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2018-04-17 MassRoots reported a net loss of $44 million in 2017
More than $22 million of those losses were the value of stock-based compensation to former employees, board members and business consultants.
The storms MassRoots weathered in 2017 have set the marijuana tech firm adrift in a $44 million sea of red.
A review of MassRoots Inc.’s annual filing made Tuesday with the U.S. Securities and Exchange Commission provides a portrait of a negative-net-worth company that is burning through cash, missing IRS payments and SEC reporting deadlines, handing out stock-based compensation like candy, and operating with no external sources of liquidity.
The Denver-based firm closed out 2017 with a reported net loss of $44 million on revenue of under $320,000, according to the filing. More than $22 million of those losses were the value of stock-based compensation to former employees, board members and business consultants.
“We do not believe MassRoots has sufficient capital to become cash-flow positive from operations,” company officials wrote in the filing. “We expect to need to raise additional funds to continue to fund operations.”
The company operates with a “going concern” qualification, meaning its independent accounting firm has expressed substantial doubt about the company’s ability to continue.
Those concerns were echoed by finance and accounting experts interviewed by The Cannabist.
“This company presents an extremely high risk to anyone who would invest in it,” Lynn Turner, former chief accountant with the SEC, said.
While the ballooning of operating expenses for the year included higher costs in the areas of advertising, payroll, payroll taxes, travel and legal, the bulk of the expenses came from non-cash, typically one-time expenses. Those included nearly $3.8 million in write-offs for past acquisitions, $7 million in the loss of derivative liability and more than $22.1 million in stock-based compensation issued to former employees, board members and business consultants.
In 2016, a year in which MassRoots posted a net loss of $18 million and revenue of $701,581, those non-cash expenses totaled $8 million.
High amounts of stock-based compensation aren’t terribly uncommon for technology companies that are short of cash, said Maclyn Clouse, a finance professor in the University of Denver’s Daniels College of Business. When those options are exercised, the company could see an inflow of cash — but the company runs the risk of the market price exceeding the option price and a further dilution of the company’s stock, he said.
Shares of MassRoots (OTCQB: MSRT) closed at 29 cents on Tuesday.
“When you take those (non-cash items) out, it’s not as bad,” Clouse said. “But the bottom line is, the bottom line is still bad.”
MassRoots spent nearly $8 million in cash on operations, up from $6.2 million the year before, and finished the year with $1.2 million in cash on hand — after raising upward of $9.1 million from activities such as stock and warrant sales.
As of Dec. 31, 2017, MassRoots’ accumulated deficit was nearly $74.3 million and its total stockholders’ deficit was nearly $11.4 million — indicating a negative net worth situation in which total liabilities exceed the company’s assets.
Additionally, the company missed SEC reporting filing deadlines for the annual report and blew through more than deadlines to file insider transactions in 2017, according to the filing. Company officials did, however, note weaknesses in their internal accounting controls.
MassRoots also owes $1.6 million in payroll tax liabilities, including interest and penalties, to federal taxing authorities. Those should be settled by June 30, company officials said.
