Filing identity and period
The supplied filing is MassRoots, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019, signed February 26, 2020. It is not a Greenwave Technology Solutions, Inc. filing; the company-name mismatch should be resolved before relying on this summary.
Business context and financial results
MassRoots described itself as a cannabis-industry technology platform, with a consumer app and an advertising and business portal. Management said it was prioritizing development of the portal and intended to upgrade it in the second quarter of 2020. The company reported more than one million registered users.
| Metric | Three months ended September 30, 2019 | Nine months ended September 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $909 | $23,658 | $4,014 and $7,743, respectively |
| Operating expenses | $1,122,617 | $2,884,121 | $3,914,253 and $11,941,053, respectively |
| Operating loss | $1,121,708 | $2,860,463 | $3,910,239 and $11,933,310, respectively |
| Net loss | $23,550,345 | $26,338,254 | $4,526,991 and $12,948,253, respectively |
| Operating cash used | Not presented for the quarter | $1,389,212 | $5,718,352 |
Amounts are in U.S. dollars. Revenue for the nine-month period rose 206% year over year, which the company attributed to licensing its YouTube channel; quarterly revenue fell 77%. Operating expenses declined substantially, chiefly due to lower stock compensation, payroll, advertising, and overhead. Despite the lower operating loss, nine-month net loss more than doubled, driven largely by financing-related and other non-operating items. No meaningful margin trend can be inferred from the very low revenue.
Liquidity, debt, and capital
- At September 30, 2019, cash was $2,639, total current assets were $19,146, and current liabilities were $24,919,384. Working capital deficit was $24,900,238; total assets were $22,317.
- Current liabilities included a $15,342,468 derivative liability, $3,044,077 of accounts payable and accrued expenses, $3,324,654 of accrued payroll, $882,500 of advances, $178,500 of non-convertible notes, and $2,147,185 of convertible notes net of discount.
- Net cash used in operations was $1,389,212 for the nine months. Financing activities provided $1,271,300, and investing activities provided $90,983. Cash declined from $29,568 at year-end 2018 to $2,639.
- The company recorded $15,050,821 of derivative liability expense related to an authorized-share shortfall. It also recorded $5,585,594 of preferred-stock issuance costs and $27,935,469 of deemed dividends from warrant price protection; these materially affected reported losses or loss attributable to common shareholders.
- Outstanding warrants totaled approximately 2.517 billion at quarter-end, and the filing listed approximately 5.133 billion potentially dilutive securities excluded from diluted loss per share. Common shares issued and outstanding were 353.6 million at quarter-end; the filing reported 463.0 million as of February 19, 2020.
Material changes, outlook, and risks
- Management stated that cash was insufficient to fund operations for the next fiscal year and that substantial doubt existed about the company’s ability to continue as a going concern for one year from issuance. Its stated plans were to seek funding from new and existing investors and generate sales; management cautioned that financing might not be available on acceptable terms or at all.
- The company wrote off $360,500 of advances to COWA Science Corporation after advancing $370,500 and receiving $10,000 in repayment. The proposed COWA merger had not closed by September 30, 2019 and was terminated on February 24, 2020.
- Convertible financing carried significant conversion, redemption, default, and dilution terms. A note investor asserted default penalties of $761,330 in July 2019. The company also disclosed an August 2019 default notice alleging a filing-related default on two notes; $346,898 in principal remained outstanding as of February 21, 2020.
- Subsequent events included an October 2019 lawsuit by Power Up Lending Group seeking multiple amounts and damages, including asserted claims of $312,000 and $156,000, per-day charges, lost profits, and legal costs. The filing’s general legal-proceedings section said the company was not then party to material proceedings; investors should reconcile that statement with the disclosed subsequent lawsuit.
- Management concluded disclosure controls were ineffective, citing insufficient segregation of duties and inadequate review of accounting and financial reporting. It identified a material weakness and said hiring qualified accounting personnel was expected to help, but could be delayed.
- Management’s forward-looking statements were subject to risks and were not guarantees. The filing provided no quantitative revenue, earnings, or cash-flow guidance.
Most important facts to verify
- Confirm the issuer: this document names MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Assess the company’s near-term funding needs, ability to raise capital, and going-concern status against its minimal cash and large working-capital deficit.
- Review the convertible-note defaults, asserted penalties, litigation exposure, and subsequent debt and preferred-stock exchanges.
- Validate the derivative liability and warrant repricing calculations, including the authorized-share shortfall and potential dilution.
- Check remediation of the disclosed material weakness and the status and commercial progress of the business portal.