Greenwave Technology Solutions, Inc. quarterly report, Q3 FY2021

Business context and reporting period

This is an unaudited Form 10-Q for the three and nine months ended September 30, 2021. The filing registrant is MassRoots, Inc., not Greenwave Technology Solutions, Inc.; investors should verify that this is the intended filing. MassRoots described itself as a technology company and said its focus was shifting to expanding and improving the metal-recycling operations of Empire Services, Inc. The Empire acquisition became effective October 1, 2021, after the reporting date.

Key financial metrics

Revenue and operating scale remained negligible. Profitability and margins are not representative of operating performance: reported nine-month net income before deemed dividends was driven largely by noncash settlement gains, including a $179.3 million gain, offset by a $159.6 million loss from remeasuring the derivative liability associated with the authorized-share shortfall. The nine-month common-stockholder loss also reflects $34.8 million of preferred-stock deemed dividends.

At September 30, current liabilities were $17.5 million, including $4.2 million of accounts payable and accrued expenses, $4.0 million of accrued payroll and related expenses, $3.1 million of convertible notes, and $4.3 million of derivative liabilities. The filing reports $1.9 million of non-convertible note principal, with current and long-term carrying amounts presented separately. Cash used in operations was nearly offset by $548,237 of financing cash inflows, leaving just $1,082 of cash at period end.

Material changes versus the prior comparable period

• Revenue fell 97.7% in Q3 year over year and 28.3% for the nine-month period. Operating expenses rose 89.8% in Q3 and 72.4% for the nine-month period, primarily reflecting higher general and administrative costs, including travel and legal expenses.
• The nine-month common-stockholder loss narrowed substantially from 2020, but results were heavily affected by derivative remeasurements, debt and warrant settlements, and preferred-stock accounting rather than operating revenue.
• Derivative liabilities fell to $4.3 million from $25.5 million at December 31, 2020, in part following settlements and conversions. The company also reported substantial changes in its preferred-stock and warrant structure.
• Common shares outstanding were 499.9 million at September 30, 2021; the cover reports 994.9 million issued and outstanding as of November 22, 2021. The filing also reports 906.4 million common shares to be issued at September 30.

Outlook, risks, contingencies and unusual items

• Going concern: Management said cash was insufficient to fund operations for the next fiscal year and that substantial doubt existed about the company’s ability to continue as a going concern for one year after issuance. Plans included raising capital and increasing revenue, but management said success was uncertain. The filing provides no quantified financial guidance.
• Debt defaults and dilution: The company said it lacked enough authorized and unissued common shares to cover potential note conversions; consequently, all convertible notes were considered in default. Principal in default was reported as $3.1 million. The filing describes conversion features and derivative valuations that are sensitive to the company’s stock price and volatility.
• Legal matters: The company settled the Iroquois warrant dispute on September 30, agreeing to pay $1 million and issue Series Z preferred stock convertible into 9.99% of common shares at conversion. Other disclosed matters include a payment plan for a former law firm’s $459,251 arbitration award and a Rother Investments dispute ordered to a new trial. Power Up’s judgment was settled, and the Trawick lawsuit was dismissed with prejudice.
• Other obligations: Delinquent payroll-tax liabilities, including penalties, were $4.0 million; the company expected to settle them during 2022, but the final amount could differ. A $1 million note issued to the CEO bears 8% interest and is due after a qualifying equity financing.
• Acquisition and business transition: The Empire acquisition was effective October 1, 2021. The filing states consideration included 495 million common shares, repayment of a $1 million advance after the next capital raise, and a $3.7 million promissory note due September 30, 2023.
• COVID-19: Management cited delays in securing customers and revenue and possible effects on operations, liquidity, and access to capital; it could not estimate the impact.
• Controls: Management concluded disclosure controls were ineffective, citing lack of segregation of duties and inadequate accounting review, and identified a material weakness. Management said additional accounting personnel were needed.

Important facts for investors to verify

• Confirm the issuer identity and whether this MassRoots filing is relevant to Greenwave Technology Solutions.
• Review the Empire acquisition’s closing terms, consideration, financing needs, and post-acquisition financial results.
• Reconcile the reported share counts, including the increase from 499.9 million shares at September 30 to 994.9 million by November 22, and the 906.4 million shares reported as to be issued.
• Assess the company’s immediate liquidity, ability to raise capital, going-concern disclosure, and repayment obligations.
• Verify the status and potential dilution from defaulted convertible notes, derivative liabilities, Series Z preferred stock, and remaining legal disputes.
• Track remediation of the material weakness and the accuracy of subsequent financial reporting.