Filing Summary
Entity and period: The supplied filing is MassRoots, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2014, not a filing identified as Greenwave Technology Solutions, Inc. Verify that this is the intended company and filing.
Business Context and Reporting Period
MassRoots describes itself as a development-stage digital network for the cannabis community. Its focus in 2014 was building its platform and user base; advertising was its primary planned revenue source, with merchandise sales secondary. The filing reports 215,000 users and 56 million interactions as of November 10, 2014.
Financial Results and Liquidity
- Revenue: Third-quarter 2014 advertising revenue was $5,719, versus none in the comparable 2013 quarter. Nine-month revenue was $7,458, versus none for the inception-through-September 2013 comparison period.
- Profit and margins: Third-quarter net loss was $277,495, compared with $5,612; nine-month net loss was $1,277,510, compared with $12,098. Gross profit was $5,719 for the quarter and $6,768 year to date; nine-month cost of goods sold was $690. The filing reports no income tax provision.
- Expenses: Third-quarter general and administrative expenses were $283,214; nine-month expenses were $1,284,278 in the statements (MD&A gives $1,284,279). Year-to-date expenses included $555,598 for warrants issued for services and $34,639 of debt-discount amortization.
- Cash flow: Nine-month operating cash use was $651,295, investing cash use $9,184, and financing cash inflow $580,000. Cash fell from $80,479 at December 31, 2013 to zero at September 30, 2014.
- Balance sheet and liquidity: Total assets were $261,569, including $249,705 of prepaid expense and no cash. Current liabilities were $1,297; total liabilities were $173,331, including $172,034 of convertible debentures net of discount. Stockholders’ equity was $88,238. The filing states the company had no external credit or other committed liquidity source.
- Debt and dilution: The company issued $269,100 of zero-interest convertible debentures, due March 24, 2016, convertible at $0.10 per share. As of quarter-end, the carrying amount was $172,034 after unamortized discount. Numerous warrants were outstanding, including warrants exercisable at $0.001, $0.10, $0.40 and $1.00 per share. Common shares outstanding were 38,909,000 at October 31, 2014.
Changes, Outlook, Risks, and Unusual Items
- Losses and expenses rose sharply versus the prior comparison periods, reflecting increased development, payroll, professional and SEC reporting costs, and equity-based compensation. Advertising revenue began to emerge in 2014 but remained minimal.
- Management anticipated needing an additional $500,000 to fund operations through the end of the second quarter of 2015, for user growth, product features, advertising-portal development and compliance. It said exercise of certain warrants could provide about $1.9 million, but could not assure exercise or successful fundraising.
- The company reported substantial doubt about its ability to continue as a going concern, citing ongoing operating losses, lack of internally generated cash flow and dependence on financing and future sales. Management’s funding and revenue plans had uncertain outcomes.
- Management said “MassRoots for Business,” an advertising and analytics portal, was in development and expected to launch in late Q4 2014 or early Q1 2015. This is a stated expectation, not a guarantee.
- On November 4, 2014, Apple removed the app from its iOS App Store over a compliance issue. Management said existing users could continue using the app, other access channels remained available, and it expected a temporary, minor effect on user growth while working to resolve the issue.
- Subsequent financing: the notes report a $348,000 offering from October 1 to November 14, 2014. Elsewhere, Part II describes $464,000 raised from September 15 to November 14. The timing and amounts should be reconciled.
- Disclosure controls were deemed ineffective because the small staff did not provide sufficient segregation of duties. Management planned to address the weakness by hiring accounting personnel in 2015. The company reported no pending legal proceedings.
Important Facts for Investors to Verify
- Confirm the issuer: the provided filing is for MassRoots, Inc., whereas the request identifies Greenwave Technology Solutions, Inc.
- Reconcile the subsequent-offering descriptions and amounts, and confirm cash actually received after quarter-end.
- Assess near-term funding needs, cash runway, going-concern disclosures and the likelihood of additional capital being available.
- Review potential dilution from convertible debentures, warrants and shares to be issued, including exercise prices and registration status.
- Check the status and business impact of the iOS App Store removal and the expected launch and monetization of MassRoots for Business.
- Consider the ineffective disclosure controls and planned remediation, and note the small discrepancy between statement and MD&A year-to-date expenses.