UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
OR
[ ] ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from ___________to ____________
Commission File Number: 000-55431Number 001-41452
MASSROOTS,GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(f/k/a MassRoots, Inc.)
(Exact name of business as specified in its charter)
| Delaware | 46-2612944 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 4016 Raintree Rd, Ste 300, Chesapeake, VA | 23321 | |
| (Address of principal executive offices) | (Zip code) |
1624 Market Street, Suite 201, Denver, CO 80202(757)966-1432
(Address,Registrant’s telephone number, including zip code,area code)
Securities registered pursuant to Section 12(b) of principal executive offices)the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.001 par value per share | GWAV | The Nasdaq Stock Market, LLC |
(833) 467-6687
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |||
| Non-accelerated filer | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
As of November 10, 2017,August 14, 2023, there were 112,115,839 shares of the registrant’s common stock par value $0.001 per share (“Common Stock”) issued and outstanding.
TABLE OF CONTENTS
| - i - |
Unless we have indicated otherwise or the context otherwise requires, referencesFORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q to “MassRoots,” the “Company,” “we,” “us” and “our” or similar terms are to MassRoots, Inc.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
Statements in this report may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements include, amongare often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and our other things,filings with SEC.
You are cautioned not to place undue reliance on these forward-looking statements, regarding:
Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to financial instruments, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable law.
| - ii - |
PART I – FINANCIAL INFORMATIONGREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL
June 30, | December 31, | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 374,951 | $ | 821,804 | ||||
| Inventories | 119,609 | 189,646 | ||||||
| Accounts receivable | 226,558 | 215,256 | ||||||
| Prepaid expenses | 609,484 | 12,838 | ||||||
| Total current assets | 1,330,602 | 1,239,544 | ||||||
| Property and equipment, net | 17,665,955 | 13,167,535 | ||||||
| Advance for asset | 82,769 | 1,193,380 | ||||||
| Operating lease right of use assets, net - related party | 1,372,943 | 2,419,338 | ||||||
| Operating lease right of use assets, net | 511,381 | 590,608 | ||||||
| Licenses, net | 17,551,050 | 18,614,750 | ||||||
| Customer list, net | 1,847,175 | 1,959,125 | ||||||
| Intellectual property, net | 1,973,400 | 2,277,000 | ||||||
| Security deposit | 31,893 | 6,893 | ||||||
| Total assets | $ | 42,367,168 | $ | 41,468,173 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Bank overdraft | $ | 180,337 | $ | - | ||||
| Accounts payable and accrued expenses | 5,908,450 | 5,035,330 | ||||||
| Accrued payroll and related expenses | 4,456,142 | 3,946,411 | ||||||
| Contract liabilities | 25,000 | 25,000 | ||||||
| Factoring, net of unamortized debt discount of $2,185,819 and $1,221,022, respectively | 6,718,684 | 4,893,207 | ||||||
| Non-convertible notes payable, current portion, net of unamortized debt discount of $777,333 and $500,250, respectively | 2,897,598 | 1,820,819 | ||||||
| Due to related parties | 1,925,970 | 317,781 | ||||||
| Operating lease obligations, current portion - related party | 1,377,913 | 2,742,140 | ||||||
| Operating lease obligations, current portion | 204,833 | 232,236 | ||||||
| Total current liabilities | 23,694,927 | 19,012,924 | ||||||
| Operating lease obligations, less current portion - related party | 83,430 | - | ||||||
| Operating lease obligations, less current portion | 314,008 | 116,262 | ||||||
| Non-convertible notes payable, net of unamortized debt discount of $2,479,851 and $1,965,113, respectively | 9,227,974 | 7,001,422 | ||||||
| Total liabilities | 33,320,339 | 26,130,608 | ||||||
| Commitments and contingencies (See Note 9) | - | - | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - shares authorized: | ||||||||
| Preferred stock - Series Z, $ par value, $20,000 stated value, shares authorized; and shares issued and outstanding, respectively | - | - | ||||||
| Common stock, $ par value, and shares authorized; and shares issued and outstanding, respectively | 11,251 | 10,962 | ||||||
| Additional paid in capital | 377,595,330 | 377,595,618 | ||||||
| Accumulated deficit | (368,559,752 | ) | (362,269,015 | ) | ||||
| Total stockholders’ equity (deficit) | 9,046,829 | 15,337,565 | ||||||
| Total liabilities and stockholders’ equity | $ | 42,367,168 | $ | 41,468,173 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| MASSROOTS, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 267,322 | $ | 374,490 | ||||
| Accounts receivable | — | 3,306 | ||||||
| Prepaid expenses | 10,440 | — | ||||||
| Total current assets | 277,762 | 377,796 | ||||||
| Property and equipment, net | 116,845 | 77,322 | ||||||
| Other assets: | ||||||||
| Goodwill | 4,971,991 | — | ||||||
| Investments | 403,249 | 235,000 | ||||||
| Deposits and other assets | 33,502 | 33,502 | ||||||
| Total other assets | 5,408,742 | 268,502 | ||||||
| Total assets | $ | 5,803,349 | $ | 723,620 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 258,845 | $ | 382,550 | ||||
| Accrued expenses | 63,274 | — | ||||||
| Loan payable | 3,156 | — | ||||||
| Due to related parties | 492,003 | — | ||||||
| Deferred revenue | — | 27,010 | ||||||
| Convertible notes payable, net of debt discount of $713,658 | 331,342 | — | ||||||
| Derivative liability | 1,506,414 | 1,301,138 | ||||||
| Total current liabilities | 2,655,034 | 1,710,698 | ||||||
| Long term debt: | ||||||||
| Convertible notes payable, long term | — | 108,100 | ||||||
| Total liabilities | 2,655,034 | 1,818,798 | ||||||
| Stockholders' equity (deficit): | ||||||||
| Common stock, $0.001 par value; 200,000,000 shares authorized; 111,326,981 and 71,908,370 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 111,327 | 71,908 | ||||||
| Common stock to be issued, 1,551,217 and 1,740,000 shares as of September 30, 2017 and December 31, 2016, respectively | 1,551 | 1,740 | ||||||
| Additional paid in capital | 59,052,979 | 28,693,819 | ||||||
| Accumulated deficit | (56,017,542 | ) | (29,862,645 | ) | ||||
| Total stockholders' equity (deficit) | 3,148,315 | (1,095,178 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | $ | 5,803,349 | $ | 723,620 | ||||
| See the accompanying notes to the unaudited condensed consolidated financial statements | ||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 9,416,274 | $ | 10,704,151 | $ | 18,459,696 | $ | 20,625,389 | ||||||||
| Cost of Revenues | 6,117,420 | 6,638,393 | 10,434,231 | 12,295,373 | ||||||||||||
| Gross Profit | 3,298,854 | 4,065,758 | 8,025,465 | 8,330,016 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Advertising | 10,329 | 44,071 | 15,851 | 60,301 | ||||||||||||
| Payroll and related expense | 1,497,279 | 1,591,640 | 3,448,538 | 2,881,440 | ||||||||||||
| Rent, utilities and property maintenance ($675,051 and $670,938; $1,350,103 and $1,183,876, to related party) | 1,033,518 | 887,260 | 2,057,227 | 1,762,663 | ||||||||||||
| Hauling and equipment maintenance | 569,416 | 1,033,556 | 1,820,133 | 1,833,994 | ||||||||||||
| Depreciation and amortization expense | 1,350,728 | 941,611 | 2,619,581 | 1,815,367 | ||||||||||||
| Consulting, accounting and legal | 202,174 | 155,360 | 475,247 | 521,312 | ||||||||||||
| Other general and administrative expenses | 725,687 | 376,015 | 1,614,341 | 616,389 | ||||||||||||
| Total Operating Expenses | 5,389,131 | 5,029,513 | 12,050,918 | 9,491,466 | ||||||||||||
| Loss From Operations | (2,090,277 | ) | (963,755 | ) | (4,025,453 | ) | (1,161,450 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest expense and amortization of debt discount | (891,849 | ) | (13,171,392 | ) | (3,057,353 | ) | (32,577,069 | ) | ||||||||
| Gain on tax credit | 717,064 | - | 717,064 | |||||||||||||
| Change in fair value of derivative liabilities | - | - | 14,264,476 | |||||||||||||
| Gain on settlement of non-convertible notes payable and advances | - | 75,005 | 163,420 | |||||||||||||
| Total Other Income (Expense) | (174,785 | ) | (13,171,392 | ) | (2,265,284 | ) | (18,149,173 | ) | ||||||||
| Net Loss Before Income Taxes | (2,265,062 | ) | (14,135,147 | ) | (6,290,737 | ) | (19,310,623 | ) | ||||||||
| Provision for Income Taxes (Benefit) | - | - | - | - | ||||||||||||
| Net Loss | (2,265,062 | ) | (14,135,147 | ) | (6,290,737 | ) | (19,310,623 | ) | ||||||||
| Net Income (Loss) Per Common Share: | ||||||||||||||||
| Basic | $ | (0.20 | ) | $ | (4.23 | ) | $ | (0.56 | ) | $ | (5.78 | ) | ||||
| Diluted | $ | (0.20 | ) | $ | (4.23 | ) | $ | (0.56 | ) | $ | (5.78 | ) | ||||
| Weighted Average Common Shares Outstanding: | ||||||||||||||||
| Basic | 11,250,813 | 3,340,416 | 11,230,093 | 3,340,416 | ||||||||||||
| Diluted | 11,250,813 | 3,340,416 | 11,230,093 | 3,340,416 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2023
(Unaudited)
| Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||
| Preferred Stock | Additional | |||||||||||||||||||||||||||
| Series Z | Common Stock | Paid | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | 322 | $ | - | 10,962,319 | $ | 10,962 | $ | 377,595,618 | $ | (362,269,015 | ) | $ | 15,337,565 | |||||||||||||||
| Issuance of common stock upon conversion of Series Z Preferred | (72 | ) | - | 288,494 | $ | 289 | (288 | ) | $ | - | 1 | |||||||||||||||||
| Net loss | - | - | - | - | - | $ | (6,290,737 | ) | $ | (6,290,737 | ) | |||||||||||||||||
| Balance at June 30, 2023 | 250 | $ | - | 11,250,813 | $ | 11,251 | $ | 377,595,330 | $ | (368,559,752 | ) | $ | 9,046,829 | |||||||||||||||
| 3 |
| MASSROOTS, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | $ | 11,516 | $ | 209,003 | $ | 289,130 | $ | 794,621 | ||||||||
| Operating expenses: | ||||||||||||||||
| Advertising | 302,809 | 121,642 | 865,052 | 679,061 | ||||||||||||
| Payroll and related expenses | 811,775 | 478,775 | 2,732,911 | 1,714,819 | ||||||||||||
| Stock based compensation | 5,510,554 | 613,353 | 19,882,527 | 2,306,662 | ||||||||||||
| Other general and administrative expenses | 908,392 | 880,441 | 3,835,470 | 2,094,829 | ||||||||||||
| Total operating expense | 7,533,530 | 2,094,211 | 27,315,960 | 6,795,371 | ||||||||||||
| Loss from operations | (7,522,014 | ) | (1,885,208 | ) | (27,026,830 | ) | (6,000,750 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Gain on sale of securities | — | — | 75,000 | — | ||||||||||||
| Gain on change in fair value of derivative liabilities | 634,073 | 1,006,358 | 986,058 | 1,320,654 | ||||||||||||
| Interest expense | (189,125 | ) | (2,573,814 | ) | (189,125 | ) | (3,575,008 | ) | ||||||||
| Total other income (expense): | 444,948 | (1,567,456 | ) | 871,933 | (2,254,354 | ) | ||||||||||
| Net loss before income taxes | (7,077,066 | ) | (3,452,664 | ) | (26,154,897 | ) | (8,255,104 | ) | ||||||||
| Provision of income taxes (benefit) | — | — | — | — | ||||||||||||
| NET LOSS | $ | (7,077,066 | ) | $ | (3,452,664 | ) | $ | (26,154,897 | ) | $ | (8,255,104 | ) | ||||
| Net loss per common share-basic and diluted | $ | (0.07 | ) | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.17 | ) | ||||
| Weighted average number of common shares outstanding-basic and diluted | 104,274,253 | 51,083,084 | 92,196,637 | 48,916,198 | ||||||||||||
| See the accompanying notes to the unaudited condensed consolidated financial statements | ||||||||||||||||
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2023
(Unaudited)
| Preferred Stock | Additional | |||||||||||||||||||||||||||
| Series Z | Common Stock | Paid | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at March 31, 2023 | 250 | $ | - | 11,250,813 | $ | 11,251 | $ | 377,595,330 | $ | (366,294,690 | ) | $ | 11,311,891 | |||||||||||||||
| Net loss | - | - | - | - | - | $ | (2,265,062 | ) | $ | (2,265,062 | ) | |||||||||||||||||
| Balance at June 30, 2023 | 250 | $ | - | 11,250,813 | $ | 11,251 | $ | 377,595,330 | $ | (368,559,752 | ) | $ | 9,046,829 | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Series Z | Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 500 | $ | 1 | 3,331,916 | $ | 3,332 | 8,500 | $ | 8 | $ | 275,058,282 | $ | (298,409,686 | ) | $ | (23,348,063 | ) | |||||||||||||||||||
| Issuance of common stock previously recorded as to be issued | - | - | 8,500 | $ | 8 | (8,500 | ) | (8 | ) | - | - | - | ||||||||||||||||||||||||
| Elimination of derivative liabilities due to resolution of authorized share shortfall | - | - | - | - | $ | - | - | $ | 29,759,766 | 29,759,766 | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | $ | (19,310,623 | ) | $ | (19,310,623 | ) | |||||||||||||||||||||||
| Balance at June 30, 2022 | 500 | $ | 1 | 3,340,416 | $ | 3,340 | - | $ | - | $ | 304,818,048 | $ | (317,720,309 | ) | $ | (12,898,920 | ) | |||||||||||||||||||
| MASSROOTS, INC. | ||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||
| NINE MONTHS ENDED SEPTEMBER 30, 2017 | ||||||||||||||||||||||||||||
| Common stock | Additional | |||||||||||||||||||||||||||
| Common stock | To be issued | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2016 | 71,908,370 | $ | 71,908 | 1,740,000 | $ | 1,740 | $ | 28,693,819 | $ | (29,862,645 | ) | $ | (1,095,178 | ) | ||||||||||||||
| Common stock issued for services rendered | 22,745,898 | 22,746 | (1,005,141 | ) | (1,005 | ) | 14,182,514 | — | 14,204,255 | |||||||||||||||||||
| Sale of common stock | 2,085,000 | 2,085 | 309,000 | 309 | 1,195,606 | — | 1,198,000 | |||||||||||||||||||||
| Common stock issued upon exercise of warrants for cash | 6,933,041 | 6,933 | 112,500 | 113 | 4,746,150 | — | 4,753,196 | |||||||||||||||||||||
| Common stock issued upon cashless exercise of options | 41,153 | 41 | 394,858 | 394 | (435 | ) | — | — | ||||||||||||||||||||
| Common stock issued upon cashless exercise of warrants | 355,689 | 356 | — | — | (356 | ) | — | — | ||||||||||||||||||||
| Common stock issued in settlement of convertible notes | 1,081,000 | 1,081 | — | — | 107,019 | — | 108,100 | |||||||||||||||||||||
| Common stock issued to acquire Odava Inc. | 3,250,000 | 3,250 | — | — | 1,963,000 | — | 1,966,250 | |||||||||||||||||||||
| Common stock issued to acquire DDDigtal Inc. | 2,926,830 | 2,927 | — | — | 2,880,293 | — | 2,883,220 | |||||||||||||||||||||
| Reclassify fair value of liability warrants issued in connection with sale of common stock | — | — | — | — | (1,003,870 | ) | — | (1,003,870 | ) | |||||||||||||||||||
| Reclassify fair value of derivative liability to equity upon warrant exercise(s) | — | — | — | — | 610,967 | — | 610,967 | |||||||||||||||||||||
| Stock based compensation | — | — | — | — | 5,678,272 | — | 5,678,272 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (26,154,897 | ) | (26,154,897 | ) | |||||||||||||||||||
| Balance, September 30, 2017 (unaudited) | 111,326,981 | $ | 111,327 | 1,551,217 | $ | 1,551 | $ | 59,052,979 | $ | (56,017,542 | ) | $ | 3,148,315 | |||||||||||||||
| See the accompanying notes to the unaudited condensed consolidated financial statements | ||||||||||||||||||||||||||||
| MASSROOTS, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (unaudited) | ||||||||
| Nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (26,154,897 | ) | $ | (8,255,104 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 21,344 | 14,224 | ||||||
| Amortization of debt discounts | 187,272 | 1,549,669 | ||||||
| Stock based compensation | 19,882,527 | 2,496,873 | ||||||
| Gain on sale of securities | (75,000 | ) | — | |||||
| Change in fair value of derivative liabilities | (986,058 | ) | (1,320,654 | ) | ||||
| Non-cash interest | — | 1,265,376 | ||||||
| Penalties related to note maturity | — | 763,872 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 6,889 | (72,324 | ) | |||||
| Prepaid and other | (13,687 | ) | 12,938 | |||||
| Accounts payable and other liabilities | (41,556 | ) | 629,298 | |||||
| Deferred revenue | (27,010 | ) | — | |||||
| Net cash used in operating activities | (7,200,176 | ) | (2,915,832 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash acquired from acquisition of DDDigtal Inc | 8,672 | — | ||||||
| Cash acquired from acquisition of Odava, Inc. | 2,601 | — | ||||||
| Proceeds from sale of securities | 250,000 | — | ||||||
| Cash paid related to acquisition of Odava, Inc. | (40,570 | ) | — | |||||
| Purchase of equity investment | (100,002 | ) | — | |||||
| Purchase of convertible promissory note | (300,000 | ) | — | |||||
| Purchase of equipment | (57,534 | ) | (19,100 | ) | ||||
| Net cash used in investing activities | (236,833 | ) | (19,100 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of convertible notes | 942,500 | 1,420,000 | ||||||
| Proceeds from common stock sales | 1,198,000 | 1,660,500 | ||||||
