MassRoots, Inc. — 2014 Form 10-K
Issuer and period: The filing identifies the registrant as MassRoots, Inc., not Greenwave Technology Solutions, Inc. It covers the fiscal year ended December 31, 2014; the 2013 comparison is from inception on April 24, 2013 through December 31, 2013, not a full-year comparison.
Business context and performance
MassRoots operated a mobile social network for the cannabis community and prioritized user and product growth over monetization. It reported more than 200,000 users by year-end in the financial-statement notes and approximately 275,000 users by March 2015. The company described itself as a development-stage business with minimal operating revenue.
Key financial metrics
| Metric | 2014 | 2013 comparison |
|---|---|---|
| Revenue | $9,030 advertising revenue | $470 advertising revenue |
| Gross profit | $8,340 | $470 |
| Operating expenses | $1,615,563 | $919,593 |
| Net loss | $2,436,142 | $919,123 |
| Operating cash flow | $(922,956) | $(85,052) |
| Cash at year-end | $141,928 | $80,479 |
| Total assets | $366,528 | $82,573 |
| Total liabilities | $1,313,328 | $1,846 |
| Stockholders’ equity (deficit) | $(946,799) | $80,727 |
Revenue was largely tied to a September 2014 event and management said it was not representative of its planned monetization model. Operating expenses included $555,598 for warrants issued for services and substantial other equity-based compensation. The reported loss also included a $753,240 expense from remeasurement of derivative liabilities, $67,363 of debt-discount amortization, and $8,316 of interest expense. The filing reports no meaningful operating margin or positive operating cash flow.
At year-end, current assets were $283,926 and current liabilities were $1,151,244, including $1,099,707 of derivative liabilities. The company also reported $162,084 of convertible debentures, net of discount. The filing’s figures imply a working-capital deficit of approximately $867,000. Debentures had a 0% stated interest rate, were convertible at $0.10 per share, and matured in March 2016.
Changes, outlook, risks, and unusual items
- Revenue increased from $470 in the 2013 inception period to $9,030 in 2014, while net loss increased from $919,123 to $2.44 million and operating cash use rose to $923,000.
- The company raised capital through securities offerings, including $269,100 of convertible debentures and common-stock issuances. It stated that it expected to need an additional $2.5 million to fund operations through fiscal 2015, with dilution possible. Management did not expect significant revenue before at least fiscal 2016 and gave no assurance of reaching profitability.
- The auditor and management disclosed substantial doubt about the company’s ability to continue as a going concern, dependent on raising capital and generating revenue. The filing warns that failure to secure financing could force the company to cease operations.
- Apple removed the app from its App Store in November 2014 under a policy change affecting social cannabis apps; the app returned in February 2015 after Apple revised its guidelines. The company cautioned that platform policies could change again. It also identified federal cannabis prohibition and potential legal exposure from facilitating dispensary advertising as risks.
- MassRoots for Business launched to Colorado businesses in March 2015; more than 50 dispensaries were posting, without charge, as of the filing’s later commentary. Paid advertising features and consumer commerce functions were future plans, not established revenue streams.
- Management concluded disclosure controls were effective, but reported a material weakness in internal control over financial reporting due to inadequate segregation of duties. The company had no public trading market and was seeking an OTCQB quotation, with no assurance of approval or liquidity.
- There were no reported pending legal proceedings. The company had no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for MassRoots, Inc., despite the request metadata naming Greenwave Technology Solutions, Inc.
- Review the audited statements and notes for debt and derivative accounting. The filing’s narrative says 2014 operating expenses excluding specified equity awards were $969,834, while the statements show $1,615,563 total operating expenses.
- Reconcile the cash-flow narrative: the MD&A describes net cash used in financing activities, but the audited cash-flow statement reports $999,072 provided by financing activities.
- Check the convertible-debt discount disclosures: Note 6 describes $162,084 as debt-discount amortization, while the statement of operations reports $67,363. The filing text does not clearly reconcile these amounts.
- Assess financing runway, potential dilution from debentures and warrants, and the company’s ability to raise the stated $2.5 million requirement and convert users into sustainable revenue.