Business context and reporting period
This filing is a Form 10-Q for MassRoots, Inc., for the quarter ended June 30, 2015—not Greenwave Technology Solutions, Inc. MassRoots described itself as a social network for the cannabis community and said its 2015 focus was growing users rather than generating revenue. It reported approximately 400,000 users at quarter-end, up from approximately 275,000 at the start of the second quarter.
Financial results and position
| Metric | Q2 2015 | Six months ended June 30, 2015 |
|---|---|---|
| Revenue | $2,126 | $3,066 |
| Gross profit | $2,126 | $3,066 |
| Operating expenses | $1,493,131 | $2,058,883 |
| Net loss | $1,517,297 | $2,067,808 |
| Net loss per share | $(0.03) | $(0.05) |
| Operating cash used | Not stated separately | $1,352,043 |
Q2 cost of goods sold was zero; six-month cost of goods sold was $0 in the filing’s statement of operations presentation for 2015. Revenue was primarily from merchandise sales. At June 30, cash was $171,363, current assets were $1,151,358, current liabilities were $481,726, total liabilities were $634,156, and stockholders’ equity was $841,671. Convertible debentures had a carrying value of $152,430, net of discount. The company had invested $175,000 in Flowhub for an 8.95% equity interest.
Cash increased by $29,435 in the first half: operating cash use of $1,352,043 and investing cash use of $213,158 were offset by $1,594,636 in financing cash. The filing says the June 30 cash balance would cover approximately one month of operating expenditures; management estimated monthly operating burn at approximately $250,000.
Changes versus the prior comparable period
Compared with Q2 2014, Q2 2015 revenue rose from $744 to $2,126, while general and administrative expense increased from $301,877 to $1,493,131 and net loss widened from $317,551 to $1,517,297. For the first half, revenue rose from $1,739 to $3,066, expenses increased from $983,384 to $2,058,883, and net loss widened from $1,000,016 to $2,067,808. Management attributed increased costs principally to equity compensation, hiring developers, advertising and event sponsorship, and travel, accounting, consulting, and investor-relations activity.
Cash used in operations increased from $416,098 in the first half of 2014 to $1,352,043 in 2015. Financing cash provided increased from $475,000 to $1,594,636. The balance sheet improved from a stockholders’ deficit of $946,799 at December 31, 2014 to positive equity of $841,671 at June 30, 2015, aided by stock sales, warrant exercises, and a reduction in derivative liabilities.
Outlook, risks, and unusual items
- Management planned to roll out paid MassRoots for Business features in Q3 2015, with proposed subscriptions of $49, $149, and $349 per month and sponsored posts at about $20 per thousand impressions. These were plans, not reported results.
- Management projected more than one million users in late 2015 or early 2016 and said it expected to begin growing revenue during the remainder of 2015. It estimated a need to raise an additional $1.5 million over the following fiscal year, expecting warrant exercises to provide most of it; there was no assurance of funding or revenue success.
- The filing states that recurring losses and limited operating cash flow raise substantial doubt about the company’s ability to continue as a going concern. Management’s plans depended on raising capital and converting users into sales; failure to secure funding could force a cessation of operations or bankruptcy protection.
- Subsequent to quarter-end, the company completed a stock offering totaling $1,065,502 in gross proceeds, received by July 21, 2015, before placement-agent compensation. At June 30, $75,000 of the offering proceeds was described as a subscription receivable.
- During Q2, amendments removing warrant ratchet provisions reduced derivative liabilities by $835,593 and increased additional paid-in capital by the same amount. Equity-based compensation and consulting arrangements were substantial; the company also reported a $175,000 Flowhub investment.
- Management said disclosure controls were ineffective because a small staff lacked adequate segregation of duties; it planned to address this by hiring accounting personnel. The filing checked “No” for having been subject to Exchange Act reporting requirements for the preceding 90 days.
- Risks cited include cannabis regulation, technology and execution risks, dependence on key personnel, and the need for additional funding. The proposed Flowhub partnership was not assured. The company reported no current or pending legal proceedings.
Important facts for investors to verify
- Confirm issuer identity: the supplied filing names MassRoots, Inc., although the request metadata names Greenwave Technology Solutions, Inc.
- Review the going-concern disclosure, cash runway, subsequent offering proceeds, and the company’s ability to fund operations beyond the near term.
- Track whether the planned paid business products launched and produced material revenue; reported quarterly revenue was only $2,126.
- Assess dilution and potential share supply from stock offerings, equity compensation, and outstanding warrants and options.
- Verify the terms, valuation, and status of the Flowhub investment and proposed partnership, and consider the disclosed ineffective controls and reporting-status checkbox.