Filing identity and reporting period
Important identity discrepancy: The supplied filing is a Form 10-Q for MassRoots, Inc., not Greenwave Technology Solutions, Inc. It covers the quarter ended March 31, 2021 and was signed June 25, 2021. Confirm that this is the intended filing before relying on the information below.
MassRoots describes itself as a technology company developing cloud-based content and operating-efficiency solutions, with a historical focus on the cannabis industry. Its unaudited consolidated results include wholly owned subsidiaries.
Financial performance and position
Amounts below are in U.S. dollars. Revenue was $1,527 for Q1 2021 versus zero in Q1 2020, attributed to renewed product placements on the company’s YouTube and social-media channels. Cost of revenue was $297, implying an approximately 80% gross margin on immaterial revenue.
- Operating expenses: $303,275, up 43.5% from $211,328. Advertising was $18,553; payroll expense fell to $79,533 from $82,736; general and administrative expense rose to $204,892 from $128,592, primarily due to travel and legal costs.
- Operating loss: $301,748, compared with $211,328.
- Net loss: $26.06 million, compared with $31.95 million. Net loss available to common stockholders was $47.19 million versus $126.96 million; basic and diluted loss per share was $0.03 versus $0.09.
- Unusual non-operating items: The Q1 2021 loss included a $29.45 million charge related to the authorized-share shortfall and a $3.92 million gain on settlements of notes, interest, warrants and accounts payable. A $21.14 million deemed dividend from preferred-stock discount amortization increased the loss attributable to common stockholders. These items materially affect comparisons and are not measures of ordinary operating performance.
- Cash flow: Operating activities used $225,541, versus $109,352 in Q1 2020. Financing provided $224,260, mainly from $200,000 of Series X preferred-stock proceeds and $24,647 from non-convertible notes. Cash declined by $1,281 to $204.
- Liquidity and liabilities: At March 31, current assets were $47,336, including $204 cash, against current liabilities of $63.30 million. Working-capital deficit was $63.25 million. Total liabilities were $63.41 million, including $50.56 million of derivative liabilities; stockholders’ deficit was $63.36 million.
- Debt and accrued obligations: Convertible notes had a $3.13 million carrying value, with $2.81 million of accrued interest disclosed separately. Non-convertible notes totaled $244,167 principal, plus $326,488 accrued interest; the company also had $50,000 of PPP principal at quarter-end. Accounts payable and accrued expenses were $5.41 million, and accrued payroll and related liabilities were $3.92 million.
Material changes and capital structure
Operating expenses increased and operating losses widened, while reported net loss and loss available to common stockholders improved from Q1 2020, largely reflecting changes in financing-related and preferred-stock accounting items. The company issued 4.45 million common shares on conversion of notes during the quarter. At March 31, 498.17 million common shares were issued and outstanding, with 907.38 million common shares also recorded as “to be issued.” The filing lists approximately 9.76 billion potentially dilutive shares excluded from diluted loss per share, including warrants, preferred-stock conversion shares and note conversion shares.
The company states that it lacks enough authorized and unissued common shares to satisfy all potential note conversions. It treated all convertible notes, including notes not yet matured, as in default and recorded associated conversion features as derivative liabilities. The derivative liability more than doubled from $25.48 million at December 31, 2020 to $50.56 million at March 31, 2021, driven principally by the authorized-share-shortfall charge and valuation changes.
Outlook, risks and unusual matters
- Going concern: Management and the auditor-facing financial statement disclosure state that cash, the $63.25 million working-capital deficit, recurring losses and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern for one year after issuance. Management planned to seek investor funding and increase revenue, but acknowledged that financing might not be available on acceptable terms or at all; failure to raise funds could force curtailment or cessation of operations.
- Strategy and outlook: Management described revenue generation, potential strategic transactions and monetization of social-media audiences as priorities. A May 2021 letter of intent to acquire Empire Services, Inc. became management’s primary focus; the filing provides no definitive agreement or quantified forecast. The earlier Herbfluence letter of intent was later terminated. No numerical guidance was provided.
- COVID-19: Management cited delays in securing customers and revenue and possible impediments to raising capital, but said it could not estimate the pandemic’s financial impact.
- Legal and other contingencies: Subsequent to quarter-end, the company settled a Power Up Lending judgment for $150,000 against a stated judgment of $350,551. Sheppard Mullin sought $487,391 in unpaid legal fees through arbitration. Rother Investments obtained a $144,950 default judgment; the company later moved to set it aside. Trawick requested dismissal of its lawsuit with prejudice. The PPP loan and accrued interest were forgiven in April 2021.
- Subsequent capital and corporate actions: The company disclosed amendments to Series X and Y preferred-stock terms, including conditions related to extending conversion timing and redemption obligations following qualifying financing or a senior-exchange listing. It also reported warrant cancellations, common-share issuances and a note issued to Empire Services for expenses paid on the company’s behalf.
- Controls: Management concluded disclosure controls were ineffective at March 31, citing lack of segregation of duties and inadequate review of accounting and financial reporting. It identified a material weakness and said additional accounting personnel were needed.
Key facts investors should verify
- Whether MassRoots, Inc. is in fact the intended issuer; the filing does not identify Greenwave Technology Solutions, Inc.
- Current cash needs, financing availability and the company’s ability to address the stated going-concern uncertainty.
- The authorized-share capacity, conversion and default terms of debt and preferred stock, and the potential scale of dilution.
- The valuation assumptions and cash or settlement consequences associated with the $50.56 million derivative liability.
- Amounts and outcomes of payroll-tax liabilities, legal claims and judgments, including the status of the Rother motion and Sheppard Mullin arbitration.
- Whether the Empire transaction proceeded, and the definitive terms and financing requirements, if any.
- Whether the identified internal-control material weakness was remediated in later filings.