Business context and reporting period
The supplied filing is a Form 10-Q for the quarter ended June 30, 2021, filed by MassRoots, Inc.—not Greenwave Technology Solutions, Inc., as stated in the request metadata. The filing describes MassRoots as a technology company developing cloud-based solutions, with advertising and social-media monetization as revenue sources. Management also identified a nonbinding letter of intent to acquire Empire Services, Inc. as a current strategic focus.
Financial results and position
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $79 | $1,606 |
| Operating expenses | $499,365 | $802,640 |
| Operating loss | $499,286 | $801,034 |
| Net income (loss) | $37,442,987 | $11,387,890 |
| Net income (loss) available to common stockholders | $23,782,905 | $(23,411,033) |
| Net cash used in operating activities | $(385,658) for the six-month period |
The reported net income reflects large, non-cash and settlement-related items, rather than operating performance: Q2 included a $170.1 million gain on debt and warrant settlements, offset in part by a $132.8 million loss from the derivative liability associated with the authorized-share shortfall. For the first half, settlement gains were $174.9 million and the authorized-share-shortfall derivative loss was $162.3 million. A $34.8 million deemed preferred-stock dividend contributed to the first-half loss available to common stockholders.
At June 30, 2021, cash was $1,261; current assets were $48,393 versus current liabilities of $24.53 million, producing a $24.48 million working-capital deficit. Total liabilities were $24.59 million, including $12.68 million of derivative liabilities, $3.06 million of convertible notes, and $497,573 of non-convertible note principal. Total assets were $48,393 and stockholders’ deficit was $24.54 million. No meaningful operating margin is evident given negligible revenue and an operating loss.
Changes versus prior comparable period
Revenue rose from zero in both comparative 2020 periods, but remained immaterial. Operating expenses increased 80.4% to $499,365 for Q2 and 64.4% to $802,640 for the first half, primarily due to higher general and administrative, legal, and travel costs; payroll expense declined. Q2 moved from an $80.1 million net loss available to common stockholders in 2020 to $23.8 million of income in 2021, largely reflecting settlement gains and derivative accounting. The first-half loss available to common stockholders narrowed from $207.1 million to $23.4 million, also driven by those unusual items.
Cash declined from $1,485 at December 31, 2020 to $1,261 at June 30, 2021. First-half operating cash use was $385,658, compared with $492,544 in 2020; financing provided $385,434, mainly from preferred-stock sales and non-convertible notes. Derivative liabilities fell from $25.48 million to $12.68 million, after settlements and fair-value changes.
Outlook, risks, contingencies and unusual items
- Going concern: Management said available cash was insufficient to fund operations for the next fiscal year and disclosed substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on raising capital and generating revenue; funding may not be available on acceptable terms, or at all.
- Debt and share-capacity issues: The company reported that it lacked enough authorized and unissued common shares to satisfy potential note conversions; it treated all convertible notes as in default. The reported principal in default was $3.06 million. Convertible instruments and warrants also generated substantial Level 3 derivative liabilities.
- Legal matters: Iroquois Master Fund sought specific performance and damages of at least $12 million over a warrant; the company recorded an $8.77 million derivative liability for those warrants. Sheppard Mullin received a $459,251 arbitration award for legal fees. A Rother Investments default judgment was set aside and a new trial ordered. Power Up was settled for $150,000; Trawick sought dismissal with prejudice.
- Other obligations: Delinquent payroll-tax liabilities, including penalties, were $3.99 million; the company said it expected to settle them during 2021. Related-party notes and advances include funding from the chairman and Empire Services. The company also reported subsequent note proceeds of $114,996 through August 20, 2021.
- Operations and controls: Management said COVID-19 had delayed customer acquisition and revenue and could impair access to capital. Disclosure controls were deemed ineffective due to insufficient segregation of duties and accounting review; management identified a material weakness and said additional accounting personnel were needed.
- Strategic plans: Management was exploring acquisitions, dispositions, mergers, or other combinations and said it was taking steps toward the nonbinding Empire Services transaction. The filing provides no definitive agreement or quantified forecast. No numerical financial guidance is provided.
Important facts for investors to verify
- Confirm the issuer: this supplied filing identifies MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Review the going-concern disclosure, near-zero cash, working-capital deficit, and the company’s financing needs and subsequent funding.
- Assess how much reported earnings depend on settlement gains, derivative remeasurement, and preferred-stock deemed dividends rather than recurring operations.
- Verify the authorized-share capacity, conversion and warrant obligations, default status of convertible notes, and potential dilution.
- Check developments in the Iroquois, Sheppard Mullin, Rother Investments, and other legal matters, as well as payroll-tax liabilities.
- Track whether the Empire Services proposal became a definitive transaction and whether management addressed the disclosed material weakness in controls.