| Proceeds from exercise of warrants | 4,753,196 | 596,331 | ||||||
| Proceeds from exercise of options | — | 25,000 | ||||||
| Proceeds from related party advances | 442,500 | — | ||||||
| Repayments of loans | (6,355 | ) | — | |||||
| Repayments of convertible notes | — | (1,026,600 | ) | |||||
| Net cash provided by financing activities | 7,329,841 | 2,675,231 | ||||||
| Net decrease in cash | (107,168 | ) | (259,701 | ) | ||||
| Cash, beginning of period | 374,490 | 386,316 | ||||||
| Cash , end of period | $ | 267,322 | $ | 126,615 | ||||
MASSROOTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | ||||||||
| Nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during period for interest | $ | — | $ | — | ||||
| Cash paid during period for taxes | $ | — | $ | — | ||||
| Non cash investing and financing activities: | ||||||||
| Common stock issued in settlement of debt | $ | 108,100 | $ | 447,085 | ||||
| Common stock issued in payment of penalties related to notes payable | $ | — | $ | 163,621 | ||||
| Common stock issued to acquire DDDigtal Inc. | $ | 2,883,220 | $ | — | ||||
| Net assets acquired from acquisition of DDDigtal Inc. | $ | 15,448 | $ | — | ||||
| Common stock issued to acquire Odava, Inc. | $ | 1,966,250 | $ | — | ||||
| Net assets acquired from acquisition of Odava, Inc. | $ | 2,601 | $ | — | ||||
| Reclassification of liability warrants from equity in connection with the sale of common stock | $ | 1,003,870 | $ | — | ||||
| Reclassification of derivative liability to equity upon note prepayment(s) | $ | — | $ | 7,308 | ||||
| Reclassification of derivative liability to equity upon warrant exercise(s) | $ | 610,967 | $ | — | ||||
| See the accompanying notes to the unaudited condensed consolidated financial statements | ||||||||
| 5 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SEPTEMBERFOR THE THREE MONTHS ENDED JUNE 30, 20172022
(Unaudited)
Preferred Stock Series Z | Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 500 | $ | 1 | 3,338,416 | $ | 3,338 | 2,000 | $ | 2 | $ | 304,818,048 | $ | (303,585,162 | ) | $ | 1,236,227 | ||||||||||||||||||||
| Balance | 500 | $ | 1 | 3,338,416 | $ | 3,338 | 2,000 | $ | 2 | $ | 304,818,048 | $ | (303,585,162 | ) | $ | 1,236,227 | ||||||||||||||||||||
| Issuance of common stock previously recorded as to be issued | - | - | 2,000 | $ | 2 | (2,000 | ) | (2 | ) | - | - | - | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | $ | (14,135,147 | ) | $ | (14,135,147 | ) | |||||||||||||||||||||||
| Balance at June 30, 2022 | 500 | $ | 1 | 3,340,416 | $ | 3,340 | - | $ | - | $ | 304,818,048 | $ | (317,720,309 | ) | $ | (12,898,920 | ) | |||||||||||||||||||
| Balance | 500 | $ | 1 | 3,340,416 | $ | 3,340 | - | $ | - | $ | 304,818,048 | $ | (317,720,309 | ) | $ | (12,898,920 | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(Unaudited)
| For the Six Months Ended June 30 , | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (6,290,737 | ) | $ | (19,310,623 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization of intangible assets | 2,619,581 | 1,815,367 | ||||||
| Amortization of right of use assets, net - related-party | 1,140,331 | 997,027 | ||||||
| Amortization of right of use asssets, net | 184,757 | 210,114 | ||||||
| Change in fair value of derivative liabilities | - | (14,264,476 | ) | |||||
| Interest and amortization of debt discount | 3,057,053 | 32,577,069 | ||||||
| Gain on settlement of non-convertible notes payable and accrued interest | (75,005 | ) | (163,420 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Bank overdrafts | 180,337 | - | ||||||
| Changes in due to related party | 1,608,189 | (122,865 | ) | |||||
| Inventories | 70,037 | (122,154 | ) | |||||
| Accounts receivable | (11,301 | ) | (82,925 | ) | ||||
| Prepaid expenses | (596,646 | ) | (70,109 | ) | ||||
| Security deposit | (25,000 | ) | 2,437 | |||||
| Accounts payable and accrued expenses | 503,252 | 58,462 | ||||||
| Accrued payroll and related expenses | 179,206 | - | ||||||
| Contract liabilities | - | 73,000 | ||||||
| Environmental remediation | - | (22,207 | ) | |||||
| Principal payments made on operating lease liability - related-party | (1,269,496 | ) | (1,008,459 | ) | ||||
| Principal payments made on operating lease liability | (40,425 | ) | - | |||||
| Net cash generated by operating activities | 1,234,133 | 566,238 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment - related party | - | (152,500 | ) | |||||
| Purchases of property and equipment | (826,422 | ) | (2,394,823 | ) | ||||
| Net cash used in investing activities | (826,422 | ) | (2,547,323 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of non-convertible notes payable | 1,000,000 | 225,000 | ||||||
| Repayment of a non-convertible notes payable | (1,301,846 | ) | (162,039 | ) | ||||
| Proceeds from factoring | 3,746,109 | - | ||||||
| Repayments of factoring | (4,298,827 | ) | - | |||||
| Net cash provided by (used in) financing activities | (854,564 | ) | 62,961 | |||||
| Net decrease in cash | (446,853 | ) | (1,918,124 | ) | ||||
| Cash, beginning of period | 821,804 | 2,958,293 | ||||||
| Cash, end of period | $ | 374,951 | $ | 1,040,169 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during period for interest | $ | 49,296 | $ | 195,000 | ||||
| Cash paid during period for taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Reclassification of derivative liability to additional paid in capital due to elimination of authorized share shortfall | $ | - | $ | 29,719,392 | ||||
| Increase in right of use assets and operating lease liabilities | $ | 199,466 | $ | 590,000 | ||||
| Note proceeds for equipment purchases | $ | 3,059,634 | $ | 2,677,544 | ||||
| Issuance of common shares previously to be issued | $ | - | $ | 8 | ||||
| Equipment purchases in accounts payable and accrued expenses | $ | - | $ | 311,805 | ||||
| Common shares issued upon conversion of Series Z Preferred | $ | 289 | $ | - | ||||
| Factoring proceeds utilized for payoff of factoring liabilities | $ | 5,004,393 | $ | - | ||||
| Advance for asset by issuance of notes | $ | 162,000 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2023 (Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
MassRoots,Overview
Greenwave Technology Solutions, Inc. (“MassRoots”Greenwave” or the “Company”) has created a technology platform for the cannabis industry focused on enabling users to share their cannabis content, follow their favorite dispensaries, and stay connected with the legalization movement. The Company was incorporated in the State of Delaware on April 26, 2013.2013 as a technology platform developer under the name MassRoots, Inc. The Company sold its social media assets in October 2021 and has discontinued all operations related to this business. On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 13 metal recycling facilities in Virginia and North Carolina. The acquisition was effective October 1, 2021 upon the effectiveness of the Certificates of Merger in Virginia and Delaware.
In December 2022, we began offering hauling services to corporate clients. We haul sand, dirt, asphalt, metal, and other materials in a fleet of approximately 50 trucks which we own, manage, and maintain.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include allinformation and pursuant to the rules and regulations of the informationSecurities and disclosures requiredExchange Commission (the “SEC”). Our condensed consolidated financial statements include the accounts of Empire Services, Inc., Empire Staffing, LLC, Liverman Metal Recycling, Inc., and Greenwave Elite Sports Facility, Inc., our wholly owned subsidiaries. All intercompany transactions were eliminated during consolidation.
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared by U.S. GAAP for annual financial statements.the Company, without audit, pursuant to the rules and regulations of the SEC. In the opinion of the Company’s management, such statements include all adjustments (consisting only of normal recurring items) which are consideredadjustments and reclassifications and non-recurring adjustments) necessary for a fair presentation ofto present fairly the condensed consolidated financial statements of the Company as of September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016. TheCompany’s results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 and 2022, its cash flows for the six months ended June 30, 2023 and 2022, and its financial position as of June 30, 2023 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year ending December 31, 2017,year.
Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or any other period. Theseomitted from these interim unaudited condensed consolidated financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures ofnotes thereto included in our Annual Report on Form 10-K for the Company as offiscal year ended December 31, 2016 and for the year then ended, which were2022 as filed with the Securities and Exchange Commission on Form 10-KSEC on March 31, 2017.
Acquisitions
DDDigtal Inc.
On December 15, 2016, the Company entered into an Agreement2023 and Plan of Mergeramended on April 13, 2023 (the “Merger Agreement”) with Whaxy Inc., a wholly-owned subsidiary of the Company (“Merger Subsidiary”), DDDigtal Inc., a Colorado corporation (“DDDigtal”), Zachary Marburger, an individual acting solely in his capacity as Stockholder Representative, and all of the stockholders of DDDigtal. Pursuant to the Merger Agreement, the parties agreed to merge Merger Subsidiary with and into DDDigtal, whereby DDDigtal survived as a wholly-owned subsidiary of MassRoots (the “Merger”).
On January 25, 2017 (the “Effective Date”), the Merger was completed and became effective upon the filing of certificates of merger with the respective Secretary of State of the States of Delaware and Colorado, in such forms as required by, and executed in accordance with, the relevant provisions of the Delaware General Corporation Law and the Colorado Business Corporation Act.
Pursuant to the terms of the Merger Agreement, each share of DDDigtal’s common stock was to be exchanged for a number of shares of the Company’s common stock (or a fraction thereof), based on an exchange ratio, as ultimately calculated, equal to approximately 5.273-for-1, such that 1 share of the Company’s’ common stock was issued for every 5.273 shares of DDDigtal’s common stock.
On the Effective Date, the Company issued 2,926,830 shares of the Company’s common stockpro rata to all stockholders of DDDigtal (the “Share Consideration”) in exchange for all of their shares of DDDigtal’s common stock. At the same time, each share of the common stock of Merger Subsidiary was converted into and exchanged for one share of common stock of DDDigtal held by the Company, and all shares of DDDigtal common stock outstanding immediately prior to the Effective Date automatically cancelled and retired. DDDigtal continued as a surviving wholly-owned subsidiary of the Company, and Merger Subsidiary ceased to exist.
Also pursuant to the terms of the Merger Agreement, the Company paid cash consideration, in December 2016, of $40,000 to Zachary Marburger and $20,000 to Micah Davidson, as repayment of outstanding debts owed by DDDigtal to the individuals.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
As a condition to the closing of the Merger, the Company hired Zachary Marburger as its Vice President of Strategy, and engaged Micah Davidson as a Senior Software Engineer. As a condition of Mr. Marburger’s employment and pursuant to the Merger Agreement, the Company will pay Mr. Marburger an additional $40,000 following the one-year anniversary of his constant employment with the Company.
A summary of consideration is as follows:
| Cash (paid in December 2016) | $ | 60,000 | ||
| 2,926,830 shares of the Company’s common stock | 2,883,220 | |||
| Liabilities assumed | 40,140 | |||
| Total purchase price | $ | 2,983,360 |
The following summarizes the current estimates of fair value of assets acquired and liabilities assumed:
| Cash | $ | 8,672 | ||
| Accounts receivable | 3,583 | |||
| Property and equipment | 3,333 | |||
| Goodwill | 2,967,772 | |||
| Assets acquired | $ | 2,983,360 |
The above estimated fair value of the intangible assets is based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.
Pro forma Results
The following tables set forth the unaudited pro forma results of the Company as if the acquisition of DDDigtal had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.
Three months ended September 30, 2017 | Three months ended September 30, 2016 | |||||||
| Total revenues | $ | 11,516 | $ | 232,313 | ||||
| Net loss | (7,077,066 | ) | (7,263,951 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.07 | ) | $ | (0.07 | ) | ||
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||||||
| Total revenues | $ | 289,130 | $ | 833,304 | ||||
| Net loss | (26,154,897 | ) | (8,373,192 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.28 | ) | $ | (0.17 | ) | ||
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Odava, Inc.
On July 5, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MassRoots Compliance Technology, Inc., a wholly-owned subsidiary of he Company (“Merger Subsidiary”), Odava, Inc., a Delaware corporation (“Odava”), and Scott Kveton, an individual acting solely in his capacity as a stockholder representative (“Stockholder Representative”). Pursuant to the Merger Agreement, the parties agreed to merge Merger Subsidiary with and into Odava, whereby Odava survived as a wholly-owned subsidiary of MassRoots (the “Merger”).
On July 13, 2017 (the “Effective Date”), the Merger was completed and became effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware, in the form as required by and executed in accordance with Title 8, Section 251(c) of the Delaware General Corporation Law. A copy of the certificate of merger is filed as Exhibit 3.1 hereto, and is hereby incorporated by reference into this Item 2.01.
Pursuant to the terms of the Merger Agreement, each share of Odava’s common stock was to be exchanged for a number of shares of MassRoots’ Common Stock (or a fraction thereof), based on an exchange ratio, as ultimately calculated, equal to approximately 4.069-for-1, such that one share of MassRoots’ Common Stock was issued for approximately every 4.069 shares of Odava’s common stock.
On the Effective Date, the Company issued 3,250,000 shares of common stockpro rata to all stockholders of Odava (the “Share Consideration”) in exchange for all of their shares of Odava’s common stock. At the same time, shares of the common stock of Merger Subsidiary were converted into and exchanged for one share of common stock of Odava held by the Company, and all shares of Odava common stock outstanding immediately prior to the Effective Date automatically cancelled and retired. Odava continued as a surviving wholly-owned subsidiary of Massroots, and Merger Subsidiary ceased to exist. In addition, the Company issued 2,600,000 shares of common stock to the founders of Odava in connection with the acquisition
Also pursuant to the terms of the Merger Agreement, MassRoots paid cash consideration of $30,000 to Scott Kveton and $5,000 to Steven Osborn, as repayment of outstanding debts at closing owed by Odava to the individuals.
As a condition to the closing of the Merger, the Company hired Scott Kveton as its new Director of Business Development, and Steven Osborn as its Principal Architect.
A summary of consideration is as follows:
| Cash and costs incurred | $ | 40,570 | ||
| 2,926,830 shares of the Company’s common stock | 1,966,250 | |||
| Total purchase price | $ | 2,006,820 |
The following summarizes the current estimates of fair value of assets acquired and liabilities assumed:
| Cash | $ | 2,601 | ||
| Goodwill | 2,004,219 | |||
| Assets acquired | $ | 2,006,820 |
The above estimated fair value of the intangible assets is based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Pro forma results
The following tables set forth the unaudited pro forma results of the Company as if the acquisition of Odava had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.
Three months ended September 30, 2017 | Three months ended September 30, 2016 | |||||||
| Total revenues | $ | 11,516 | $ | 209,003 | ||||
| Net loss | (7,077,066 | ) | (3,452,664 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.07 | ) | $ | (0.07 | ) | ||
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||||||
| Total revenues | $ | 289,130 | $ | 794,621 | ||||
| Net loss | (26,154,897 | ) | (8,277,114 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.28 | ) | $ | (0.17 | ) | ||
The Company accounts for acquisitions in accordance with the provisions of Accounting Standards Codification (“ASC”) 805-Business Combinations (“ASC 805”“Annual Report”). The Company assigns to all identifiable assets acquired a portion of the cost of the acquired company equal to the estimated fair value of such assets at the date of acquisition. The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired as goodwill.
