Business context and reporting period
This filing is a Form 10-Q for the three and six months ended June 30, 2019. The filing identifies the registrant as MassRoots, Inc., not Greenwave Technology Solutions, Inc.; verify that this is the intended filing. MassRoots described its business as a cannabis-industry technology platform with advertising and consumer products. The financial statements are unaudited.
Financial performance and position
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Revenue | $18,366 | $22,749 |
| Operating loss | $(774,638) | $(1,738,753) |
| Net loss | $(1,356,408) | $(2,852,907) |
| Net loss attributable to common stockholders | $(5,666,334) | $(7,162,833) |
| Basic and diluted loss per share | $(0.03) | $(0.04) |
At June 30, 2019, cash was $1,650, current assets were $27,026, and current liabilities were $8,492,245, producing a working-capital deficit of $8,465,219. Total liabilities were $8,492,245 against total assets of $459,364; stockholders’ deficit was $8,032,881. The filing gives no meaningful positive operating margin; revenue was very small relative to operating expenses.
- For the first half, operating cash use was $832,718, investing cash flow was zero, and financing cash provided was $804,800. Cash declined $27,918 from year-end 2018.
- Current debt-related balances included $2,298,666 of convertible notes, $148,000 of non-convertible notes, $882,500 of advances, and a $189,057 derivative liability. Certain non-convertible notes were past maturity and had accrued $30,661 in default penalties by quarter-end.
- Common shares outstanding were 203,414,654 at June 30, 2019; the filing reports 320,043,854 shares issued and outstanding as of August 27, 2019. Potentially dilutive securities excluded from loss-per-share calculations totaled about 304.4 million shares.
Changes versus prior comparable periods
- Second-quarter revenue rose from $2,237 to $18,366; first-half revenue rose from $3,729 to $22,749. Management attributed the increases to a license for the company’s YouTube channel.
- Second-quarter net loss narrowed from $2,938,014 to $1,356,408, and first-half net loss narrowed from $8,421,262 to $2,852,907. Lower payroll, advertising, stock-based compensation, software amortization, and general and administrative costs drove much of the reduction.
- Despite lower operating costs, first-half other expense increased to $1,114,154 from $398,191, including $590,178 of interest expense, $426,077 of loss on convertible-debt conversions, a $65,000 investment impairment, and a $32,899 derivative fair-value loss.
- First-half operating cash use improved from $4,441,379 in 2018 to $832,718 in 2019. Cash on hand nevertheless fell to $1,650.
Outlook, risks, contingencies, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance. The company said it lacked sufficient cash to fund operations for the next fiscal year and depended on additional equity, debt, or other financing, which may not be available on acceptable terms or at all. Management also planned to seek funding and generate sales; success was uncertain.
- Debt default after quarter-end: On July 16, 2019, an investor asserted defaults under the secured December 2018 convertible note and claimed an outstanding balance of $3,134,327.34. The note’s reported June 30 carrying value was $2,098,338, net of debt discount. Review the underlying note, default notice, and any subsequent resolution.
- Subsequent financing and dilution: From July 1 to August 30, the company reported $370,000 of gross proceeds from Series B preferred-stock units, debt conversions into 64,629,200 common shares, and 52,000,000 common shares issued upon Series A preferred conversions. The filing also reports further warrant exchanges and preferred-stock designations.
- Cowa transaction: The planned merger with Cowa had not become effective by June 30. MassRoots had advanced $213,000, of which $10,000 was repaid; it reserved the remaining $203,000 as an allowance. The advance was repayable on demand if the merger did not occur.
- Warrant repricing: Preferred-stock offering ratchet provisions reset certain warrant exercise prices and triggered additional warrants. The company recorded a $3,808,742 deemed dividend related to warrant price protection, affecting loss attributable to common stockholders.
- Controls: Management concluded disclosure controls were ineffective, citing inadequate segregation of duties and insufficient review of accounting and financial reporting. It identified a material weakness and said it expected to hire accounting personnel, with timing uncertain.
- Management described competition from platforms including Weedmaps and Leafly. No material legal proceedings were reported. The filing states that no off-balance-sheet arrangements existed at June 30.
Most important facts to verify
- Confirm the issuer and filing match the intended company: this document is for MassRoots, Inc.
- Confirm current cash, near-term cash requirements, and whether new financing is available; quarter-end cash was only $1,650.
- Check the status and enforceability of the secured-note default claim, including the asserted $3.13 million balance and any remedies or settlement.
- Reconcile subsequent share issuances, preferred-stock conversions, warrant terms, and the resulting fully diluted share count.
- Verify the Cowa merger status and recoverability of the $203,000 net advance.
- Assess progress in correcting the disclosed material weakness in financial reporting controls.