Filing identity and reporting period
Important issuer mismatch: The supplied filing is MassRoots, Inc.’s Form 10-Q for the quarter ended March 31, 2018, not a Greenwave Technology Solutions, Inc. filing. The summary below reflects the filing text provided.
MassRoots described itself as a cannabis-industry technology platform, with a consumer app and a planned advertising portal for dispensaries. The financial statements are unaudited and compare the three months ended March 31, 2018 with the same 2017 period.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $1,492 | $134,741; down 98.9% |
| Operating expenses | $5.135 million | $7.636 million; down 32.8% |
| Operating loss | $5.133 million | $7.501 million |
| Interest expense | $350,196 | None reported |
| Net loss | $5.483 million; $0.04 per share | $7.447 million; $0.09 per share |
| Cash used in operating activities | $3.535 million | $2.473 million |
| Cash at period end | $674,776 | $2.229 million at March 31, 2017 |
Lower operating expenses primarily reflected reduced stock-based compensation, payroll and advertising; stock-based compensation remained substantial at $3.117 million. Operating cash outflow increased, partly because the company paid down liabilities and made cash prepayments.
At March 31, 2018, current assets were $1.226 million and current liabilities were $2.688 million, a working-capital deficit of $1.462 million. Total liabilities had fallen to $2.688 million from $13.950 million at December 31, 2017. The balance sheet showed no convertible notes payable at quarter-end; the company said the August 2017 notes were retired by March 31 through cash payments and share conversions. The filing reports no off-balance-sheet arrangements.
Financing activities provided $3.009 million, including $2.740 million from common-stock sales, $63,000 from warrant exercises and $397,500 in advances, partly offset by repayments. Net cash decreased by $526,811 during the quarter. Revenue was too small for margins to be informative, and the filing does not provide a clear gross-margin figure.
Material changes, outlook and risks
- Revenue contracted sharply while net loss improved by $1.964 million, largely alongside lower expenses. The company attributed the revenue decline to redevelopment of its advertising portal.
- Management said it planned to begin charging dispensaries at least $420 per month per location, with a 12-month commitment, starting in May 2018. This was a plan, not a reported result or formal financial guidance.
- The company reported more than one million registered users and said it was focusing on recurring portal revenue, automation and a user rewards initiative. It noted competition from WeedMaps and Leafly.
- Going concern: Management stated that cash was insufficient to fund operations for the next fiscal year and that substantial doubt existed about the company’s ability to continue as a going concern for one year after issuance. It expected to need additional financing and cited investor funding and generating sales as plans, whose outcomes were uncertain.
- Equity dilution: Shares outstanding rose to 153.945 million at March 31 from 112.166 million at year-end; 37.119 million warrants and 15.372 million options were outstanding. The filing reports 154.488 million shares outstanding as of May 10, 2018.
- Accounting and unusual items: Adoption of ASU 2017-11 eliminated derivative liabilities; $9.493 million was reclassified to accumulated deficit/equity. The company also recorded $350,196 in interest expense related to convertible debt. It disclosed a clerical error in prior-year option activity and said it did not believe the error materially affected 2017 financial statements.
- Controls: Management concluded disclosure controls were ineffective due to insufficient segregation of duties and accounting review, identifying a material weakness that could allow material misstatements to go undetected. The company said it needed additional accounting personnel.
- The filing reported no legal proceedings and no defaults upon senior securities.
Most important facts for investors to verify
- Confirm issuer identity: the supplied 10-Q is for MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Verify subsequent cash needs, financing availability and progress toward the stated dispensary-portal launch and revenue targets.
- Review the share, warrant and option issuance details and potential dilution, including the financing terms and conversion history.
- Assess whether the company remedied the disclosed control weakness and whether the option-count correction affects other reported disclosures.