should not be relied upon as characterizations of the Company's actual state of facts. The filing notes that the Notes are secured by all Company assets, creating a significant lien on the Company's balance sheet.
Investor Verification Checklist
- Verify the current number of shares outstanding to calculate the potential dilution from the 19.9% reservation cap and the 500,000 shares issuable upon maturity default.
- Confirm the Company's current liquidity position to assess the ability to meet the 120% or 135% prepayment penalties if the Company seeks to refinance early.
- Review the Security Agreement (Exhibit 10.2) to understand the specific scope of assets pledged as collateral.
- Monitor upcoming capital raising activities, as proceeds from any new offering are contractually obligated to repay these Notes first.
- Check for any subsequent filings regarding the conversion or repayment status of these Notes.