Business context and reporting period
This is MassRoots, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016, covering the three and six months ended on that date. The filing describes a cannabis-focused social and advertising platform, with additional merchandise and event-related activity. The request identifies Greenwave Technology Solutions, Inc.; that does not match the registrant named in the filing, so confirm the filing belongs to the intended company.
Financial results and liquidity
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $492,233 | $585,618 | $2,126 and $3,066, respectively |
| Cost of revenue | $285,228 | $293,780 | $0 |
| General and administrative expenses | $2,322,953 | $4,701,160 | $1,493,131 and $2,058,883, respectively |
| Operating loss | $1,830,360 | $4,115,542 | $1,491,005 and $2,055,817, respectively |
| Net loss | $2,166,257 | $4,802,480 | $1,517,297 and $2,067,808, respectively |
| Loss per share | $0.05 | $0.10 | $0.03 and $0.05, respectively |
- For the six-month period, operating cash use was $2,133,202; investing cash use was $19,100; and financing provided $1,816,507. Cash declined from $386,316 at year-end 2015 to $50,521 at June 30, 2016.
- At June 30, current assets were $147,273 and current liabilities were $1,680,304. Total liabilities were $1,899,404, including $1,201,599 of convertible debt, net of discounts. Stockholders’ deficit was $1,450,231.
- No operating margin was reported. Revenue less cost of revenue was $206,? for the quarter and $291,838 for six months; the quarterly difference is unclear from the filing text, so verify against the statements.
- Revenue was primarily advertising, with the six-month total attributed to $325,618 of network advertising, $240,000 of 420 Rally revenue, and $20,000 of merchandise sales.
Material changes versus the prior comparable period
- Revenue increased substantially from a very small 2015 base, but losses also widened: six-month net loss increased by $2,734,672. General and administrative expenses more than doubled, driven in part by payroll and stock-based compensation.
- Noncash amortization of debt discounts was a significant expense. The statements report $992,559 for the six months, while the cash-flow statement and MD&A show slightly different figures.
- The company raised $1,420,000 gross from a March 2016 convertible-note offering and received cash from warrant and option exercises. Convertible debt and derivative liabilities were reported at June 30, unlike year-end 2015.
Outlook, risks, contingencies and unusual items
- Management and the filing’s going-concern note state that recurring losses, negative operating cash flow and dependence on financing raise substantial doubt about the company’s ability to continue as a going concern. Management said it expected to need an additional $2.5 million over the next fiscal year.
- Management forecast monthly cash-flow positivity by year-end 2016, citing product development, advertising growth and expense reductions. The filing does not establish that this target was achieved.
- Management reported that July 2016 expense actions eliminated approximately $54,000 in monthly costs, estimated at about $648,000 annually, and reduced headcount from 33 to 24. Full savings were expected later in 2016.
- The March notes mature September 17, 2016 and include discounted conversion terms, potential additional shares if unpaid at maturity, and provisions directing proceeds from subsequent offerings to repayment. These terms create repayment and dilution risks.
- The Denver 420 Rally was postponed by a snowstorm. The company reported roughly $230,000 of ticket revenue and approximately $130,000 of additional rescheduling costs, and estimated an overall event loss of about $30,000. It said it did not expect to be a major event producer going forward.
- After quarter-end, the company reported a registered offering that raised $1,636,500 gross from common stock and warrants. The filing also reports subsequent share issuances and that 51,001,884 common shares were outstanding as of August 17, 2016.
- Disclosure controls and procedures were judged ineffective as of June 30, 2016. The filing reports no current or pending legal proceedings.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Reconcile the filing’s differing figures for quarterly operating expenses, 420 Rally revenue and costs, and six-month debt-discount amortization.
- Review the March convertible notes’ maturity, conversion and repayment terms, and the resulting potential dilution.
- Confirm the proceeds, share issuance status and capitalization impact of the August 2016 offering, alongside the company’s stated financing needs and cash-flow outlook.
- Assess the going-concern warning, ineffective disclosure controls, and whether management’s planned cost savings and revenue initiatives were realized.