The Company recorded goodwill in the aggregate amount of $4,971,991 as a result of the acquisitions of DDDitgal and Odava during the nine months ended September 30, 2017.
The Company accounts for and reports acquired goodwill under ASC subtopic 350-10, Intangibles-Goodwill and Other (“ASC 350-10”). In accordance with ASC 350-10, at least annually, the Company tests its intangible assets for impairment or more often if events and circumstances warrant. Any write-downs will be included in resultsDecember 31, 2022 balance sheet is derived from operations.those statements.
NOTE 2 –GOING– GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As of SeptemberJune 30, 2017,2023, the Company had cash of $267,322$374,951 and a working capital deficit (current liabilities in excess of current assets) of $2,377,272. During the nine months ended September$22,364,325. The accumulated deficit as of June 30, 2017, the Company used net cash in operating activities of $7,200,176.2023 was $368,559,752. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.concern for one year from the issuance of the unaudited condensed consolidated financial statements.
In July 2023, the first nine months of 2017,Company’s downstream commenced operations, enabling the Company received $4,753,196, $942,500, $1,198,000 and $442,500to recover millimeter-minus pieces of metal from the exerciseGreenwave’s automotive shred residue, which is on track to generate several hundred thousand dollars of common stock warrants, proceeds from issuance of convertible notes, sale of common stock and related party advances, respectively.additional high margin revenue per month. The Company doesbelieves it is generating positive cashflows from operating activities and may not have cash sufficientneed to fund operations.
The Company’s primary source of operating funds since inception has been cash proceeds from private placements of common stock, proceeds from the exercise of warrants and options and issuance of notes payable. The Company has experienced net losses and negative cash flows from operations since inception and expects these conditionsraise any additional capital to continue foroperations. Further, the foreseeable future. The Company will require additional financing to fund future operations.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Management’s plans with regard to these matters encompass the following actions: 1) obtain funding from newclosed a $15 million private placement on July 31, 2023, retiring all outstanding merchant cash advances and potentially current investors to alleviatereducing the Company’s workingequipment debt. Should the Company choose to raise capital, deficiency,it believes it can do so through non-equity based instruments such as non-convertible notes, lines of credit, and 2) implement a plan to generate sales. The Company’s continued existence is dependent uponcash advances.
If the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to translateincur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its user base into sales. However,stockholders and require significant debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will be impacted by market conditions and the outcomeprice of management’s plans cannot be ascertained with any degree of certainty.the Company’s common stock.
Accordingly, the accompanying unaudited condensed interimconsolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company ason a going concern andbasis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.business for one year from the date the condensed consolidated financial statements are issued. The carrying amounts of assets and liabilities presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed interimconsolidated financial statements do not include any adjustmentadjustments that might result fromshould the outcome of this uncertainty.Company be unable to continue as a going concern.
| 8 |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanyingunaudited condensed consolidated financial statements include the accounts of MassRoots,Greenwave Technology Solutions, Inc. and its wholly owned operating subsidiaries. All material intercompany accountsbalances and transactions arehave been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with USU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include stock-based compensation, fair values relating to derivativeestimates used in the, payroll tax liabilities with interest and penalties, assumptions used in right-of-use and lease liability calculations, impairments of intangible assets acquired in business combination, estimated useful life of long-lived assets and finite life tangible assets, and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) subtopicSubtopic 825-10, Financial Instruments“Financial Instruments” (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carryingestimated fair value of certain financial instruments, including cash, and cash equivalents, accounts receivable, accounts payable and accrued liabilities as reflected in the balance sheets, approximateare carried at historical cost basis, which approximates their fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the condensed consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.
The Company follows ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
Cash and Cash Equivalents
For purposes of the Statementcondensed consolidated statements of Cash Flows,cash flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents.
Property As of June 30, 2023 and Equipment
Property and equipment are stated at cost and depreciated usingDecember 31, 2022, the straight-line method over their estimated useful lives of 3 to 5 years. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Accounts Receivable and Allowance for Doubtful Accounts
Company had no cash equivalents. The Company monitors outstanding receivablesmaintains its cash in banks insured by the Federal Deposit Insurance Corporation in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. As of June 30, 2023 and December 31, 2022, the uninsured balances amounted to $35,309 and $434,399, respectively.
Accounts Receivable
Accounts receivable represent amounts primarily due from customers on product and other sales. These accounts receivable, which are reduced by an allowance for credit losses, are recorded at the invoiced amount and do not bear interest. The Company delivers shipments of scrap metal to customers and typically receives payment within 45 days of delivery.
The Company evaluates the collectability of its accounts receivable based on a combination of factors, surroundingincluding the credit riskaging of specific customers, historical trends, and other information. The allowance for doubtful accounts is estimated based on an assessment of the Company’s ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and ifreceivable balances, the financial condition of the Company’s customers, werehistorical collection rates, and economic trends. Management uses this evaluation to deteriorate,estimate the amount of customer receivables that may not be collected in the future and records a provision for expected credit losses. Accounts are written off when all efforts to collect have been exhausted. As of June 30, 2023 and December 31, 2022, the accounts receivable balances amounted to $226,558 and $215,256, respectively.
Property and Equipment, net
We state property and equipment at cost or, if acquired through a business combination, fair value at the date of acquisition. We calculate depreciation and amortization using the straight-line method over the estimated useful lives of the assets, except for our leasehold improvements, which are depreciated over the shorter of their estimated useful lives or their related lease term. Upon the sale or retirement of assets, the cost and related accumulated depreciation are removed from our accounts and the resulting in their inabilitygain or loss is credited or charged to makeincome. We expense costs for repairs and maintenance when incurred. Our property and equipment is pledged as collateral for certain factoring advances and promissory notes, see Note 8 – Factoring Advances and Non-Convertible Notes.
| 9 |
Cost of Revenue
The Company’s cost of revenue consists primarily of the required payments,costs of purchasing metal from its suppliers. For the Company’s hauling business line, cost of revenue mainly consists of fuel and payroll for drivers.
Related Party Transactions
Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be required to record additional allowances or charges against revenues.prevented from fully pursuing its own separate interests. The Company writes-offdiscloses all related party transactions. See Note 16 – Related Party Transactions.
Leases
The Company accounts receivable againstfor its leases under ASC 842, Leases. Under this guidance, arrangements meeting the allowance when it determinesdefinition of a lease are classified as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is uncollectibleamortized over the lease term. For operating leases, interest on the lease liability and no longer actively pursues its collection. As of September 30, 2017 and December 31, 2016, based upon the reviewamortization of the outstanding accounts receivable,right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.
In calculating the right of use asset and lease liability, the Company has determinedelected to combine lease and non-lease components. The Company excluded short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. See Note 11 – Leases.
Commitments and Contingencies
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that an allowance for doubtful accounts ismay harm our business. Except as set forth below, we are currently not required.aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. See Note 12 – Commitments and Contingencies.
Revenue Recognition
The Company recognizes revenue when services are realized or realizable and earned, less estimated future doubtful accounts.
The Company’s revenues are accounted for under ASC Topic 606, “Revenue From Contracts With Customers” (“ASC 606”) and generally do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.
In accordance with ASC 606, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company considersrecognizes revenue realized or realizable and earned when all ofin accordance with that core principle by applying the following criteria are met:following:
| (i) |
| 10 |
| (ii) | ||
| (iii) | Determine the | |
| (iv) | ||
| (v) | Recognize revenue when (or as) the Company satisfies a performance obligation. |
The Company primarily generates revenue by chargingpurchasing scrap metal from businesses and retail suppliers, processing it, and selling the ferrous and non-ferrous metals to advertiseclients.
The Company realizes revenue upon the fulfillment of its performance obligations to customers. As of June 30, 2023 and December 31, 2022, the Company had a contract liability of $25,000 and $25,000, respectively, for contracts under which the customer had paid for and the Company had not yet delivered.
Inventories
Although we ship the ferrous and non-ferrous metals we purchase from suppliers multiple times per day, we do maintain inventories. We calculate the value of the inventories we do carry, which consist of processed and unprocessed scrap metal (ferrous and nonferrous), used and salvaged vehicles, and supplies, based on the network. The Company hasnet realizable value or the ability to target advertisements directly to a clients’ target audience,cost of the inventories, whichever is less. We calculate the value of the inventory based on the first-in-first-out (FIFO) methodology. We calculate the value of finished products based on their location, onnet realizable value as their mobile devices. In cases where clients sign advertising contracts for an extended periodcost basis is not readily available. The value of time, the Company only realizes revenue for services provided during that quarterour inventories was $119,609 and defers all other revenue to future quarters.$189,646, respectively, as of June 30, 2023 and December 31, 2022.
Advertising
Stock Based Compensation
The Company measurescharges the costcosts of services received in exchangeadvertising to expense as incurred. Advertising costs were $10,329 and $44,071 for an award of equity instruments based on the three months ended June 30, 2023 and 2022, respectively. Advertising costs were $15,851 and $60,301 for the six months ended June 30, 2023 and 2022, respectively.
Stock-based compensation expense is measured at the grant date fair value of the award.award and is expensed over the requisite service period. For stock-based awards to employees, non-employees and directors, the Company calculates the fair value of the award is measured on the date of grant date and for non-employees,using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the award is generally re-measured on vesting datesgrant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and interim financial reporting dates untilforfeiture rates. The assumptions used in calculating the service period is complete. The fair value amount is then recognized overof stock-based awards represent the period during which services are required to be provided in exchange forCompany’s best estimates, but these estimates involve inherent uncertainties and the award, usually the vesting period.application of management’s judgment.
Income Taxes
The Company follows ASC subtopicSubtopic 740-10, Income Taxes-“Income Taxes” (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
| 11 |
Convertible Instruments
U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standingfreestanding derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under ASC 480-10.480, “Distinguishing Liabilities From Equity.”
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, theThe Company records, when necessary, discounts to convertible notes fordeemed dividends for: (i) warrant price protection, based on the intrinsic value of conversion options embedded in debt instruments based upon the differencesdifference between the fair value of the underlying common stock atwarrants immediately before and after the commitment daterepricing (inclusive of any full ratchet provisions); (ii) the exchange of preferred shares for convertible notes, based on the amount of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the termface value of the related debt to their stated dateconvertible notes in excess of redemption.the carrying value of the preferred shares; (iii) the settlement of warrant provisions, based on the fair value of the common shares issued; and (iv) amortization of discount on preferred stock resulting from recognition of a beneficial conversion feature.
Derivative Financial Instruments
The Company classifies as equity any contracts thatthat: (i) require physical settlement or net-share settlementsettlement; or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts thatthat: (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free standingfreestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
Environmental Remediation Liability
The Company’s free standing derivatives consistedoperations of warrantsthe Company, like those of other companies in its industry, are subject to purchase common stockvarious domestic and foreign environmental laws and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that were issuedthe Company conducts its operations in connectioncompliance with applicable environmental laws and regulations and has implemented various programs designed to protect the issuance of debtenvironment and sale of common stock, and of embedded conversion options with convertible debentures. promote continued compliance.
The Company evaluated these derivatives to assess their proper classification incontinuously assesses its potential liability for remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. As of June 30, 2023 and December 31, 2022, the Company had accruals reported on the balance sheet as current liabilities of September 30, 2017 using the applicable classification criteria enumerated under ASC 815-Derivatives$0 and Hedging. The Company determined that certain embedded conversion and/or exercise features do not contain fixed settlement provisions. The convertible debentures contain a conversion feature such that$0, respectively, as the Company couldhad paid all civil penalties and completed all remediation activities required under the Virginia DEQ Consent Order dated June 30, 2021. See Note 12—Commitments and Contingencies.
Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site. Additionally, costs for environmental-related activities may not ensure itbe reasonably estimable and therefore would not be included in our current liabilities.
Management believes these contingent environmental-related liabilities have adequate authorized shares to meet all possible conversion demands.been resolved.
As such, the Company was required to record the derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.
| 12 |
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Long-Lived Assets
The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Intangible assets are stated at cost and reviewed annually to examine any impairments, usually assuming an estimated useful life of five to ten years. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. The estimated useful lives of the Intellectual Property, Customer List, and Licenses assumed in the Empire acquisition is 5 years, 10 years, and 10 years, respectively. See Note 7 – Amortization of Intangible Assets.
Indefinite Lived IntangiblesFactoring Agreements
We have entered into factoring agreements with various financial institutions to receive cash for our future revenues. These transactions are treated as a debt instrument and are accounted for as a liability because the Company makes weekly payments towards the balance and fees. We utilize factoring arrangements as an integral part of our financing for working capital. Any change in the availability of these factoring arrangements could have a material adverse effect on our financial condition. As of June 30, 2023 and December 31, 2022, the Company owed $6,718,684 and $4,893,207, net debt discounts of $2,185,819 and $1,221,022, respectively for factoring advances. See “Note 9 – Advances, Non-Convertible and PPP Notes Payable.”
Goodwill
Goodwill Assets
The Company accounts for business combinations underis the acquisition methodexcess of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price paid over the fair value of the net assets of the acquired business. Goodwill is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values.tested annually at December 31 for impairment. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excessannual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the tangible and identified intangible assets acquiredcurrent carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles andthan its carrying amount before applying the two-step quantitative goodwill impairment intest. The first step of a quantitative goodwill impairment test compares the fourth quarterfair value of each year and whenever events or circumstances indicate thatthe reporting unit to its carrying amount including goodwill. If the carrying amount of the assetreporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. The Company has adopted the provisions of Accounting Standards Update (“ASU”)_2017-04, “Intangibles—Goodwill and mayOther (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that, under existing U.S. GAAP, would not be recoverable.impaired or have a reduced carrying amount. Furthermore, ASU 2017-04 removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired.
We test our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31. We fully impaired our goodwill as of December 31, 2022.
None of the goodwill is deductible for income tax purposes.
| 13 |
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker,Chief Financial Officer, or decision makingdecision-making group, in deciding the method to allocate resources and assess performance. The Company currently has one reportable segment for financial reporting purposes, which represents the Company’s core business.
The Company computes earnings (loss) per common share under ASC subtopicSubtopic 260-10, Earnings Per Share (“ASC 260-10”).Share. Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.period. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable.
The computation of basic and diluted income (loss) per share, as of Septemberfor the three and six months ended June 30, 20172023 and 20162022 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES EXCLUDED FROM THE COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE
| June 30, 2023 | June 30, 2022 | |||||||
| Common shares issuable upon conversion of convertible notes | - | 2,601,540 | ||||||
| Options to purchase common shares | 92,166 | 92,166 | ||||||
| Warrants to purchase common shares | 9,756,876 | 2,752,941 | ||||||
| Common shares issuable upon conversion of preferred stock | 1,013,500 | 661,006 | ||||||
| Total potentially dilutive shares | 10,862,542 | 6,107,653 | ||||||
On February 17, 2022 the computationCompany effectuated a 1-for-300 reverse stock split. Pursuant to GAAP, the Company retrospectively recasted and restated the weighted-average common shares included within its condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022. The basic and diluted net loss per shareweighted-average common shares are as follows:
September 30, 2017 | September 30, 2016 | |||||||
| Common stock issuable upon conversion of convertible debentures | 3,538,894 | 2,744,432 | ||||||
| Options to purchase common stock | 14,574,977 | 5,569,883 | ||||||
| Warrants to purchase common stock | 11,864,347 | 14,079,715 | ||||||
| Totals | 29,978,218 | 22,394,030 | ||||||
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Reclassification
Certain reclassifications have been maderetroactively converted to shares of the prior years’ dataCompany’s common stock to conform to the current year presentation. These reclassifications had no effect on reported income (losses).recasted condensed consolidated statements of stockholders’ equity.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (ASU 2021-08). which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, as if it had originated the contracts. Prior to ASU 2021-08, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. ASU 2021-08 is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The adoption of ASU 2021-08 did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.
There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
| 14 |
Subsequent Events
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses requiring, instead, that all financial assets (or group of financial assets) measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. The Company evaluatesASU also applies to certain off-balance-sheet credit exposures such as unfunded commitments and non-derivative financial guarantees. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) in order to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The income statement under this ASU will reflect the initial recognition of current expected credit losses for newly recognized assets, as well as any increases or decreases of expected credit losses that have occurred during the period. ASU 2016-13 retains many currently-existing disclosures related to the credit quality of an entity’s assets and the related allowance for credit losses amended to reflect the change to an expected credit loss methodology, as well as enhanced disclosures to provide information to users at a more disaggregated level. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is effective, except for debt securities for which an other-than-temporary impairment has previously been recognized. For these debt securities, a prospective transition is provided in order to maintain the same amortized cost prior to and subsequent to the effective date of the ASU. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. The adoption of ASU 2016-13 did not have an impact on the balance sheet date but before theCompany’s condensed consolidated financial statements are issued. and related disclosures.
