Filing summary
Entity discrepancy: The request identifies Greenwave Technology Solutions, Inc., but the supplied 10-Q is for MassRoots, Inc. This summary reflects the filing provided, for the quarter ended September 30, 2020. Financial statements are unaudited.
Business context and reporting period
MassRoots describes its business as a cannabis-industry technology and media platform. Management said it would prioritize monetizing its existing website and social-media audience through product placements, display advertising, and daily deals, rather than pursuing technology-platform development that would require significant capital.
Key financial metrics
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 |
|---|---|---|
| Revenue | $2,316 | $2,316 |
| Operating expenses | $208,238 | $696,357 |
| Operating loss | $(205,922) | $(694,041) |
| Net income (loss) | $64,679,222 | $(47,402,959) |
| Net income (loss) available to common stockholders | $64,679,222 | $(142,405,892) |
| Net cash used in operating activities | Not separately stated | $(717,062) |
- Cash and liquidity: Cash was $650 at September 30, 2020, versus $1,120 at December 31, 2019. Working-capital deficit was $83,791,130; total liabilities were $83,901,780.
- Debt and obligations: Current convertible notes, net of debt discount, were $7,723,636. The filing reports $7,927,206 of convertible-note principal in default, citing insufficient authorized shares to satisfy potential conversions. Accounts payable and accrued expenses were $8,169,332; accrued payroll and related liabilities were $3,818,230.
- Cash flows and financing: Operating cash use was $717,062, compared with $1,389,212 in the prior-year nine-month period. Financing provided $716,592, principally from convertible and non-convertible note proceeds. Cash declined by $470 over the period.
- Margins: Revenue was too small relative to operating expenses for margins to be meaningfully informative.
Material changes versus comparable periods
- Third-quarter revenue rose 154.7% from $909 to $2,316, which management attributed primarily to restarting YouTube product placements. Nine-month revenue fell 90.2% from $23,658, which management attributed to interruptions to the website and content production.
- Operating expenses fell 81.4% for the quarter and 75.9% for the nine-month period, reflecting reduced payroll and overhead, no 2020 software amortization, and no 2020 stock-based compensation expense.
- Third-quarter net income was driven by a $66,572,635 gain related to the derivative liability for the authorized-share shortfall; it does not represent operating profitability. For the nine-month period, the company recorded a $43,406,183 charge for that liability change, alongside $95,002,933 in deemed dividends, contributing to the $142,405,892 loss available to common stockholders.
- Interest expense increased to $3,607,210 for the nine months from $2,136,983 in 2019, primarily related to convertible notes.
- Derivative liabilities increased to $63,588,991 from $20,236,870 at year-end 2019. Common shares outstanding increased to 493,726,405 from 384,266,948; the filing also reports 907,499,814 common shares to be issued.
Outlook, risks, contingencies, and unusual items
- Going concern: Management and the auditor-independent financial statements disclose substantial doubt about the company’s ability to continue as a going concern for one year from issuance. The company said it lacked sufficient cash to fund operations for the next fiscal year and depends on new capital and revenue growth; financing may not be available on acceptable terms or at all.
- Management plans: Seek funding from new and existing investors and increase revenue by monetizing the audience. Management said the outcome of these plans could not be determined with certainty. The company reported three full-time employees.
- COVID-19: Management reported delays in securing customers and revenue and warned that the pandemic could also impair access to capital. It could not estimate the effects on full-year results or liquidity.
- Defaults and dilution: Notes are treated as in default because the company lacks enough authorized, unissued common shares to cover potential conversions. The resulting derivative valuations rely on Level 3 assumptions, including stock price and volatility. The filing reports 17.16 billion outstanding warrants, in addition to convertible securities and options.
- Legal matter: Power Up Lending Group sought default judgment and substantial damages relating to notes and alleged defaults and misrepresentations. The filing reports that the motion was granted on November 19, 2020, after quarter-end. The amount and ultimate financial effect of the judgment are not clearly established in the supplied text.
- Payroll taxes: The company disclosed delinquent payroll-tax filings and liabilities, including penalties, of $3,818,230 at quarter-end; it expected settlement by March 31, 2021. The actual liability could differ due to interest or penalties.
- Controls: Management concluded disclosure controls were ineffective, citing lack of segregation of duties and inadequate review of accounting and financial reporting. The filing identifies a material weakness that could persist until qualified accounting personnel are added.
- Subsequent financing: After quarter-end, the company closed a $66,000 Series X preferred-stock sale on December 1, 2020. It could seek up to an additional $96.7 shares of the series. The preferred stock is not convertible until an increase in authorized common shares becomes effective; the initial issuance is described as convertible into 33 million common shares subject to the stated terms and limitations.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is MassRoots, not Greenwave Technology Solutions, Inc.
- Review the Power Up default judgment, its enforceability, and any resulting cash exposure; the filing describes the judgment as granted after quarter-end.
- Assess the company’s ability to meet near-term obligations given $650 cash, the $83.8 million working-capital deficit, and management’s going-concern warning.
- Verify the authorized-share shortfall, conversion terms, warrant overhang, shares to be issued, and dilution implications, including the Series X financing terms.
- Examine the assumptions behind the $63.6 million derivative liability and the unusual third-quarter gain that produced reported net income despite minimal revenue and an operating loss.
- Check the status of delinquent payroll taxes and the identified material weakness in financial reporting controls.