Business Context and Reporting Period
This Form 8-K was filed by MassRoots, Inc. (not Greenwave Technology Solutions, Inc.) on December 17, 2018. The report details the entry into a material definitive agreement involving the issuance of a secured convertible promissory note to an accredited investor.
Key Financial Metrics and Transaction Details
- Gross Proceeds: $2,000,000 raised from the sale of the Note.
- Note Principal: $2,225,000 (includes a $200,000 original issuance discount).
- Interest Rate: 8% per annum (increases to 22% upon an event of default).
- Maturity Date: December 17, 2019.
- Conversion Price: $0.35 per share of common stock.
- Use of Proceeds: $1,762,500 used to repay holders of July 2018 notes.
- Security: The Note is secured by a Security Agreement granting the investor a security interest in company collateral.
Material Changes and Terms
The filing discloses a new direct financial obligation. Key terms include:
- Prepayment: The Company may prepay the Note at 125% of the outstanding balance.
- Redemption: Commencing June 17, 2019, the Investor may redeem the Note (cash or stock conversion), limited to $350,000 per calendar month unless a default occurs.
- Default Acceleration: Upon an event of default, the Outstanding Balance becomes immediately due in cash at the Mandatory Default Amount.
- Ownership Limitation: Conversion is restricted if the Investor's beneficial ownership exceeds 4.99% (waivable up to 9.99%).
- Covenants: Restrictions on Variable Security Issuances and a requirement to conduct a rights offering within a specified period.
Guidance, Risks, and Unusual Items
The filing does not provide forward-looking guidance, revenue projections, or management commentary on future operations. The primary risk disclosed is the creation of a secured debt obligation with aggressive default terms (22% interest rate and acceleration) and potential dilution upon conversion. The securities were issued unregistered under Section 4(a)(2) of the Securities Act.
Investor Verification Checklist
- Verify the exact definition of "Mandatory Default Amount" in the Note (Exhibit 99.2) to understand total liability upon default.
- Confirm the specific assets pledged as "Collateral" under the Security Agreement (Exhibit 99.3).
- Review the timeline and terms for the required rights offering mentioned in the covenants.
- Assess the impact of the $1,762,500 repayment of prior notes on the company's remaining liquidity.
- Check subsequent filings for any events of default or changes in the company's capital structure.