Filing identity and reporting period
Issuer mismatch: The supplied filing is MassRoots, Inc.’s Form 10-Q for the quarter ended September 30, 2015—not a filing for Greenwave Technology Solutions, Inc. The summary below reflects the filing text provided.
MassRoots described itself as a social network for the cannabis community. It began monetizing through advertising in mid-August 2015; merchandise was a secondary revenue source.
Financial results and position
| Metric | Q3 2015 | First nine months 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $60,916 | $63,982 | $5,719 and $7,458, respectively |
| Gross profit | $52,508 | $55,574 | $5,719 and $6,768, respectively |
| Gross margin | 86.2% | 86.9% | Not stated |
| Operating loss | $(1,381,238) | $(3,437,057) | $(260,536) and $(1,242,871), respectively |
| Net loss | $(2,097,247) | $(4,165,056) | $(277,494) and $(1,277,510), respectively |
| Net loss per share | $(0.05) | $(0.10) | Not available in the statements |
| Operating cash flow | Not stated | $(1,990,774) | $(651,295) for nine months |
At September 30, 2015, cash was $345,085, current assets were $951,908, and current liabilities were $1,463,254, implying a working-capital deficit of approximately $511,000 and a current ratio of about 0.65. Total liabilities were $1,672,354 versus assets of $1,281,731; stockholders’ equity was negative $390,623. Convertible debentures had a carrying value of $209,100 and mature in March 2016. Derivative liabilities totaled $1,329,743.
Nine-month investing cash outflow was $220,776, including a $175,000 Flowhub investment; financing provided $2,414,707, primarily from stock sales and warrant exercises. Cash increased by $203,157 from year-end 2014.
Changes versus prior periods
- Q3 revenue rose to $60,916 from $5,719, reflecting the start of advertising monetization. The company reported approximately $60,000 of advertising revenue in the last six weeks of the quarter.
- Nine-month revenue was $63,982 versus $7,458, while nine-month net loss widened to $4.17 million from $1.28 million.
- Nine-month general and administrative expense increased to $3.49 million from $1.25 million, including higher payroll, advertising, equity-based compensation, and accounting and consulting costs.
- Cash used in operations increased to $1.99 million from $651,295. Management said monthly cash burn declined from approximately $350,000 in Q2 to $280,000 in Q3.
- Cash rose from $141,928 at December 31, 2014 to $345,085 at September 30, 2015, supported by equity financing and warrant exercises.
Outlook, risks, and notable items
- Management expected advertising revenue to increase in Q4 2015 and 2016 as self-service advertising features launched, and projected more than one million users in late 2015 or early 2016. These are forward-looking statements, not guaranteed results.
- The company reported approximately 570,000 users at quarter-end in its operating discussion; another section states 590,000 as of September 30, so the filing’s user count is not consistent.
- Management estimated a need to raise another $2.0 million over the next fiscal year and said September cash would fund about one and a half months of operations. The filing states that the company depended on securities sales and warned that failure to raise funds or generate revenue could force it to cease operations.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern. Management’s plans included raising capital and converting its user base into sales; the outcome was uncertain.
- After quarter-end, the company reported a registered offering that raised approximately $1.019 million gross on November 9–10, 2015, through sales of 815,500 shares and 407,750 warrants. The filing said proceeds were expected to fund operations through the end of 2015 and into mid-Q1 2016.
- Derivative fair-value changes and debt-discount amortization materially affected reported losses. The filing reports a $658,929 Q3 derivative-liability loss and a $616,192 nine-month loss; derivative liabilities are Level 3 estimates using a Black-Scholes model.
- Management concluded disclosure controls and procedures were ineffective, citing insufficient segregation of duties, no audit committee, and no majority of outside directors. No current or pending legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer: the supplied document is MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Reconcile reported revenue: the financial statements show nine-month 2015 revenue of $63,982, while an MD&A table contains a malformed figure (“63,99892”).
- Reconcile the reported user counts of approximately 570,000 and 590,000, and assess whether user growth translated into recurring advertising revenue.
- Assess liquidity, the going-concern warning, subsequent offering proceeds, and the company’s stated need for additional capital.
- Review potential dilution from outstanding warrants, options, stock-based compensation, and subsequent financing.
- Evaluate the derivative-liability valuation and its effect on reported losses, along with remediation of the disclosed control weaknesses.