Greenwave Technology Solutions, Inc. quarterly report, Q2 FY2020

Business context and reporting period

Filing identity mismatch: The request identifies Greenwave Technology Solutions, Inc., but the supplied Form 10-Q is for MassRoots, Inc. This summary reflects the filing text provided. It covers the quarter and six months ended June 30, 2020; the interim financial statements are unaudited.

MassRoots described a cannabis-industry media and technology business, with revenue primarily from advertising. Management said it was prioritizing monetizing its existing media audience through product placements, display ads, and daily deals rather than pursuing a technology platform requiring significant capital.

Financial results and liquidity

The six-month common-stockholder loss includes a $95,002,933 deemed dividend related to warrant price protection. A $109,978,818 derivative liability for an authorized-share shortfall was the principal unusual non-operating charge; it is a fair-value accounting item, not an operating cash outflow. Interest expense for the six months was $2,005,006. Gross margin and operating margin are not meaningful with no reported revenue.

• Cash flow: Six-month operating cash use was $492,544; investing cash flow was $0; financing provided $492,074, mainly from note issuances. Cash decreased by $470 to $650.
• Liquidity: At June 30, cash was $650 and working capital deficit was $148,520,352. Current liabilities were $148,521,002, including $129,886,444 of derivative liabilities, $6,868,603 of accounts payable and accrued expenses, and $3,786,790 of accrued payroll and related expenses.
• Debt: Convertible notes, net of discount, were $7,457,092 current; non-convertible notes totaled $243,500 in principal, of which $183,500 was current. The company also reported $337,500 of advances. Note balances and accrued interest are disclosed in detail in the filing.
• Equity and potential dilution: Common shares outstanding were 493,726,405 at June 30, against 500 million authorized. The filing reports 19.6 billion shares issuable upon conversion of notes and 17.2 billion warrants, among other potentially dilutive securities; these were excluded from diluted loss per share as anti-dilutive. The filing also reports 907,499,814 common shares to be issued on the balance sheet.

Changes versus prior comparable periods

Revenue fell from $18,366 to $0 for the quarter and from $22,749 to $0 for the six-month period. Management attributed the declines primarily to interruptions to the website and content production. Operating expenses fell 65.1% in the quarter and 72.3% for the six months, reflecting reduced payroll, advertising, software amortization, and general and administrative costs. Despite lower operating losses, common-stockholder losses rose sharply from $5,666,334 to $80,129,285 for the quarter and from $7,162,833 to $207,085,114 for the six months, primarily due to derivative-liability accounting and, for the six-month common-stockholder figure, the deemed dividend.

Derivative liabilities increased from $20,236,870 at December 31, 2019 to $129,886,444 at June 30, 2020, largely because the company lacked enough authorized and unissued shares to cover potential conversions. Common shares outstanding increased from 384,266,948 at year-end 2019 to 493,726,405 at June 30, 2020.

Outlook, risks, and unusual items

• Going concern: Management stated that the company did not have sufficient cash to fund operations for the next fiscal year and that substantial doubt existed about its ability to continue as a going concern for one year from issuance. Plans were to seek investor funding and generate revenue; management said the outcome was uncertain. Further financing might not be available on acceptable terms or at all.
• COVID-19: The company reported delays securing new customers and related revenue, and possible effects on its ability to raise capital. It could not estimate the pandemic’s full financial impact.
• Debt and share-capacity risk: The filing says the authorized-share shortfall caused all outstanding convertible notes to be in default, including notes not yet matured, and resulted in derivative-liability accounting. Many notes have conversion, default-interest, and price-reset terms.
• Legal contingency: Power Up Lending Group sued the company and an officer/director, alleging note defaults and other claims and seeking damages, fees, and specific performance. A hearing on Power Up’s motion for default judgment was adjourned to September 14, 2020. The ultimate outcome is uncertain.
• Payroll taxes: The company reported delinquent payroll-tax filings and $3,786,790 of payroll-tax liabilities, including penalties, at June 30; it expected to settle these by December 31, 2020. The ultimate liability could differ.
• Controls: Management concluded disclosure controls and procedures were ineffective due to a material weakness involving segregation of duties and inadequate review of accounting and financial reporting. The company expected to hire accounting personnel.
• Guidance: The filing provides no quantified revenue, earnings, or cash-flow guidance.

Important facts for investors to verify

1. Confirm the filing belongs to MassRoots, Inc., not Greenwave Technology Solutions, Inc., before relying on these figures.
2. Review the company’s ability to obtain financing, near-term cash needs, and going-concern disclosures.
3. Examine the note terms, defaults, share-authority constraints, derivative valuation, and potential dilution from conversions and warrants.
4. Track the Power Up litigation, payroll-tax liabilities, and the company’s ability to resume customer acquisition and generate revenue.
5. Assess whether the material weakness in financial reporting controls has been remediated.