Filing Summary
Entity note: The filing supplied is MassRoots, Inc.’s Form 10-K, not a Greenwave Technology Solutions, Inc. filing. It covers the fiscal year ended December 31, 2017; it does not provide standalone fourth-quarter results.
Business context and reporting period
MassRoots operated a cannabis-focused social network and advertising platform, reporting more than one million registered users; its definition of registered users does not measure recent activity. It acquired DDDigtal in January 2017 and Odava in July 2017, seeking to add menu-management and point-of-sale software. In December 2017, it formed a wholly owned subsidiary to explore blockchain applications, including digital instruments and platform features.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Revenue | $319,242 | $701,581 | Down 54.5% |
| Operating expenses | $37,123,202 | $14,303,960 | Up $22,819,242 |
| Operating loss | $36,803,960 | $13,602,379 | Loss widened $23,201,581 |
| Net loss | $44,389,569 | $18,030,124 | Loss widened $26,359,445 |
| Basic and diluted loss per share | $0.46 | $0.34 | Loss per share increased |
| Cash used in operations | $7,997,465 | $6,182,816 | Use increased $1,814,649 |
Revenue fell after management made the dispensary finder free, expecting dispensaries to upgrade to paid features; the anticipated upgrades did not materialize. Operating expenses included $22.1 million of stock-based compensation, $3.8 million of acquisition-related impairment, $3.1 million of payroll and related expense, and $1.6 million in payroll taxes related to stock compensation. The filing reports no meaningful positive operating margin; the operating loss substantially exceeded revenue.
Cash was $1,201,587 at year-end, versus $374,490 a year earlier. Current assets were $1,218,143 and current liabilities were $13,949,707, producing a reported working-capital deficit of $12,731,564. Total liabilities were $13,949,707, including $796,991 of current convertible notes payable, $9,493,307 of derivative liabilities, $1,257,783 of accounts payable, $1,601,232 of accrued payroll and related liabilities, and $800,394 of advances. The derivative-liability remeasurement generated a $7,000,835 noncash loss; interest expense was $659,774, down from $3,845,833.
Financing activities provided $9,139,395 in 2017, primarily from warrant exercises, stock sales, convertible financing, and advances. Management said the company lacked sufficient capital to become cash-flow positive and would need additional financing. The auditor and management cited substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements.
Material changes and unusual items
- Stock-based compensation rose to $22.1 million from $7.4 million. The company also reported significant option-vesting acceleration and equity issued for services.
- Acquisition-related impairment was $3,796,991. The notes describe write-offs of DDDigtal goodwill and Odava goodwill; Odava’s software had not been monetized.
- Shares issued and outstanding increased from 71.9 million at December 31, 2016 to 112.2 million at December 31, 2017. The filing reports 153.9 million shares outstanding by April 2018. It also lists 35.2 million warrants outstanding at year-end.
- At year-end, the balance sheet showed a $9.5 million derivative liability, up from $1.3 million, principally reflecting fair-value accounting for warrants and conversion features with reset provisions.
- The company disclosed approximately $1.6 million in delinquent payroll taxes, interest, and penalties related to stock awards and expected settlement by June 30, 2018.
Outlook, risks, and subsequent events
Management’s plans were to seek financing and convert the user base into sales, but it said the outcome could not be assured. No quantified revenue, earnings, or cash-flow guidance was provided. The company expected to need additional funds to develop blockchain products and digital instruments, and cautioned that these efforts might not be implemented, prove commercially viable, or generate revenue.
Key risks include federal cannabis prohibition and the January 2018 rescission of the Cole Memo; possible enforcement actions or reduced advertiser and user activity; dependence on app-store and other technology-provider policies; competition; an unproven monetization strategy; and continued reliance on equity or debt financing. The company also reported ineffective disclosure controls and internal control over financial reporting due to material weaknesses, including inadequate segregation of duties and insufficient review processes.
After year-end, the company reported a January 2018 stock-and-warrant financing of $2.74 million and payment/conversion of its August 2017 convertible notes. It also reported a $145,000 settlement and lease termination payment in February 2018. These events do not change the December 31, 2017 balance sheet.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for MassRoots, Inc., despite the request metadata naming Greenwave Technology Solutions, Inc.
- Review the audited financial statements and notes for the going-concern qualification, working-capital deficit, derivative valuation, and convertible-note terms.
- Verify subsequent financing, note retirement, payroll-tax settlement, and the company’s cash runway after the reporting date.
- Assess dilution from outstanding warrants, options, shares to be issued, and post-year-end share issuances.
- Check progress in remediating material weaknesses and whether the company can generate recurring revenue from its platform and acquisitions.