NOTE 4 – INVESTMENTSCONCENTRATIONS OF RISK
Accounts Receivable
As
The Company has a concentration of Septembercredit risk with its accounts receivable balance. Three customers individually accounted for $52,590, $36,450, and $31,485, or 23%, 16%, and 14%, respectively, of our accounts receivable at June 30, 20172023. The Company has adopted (ASU) 2016-13 as of January 1, 2023 and not had a material impact on the Company’s financial statements as of June 30, 2023.
Customer Concentrations
The Company has a concentration of customers. For the three months ended June 30, 2023, three customers individually accounted for $5,999,544, $538,219 and $486,488, or approximately 64%, 6% and 5% of our revenues, respectively. For the six months ended June 30, 2023, two customers individually accounted for $11,199,670 and $1,023,112, or approximately 61% and 6% of our revenues, respectively.
The Company’s sales are concentrated in the Virginia and northeastern North Carolina markets.
NOTE 5 – INVENTORIES
Inventories as of June 30, 2023 and December 31, 2016, the carrying value of our investments in privately held companies totaled $403,249 and $235,000, respectively. These investments are accounted for as cost method investments, as we own less than 20%2022 consisted of the voting securities and do not have the ability to exercise significant influence over operating and financial policies of the entities.following:
SCHEDULE OF INVENTORIES
| June 30, 2023 | December 31, 2022 | |||||||
| Processed and unprocessed scrap metal | $ | 119,609 | $ | 189,646 | ||||
| Finished products | - | - | ||||||
| Inventories | $ | 119,609 | $ | 189,646 | ||||
To facilitate the integration with dispensary point of sale systems, in 2015, the Company invested $175,000 in exchange for preferred shares of Flowhub LLC (“Flowhub”), a seed-to-sale system, equal to 8.95% of the then outstanding equity of Flowhub. The acquired preferred shares are considered non-marketable securities. On May 12, 2017, the Company sold its preferred shares in Flowhub for net proceeds of $250,000. The gain on sale of securities of $75,000 was recorded in current period operations.
During the nine months ended September 30, 2017, the Company acquired 23,810 Class A common stock of Hightimes Holding Corp. for $100,002 ($4.20 per share). The acquired common shares are considered non-marketable securities.
On July 13, 2017, the Company purchased a convertible promissory note in the principal sum of $300,000 from Cannaregs, Ltd, a Colorado limited liability company. The promissory note bears interest at 5% per annum payable upon maturity at December 19, 2019 and is unsecured. As of September 30, 2017, the carrying value of the promissory note was $303,247, including accrued interest.
In the event the issuer consummates, prior to maturity, an equity financing in excess of $2,000,000, the outstanding principal and any accrued and unpaid interest automatically converts to equity securities of the same class or series issued by the issuer at the lesser of: a) 90% of the price paid per equity security or b) a price reflecting a valuation cap of $4,500,000.
| 15 |
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
NOTE 56 – PROPERTY AND EQUIPMENT
Property and equipment as of SeptemberJune 30, 20172023 and December 31, 20162022 is summarized as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
September 30, 2016 | December 31, 2016 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Computers | $ | 125,089 | $ | 72,124 | ||||||||||||
| Office equipment | 44,253 | 36,850 | ||||||||||||||
| Machinery and Equipment | $ | 10,806,704 | $ | 12,995,494 | ||||||||||||
| Furniture and Fixtures | 6,128 | 6,128 | ||||||||||||||
| Land | 980,129 | 980,129 | ||||||||||||||
| Buildings | 724,170 | 724,170 | ||||||||||||||
| Vehicles | 7,063,234 | 20,000 | ||||||||||||||
| Leaseholder Improvements | 1,772,407 | 988,100 | ||||||||||||||
| Subtotal | 169,342 | 108,974 | 21,352,772 | 15,714,021 | ||||||||||||
| Property plant and equipment, gross | 21,352,772 | 15,714,021 | ||||||||||||||
| Less accumulated depreciation | (52,497 | ) | (31,652 | ) | (3,686,817 | ) | (2,546,486 | ) | ||||||||
| Property and equipment, net | $ | 116,845 | $ | 77,322 | $ | 17,665,955 | $ | 13,167,535 | ||||||||
Depreciation expense for the three and nine months ended SeptemberJune 30, 20172023 and 2022 was $9,410$611,103 and $21,344, respectively;$201,986, respectively. Depreciation expense for the six months ended June 30, 2023 and $5,4992022 was $1,140,331 and $14,224$336,117, respectively.
NOTE 7 – AMORTIZATION OF INTANGIBLE ASSETS
All of the Company’s current identified intangible assets were assumed upon consummation of the Empire acquisition on October 1, 2021. Identified intangible assets consisted of the following at the dates indicated below:
SCHEDULE OF INTANGIBLE ASSETS
| June 30, 2023 | ||||||||||||||
Gross carrying amount | Accumulated amortization | Carrying value | Estimated remaining useful life | |||||||||||
| Intellectual Property | $ | 3,036,000 | $ | (1,062,600 | ) | $ | 1,973,400 | 3.25 years | ||||||
| Customer List | 2,239,000 | (391,825 | ) | 1,847,175 | 8.25 years | |||||||||
| Licenses | 21,274,000 | (3,722,950 | ) | 17,551,050 | 8.25 years | |||||||||
| Total intangible assets, net | $ | 26,549,000 | $ | (5,177,375 | ) | $ | 21,371,625 | |||||||
| December 31, 2022 | ||||||||||||||
Gross carrying amount | Accumulated amortization | Carrying value | Remaining estimated useful life | |||||||||||
| Intellectual Property | $ | 3,036,000 | $ | (759,000 | ) | $ | 2,277,000 | 4 years | ||||||
| Customer List | 2,239,000 | (279,875 | ) | 1,959,125 | 9 years | |||||||||
| Licenses | 21,274,000 | (2,659,250 | ) | 18,614,750 | 9 years | |||||||||
| Total finite-lived intangibles | 26,549,000 | (3,698,125 | ) | 22,850,875 | ||||||||||
| Total intangible assets, net | $ | 26,549,000 | $ | (3,698,125 | ) | $ | 22,850,875 | |||||||
Amortization expense for intangible assets was $739,625 and $739,625 for the three and nine months ended SeptemberJune 30, 2016,2023 and 2022, respectively. Amortization expense for intangible assets was $1,479,250 and $1,479,250 for the six months ended June 30, 2023 and 2022, respectively.
| 16 |
Total estimated amortization expense for our intangible assets for the years 2023 through 2027 is as follows:
SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS
| Year ended December 31, | ||||
| 2023 (remaining) | 1,479,250 | |||
| 2024 | 2,958,500 | |||
| 2025 | 2,958,500 | |||
| 2026 | 2,806,700 | |||
| 2027 | 2,351,300 | |||
| Thereafter | 8,817,375 | |||
NOTE 68 – CONVERTIBLEFACTORING ADVANCES AND NON-CONVERTIBLE NOTES PAYABLE
Factoring Advances
On March 24, 2014,December 8, 2022, the Company issued convertible debentures to certain accredited investors. The total principal amount of the debentures is $269,100 and originally matured on March 24, 2016 withentered into a 0% interest rate. The debentures are convertible into shares of the Company’s common stock at $0.10 per share. In March 2016, the debentures were amended to extend the maturity date to March 24, 2018. In 2016, the Company issued an aggregate of 1,010,000 shares of its common stockrevenue factoring advance in settlement of $101,000 of outstanding debentures and during the nine months ended September 30, 2017, the Company issued an aggregate of 1,081,000 shares of its common stock in settlement of $108,100 of outstanding debentures
As of September 30, 2017 and December 31, 2016, the aggregate carrying value of the debentures was $0 and $108,100, net of debt discounts of $0, respectively.
On August 17, 2017, the Company issued convertible notes to certain accredited investors. The total principal amount of the notes is $1,045,000 and matures on February 18, 2018 with 0% interest rate. Net proceeds received were $942,500 after deduction of legal and other fees. If the Company exercises its right to prepay the Note, the Company shall make payment to the Investor of an amount in cash equal to the sum of the then outstanding principal amount of the Note that it desires to prepay, multiplied by (a) 1.1, during the first ninety (90) days after the execution of this Note, or (b) 1.25, at any point thereafter.
The Notes are convertible into shares of the Company’s common stock at a price per share equal to the lower of (i) seventy five cents ($0.75), and (ii) a 25% discount to the price at which the Company next conducts an offering after the issuance date of the Note; provided, however, if any part of the principal amount of the Note remains unpaid at its Maturity Date (as defined$3,025,000 for a purchase price of $2,500,000. The Company’s Chief Executive Officer was personally liable for this factoring advance. The Company was required to make weekly payments in the Note),amount $60,020 through December 2023. The advance matured on December 15, 2023. There was amortization of debt discount of $0 and $492,540 during the conversion price will be equal to 65%three and six months ended June 30, 2023. The Company made cash repayments of $695,198 and the remaining $2,149,742 balance was repaid out of the averageproceeds of the three trading days with the lowest daily weighted average prices of the Company’s common stock occurringanother advance during the fifteen days prior tosix months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the Notes’ Maturity Date.revenue factoring advance had a balance of $0 and $2,352,000, net an unamortized debt discount of $0 and $492,540, respectively.
In connection with the issuance of the notes,On December 8, 2022, the Company and the Investors also entered into a Securityrevenue factoring advance in the principal amount of $1,815,000 for a purchase price of $1,470,000. The Company’s Chief Executive Officer was personally liable for this factoring advance. The Company was required to make weekly payments in the amount $34,904 through December 2023. The advance matured on December 15, 2023. There was amortization of debt discount of $0 and $323,669 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $408,136 and the remaining $1,302,152 balance was repaid out of the proceeds of another advance during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the revenue factoring advance had a balance of $0 and $1,386,619 net an unamortized debt discount of $0 and $323,670, respectively.
On December 29, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,474,000 for a purchase price of $1,067,000. The Company’s Chief Executive Officer is personally liable for this factoring advance. The Company is required to make weekly payments in the amount $28,346 through January 2024. The advance matures on January 4, 2024. There was amortization of debt discount of $98,467 and $196,935 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $708,654 during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the revenue factoring advance had a balance of $557,470 and $1,069,188 net an unamortized debt discount of $207,876 and $404,812, respectively.
On January 17, 2023, the Company entered into a revenue factoring advance in the principal amount of $770,000 for a purchase price of $550,000. There was an origination fee of $50,000. The Company’s Chief Executive Officer was personally liable for this factoring advance. The Company was required to make weekly payments in the amount $24,062 through June 2023. The advance matured on June 17, 2023. There was amortization of debt discount of $0 and $270,000 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $192,500 and the remaining balance of $548,625 was repaid out of the proceeds of another advance during the six months ended June 30, 2023. There was a $0 and $28,875 gain on settlement of the advance during the three and six months ended June 30, 2023, respectively. As of June 30, 2023, the revenue factoring advance had a balance of $0.
On January 17, 2023, the Company entered into a revenue factoring advance in the principal amount of $1,400,000 for a purchase price of $1,000,000. There was an origination fee of $100,000. The Company’s Chief Executive Officer was personally liable for this factoring advance. The Company was required to make weekly payments in the amount $43,750 through June 2023. The advance matured on June 17, 2023. There was amortization of debt discount of $0 and $500,000 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $350,000 and the remaining balance of $1,003,870 was repaid out of the proceeds of another advance during the six months ended June 30, 2023. There was a $0 and $46,130 gain on settlement of the advance during the three and six months ended June 30, 2023, respectively. As of June 30, 2023, the revenue factoring advance had a balance of $0.
| 17 |
On March 29, 2023, the Company entered into a revenue factoring advance in the principal amount of $2,902,500 for a purchase price of $2,250,000. There was an origination fee of $67,500. The proceeds of $2,182,500 were used to payoff other advances and there were no cash proceeds. The Company’s Chief Executive Officer is personally liable for this factoring advance. The Company is required to make weekly payments in the amount $54,764 through April 2024. The advance matures on April 24, 2024. There was amortization of debt discount of $156,070 and $161,371 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $657,171 during the six months ended June 30, 2023. As of June 30, 2023, the revenue factoring advance had a balance of $1,754,200, net an unamortized debt discount of $491,129.
On March 29, 2023, the Company entered into a revenue factoring advance in the principal amount of $4,386,000 for a purchase price of $3,400,000. There was an origination fee of $102,000. There were cash proceeds of $476,109 and the remaining proceeds of $2,821,891 were used to pay off other advances. The Company’s Chief Executive Officer is personally liable for this factoring advance. The Company is required to make weekly payments in the amount $82,755 through April 2024. The advance matures on April 24, 2024. There was amortization of debt discount of $240,341 and $243,849 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $993,057 during the six months ended June 30, 2023. As of June 30, 2023, the revenue factoring advance had a balance of $2,650,793 net an unamortized debt discount of $742,151.
On May 26, 2023, the Company entered into a revenue factoring advance in the principal amount of $917,000 for a purchase price of $700,000. There was an origination fee of $21,000. There were cash proceeds of $679,000. The Company’s Chief Executive Officer is personally liable for this factoring advance. The Company is required to make weekly payments in the amount $17,635 through May 2024. The advance matures on May 26, 2024. There was amortization of debt discount of $22,170 and $22,170 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $90,972 during the six months ended June 30, 2023. As of June 30, 2023, the revenue factoring advance had a balance of $610,198 net an unamortized debt discount of $215,830.
On May 26, 2023, the Company entered into a revenue factoring advance in the principal amount of $393,000 for a purchase price of $300,000. There was an origination fee of $9,000. There were cash proceeds of $291,000. The Company’s Chief Executive Officer is personally liable for this factoring advance. The Company is required to make weekly payments in the amount $7,558 through May 2024. The advance matures on May 26, 2024. There was amortization of debt discount of $9,501 and $9,501 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $37,788 during the six months ended June 30, 2023. As of June 30, 2023, the revenue factoring advance had a balance of $262,713 net an unamortized debt discount of $92,499.
On June 7, 2023, the Company entered into a revenue factoring advance in the principal amount of $1,400,000 for a purchase price of $910,000. There was an origination fee of $90,000. There were cash proceeds of $900,000 during the six months ended June 30, 2023 and $10,000 was an advance receivable as of June 30, 2023. The Company’s Chief Executive Officer is personally liable for this factoring advance. The Company is required to make weekly payments in the amount $51,785 through March 2024. The advance matures on March 7, 2024. There was amortization of debt discount of $53,667 and $53,667 during the three and six months ended June 30, 2023, respectively. The Company made cash repayments of $165,355 during the six months ended June 30, 2023. As of June 30, 2023, the revenue factoring advance had a balance of $798,312 net an unamortized debt discount of $436,333.
The remaining advances are for Simple Agreements for Future Tokens, entered into with accredited investors issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and/or Regulation D thereunder in 2018. As of December 31, 2022, the Company owed $85,000 for Simple Agreements for Future Tokens.
Non-Convertible Notes Payable
On September 23, 2021, the Company entered into a Resolution Agreement wherebywith Sheppard, Mullin, Richter & Hampton concerning the Notes are$459,250.88 judgement entered against the Company (See Note 12 – Commitments and Contingencies). Under the terms of the Resolution Agreement, which the Company has classified as a non-convertible note, the Company was required to make a $25,000 initial payment by September 30, 2021 and is required to make $15,000 monthly payments from October 2021 to January 2023 with a final $10,000 payment due in February 2023. There was amortization of the debt discount of $0 and $3,182 during the three and six months ended June 30, 2023, respectively. During the six months ended June 30, 2023, the Company made $40,000 in payments towards the Resolution Agreement. As of June 30, 2023 and December 31, 2022, the Resolution Agreement had a balance of $0 and $38,284, net an unamortized debt discount of $0 and $3,182, respectively.
| 18 |
On April 11, 2022, the Company entered into a vehicle financing agreement with GM Financial for the purchase of a vehicle for use by the Company’s Chief Executive Officer in the principal amount of $74,186. GM Financial financed $65,000 of the purchase price of the vehicle and the Company was required to make a $10,000 down payment. There was a $2,400 rebate applied to the purchase price. The Company is required to make 60 monthly payments of $1,236. During the six months ended June 30, 2023, the Company made $11,928 in payments towards the financing agreement. There was amortization of debt discount of $442 and $884 during the three and six months ended June 30, 2023, respectively. As of June 30, 2023 and December 31, 2022, the financing agreement had a balance of $49,070 and $60,114, net an unamortized debt discount of $7,006 and $7,890, respectively.
