Filing identity and period
Important mismatch: The supplied filing is MassRoots, Inc.’s Form 10-K, not a filing for Greenwave Technology Solutions, Inc. It reports the fiscal year ended December 31, 2019; it is not a standalone fourth-quarter report. The filing was signed July 16, 2020 and was delayed because COVID-19-related market volatility impaired the company’s ability to raise funds for audit and filing costs.
Business context
MassRoots operated a cannabis-focused technology and social-review platform, with advertising as its historical main revenue source. Management was pursuing monetization through a consumer rewards program and planned YouTube sponsorships and product placements. The company reported more than one million registered users, but defined this measure as accounts rather than active users. It also described blockchain-related development, which depended on obtaining further funding.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $23,703 | $19,597 |
| Operating expenses | $3,469,139 | $13,904,112 |
| Loss from operations | $(3,445,436) | $(13,884,515) |
| Other expense | $(30,823,476) | $(2,131,926) |
| Net loss | $(34,268,912) | $(16,016,441) |
| Net loss per common share, basic and diluted | $(0.19) | $(0.10) |
| Net cash used in operating activities | $(1,797,227) | $(6,423,900) |
Revenue increased 21%, but remained very small relative to operating costs. Gross profit was approximately $20,173 (about 85% of revenue), based on reported cost of revenue of $3,530. No meaningful operating or net profit margin was achieved.
Cash was $1,120 at year-end 2019, versus $29,568 a year earlier. Current assets were $3,095 and current liabilities were $36,872,021, producing a working-capital deficit of $36,868,926. Total assets were $3,095; stockholders’ deficit was $36,868,926. Current liabilities included $5,455,063 of accounts payable and accrued expenses, $3,724,050 of accrued payroll and related expenses, $6,939,039 of convertible notes payable (net of discount), $20,236,870 of derivative liabilities, and other obligations. No conventional liquidity facility or committed external funding source was reported.
Management and the auditor cited substantial doubt about the company’s ability to continue as a going concern. The company said it lacked sufficient cash to fund the next fiscal year and depended on additional debt or equity financing.
Material changes and unusual items
- Operating expenses fell 75%, largely because stock-based compensation declined to $222,700 from $6,924,242, along with lower advertising, consulting, contractor, travel, and software amortization expenses. Payroll expense increased to $1,156,914 from $907,870.
- Despite lower operating expenses and operating loss, net loss more than doubled, primarily due to $18,921,537 of derivative liability expense related to an authorized-share shortfall, $5,585,594 of preferred-stock issuance costs, higher interest expense, and losses on conversion of convertible debt.
- Net loss available to common stockholders was $110,263,157, including $75,994,245 of reported deemed dividends and a contingent beneficial conversion feature. This differs materially from the reported net loss of $34,268,912.
- Financing cash flow was $1,677,798, principally from Series B preferred shares and warrants, convertible notes, and non-convertible notes, partly offset by repayment of advances. Common shares outstanding rose from 168,706,472 at year-end 2018 to 384,266,948 at year-end 2019; 944,659,814 additional shares were recorded as “common stock to be issued.”
- At year-end, the company reported 3.34 billion warrants and 3.70 billion shares issuable upon conversion of notes; the filing’s total excluded potentially dilutive securities was about 7.07 billion. Conversion and warrant terms include price-reset provisions, creating substantial potential dilution.
- The company impaired $360,500 of advances to COWA. It terminated the planned COWA merger on February 24, 2020 after closing conditions were not met.
Outlook, risks, and contingencies
No quantified revenue, earnings, or cash-flow guidance was provided. Management’s plans were to seek investor funding and generate sales by converting its user base into customers. The filing cautions that funding may not be available and that the company may have to curtail or cease operations.
- COVID-19 created uncertainty for customer activity, business continuity, and access to capital.
- Cannabis remained illegal under U.S. federal law despite state-level legalization, creating regulatory and potential aiding-and-abetting risks for the platform and its advertising business.
- Revenue depended on user engagement, advertisers, and app-store access; management warned that competitors, platform policy changes, and unsuccessful monetization could impair the business.
- The filing disclosed a lawsuit by Power Up Lending Group alleging defaults and misrepresentations related to notes and seeking, among other relief, at least $312,000 plus other damages, penalties, interest, and legal costs. The filing does not establish the outcome or a clear estimate of the ultimate exposure.
- Payroll tax filings were delinquent. The company reported approximately $3.72 million of payroll tax liabilities, including interest and penalties, and expected to settle them by December 31, 2020; the actual amount could differ.
- Management found internal control over financial reporting ineffective at year-end due to material weaknesses, including inadequate segregation of duties and insufficient review. Remediation depended partly on obtaining financing or generating significant revenue.
Most important facts to verify
- Confirm the intended issuer: this filing is for MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Review the audited financial statements and notes for the $20.24 million derivative liability, $18.92 million authorized-share-shortfall expense, and the accounting behind the $110.26 million loss available to common stockholders.
- Verify the status, terms, and subsequent settlement or conversion of outstanding notes, warrants, accrued liabilities, and the 944.66 million shares recorded as issuable; assess resulting dilution and authorized-share capacity.
- Check cash and financing after December 31, 2019, including the subsequent notes and PPP loan disclosed in the filing, and whether funding covered near-term obligations.
- Follow developments in the Power Up litigation and the delinquent payroll tax liabilities, including any penalties, settlements, or changes in estimated exposure.
- Assess whether control weaknesses were remediated and whether the rewards, advertising, and sponsorship strategies produced measurable revenue after the reporting period.