Business context and reporting period
The supplied filing is MassRoots, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2018—not a Greenwave Technology Solutions, Inc. filing. MassRoots describes a cannabis-industry technology platform and reported launching its business advertising portal in June 2018 and its WeedPass rewards program in September 2018.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $4,014 | $11,516 | $7,743 | $289,130 |
| Operating expenses | $3,914,253 | $7,533,530 | $11,941,053 | $27,315,960 |
| Operating loss | $(3,910,239) | $(7,522,014) | $(11,933,310) | $(27,026,830) |
| Net loss | $(4,526,991) | $(7,077,066) | $(12,948,253) | $(26,154,897) |
| Basic and diluted loss per share | $(0.03) | $(0.07) | $(0.09) | $(0.28) |
Cash was $11,221 at September 30, 2018, down from $1,201,587 at December 31, 2017. Current assets were $34,793 against current liabilities of $5,524,843, a working-capital deficit of $5,490,050. Total liabilities were $5,524,843; these included $1,210,945 of convertible notes payable, net of discount, and $933,500 of advances. The balance sheet reports no derivative liability at September 30. Total assets were $1,281,489 and stockholders’ deficit was $4,243,354.
For the first nine months, operating cash use was $5,718,352, investing cash use was $224,076, and financing provided $4,752,062. Cash decreased by $1,190,366. No useful operating margin is presented; revenue was negligible relative to operating expenses.
Material changes versus comparable periods
- Nine-month revenue fell 97.3% year over year; Q3 revenue fell 65.1%. Management attributed the decline to restructuring its sales strategy and deploying the new business portal in late June.
- Nine-month operating expenses declined 56.3%, chiefly because stock-based compensation fell to $5,447,629 from $19,882,527 and the workforce was reduced. Q3 stock-based compensation was $2,254,981 versus $5,510,554.
- Nine-month net loss narrowed by $13,206,644, but interest expense rose to $854,346 from $189,125, and derivative fair-value effects shifted from a $986,058 gain to a $160,597 loss.
- Shares outstanding increased from 112,165,839 at December 31, 2017 to 163,017,534 at September 30, 2018. The filing reports 166,767,534 shares outstanding as of November 16, 2018.
Outlook, risks and unusual items
Management stated that substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance. It said cash was insufficient to fund the next fiscal year and additional financing would be required; there is no assurance financing will be obtained. Management’s plans were to seek investor funding and convert the user base into sales. The filing gives no quantified revenue or earnings guidance.
The July 2018 secured convertible notes had $1,650,000 aggregate principal, a January 5, 2019 maturity, and conversion and price-reset provisions; associated warrants covered 6.6 million shares. The notes are secured by company assets. Equity issuance, warrants, options and potential conversions create substantial dilution risk. The filing also reports $11.6 million of options and warrants outstanding in aggregate? It separately lists 27,371,765 options and 41,226,339 warrants; these counts and the 6.6 million convertible-debt shares are potential dilution, subject to terms.
Disclosure controls were deemed ineffective due to lack of segregation of duties and inadequate review of accounting and reporting. Management identified a material weakness and said it may take time to hire and train additional accounting personnel. The filing reports no material legal proceedings and no off-balance-sheet arrangements. Management noted a clerical correction to prior-year option activity, which it did not believe materially affected 2017 financial statements.
Investor verification priorities
- Confirm issuer identity: the provided filing names MassRoots, Inc., whereas the request identifies Greenwave Technology Solutions, Inc.
- Reconcile the convertible-note disclosure: the balance sheet shows $1,210,945 of net notes payable and the notes describe July 2018 notes maturing January 2019, while MD&A says remaining notes payable had been paid in full.
- Assess near-term funding needs, ability to raise capital, and repayment or conversion of secured notes and advances given $11,221 cash and the going-concern warning.
- Track whether the new portal and WeedPass generate material recurring sales after the severe revenue decline.
- Evaluate dilution from the increase in shares outstanding and the large outstanding option and warrant balances.
- Monitor remediation of the material weakness in disclosure controls and the accuracy of future financial reporting.