On April 21, 2022, the Company entered into a secured with allpromissory note in the principal amount of $964,470 for the financing and installation of a piece of equipment in the amount $750,000. The Company is required to make monthly payments in the amount $6,665 through October 2022 and monthly payments of $19,260 until October 2026. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, currently held or hereafter acquired.and matures on October 21, 2026. During the six months ended June 30, 2023, the Company made $113,895 in payments towards the note. There was amortization of debt discount of $11,741 and $23,482 during the three and six months ended June 30, 2023, respectively. As of June 30, 2023 and December 31, 2022, the note had a balance of $647,373 and $732,550 net an unamortized debt discount of $156,547 and $180,030, respectively.
In connection withOn September 1, 2022, the issuanceCompany entered into a Deed of Trust note for the purchase of land and buildings. The note has a principal amount of $600,000, bears an interest rate of 6.5%, and matures on September 1, 2032. The Company is required to make monthly payments of $4,476 until September 1, 2032, when the remaining principal and accrued interest becomes due. The Company made principal and interest payments of $8,285 and $18,571, respectively, during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a principal balance of $587,669 and $595,954 and accrued interest of $3,035 and $3,184, respectively.
On September 1, 2022, the Company entered into an additional Deed of Trust note for the purchase of land and buildings. The note has a principal amount of $600,000, bears an interest rate of 6.5%, and matures on September 1, 2032. The Company is required to make monthly payments of $4,476 until September 1, 2032, when the remaining principal and accrued interest becomes due. The Company made principal and interest payments of $8,285 and $18,571, respectively, during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a principal balance of $587,669 and $595,954 and accrued interest of $3,035 and $3,184, respectively.
On September 14, 2022, the Company entered into a secured promissory note in the principal amount of $2,980,692 for a purchase price of $2,505,000. The note is secured by certain assets of the notes,Company. The Company is required to make monthly payments in the amount $82,797 through September 2025. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, issuedand matures on September 14, 2025. There was amortization of debt discount of $39,509 and $79,018 during the three and six months ended June 30, 2023, respectively. There were payments of $579,579 towards the note during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a balance of $1,886,256, and $2,386,817 net an unamortized debt discount of $349,263 and $428,281, respectively.
On November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,539,630 for a purchase price of $1,078,502. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,410 through March 2023 and then monthly payments in the amount of $20,950 through March 2029. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $18,048 and $36,096 during the three and six months ended June 30, 2023, respectively. There were payments of $82,236 during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a balance of $1,038,980 and $1,085,120 net an unamortized debt discount of $418,414 and $454,510, respectively.
| 19 |
On November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,560,090 for a purchase price of $1,092,910. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,630 through March 2023 and then monthly payments in the amount of $21,225 through March 2029. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $18,285 and $36,570 during the three and six months ended June 30, 2023, respectively. There were payments of $84,970 during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a balance of $1,051,214 and $1,099,614 net an unamortized debt discount of $423,906 and $460,476, respectively.
On November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,597,860 for a purchase price of $1,119,334. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,860 through March 2023 and then monthly payments in the amount of $21,740 through March 2029. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $18,729 and $37,458 during the three and six months ended June 30, 2023, respectively. There were payments of $86,920 during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a balance of $1,076,739 and $1,126,201 net an unamortized debt discount of $432,200 and $471,659, respectively.
On December 15, 2022, the Company entered into a secured promissory note in the principal amount of $1,557,435 for a purchase price of $1,093,380. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,585 through March 2023 and then monthly payments in the amount of $21,190 through March 2029. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on March 15, 2029. There was amortization of debt discount of $18,302 and $36,604 during the three and six months ended June 30, 2023, respectively. There were payments of $63,530 during the six months ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the note had a balance of $1,069,707 and $1,096,634 net an unamortized debt discount of $424,198 and $460,801, respectively.
On January 10, 2023, the Company entered into a secured promissory note in the principal amount of $1,245,018 for a purchase price of $1,021,500. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,365 through March 2023 and then monthly payments in the amount of $34,008 through March 2026. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on March 10, 2026. There was amortization of debt discount of $17,417 and $32,705 during the three and six months ended June 30, 2023. There were payments of $65,103 during the six months ended June 30, 2023. As of June 30, 2023, the note had a balance of $989,102 net an unamortized debt discount of $190,813.
On January 12, 2023, the Company entered into a secured promissory note in the principal amount of $1,185,810 for a purchase price of $832,605. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $8,030 through April 2023 and then monthly payments in the amount of $16,135 through April 2028. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on April 12, 2028. There was amortization of debt discount of $16,583 and $30,770 during the three and six months ended June 30, 2023, respectively. There were payments of $32,120 during the six months ended June 30, 2023. As of June 30, 2023, the note had a balance of $831,255 net an unamortized debt discount of $322,435.
On February 23, 2023, the Company entered into a secured promissory note in the principal amount of $822,040 for a purchase price of $628,353. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $6,370 through June 2023 and then monthly payments in the amount of $16,595 through June 2027. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on June 23, 2027. There was amortization of debt discount of $11,026 and $15,069 during the three and six months ended June 30, 2023, respectively. There were payments of $12,740 during the six months ended June 30, 2023. As of June 30, 2023, the note had a balance of $630,682 net an unamortized debt discount of $178,618.
On February 24, 2023, the Company entered into a secured promissory note in the principal amount of $1,186,580 for a purchase price of $832,605. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $9,185 through June 2023 and then monthly payments in the amount of $23,955 through June 2027. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on June 24, 2027. There was amortization of debt discount of $15,915 and $22,104 during the three and six months ended June 30, 2023, respectively. There were payments of $18,370 during the six months ended June 30, 2023. As of June 30, 2023, the note had a balance of $910,735 net an unamortized debt discount of $257,475.
| 20 |
On March 1, 2023, the Company entered into a secured promissory note in the principal amount of $635,000. The note is secured by certain assets of the Company. The Company is required to make a payment in the amount of $63,500 on March 15, 2023 and then commencing on April 15, 2023, monthly payments in the amount of $14,138 through March 2027. The note bears an interest rate of 8.5%, is secured by certain assets of the Company, and matures on March 15, 2027. There were payments of $93,985 and $12,154 to principal and interest, respectively, during the six months ended June 30, 2023. As of June 30, 2023, the note had a balance of $541,015 and accrued interest of $3,654.
On April 12, 2023, the Company entered into a secured promissory note in the principal amount of $317,415 for a purchase price of $219,676. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $2,245 through August 2023 and then monthly payments in the amount of $4,315 through July 2027. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on July 12, 2029. There was amortization of debt discount of $3,432 and $3,432 during the three and six months ended June 30, 2023, respectively. As of June 30, 2023, the note had a balance of $223,108 net an unamortized debt discount of $94,307.
The following table details the current and long-term principal due under non-convertible notes as of June 30, 2023.
SCHEDULE OF CURRENT AND LONG TERM PRINCIPAL DUE UNDER NONCONVERTIBLE NOTE
Principal (Current) | Principal (Long Term) | |||||||
| GM Financial (Issued April 11, 2022) | $ | 18,546 | $ | 37,529 | ||||
| Non-Convertible Note (Issued March 8, 2019) | 5,000 | - | ||||||
| Deed of Trust Note (Issued September 1, 2022) | 53,712 | 533,957 | ||||||
| Deed of Trust Note (Issued September 1, 2022) | 53,712 | 533,957 | ||||||
| Equipment Finance Note (Issued April 21, 2022) | 231,120 | 572,800 | ||||||
| Equipment Finance Note (Issued September 14, 2022) | 993,564 | 1,241,955 | ||||||
| Equipment Finance Note (Issued November 28, 2022) | 251,400 | 1,205,994 | ||||||
| Equipment Finance Note (Issued November 28, 2022) | 254,700 | 1,220,420 | ||||||
| Equipment Finance Note (Issued November 28, 2022) | 260,880 | 1,250,060 | ||||||
| Equipment Finance Note (Issued December 15, 2022) | 254,280 | 1,239,625 | ||||||
| Equipment Finance Note (Issued January 10, 2023) | 408,069 | 771,819 | ||||||
| Equipment Finance Note (Issued January 12, 2023) | 193,620 | 960,070 | ||||||
| Equipment Finance Note (Issued February 24, 2023) | 287,460 | 880,750 | ||||||
| Equipment Finance Note (Issued February 23, 2023) | 193,620 | 615,680 | ||||||
| Equipment Finance Note (Issued March 1, 2023) | 169,678 | 371,364 | ||||||
| Equipment Finance Note (Issued April 12, 2023) | 45,570 | 271,845 | ||||||
| Debt Discount | (777,333 | ) | (2,479,851 | ) | ||||
| Total Principal of Non-Convertible Notes | $ | 2,897,598 | $ | 9,227,974 | ||||
| 21 |
Total principal payments due on non-convertible notes for 2023 through 2027 and thereafter is as follows:
SCHEDULE OF PRINCIPAL PAYMENTS DUE ON NON-CONVERTIBLE NOTES
| Year ended December 31, | ||||
| 2023 (remaining) | $ | 1,834,965 | ||
| 2024 | 3,677,652 | |||
| 2025 | 3,512,258 | |||
| 2026 | 2,373,804 | |||
| 2027 | 1,872,716 | |||
| Thereafter | 2,111,361 | |||
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of June 30, 2023 and December 31, 2022, the Company owed accounts payable and accrued expenses of $5,908,450 and $5,035,330, respectively. These are primarily comprised of payments to vendors, accrued interest on debt, and accrued legal bills.
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts Payable | $ | 2,087,383 | $ | 1,548,847 | ||||
| Credit Cards | 308,307 | 206,669 | ||||||
| Accrued Interest | 1,895,040 | 1,708,965 | ||||||
| Accrued Expenses | 1,617,720 | 1,570,849 | ||||||
| Total Accounts Payable and Accrued Expenses | $ | 5,908,450 | $ | 5,035,330 | ||||
NOTE 10 – ACCRUED PAYROLL AND RELATED EXPENSES
The Company is delinquent in filing its payroll taxes, primarily related to stock compensation awards in 2016 and 2017, but also including payroll for 2018, 2019, 2020, and 2021. Additionally, there is accrued payroll for the last three days of the year ended December 31, 2022 and ten days of the quarter ended June 30, 2023. As of June 30, 2023 and December 31, 2022, the Company owed payroll tax liabilities, including penalties, of $4,456,142 and $3,946,411, respectively, to federal and state taxing authorities. The actual liability may be higher or lower due to interest or penalties assessed by federal and state taxing authorities.
NOTE 11 – LEASES
Property Leases (Operating Leases)
The Company leases its facilities and certain automobiles under operating leases which expire on various dates through 2025. The Company determines if an arrangement is a lease at inception and whether it is a finance or operating leases. Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. The ROU asset also includes any fixed lease payments, including in-substance fixed lease payments and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease term is determined at lease commencement and includes any non-cancellable period for which the Company has the right to use the underlying asset, together with any options to extend that the Company is reasonably certain to exercise.
Upon effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $3,492,531 in ROU assets and $3,650,358 in lease liabilities for the leasing of scrap metal yards from an entity controlled by the Company’s Chief Executive Officer. Under the terms of the leases, Empire was required to pay an aggregate of 2,090,000 warrants$145,821 per month from January to purchaseMarch 2022. On April 1, 2022, the Company entered into amendments to the leases for its Kelford and Carrolton yards, increasing the monthly rent payments by an amountaggregate of shares$50,000 per month for use of an automotive shredder and downstream processing system, respectively, being installed on those properties. The Company is required to pay $199,821 per month in rent for these facilities from April to December 2022 and increasing by 3% on January 1st of every year thereafter. On September 1, 2022, the Company terminated the lease for its Portsmouth yard on account of the Company purchasing the land underlying the lease, reducing the lease payment by $11,200 per month. The leases expire on January 1, 2024 and the Company has two options to extend the leases by 5 years per option. In the event the Company does not exercise the options, the leases will continue on a month-to-month basis. The Company cannot sublease any of the properties under the lease agreements.
| 22 |
Upon effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $30,699 in ROU assets and $31,061 in lease liabilities for an office lease. Under the terms of the lease, Empire is required to pay $1,150 per month and increasing by 3% on April 1st of every year beginning on April 1, 2022. The lease expires on March 31, 2024 and Empire was required to make a security deposit of $1,150. The Company does not have an option to extend the lease. The Company cannot sublease the office under the lease agreements.
On October 11, 2021, Empire entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing of the Company’s common stock with an initialVirginia Beach metal recycling location. Under the terms of the leases, Empire is required to pay $9,677 for the prorated first month and $15,000 per month for the facilities beginning November 1, 2021 and increasing by 3% on January 1st of every year thereafter. The leases expire on January 1, 2024 and the Company has two options to extend the leases by 5 years per option. In the event the Company does not exercise pricethe options, the leases will continue on a month-to-month basis. The Company cannot sublease any of $0.50, expiringthe properties under the lease agreements.
On January 24, 2022, the Company entered into leasing agreements for 3,521 square feet of office space commencing upon the completion of tenant improvements which was expected to be on April 1, 2022 but shall be no later than May 1, 2022 (“Commencement Date”). Under the terms of the leases, the Company is required to pay $3,668 for the first twelve months of the lease and increasing by approximately 3% every 12 months thereafter until the expiration of the lease. The lease is for a period of five years from the dateCommencement Date and the Company was required to make a security deposit of issuance.$3,668. The warrants contain certain anti-dilutive (reset) provisions.
On August 17, 2017, upon issuanceCompany does not have an option to extend the lease. The Company cannot sublease any of the secured convertible notesoffice space under the lease agreement.
Effective February 1, 2022, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of Greenwave for the leasing of the Company’s Fairmont metal scrap yard located at 406 Sandy Street, Fairmont, NC 28340. Under the terms of the lease, the Company is required to pay $8,000 per month for the facility beginning February 1, 2022 and warrants,increasing by 3% on January 1, 2023. The lease expires on January 1, 2024 and the Company has determined thattwo options to extend the features associated with the embedded conversion option and reset provisions embedded in the issued warrants, in the form of a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
During the three and nine months ended September 30, 2017, the Company amortized $187,272 of debt discounts to current period interest.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
NOTE 7 – DERIVATIVE LIABILITIES AND FAIR VALUE MEASUREMENTS
lease by 5 years per option. The Company identified conversion features embedded within convertible debt and certain warrants outstanding duringalso has the nine months ended September 30, 2017 and year ended December 31, 2016. The Company has determined that the features associated with the embedded conversion option and exercise prices, in the form of ratchet provisions, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
On March 17, 2016, upon issuance of the secured convertible debentures, the Company has determined that the features associated with the embedded conversion option and reset provisions embedded in the issued warrants, in the form of a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. At the date of inception, the Company estimated the fair value of the embedded derivatives of $1,769,121 using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 112.29%, (3) weighted average risk-free interest rate of 0.47% to 1.04% (4) expected life of 0.05 to 5.00 years, and (5) estimated fair value of the Company’s common stock of $1.04 per share. The estimated fair value of the embedded derivative of $1,769,121 was charged to debt discount up to the net proceeds of $1,420,000 and amortized overextend the term of the debenture withlease for an additional year for the excess chargednext 5 years upon the same terms and conditions. In the event the Company does not exercise the options, the lease will continue on a month-to-month basis. The Company cannot sublease the property under the lease agreement.
Effective October 13, 2022, the Company entered into an office space/land lease agreement for the leasing of 900 Broad Street, Suite C, Portsmouth, VA 23707. Under the terms of the lease, the Company is required to current period interest.
Onpay $4,300 per month for the facility beginning November 1, 2022 and increasing by 3% on January 1, 2023. The lease expires on December 31, 2016, the Company estimated the fair value of the embedded derivatives of $1,301,138 using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 110.39%, (3) weighted average risk-free interest rate of 1.47%, (4) expected life of 4.21 years,2027 and (5) estimated fair value of the Company’s common stock of $1.03 per share.
On January 4, 2017, warrant holders exercised outstanding warrants for 682,668 shares of Common Stock, and as such the Company transferred to estimated fair value of the embedded derivatives of $610,967 from liability to equity. The Company estimated the fair value at the time of exercise using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 110.13%, (3) weighted average risk-free interest rate of 1.94%, (4) expected life of 4.20 years, and (5) estimated fair value of the Company’s common stock of $1.07 per share.
