Filing and reporting period
The supplied filing is MassRoots, Inc.’s Form 10-K for the fiscal year ended December 31, 2018—not a Greenwave Technology Solutions, Inc. filing. It reports annual results, not standalone fourth-quarter results. Investors should verify the issuer and period before relying on this summary.
MassRoots operated a cannabis-industry technology platform, including a consumer social/review app and an advertising portal for businesses. It reported more than one million registered users, but defines registered users without reference to recent activity. The revamped Business Portal and WeedPass rewards program launched in 2018; dispensaries were charged monthly fees after an introductory free trial.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $19,597 | $319,242 |
| Operating expenses | $13,904,112 | $37,123,202 |
| Operating loss | $(13,884,515) | $(36,803,960) |
| Net loss | $(16,016,441) | $(44,389,569) |
| Basic and diluted loss per share | $(0.10) | $(0.46) |
| Cash used in operating activities | $(6,423,900) | $(7,997,465) |
- Revenue fell 93.9%. Management attributed the decline to a late-2017 reorganization, a new sales strategy and sales team in early 2018, and the new portal’s launch in late June. Revenue remained minimal; the filing does not provide a useful standalone gross-margin figure.
- Operating expenses fell 62.5%. Major contributors included a $16.45 million reduction in stock-based compensation and a $3.19 million reduction in impairment expense. Lower reported losses therefore do not indicate that the business became profitable.
- Other expense was $2.13 million, including $1.97 million of interest expense, up from $659,774 in 2017. The filing attributes the increase mainly to 2018 convertible-debt offerings.
- Cash declined to $29,568 from $1,201,587. At year-end, current assets were $43,568 and current liabilities were $7,405,443, resulting in a $7,361,875 working-capital deficit. Total assets were $569,077; total liabilities were $7,405,443; stockholders’ deficit was $6,836,366.
- Year-end current liabilities included $2,495,102 of convertible notes, net of discount; $958,650 of advances; and $2,992,023 of accrued payroll and related liabilities. The company disclosed it was delinquent in payroll-tax filings and expected to settle the related liability by September 30, 2019.
- 2018 financing cash flow was $5,516,442, including proceeds from stock sales, warrant exercises, convertible notes and advances, partly offset by repayments. The company said it had no sufficient external credit facility and depended on further securities sales.
Material changes, outlook and risks
- The company stated it did not have enough capital to become cash-flow positive and would need additional financing. Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern. The audited statements were prepared on a going-concern basis and include no adjustments for the outcome of that uncertainty.
- The auditor issued an unqualified opinion on the financial statements while highlighting substantial doubt about going concern. Management concluded that disclosure controls and internal control over financial reporting were ineffective, citing inadequate segregation of duties and insufficient review of accounting and reporting. Planned remediation depended partly on obtaining funding or generating significant revenue.
- In 2018, the company adopted ASU 2017-11, which eliminated derivative liabilities from its balance sheet; $9.49 million was reclassified to retained earnings. This accounting change is important context when comparing balance sheets and results with 2017.
- At year-end, MassRoots reported 168.7 million common shares outstanding; 182.4 million were outstanding on April 11, 2019. Potential dilution was substantial: the filing lists 74.91 million warrants, 27.37 million options and 13.15 million shares issuable on convertible-debt conversion. The warrant count is not consistent across all passages in the filing.
- No formal financial guidance is provided. Management’s stated priorities were to raise capital and convert the user base into sales. The filing cautions that the portal, rewards program and blockchain-related efforts may fail to attract customers or generate meaningful revenue.
- Risks include federal cannabis prohibition and uncertain enforcement, dependence on app-store and service-provider policies, competition, weak monetization, limited financing access, dilution, and the company’s short operating history and lack of profitable operations.
- A February 2019 merger agreement with COWA Science was a subsequent development, not a completed 2018 transaction. It contemplated issuing 50 million shares at closing and up to 50 million additional shares if revenue targets were met; closing remained subject to conditions, including COWA stockholder approval and audited financial statements.
Most important facts for investors to verify
- Confirm that MassRoots, Inc. (ticker MSRT) is the intended issuer; the request names Greenwave Technology Solutions, Inc.
- Review the audited statements and debt-note terms, including maturity, conversion, redemption and security provisions, and the status of the payroll-tax liability.
- Verify subsequent financing, debt conversions and cash balances after December 31, 2018, given the very low year-end cash and going-concern warning.
- Reconcile the filing’s inconsistent warrant counts and assess potential dilution, including the proposed COWA share issuance.
- Assess whether the portal and WeedPass generated paying customers and recurring revenue after launch; the filing provides no formal guidance or clear evidence of a material revenue base.
- Monitor remediation of the disclosed material weaknesses and any changes in federal or state cannabis regulation and platform-distribution policies.