Filing summary
Issuer identity: The request names Greenwave Technology Solutions, Inc., but the supplied Form 10-Q is for MassRoots, Inc. This summary reflects the filing provided, not Greenwave.
Business context and reporting period
MassRoots operated a technology and advertising platform for the cannabis industry. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016; comparisons are with the corresponding 2015 periods.
Key financial metrics
| Metric | Q3 2016 | Nine months 2016 |
|---|---|---|
| Revenue | $209,003 | $794,621 |
| Operating expenses | $2,094,211 | $6,795,371 |
| Operating loss | $1,885,208 | $6,000,750 |
| Net loss | $3,452,664 | $8,255,104 |
| Net loss per share, basic and diluted | $0.07 | $0.17 |
| Operating cash used | Not separately provided | $2,915,832 |
Revenue less cost of revenue implies gross profit of approximately $200,000 for Q3 and $492,000 for the nine-month period; the filing does not present these as margin measures. At September 30, cash was $126,615 and accounts receivable were $111,824. Current assets were $238,439 versus current liabilities of $2,857,299, a $2,618,860 working-capital deficit. Total liabilities were $3,066,399, including $767,604 of short-term convertible notes and $209,100 of long-term convertible notes; derivative liabilities were $1,288,302. Stockholders’ equity was a deficit of approximately $2.54 million.
Cash declined by $259,701 during the nine months, from $386,316 to $126,615. Financing provided $2,675,231, while investing used $19,100. The filing reports no cash interest or tax payments during the period.
Changes versus prior comparable periods
- Q3 revenue rose 243% from $60,916; nine-month revenue rose to $794,621 from $63,982. Management attributed growth mainly to digital advertising and 420 Rally ticket sales. Nine-month revenue included $554,621 in network advertising, $240,000 related to the 420 Rally, and $20,000 in merchandise sales.
- Operating expenses increased 43% in Q3 and 94% for the nine months. Nine-month increases included payroll, advertising, cost of revenue, stock-based compensation, and other general and administrative expenses.
- Net loss widened 63% in Q3 and approximately 98% for the nine months. Higher interest expense and debt-related charges were significant contributors.
- Nine-month operating cash use increased from $1,990,774 in 2015 to $2,915,832 in 2016.
Outlook, risks, and unusual items
- Going concern: Management and the filing identify substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, negative operating cash flow, and insufficient funds. Management said additional financing and converting users into sales were necessary.
- Post-quarter financing: The company reported a registered offering that closed October 21, 2016, raising approximately $5 million gross in total across the offering period, through common shares and warrants. It also reported approximately $407,000 from warrant exercises after quarter-end and said these proceeds were expected to fund operations through August 2017.
- Debt default and costs: The company could not repay $966,384 of secured convertible notes at their September 14, 2016 maturity and defaulted. The filing reports penalties and substantial non-cash interest and debt-discount amortization. Management said the notes were fully repaid by October 7 and the company was no longer in default.
- Management plans: Management reported expense reductions of $150,000 per month from July through September, with estimated annual savings of approximately $1.3 million, and targeted monthly cash-flow positivity by year-end 2016. It also planned to expand its business portal, dispensary listings, menus, and advertising features. These are forward-looking expectations, not reported results.
- Execution and dilution risks: The business depended on future financing and monetizing its user base; management cautioned it might not achieve profitability or obtain additional financing on acceptable terms. Share issuances, convertible debt, warrants, and options create potential dilution. The filing lists 22.4 million potentially dilutive securities excluded from loss-per-share calculations.
- Controls: Management concluded disclosure controls and procedures were not effective as of September 30, 2016. The filing reports no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Verify post-quarter financing proceeds, warrant exercises, share issuance, and the resulting cash runway and dilution.
- Confirm repayment and final settlement of the matured convertible notes, including penalties and any remaining obligations.
- Assess whether the stated expense savings and cash-flow-positive target were achieved, and whether revenue growth is recurring rather than event-driven.
- Review the basis and sensitivity of the $1.288 million Level 3 derivative liability and the large reported interest expense.
- Review the previously disclosed control weaknesses and the company’s progress in remediating them.