On July 21, 2017, upon issuance of the warrants in connection with the sale of common stock, the Company has determined thattwo options to extend the features associated with the reset provisions embedded in the issued warrants, in the form of a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.lease by 5 years per option. The Company estimatedalso has the fair value of the embedded derivatives of $1,003,870 using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 103.46%, (3) weighted average risk-free interest rate of 1.81% (4) expected life of 5.00 years, and (5) estimated fair value of the Company’s common stock of $0.5687 per share. The estimated fair value of the embedded derivative of $1,003,870 was reclassified from equity at the date of issuance.
On August 17, 2017, upon issuance of the secured convertible notes and warrants, the Company has determined that the features associated with the embedded conversion option and reset provisions embedded in the issued notes and warrants, in the form of a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
The Company estimated the fair value of the embedded derivatives of $798,429 using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 102.73%, (3) weighted average risk-free interest rate of 1.11% to 1.78% (4) expected life of 0.49 to 5.00 years, and (5) estimated fair value of the Company’s common stock of $0.457 per share. The estimated fair value of the embedded derivative of $798,429 together with the issuance costs of $102,500 (aggregate of $900,929) was charged to debt discount and amortized overextend the term of the debenture withlease for an additional year for the excess charged to current period interest.
On September 30, 2017,next 5 years upon the same terms and conditions. In the event the Company estimateddoes not exercise the fair valueoptions, the lease will continue a month-to-month basis. The Company cannot sublease the property under the lease agreement.
Effective January 1, 2023, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of Greenwave for the leasing of the embedded derivativesCompany’s Chesapeake facility located at 101 Freeman Ave, Chesapeake, VA 23324. Under the terms of $1,506,414 using the Binomial Option Pricing Modellease, the Company is required to pay $9,000 per month for the facility beginning January 1, 2023 and increasing by 3% on January 1, 2024. The lease expires on January 1, 2025 and the Company has two options to extend the lease by 5 years per option. The Company also has the option to extend the term of the lease for an additional year for the next 5 years upon the same terms and conditions. In the event the Company does not exercise the options, the lease will continue on a month-to-month basis. The Company cannot sublease the property under the lease agreement.
Automobile Leases (Operating Leases)
Upon effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $26,804 in ROU assets and $18,661 in lease liabilities for an automobile lease. Under the terms of the lease, Empire is required to pay $750 per month until the lease expires on February 18, 2025 and the Company does not have an option to renew or extend. The Company is responsible for any damage to the automobile under the terms of the lease.
| 23 |
Upon effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $34,261 in ROU assets and $27,757 in lease liabilities for an automobile lease. Under the terms of the lease, Empire is required to pay $650 per month until the lease expires on February 15, 2026 and the Company does not have an option to renew or extend. The Company is responsible for any damage to the automobile under the terms of the lease.
On December 23, 2021, Empire entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, Empire was required to pay $18,000 for the first month and $1,000 per month thereafter for 60 months. The lease expires on December 23, 2025 and the Company does not have an option to renew or extend. The Company is responsible to any damage to the automobile under the terms of the lease.
On July 1, 2022, Empire entered into a lease agreement for the leasing of certain equipment. Under the terms of the lease, Empire was required to pay $2,930 per month thereafter for a period of 24 months. The lease expires on July 31, 2024 and the Company does not have an option to renew or extend. The Company is responsible to any damage to the equipment under the terms of the lease.
ROU assets and liabilities consist of the following:
SCHEDULE OF ASSETS AND LIABILITIES
| June 30, 2023 | December 31, 2022 | |||||||
| ROU assets – related party | $ | 1,372,943 | $ | 2,419,338 | ||||
| ROU assets | 511,381 | 590,608 | ||||||
| Total ROU assets | 1,884,324 | 3,009,946 | ||||||
| Current portion of lease liabilities – related party | $ | 1,377,913 | $ | 2,742,140 | ||||
| Current portion of lease liabilities | 204,833 | 232,236 | ||||||
| Long term lease liabilities – related party, net of current portion | 83,430 | - | ||||||
| Long term lease liabilities, net of current portion | 314,008 | 116,262 | ||||||
| Total lease liabilities | $ | 1,980,184 | $ | 3,090,638 | ||||
Aggregate minimum future commitments under non-cancelable operating leases and other obligations at June 30, 2023 were as follows:
SCHEDULE OF NON CANCELABLE OPERATING LEASES AND OTHER OBLIGATIONS
| Year ended December 31, | ||||
| 2023 (remaining) | $ | 1,437,571 | ||
| 2024 | 272,971 | |||
| 2025 | 139,545 | |||
| 2026 | 134,476 | |||
| 2027 | 42,430 | |||
| Total Minimum Lease Payments | $ | 2,026,993 | ||
| Less: Imputed Interest | $ | (46,809 | ) | |
| Present Value of Lease Payments | $ | 1,980,184 | ||
| Less: Current Portion | $ | (1,582,746 | ) | |
| Long Term Portion | $ | 397,438 | ||
The Company leases its facilities, automobiles, and offices under operating leases which expire on various dates through 2027. Rent expense related to these leases is recognized based on the following assumptions: (1) dividend yieldpayment amount charged under the lease. Rent expense for the three months ended June 30, 2023 and 2022 was $776,382 and $698,111, respectively. Rent expense for the six months ended June 30, 2023 and 2022 was $1,490,160 and $1,214,075, respectively. As of 0%, (2) expected volatility of 101.58%, (3)June 30, 2023, the leases had a weighted average risk-free interestremaining lease term of 1.86 years and a weighted average discount rate of 1.20%10%.
| 24 |
NOTE 12 – COMMITMENTS AND CONTINGENCES
From time to 1.92%time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Sheppard Mullin’s Demand for Arbitration
On December 1, 2020, Sheppard, Mullin, Richter & Hampton LLP (“Sheppard Mullin”), (4) expected lifethe Company’s former securities counsel, filed a demand for arbitration at JAMS in New York, New York against the Company, alleging the Company’s breach of 0.39 to 4.90 years,an engagement agreement dated January 4, 2018, and (5) estimated fair valuea failure of the Company’s common stockCompany to pay $487,390.73 of $0.3320 per share.outstanding legal fees to Sheppard Mullin. Sheppard Mullin was awarded $459,251 in unpaid legal fees, disbursements and interest on June 25, 2021. A judgement confirming the arbitration award was entered on September 8, 2021 in the Federal District Court located in Denver, Colorado.
On September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $459,250.88 judgement entered against the Company. Under the terms of the Resolution Agreement, the Company was required to make a $25,000 initial payment by September 30, 2021 and is required to make $15,000 monthly payments from October 2021 to January 2023 with a final $10,000 payment due in February 2023. The Company adoptedhas made the provisions of ASC 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:October 2021 through February 2023 monthly payments.
All items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.NOTE 13 – STOCKHOLDERS’ EQUITY
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price of the underlying common stock of the Company.
As of September 30, 2017 and December 31, 2016, the Company did not have any derivative instruments that were designated as hedges.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
Items recorded or measured at fair value on a recurring basis in the accompanying financial statements consisted of the following items as of September 30, 2017 and December 31, 2016:
| September 30, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||
| Derivative liability | $ | 1,506,414 | $ | — | $ | — | $ | 1,506,414 | |||||||||
| December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||
| Derivative liability | $ | 1,301,138 | $ | — | $ | — | $ | 1,301,138 | |||||||||
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2017:
| Balance, January 1, 2017 | $ | 1,301,138 | ||
| Transfers in due to issuance of liability warrants in connection with sale of common stock | 1,003,870 | |||
| Transfers in due to issuance of convertible notes and warrants with embedded conversion and reset options | 798,431 | |||
| Transfers out due to warrant exercise | (610,967 | ) | ||
| Mark to market to September 30, 2017 | (986,058 | ) | ||
| Balance, September 30, 2017 | $ | 1,506,414 | ||
| Gain on change in warrant liabilities for the nine months ended September 30, 2017 | $ | 986,058 |
Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.
NOTE 8 – CAPITAL STOCK
Preferred Stock
The Company is authorized to issue 21 Series A preferred shares at $1.00 par value per share with 1:1 conversion and voting rights. As of September 30, 2017 and December 31, 2016, there were no shares of Series A preferred shares issued and outstanding.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited
Common Stock
The Company is authorized to issue 200,000,000 shares of itsblank check preferred stock, par value $ per share.
Series Z
On September 30, 2021, the Company authorized the issuance of shares of Series Z Preferred Stock, par value $ per share. The Series Z Preferred Stock has a $ stated value per share and all Series Z preferred shares, in aggregate, are convertible into 19.98% of the issued and outstanding common shares of the Company (post conversion). The conversion rate is applicable on a pro rata basis to each share of Series Z Preferred Stock upon conversion. This anti-dilutive conversion feature is in effect until such time an S-1 Registration Statement is declared effective by the SEC in conjunction with a NASDAQ listing. The Company credited additional paid in capital $7,237,572 for a deemed dividend for the trigger of a price protection provision in the Series Z Preferred Stock upon uplisting to NASDAQ.
As of June 30, 2023 and December 31, 2022, there were and shares of Series Z Preferred Stock issued and outstanding.
On January 23, 2023, shares of Series Z Preferred Stock were converted into shares of common stock.
Common Stock
The Company is authorized to issue shares of common stock, at $0.001 par value $per share.
During the six months ended June 30, 2023, the Company issued shares of common stock for the conversion of 72 shares of Series Z Preferred Stock.
As of SeptemberJune 30, 2017,2023 and December 31, 2022, there were 111,326,981 and shares, respectively, of common stock issued and outstanding and 1,551,217 shares of common stock to be issued. As of December 31, 2016, there were 71,908,370 shares of common stock issued and outstanding and 1,740,000 shares of common stock to be issued.outstanding.
The following common stock transactions were recorded during the nine months ended September 30, 2017:
During the nine months ended September 30, 2017, the Company issued an aggregate of 22,745,898 shares of its common stock for services valued at $14,204,255.
During the nine months ended September 30, 2017, the Company sold 2,394,000 shares of its common stock and warrants for net proceeds of $1,198,000.
During the nine months ended September 30, 2017, the Company issued an aggregate of 41,153 shares for its common stock for cashless exercise of common stock options.
During the nine months ended September 30, 2017, the Company issued an aggregate of 355,689 shares of its common stock for the cashless exercise of common stock warrants.
During the nine months ended September 30, 2017, the Company issued an aggregate of 1,081,000 shares of its common stock in settlement of $108,100 of convertible debt.
During the nine months ended September 30, 2017, the Company issued an aggregate of 6,933,041 shares of its common stock for exercise of common stock warrants. Net proceeds were $4,753,196.
During the nine months ended September 30, 2017, the Company issued an aggregate of 2,926,830 shares of its common stock to acquire DDDigtal (Note 1).
During the nine months ended September 30, 2017, the Company issued an aggregate of 3,250,000 shares of its common stock to acquire Odava (Note 1).
NOTE 9 – WARRANTS
Warrants outstanding and exercisable at September 30, 2017 are as follows:
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||
| Weighted | |||||||||||||||
| Average | Exercisable | ||||||||||||||
| Exercise | Number of | Remaining Life | Number of | ||||||||||||
| Price | Warrants | In Years | Warrants | ||||||||||||
| $ | 0.50 | 3,056,670 | 4.42 | 3,056,670 | |||||||||||
| 0.60 | 50,000 | 2.52 | 50,000 | ||||||||||||
| 0.65 | 2,364,000 | 4.81 | 2,364,000 | ||||||||||||
| 0.83 | 100,000 | 3.30 | 100,000 | ||||||||||||
| 0.90 | 5,070,002 | 1.97 | 5,070,002 | ||||||||||||
| 1.00 | 670,000 | 0.22 | 670,000 | ||||||||||||
| 1.06 | 146,200 | 1.23 | 146,200 | ||||||||||||
| 3.00 | 407,475 | 1.11 | 407,475 | ||||||||||||
| 11,864,347 | 3.04 | 11,864,347 | |||||||||||||
| 25 |
MASSROOTS, INC.NOTE 14 – WARRANTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
A summary of the warrant activity for the ninethree months ended SeptemberJune 30, 20172023 is as followsfollows:
SCHEDULE OF WARRANT ACTIVITY
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2022 | 9,757,710 | $ | 5.61 | $ | 635 | |||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Canceled/Exchanged | (834 | ) | $ | 0.12 | ||||||||||||
| Outstanding at June 30, 2023 | 9,756,876 | $ | 5.61 | $ | - | |||||||||||
| Exercisable at June 30, 2023 | 9,756,876 | $ | 5.61 | $ | - | |||||||||||
| Weighted-Average | ||||||||||||||||
| Weighted-Average | Remaining | Aggregate | ||||||||||||||
| Shares | Exercise Price | Contractual Term | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2016 | 15,448,056 | $ | 0.81 | 2.4 | 4,225,936 | |||||||||||
| Grants | 4,484,000 | 0.58 | — | |||||||||||||
| Exercised | (7,248,668 | ) | 0.68 | |||||||||||||
| Expired | (819,041 | ) | 0.48 | |||||||||||||
| Outstanding at September 30, 2017 | 11,864,347 | $ | 0.83 | 3.0 | $ | — | ||||||||||
| Vested and expected to vest at September 30, 2017 | 11,864,347 | $ | 0.83 | 3.0 | $ | — | ||||||||||
| Exercisable at September 30, 2017 | 11,864,347 | $ | 0.83 | 3.0 | $ | — | ||||||||||
| Exercise Price | Warrants Outstanding | Weighted Avg. Remaining Life | Warrants Exercisable | |||||||||||
| $ | 5.50 | 9,238,816 | 9,238,816 | |||||||||||
| 518,060 | 518,060 | |||||||||||||
| 9,756,876 | 9,756,876 | |||||||||||||
The aggregate intrinsic value of outstanding stock warrants was $0,$0 based on warrants with an exercise price less than the Company’s stock price of $0.332$ as of SeptemberJune 30, 2017,2023 which would have been received by the warrant holders had those warrant holders exercised theirthe warrants as of that date.
On July 21, 2017, upon the sale of the Company’s common stock, the Company issued 2,394,000 warrants to purchase the Company’s common stock at $0.65 per share, exercisable through July 21, 2022. These warrants contain certain anti-dilutive (reset) provisions (See Note 7).
On August 24, 2017, in connection with the issuance of convertible notes, the Company granted to the same investors five year warrants to purchase an aggregate of 2,090,000 shares of the Company’s common stock at $0.50 per share. The warrants may be exercised any time after the issuance through and including the fifth (5th) anniversary of its original issuance. These warrants contain certain anti-dilutive (reset) provisions (See Note 7).
NOTE 1015 – EMPLOYEE EQUITY INCENTIVE PLANSSTOCK OPTIONS
The Company’s shareholdersOur stockholders approved our 2014 Equity Incentive Plan in June 2014 (the “2014 Plan”), our 2015 Equity Incentive Plan in December 2015 (the “2015 Plan”), our 2016 Equity Incentive Plan (“2016 Plan”) in October 2016 and(“2016 Plan”), our 2017 Equity Incentive Plan in December 2016 (“2017 Plan”), our 2018 Equity Incentive Plan in June 2018 (the “2018 Plan”), our 2021 Equity Incentive Plan in September 2021 (the “2021 Plan” and together with the 2014 Plan, 2015 Plan, and 2016 Plan, 2018 Plan, the “Prior Plans”), and our 2022 Equity Incentive Plan in November 2022 (“2022 Plan” , and together with the Prior Plans, the “Plans”). The Plans are identical, except for the number of shares reserved for issuance under each. As of SeptemberJune 30, 2017,2023, the Company had granted an aggregate of 37,950,282 securities under the plans,Plans since inception, with 2,150,149 shares available for future issuances. The Company made no grants under the plans during the three months ended June 30, 2023.
The Plans provide for the grant of incentive stock options to our employees and our parent and subsidiary corporations’subsidiaries’ employees, and for the grant of non-statutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. OurThe Prior Plans also provide that the grant of performance stock awards may be paid out in cash as determined by the Committee.committee administering the Prior Plans.
During the nine months ended September 30, 2017, the Company granted options to purchase 2,854,000 shares of common stock for ten years. The fair value of $2,054,521, was determined using the Black-Scholes Option Pricing Model, assuming approximately 1.81% to 2.35% risk-free interest, 0% dividend yield, 103.66% to 110.16% volatility, and expected life of five to ten years and will be charged to operations over the vesting terms of the options.
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
The summary terms of the issuances are as follows:
| Exercise | Number of | Vesting | ||||||
| Price | Options | Terms | ||||||
| $ | 0.50 | 80,000 | Immediately | |||||
| 0.50 | 100,000 | Quarterly over one year | ||||||
| 0.50 | 605,000 | Quarterly over two years | ||||||
| 0.81 | 5,000 | Immediately | ||||||
| 0.82 | 150,000 | Quarterly over two years | ||||||
| 0.85 | 150,000 | Quarterly over one year | ||||||
| 0.87 | 125,000 | Immediately | ||||||
| 0.89 | 425,000 | Monthly over one year | ||||||
| 0.89 | 90,000 | Quarterly over two years | ||||||
| 0.95 | 400,000 | Quarterly over two years | ||||||
| 0.98 | 24,000 | Monthly over two years | ||||||
| 1.05 | 50,000 | Immediately | ||||||
| 1.05 | 95,000 | Monthly over two years | ||||||
| 1.05 | 60,000 | Monthly over one year | ||||||
| 1.06 | 60,000 | Monthly over one year | ||||||
| 1.07 | 110,000 | Monthly over one year | ||||||
| 1.07 | 325,000 | Monthly over two years | ||||||
| 0.83 | 2,854,000 | |||||||
On June 21, 2017, the Company accelerated vesting of 5,000,000 options to fully vesting. As a result, the Company charged $2,544,741 to operations during the nine months ended September 30, 2017.
Stock options outstanding and exercisable on September 30, 2017 are as follows:
| Exercise | Number of | Remaining Life | Number of | |||||||||||
| Price | Options | In Years | Options Exercisable | |||||||||||
| $ | 0.10 | 1,056,786 | 6.68 | 806,786 | ||||||||||
| 0.50 | 689,631 | 7.99 | 689,631 | |||||||||||
| 0.51 | 1,891,779 | 9.02 | 1,891,779 | |||||||||||
| 0.60 | 105,000 | 7.53 | 105,000 | |||||||||||
| 0.77 | 758,331 | 9.20 | 683,331 | |||||||||||
| 0.80 | 145,000 | 8.30 | 145,000 | |||||||||||
| 0.81 | 5,000 | 9.45 | 5,000 | |||||||||||
| 0.82 | 37,500 | 9.46 | 37,500 | |||||||||||
| 0.85 | 150,000 | 9.42 | 75,000 | |||||||||||
| 0.86 | 5,204,165 | 9.22 | 5,204,165 | |||||||||||
| 0.87 | 125,000 | 9.48 | 125,000 | |||||||||||
| 0.89 | 577,500 | 9.28 | 285,000 | |||||||||||
| 0.90 | 1,745,413 | 8.20 | 1,745,413 | |||||||||||
| 0.95 | 125,000 | 9.38 | 125,000 | |||||||||||
| 0.98 | 24,000 | 9.32 | 8,000 | |||||||||||
| 1.00 | 837,494 | 8.22 | 837,494 | |||||||||||
| 1.05 | 430,838 | 8.66 | 415,838 | |||||||||||
| 1.06 | 30,000 | 9.35 | 30,000 | |||||||||||
| 1.07 | 168,326 | 9.28 | 164,993 | |||||||||||
| 14,106,763 | 8.77 | 13,379,930 | ||||||||||||
MASSROOTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
A summary of the stock option activity for the nine months ended September 30, 2017:
| Weighted-Average | ||||||||||||||||
| Weighted-Average | Remaining | Aggregate | ||||||||||||||
| Shares | Exercise Price | Contractual Term | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2016 | 14,824,158 | 0.52 | 9.37 | $ | 4,566,717 | |||||||||||
| Grants | 2,854,000 | 0.50 | 9.71 | — | ||||||||||||
| Exercised | (522,428 | ) | 0.16 | |||||||||||||
| Forfeiture/Canceled | (3,048,967 | ) | $ | 0.73 | — | |||||||||||
| Outstanding at September 30, 2017 | 14,106,763 | $ | 0.76 | 8.77 | $ | 245,174 | ||||||||||
| Exercisable at September 30, 2017 | 13,379,930 | $ | 0.76 | 8.79 | $ | 187,174 | ||||||||||
The aggregate intrinsic value of outstanding stock options was based on options with an exercise price less than the Company’s common stock price of $0.332 as of September 30, 2017, which would have been received by the option holders had those option holders exercised their options as of that date.
Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option pricing model with a volatility figure derived from historical data. The Company accounts for the expected life of options based on the contractual life of the options.
There were no options issued during the six months ended June 30, 2023.
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SCHEDULE OF STOCK OPTION ACTIVITY
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2022 | 92,166 | $ | 148.11 | $ | - | |||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeiture/Cancelled | - | |||||||||||||||
| Outstanding at June 30, 2023 | 92,166 | $ | 148.11 | $ | - | |||||||||||
| Exercisable at June 30, 2023 | 92,166 | $ | 148.11 | $ | - | |||||||||||
| Exercise Price | Number of Options | Remaining Life In Years | Number of Options Exercisable | |||||||||||
| $ | - | 44,368 | 44,368 | |||||||||||
| - | 6,476 | 6,476 | ||||||||||||
| - | 6,079 | 6,079 | ||||||||||||
| - | 33,133 | 33,133 | ||||||||||||
| - | 2,110 | 2,110 | ||||||||||||
| 92,166 | 92,166 | |||||||||||||
The aggregate intrinsic value of outstanding stock options was $, based on options with an exercise price less than the Company’s stock price of $ as of June 30, 2023, which would have been received by the option holders had those option holders exercised their options as of that date.
The fair value of all options vestingthat vested during the ninethree months ended SeptemberJune 30, 20172023 and 20162022 was $ and $, respectively. The fair value of $5,678,272all options that vested during the six months ended June 30, 2023 and $1,974,710,2022 was $ and $, respectively. Unrecognized compensation expense of $286,153 at September$0 as of June 30, 20172023 will be expensed in future periods.
NOTE 16 – RELATED PARTY TRANSACTIONS
On January 1, 2023, the Company entered into a lease agreement for the Company’s Chesapeake location with an entity controlled by the Company’s Chief Executive Officer. Under the terms of the lease agreement, the Company pays $9,000 per month in rent, increasing 3% on January 1st of each year. The lease expires on January 1, 2025 and the Company has two options to extend the lease by a term of five years per option.
As of June 30, 2023, the Company leases 13 scrap yard facilities by an entity controlled by the Company’s Chief Executive Officer, including the lease for the Chesapeake location described above. During the three and months ended June 30, 2023, the Company had a rent expense of $675,051 and $1,350,103, respectively to an entity controlled by the Company’s Chief Executive Officer. Further, during the three and six months ended June 30, 2023, an entity controlled by the Company’s Chief Executive Officer made an insurance down payment of $105,000 and debt payments of $189,615 on behalf of the Company. As of June 30, 2023 and December 31, 2022, the Company owed $1,925,970 and $317,781, respectively, in accrued rent and reimbursements to an entity controlled by the Company’s Chief Executive Officer. See Note 11 – Leases.
NOTE 1117 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date but before the unaudited condensed consolidated financial statements are issued.
On July 12, 2023, J. Bryan Plumlee resigned from the Company’s Board of Directors.
On July 12, 2023, the Company appointed Henry Sicignano III to its Board of Directors.
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On July 3, 2023, the Company closed a bridge financing in the principal amount of $1,031,250 for a purchase price of $825,000 with certain accredited investors.
On October 4, 2017 and October 5, 2017,July 28, 2023, the Company issued shares of common stock to the Company’s Chief Executive Officer for the exchange of shares of Series Z preferred stock. On August 1, 2023, the Company filed a Certificate of Elimination to retire the class of Series Z preferred stock.
On July 31, 2023, the Company entered into a SimplePurchase Agreement for Future Tokens with two accreditedcertain institutional investors relating to the future right to purchase $25,000 and $100,000 in units of a cryptographic token (a “Token”), respectively, at a discount, ifas purchasers whereby, the Company conducts a public salesold, and the investors purchased, approximately $15,000,000, which consisted of its Tokens. Pursuant toapproximately $13,968,750 in cash and $1,031,250 of existing debt of the agreements,Company which was exchanged for the notes and warrants issued in this offering in principal amount of senior secured convertible notes and warrants. The transaction closed on August 1, 2023. The Senior Notes were issued with an original issue discount of 16.67%, do not bear interest, unless in the event of an event of default, in which case the notes bear interest at the rate of 18% per annum until such default has been cured, and mature after 24 months, on July 31, 2025. The Company conducts such a public salewill pay to the Investors an aggregate of its Tokens, it will automatically issue to each investor a number of Tokens equal to such investor’s investment, based$1,000,000 per month beginning on a rate that is fifty percent (50%)the last business day of the price per Token insixth (6th) full calendar month following the public sale. In the event the Company sells Tokens in the public sale at different prices, each investor’s Tokens shall be determined based on the most advantageous rate publicly marketed.
On October 5, 2017, the Company issued 394,858 shares of its common stock to a member of the Board of Directors in connection with a cashless exercise of 443,214 shares pursuant to a Stock Option Agreement, dated June 4, 2014.issuance thereof. The sharesSenior Notes are reflected as shares to be issued as of September 30, 2017 (See Note 8).
On October 5, 2017, the Company issued 45,000 shares to a former employee for services rendered. The shares are reflected as shares to be issued as of September 30, 2017 (See Note 8).
On October 17, 2017, the Company issued stock certificates for, in the aggregate, 349,000 shares of its common stock which had been sold in connection with an offering of up to $2,000,000 of its common stock and warrants conducted in July 2017, and closed on July 21, 2017. Such shares were inadvertently not issued following such closing. One of the stock certificates noted above was issued for 70,000convertible into shares of the Company’s common stock, but should have been issued for 30,000 shares, sopar value $ per share (“Common Stock”), at a conversion price per share of $1.50, subject to adjustment under certain circumstances described in the Senior Notes. To secure its obligations thereunder and under the Purchase Agreement, the Company will rescind 40,000has granted a security interest over substantially all of such shares.its assets to the collateral agent for the benefit of the Investors, pursuant to a security agreement and a related trademark security agreement. The 309,000Company has the option to redeem the Senior Notes at a 10% redemption premium. The maturity date of the Senior Notes also may be extended by the holders under circumstances specified therein. Danny Meeks, the Company’s Chief Executive Officer, and the Company’s subsidiaries each guaranteed the Company’s obligations under the Senior Notes. The Warrants are exercisable for five (5) years to purchase an aggregate of 4,420,460 shares (which does not includeof Common Stock at an exercise price of $0.01, subject to adjustment under certain circumstances described in the 40,000Warrants.
From August 1 to 3, 2023, the Company retired all outstanding merchant cash advances and made a principal payment of $2,000,000 on its equipment debt.
On July 31, 2023, the Company entered into a Bill of Sale with an entity wholly-owned by Danny Meeks, the Company’s Chief Executive Officer, pursuant to which the Company agreed to purchase certain assets held by DWM in exchange for the issuance of a secured promissory note to DWM in an aggregate principal amount equal to $17,218,350.
On August 7, 2023, the Company issued shares of common stock issued in error) are reflected as sharespursuant to be issued asits 2022 Employee Stock Option Plan.
On August 7, 2023, the Company appointed Jason Adelman to its Board of September 30, 2017 (See Note 8).Directors.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our unauditedcondensed consolidated financial statements and related notes contained in Part I, Item 1 of this Quarterly Report. Please also refer to the Note About Forward Looking Statementsnote about forward-looking information for information on such statements contained in this Quarterly Report immediately preceding Part I, Item 1.
Overview
MassRoots, Inc. is a Delaware corporationWe were formed on April 24, 2013. Our principal place of business is located at 1624 Market Street, Suite 201, Denver, CO 80202, our telephone number is (833) 467-6687 and our corporate website is www.MassRoots.com/Investors.
As discussed in the Notes to the Financial Statements, the Company has experienced recurring losses and negative cash flows from operations since inception. We have relied on equity financing to fund operations. There can be no guarantee that we will ever become profitable, or that adequate additional financing will be realized in the future or otherwise may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our development efforts. We will need to generate significant revenues to achieve profitability and we may never do so. These factors raise substantial doubt about the Company’s ability to continue as a going concern. We have been implementing our strategic plan, as set forth below, on which we believe we will be able to continue operations and become profitable in the future.
MassRoots was formed in April26, 2013 as a technology platform developer under the name MassRoots, Inc. In October 2021, we changed our corporate name from “MassRoots, Inc.” to “Greenwave Technology Solutions, Inc.” On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 13 metal recycling facilities and 1 metal processing facility in Virginia, North Carolina, and Ohio. The acquisition was deemed effective October 1, 2021 on the effective date of the Certificate of Merger in Virginia.
In December 2022, we began offering hauling services to corporate clients. We haul sand, dirt, asphalt, metal, and other materials in a fleet of approximately 50 trucks which we own, manage, and maintain.
Upon the acquisition of Empire, we transitioned into the scrap metal industry which involves collecting, classifying and processing appliances, construction material, end-of-life vehicles, boats, and industrial machinery. We process these items by crushing, shearing, shredding, separating, and sorting, into smaller pieces and categorize these recycled ferrous, nonferrous, and mixed metal pieces based on density and metal prior to sale. In cases of scrap cars, we remove the catalytic converters, aluminum wheels, and batteries for separate processing and sale prior to shredding the medical cannabis communityvehicle. We have designed our systems to maximize the value of metals produced from this process.
We operate an automotive shredder at our Kelford, North Carolina location and overa second automotive shredder at our Carrollton, Virginia is expected to come online in the past four years, has empowered overthird quarter of 2023. Our shredders are designed to produce a million cannabis consumersdenser product and, in concert with advanced separation equipment, more refined recycled ferrous metals, which are more valuable as they require less processing to produce recycled steel products. In totality, this process reduces large metal objects like auto bodies into baseball-sized pieces of shredded recycled metal.
The shredded pieces are then placed on a conveyor belt under magnetized drums to separate the knowledge they needferrous metal from the mixed nonferrous metal and residue, producing consistent and high-quality ferrous scrap metal. The nonferrous metals and other materials then go through a number of additional mechanical systems which separate the nonferrous metal from any residue. The remaining nonferrous metal is further processed to shape local, statesort the metal by type, grade, and corporate cannabis policies while making educated cannabis decisions within regulated markets. quality prior to being sold as products, such as zorba (mainly aluminum), zurik (mainly stainless steel), and shredded insulated wire (mainly copper and aluminum).
In July 2017,2023, Greenwave commenced operation of a downstream processing system at its Kelford, NC location, enabling the Company to recover millimeter-minus pieces of metal from the Company’s automotive shred residue or, “fluff,” as it is known in the industry. Greenwave is on track to generate additional high-margin revenues of several hundred thousand dollars of revenue per month from the sale of metals recovered by the downstream system. As Greenwave continues to optimize the operation of its downstream processing system, and brings a copper extraction component online, the Company could be able to increase its recovery yields.
One of our main corporate priorities is to open a facility with rail or deep-water port access to enable us to efficiently transport our products to domestic steel mills and overseas foundries. Because this would greatly expand the number of potential buyers of our processed scrap products, we mergedbelieve opening a facility with Odava,port or rail access could result in an increase in both the revenue and profitability of our existing operations.
Empire is headquartered in Chesapeake, Virginia and has 144 full-time employees as of August 14, 2023.
Competitors
We compete with other metal recycling facility operators, such as Schnitzer Steel Industries, Inc. (“Odava”),(NASDAQ:SCHN) and shiftedare focused on utilizing technology to create operating efficiencies and competitive advantages over our focus to providing compliance technology for cannabis businesses to run their business more efficiently, submit reports to state regulators,peers. We also compete with regional hauling companies.
Products and build loyalty amongst consumersServices
Our main product is selling ferrous metal, which is used in their local neighborhoods.
Our platformthe recycling and production of finished steel. It is categorized into heavy melting steel, plate and structural, and shredded scrap, with various grades of each of those categorized based on the heartcontent, size and consistency of the cannabis industry ecosystem -- connecting dispensary operators, cultivators, cannabis consumers,metal. All of these attributes affect the metal’s value.
We also process nonferrous metals such as aluminum, copper, stainless steel, nickel, brass, titanium, lead, alloys and regulatory agencies inmixed metal products. Additionally, we sell the catalytic converters recovered from end-of-life vehicles to processors which extract the nonferrous precious metals such as platinum, palladium and rhodium.
We provide metal recycling services to a closed-loop environment with compliance at the core. We are currently available to dispensarieswide range of suppliers, including large corporations, industrial manufacturers, retail customers, and cultivators in the State of Oregon, and dispensaries are able to submit data to state regulators on a daily basis. Over the coming quarters, we plan to expand our regulatory compliance platform to the Alaska, Colorado, Maryland, Florida and California markets.government organizations.
MassRoots and Odava’s Value Proposition to State Regulators
Through our point-of-sale software, we enable dispensary operators to easily record sales, track inventory, and submit this data with state regulatory agencies on a daily basis. This provides regulators with a fully transparent snapshot of the entire cannabis supply chain with millions of data points, updated daily, which they can utilize to detect potential illegal diversion and ensure compliance with state regulations.
As part of our point-of-sale solution, weWe also provide an ID scannerhauling services to determine whether patientscorporate clients, hauling sand, asphalt, metal and other materials to job sites.
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Pricing and Customers
Prices for our ferrous and nonferrous products are over the age 18 or 21, depending on the state or local laws and regulations. Utilizing the same database of Department of Motor Vehicles information utilized by mainstream brands, IDs are checked against DMV databases in 46 states and provides the highest-level of age authentication publicly available, although such age confirmations may not always be correct.
We believe that by providing the software that makes the cannabis industry as compliant and transparent as possible, we will contribute to the acceleration of the spread of legal and regulated cannabis markets. We believe that the vast majority of prohibitionist policies are formulated based on incorrect dataprevailing market rates and preconceptionsare subject to market cycles, worldwide steel demand, government regulations and policy, and supply of products that can be objectively proven false.processed into recycled steel. Our main buyers adjust the prices they pay for scrap metal products based on market rates usually on a monthly or bi-weekly basis. We are usually paid for the scrap metal we deliver to customers within 14 days of delivery.
MassRoots’ and Odava’s Value Proposition to Dispensary Operators
The Odava Retail Platform is available to dispensary operatorsBased on any price changes from our customers or our other buyers, we in Oregon as a paid software-as-a-service platformturn adjust the price for unprocessed scrap we pay suppliers in order to manage their point-of-sale, compliancethe impact on our operating income and loyalty program operations. Our software streamlines dispensary operations and work flows, while enabling seamless interaction with their customers through the MassRoots App.cashflows.
MassRoots’ and Odava’s Value Proposition to Users
MassRoots helps provide cannabis consumers with the information they need to influence local, state, and corporate cannabis policies, while staying better connected with dispensaries in their local areas. Cannabis consumers can view previous order history at local dispensaries, see which strains and products dispensaries have in stock, while receiving updates of legalization-related events happening in their local communities.
MassRoots’ and Odava’s Value Proposition to Investors
As a technology company, the MassRoots platform is able to rapidly scale with minimal marginal costs – each additional dispensary, user of our mobile application or cultivator that we add costs negligible server hosting fees. Our business model gives us exposure to every regulated cannabis market without establishing a physical presence in each state. This minimizes required capital while, at the same time, offering a direct role in the cannabis industry without ever touching the plant itself.
The Team
MassRoots has 6 full-time employees working at our headquarters in downtown Denver, Colorado, along with several outside contractors building out the technology platform.
2017 Elections
On November 7, 2017, voters in New Jersey and Virginia elected pro-legalization Governors who have both said they will move quickly to enact legislation that decriminalizes or legalizes marijuana in their States. This is in addition to a bevy of other positive news for marijuana reformers with the elections in Georgia, Ohio, Philadelphia, Detroit and New York. This comes on the heels of the 2016 elections where California, Nevada, Maine and Massachusetts voted to regulate the production and sale of cannabis for recreational purposes while Florida, North Dakota, Arkansas and Montana voters authorized its medical use.
Our business model is designed to benefit from this trend. When a new state passes a medical or recreational cannabis law,spread we are able to start registering usersrealize between the sales prices and businesses in that state with minimal incremental cost. Because MassRootsthe cost of purchasing scrap metal is not involveddetermined by a number of factors, including transportation and processing costs. Historically, we have experienced sustained periods of stable or rising metal selling prices, which allow us to manage or increase our operating income. When selling prices decline, we adjust the prices we pay customers to minimize the impact to our operating income.
Prices for hauling services are primarily based on the current demand and range from $85 to $120 per hour.
Sources of Unprocessed Metal
Our main sources of unprocessed metal we purchase are end-of-life vehicles, old equipment, appliances and other consumer goods, and scrap metal from construction or manufacturing operations. We acquire this unprocessed metal from a wide base of suppliers including large corporations, industrial manufacturers, retail customers, and government organizations who unload their metal at our facilities or we pick it up and transport it from the supplier’s location. Currently, our operations and main suppliers are located in the production or saleHampton Roads and northeastern North Carolina markets. In the second quarter of cannabis,2023, we do not have to build out-groware expanding our operations open retail stores, or haveby opening a significant physical presencemetal recycling facility in Cleveland, Ohio.
Our supply of scrap metal is influenced by overall health of economic activity in the stateUnited States, changes in orderprices for recycled metal, and, to generate revenue. At the same time, MassRoots’ financial model is not tied to the success of a particular location or brand—we believe we will have a significant percentage of all dispensaries and brands on our platform, making MassRoots a play on the industry as a whole.
Sitting at the intersection of healthcare on the medical cannabis side and a nascent industry on the recreational cannabis side, we believe the cannabis industry can continue to grow in any economic climate.
German Trading
The Company was made aware that its Common Stock has been trading on the Stuttgart Exchange and München Exchange in Germany, both under the ticker symbol 2R1. On November 10, 2017, the stock price closed at €0.157 on the Stuttgart Exchange and at €0.153 on the München Exchange.
Competition
As more of our localized advertising features come online throughout 2017, we are competing with dispensary locators and strain guides,lesser extent, seasonal factors such as WeedMaps and Leafly, for dispensaries’ advertising budgets. Odava competes with cannabis seed-to-sale technology platforms such as MJ Freeway, BioTrack THC, Greenbits, Flowhub, and Treez. We believe the cloud-based infrastructure of our platform, its ease-of-use, the potential for automatic API integrations and dynamic regulatory compliance engine present a significantly higher value proposition than our competitors. severe weather conditions, which may prohibit or inhibit scrap metal collection.
Results of Operations forFor the Three Months Ended SeptemberJune 30, 2017 as Compared to the Three Months Ended September 30, 20162023 and 2022
| Three Months Ended September 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Revenues: | $ | 11,516 | $ | 209,003 | $ | (197,487 | ) | (95 | )% | |||||||
| Total operating expense | 7,533,530 | 2,094,211 | 5,439,319 | 260 | % | |||||||||||
| Loss from operations | (7,522,014 | ) | (1,885,208 | ) | (5,636,806 | ) | 299 | % | ||||||||
| Total other income (expense): | 444,948 | (1,567,456 | ) | 2,012,404 | 128 | % | ||||||||||
| NET LOSS | $ | (7,077,066 | ) | $ | (3,452,664 | ) | $ | (3,624,402 | ) | 105 | % | |||||
| For the three months ended June 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 9,416,274 | $ | 10,704,151 | $ | (1,287,877 | ) | (12.03 | )% | |||||||
| Gross Profit | 3,298,854 | 4,065,758 | (766,904 | ) | (18.86 | )% | ||||||||||
| Operating Expenses | 5,389,131 | 5,029,513 | 359,618 | 7.15 | % | |||||||||||
| Loss from Operations | (2,090,277 | ) | (963,755 | ) | (1,126,522 | ) | 116.89 | % | ||||||||
| Other Expense | (174,785 | ) | (13,171,392 | ) | 12,996,607 | (98.67 | )% | |||||||||
| Net Loss | $ | (2,265,062 | ) | $ | (14,135,147 | ) | $ | 11,870,085 | (83.98 | )% | ||||||
Revenues
For the three months ended SeptemberJune 30, 2017 and 2016,2023, we generated $9,416,274 in revenues, of $11,516 and $209,003, respectively, aas compared to $10,704,151 during the same period in 2022, decrease of $197,487. Of$1,287,877. This decrease was primarily due to a decline in metal prices. The $9,416,274 in revenue includes $41,590 in rental income, $7,124,618 in revenue generated from the $11,516sale of metal, $2,239,184 generated from hauling services, and $10,882 in miscellaneous revenue, including from the three months ended September 30, 2017, all was made upsale of advertising revenue relatedgas from scrap cars.
Our cost of revenues decreased to the MassRoots network. The decrease in revenues$6,117,420 for the three months ended SeptemberJune 30, 20172023 from $6,638,393 during the same period in 2022, a decline of $520,973, primarily due to a decline in metal prices.
Our gross profit was $3,298,854 during the three months ended June 30, 2023, a decrease of $766,904 from $4,065,758 during the same period in 2022 primarily caused bydue to the addition of a lack of revenues fromnew hauling business line, whose margins were smaller than margins realized on metal in 2022. Gross margins were 35% and 38% during the 420 Rally being generated in 2017.six months ended June 30, 2023 and 2022, respectively
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Operating Expenses
For the three months ended SeptemberJune 30, 20172023 and 2016,2022, our operating expenses were $7,533,530$5,389,131 and $2,094,211,$5,029,513 respectively, an increase of $5,439,319. For$359,618. There was a decrease in payroll and related expenses of $94,361 as payroll and related expenses were $1,497,279 for the three months ended SeptemberJune 30, 2017, these increases were mainly attributed to increased stock-based compensation to our employees and key consultants which, for 2017 was $5,510,5542023 as compared to $613,353$1,591,640 for the same period last year (a non-cash increasein 2022 which was primarily the result of $4,897,201). In addition we incurred additional consulting and other service provider fees and increases in payroll and payroll-related expenditures as we expanded our business.
Other Income (Expense)
Forthe Company’s Chief Executive Officer waiving his quarterly bonus. Advertising expense decreased by $33,742 to $10,329 for the three months ended SeptemberJune 30, 2017 and 2016,2023 as compared to $44,071 for the same period in 2022 as the Company recorded interest expensefocused on operations. Depreciation of $189,125 and $2,573,814, respectively. Asfixed assets, along with amortization of September 30, 2017, we had outstanding $1,095,000 in convertible notes. Forintangible assets, increased by $409,117 to $1,350,728 for the three months ended SeptemberJune 30, 2017 and 2016,2023 from $941,611 in 2022 as a result of the Company realized gains related toacquiring more fixed assets during the fair value mark to market adjustmentsfall of its derivative liabilities2022. There were hauling and equipment maintenance costs of $634,073 and $1,006,358, respectively. The derivative liabilities are caused by certain price protections included in the notes and warrants issued as part of the Company’s convertible debt and common stock offering. For the three months ended September 30, 2017 and 2016, the Company recorded amortization of discount on notes payable of $187,272 and $676,617, respectively, included in the interest discussion above. In addition,$569,416 during the three months ended SeptemberJune 30, 2016, we incurred non-cash interest2023, as compared to $1,033,556 in 2022, a decrease of $464,140, due to the Company bringing hauling service in-house. Consulting, accounting, and penalties relatinglegal expenses increased to our convertible debt of $1,265,375 and $584,735, respectively.
Net Loss
For$202,174 during the three months ended SeptemberJune 30, 20172023 from $155,360 during the same period in 2022, an increase of $46,814 as a result of the Company working on a financing, which closed in July 2023. There was an increase in rent expenses as a result of the Company adding additional facilities, increasing $146,258 from $887,260 during the three months ended June 30, 2022 to $1,033,518 during the same period in 2023.
Our other general and 2016,administrative expenses increased to $725,687 for the three months ended June 30, 2023 from $376,015 for the same period in 2022, an increase of $349,672, as a result of the Company’s operations expanding.
The increase of these expenditures resulted in our total operating expenses increasing to $5,389,131 during the three months ended June 30, 2023 compared to $5,029,513 during the three months ended June 30, 2022, an increase of $359,618.
Loss from Operations
Our loss from operations increased by $1,126,522 to $2,090,277 during the three months ended June 30, 2023, from $963,755 during the same period in 2022.
Other Expense
During the three months ended June 30, 2023, we hadincurred other expenses of $(174,785), as compared to $(13,171,392) for the same period in 2022, a decrease of $12,996,607. Interest expenses and amortization of debt discount decreased to $(891,849) during the three months ended June 30, 2023 from $(13,171,392) during the three months ended June 30, 2022. There was a gain on tax credit of $717,064 during the three months ended June 30, 2023, as compared to none during the same period in 2022.
Net Loss
Our net lossesloss was $2,265,062 during the three months ended June 30, 2023 as compared to $14,135,147 during the same period in 2022, a decrease of $7,077,066$11,870,085, for the reasons discussed above.
For the Six Months Ended June 30, 2023 and $3,452,664,2022
| For the six months ended June 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 18,459,696 | $ | 20,625,389 | $ | (2,165,693 | ) | (10.50 | )% | |||||||
| Gross Profit | 8,025,465 | 8,330,016 | (304,551 | ) | (3.66 | )% | ||||||||||
| Operating Expenses | 12,050,918 | 9,491,466 | 2,559,452 | 26.97 | % | |||||||||||
| Loss from Operations | (4,025,453 | ) | (1,161,450 | ) | (2,864,003 | ) | 246.59 | % | ||||||||
| Other Expense | (2,265,284 | ) | (18,149,173 | ) | 15,883,889 | (87.52 | )% | |||||||||
| Net Loss | $ | (6,290,737 | ) | $ | (19,310,623 | ) | $ | 13,019,886 | (67.42 | )% | ||||||
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Revenues
For the six months ended June 30, 2023, we generated $18,459,696 in revenues, as compared to $20,625,389 during the same period in 2022, decrease of $2,165,693. This decrease was primarily due to a decline in metal prices. The $18,459,696 in revenue includes $84,380 in rental income, $14,235,643 in revenue generated from the sale of metal, $4,112,163 generated from hauling services, and $27,510 in miscellaneous revenue, including from the sale of gas from scrap cars.
Our cost of revenues decreased to $10,434,231 for the six months ended June 30, 2023 from $12,295,373 during the same period in 2022, a decline of $1,861,142, primarily due to a decline in metal prices.
Our gross profit was $8,025,465 during the six months ended June 30, 2023, a decrease of $304,551 from $8,330,016 during the same period in 2022 primarily due to the decrease in revenue.
Operating Expenses
For the six months ended June 30, 2023 and 2022, our operating expenses were $12,050,918 and $9,491,466 respectively, an increase of $3,624,402,$2,559,452. There was an increase in payroll and related expenses of $567,098 as payroll and related expenses were $3,448,538 for the six months ended June 30, 2023 as compared to $2,881,440 for the same period in 2022 which was primarily the result of the Company expanding its workforce. Advertising expense decreased by $44,450 to $15,851 for the six months ended June 30, 2023 as compared to $60,301 for the same period in 2022 as the Company focused on operations. Depreciation of fixed assets, along with amortization of intangible assets, increased by $804,214 to $2,619,581 for the six months ended June 30, 2023 from $1,815,367 in 2022 as a result of the Company acquiring more fixed assets during the fall of 2022. There were hauling and equipment maintenance costs of $1,820,133 during the six months ended June 30, 2023, as compared to $1,833,994 in 2022, a decrease of $13,861, due to the Company bringing hauling service in-house. Consulting, accounting, and legal expenses decreased to $475,247 during the six months ended June 30, 2023 from $521,312 during the same period in 2022, a decrease of $46,065 as a result of the Company incurring costs to uplist to Nasdaq in 2022. There was an increase in rent expenses as a result of the Company adding additional facilities, increasing $294,564 from $1,762,663 during the six months ended June 30, 2022 to $2,057,227 during the same period in 2023.
Our other general and administrative expenses increased to $1,614,341 for the six months ended June 30, 2023 from $616,389 for the same period in 2022, an increase of $997,952, as a result of the Company’s operations expanding.
The increase of these expenditures resulted in our total operating expenses increasing to $12,050,918 during the six months ended June 30, 2023 compared to $9,491,466 during the six months ended June 30, 2022, an increase of $2,559,452.
Loss from Operations
Our loss from operations increased by $2,864,003 to $4,025,453 during the six months ended June 30, 2023, from $1,161,450 during the same period in 2022.
Other Expense
During the six months ended June 30, 2023, we incurred other expenses of $(2,265,284), as compared to $(18,149,173) for the same period in 2022, a decrease of $15,883,889. Interest expenses and amortization of debt discount decreased to $(3,057,353) during the six months ended June 30, 2023 from $(32,577,069) during the six months ended June 30, 2022. There was a gain on tax credit of $717,064 during the six months ended June 30, 2023, as compared to none during the same period in 2022. There was no change in the fair value of derivative liabilities during the six months ended June 30, 2023, as compared to a gain of $14,264,476 during the six months ended June 30, 2022. There was a gain on settlement of non-convertible notes and advances of $75,005 and $163,420 for the six months ended June 30, 2023 and 2022, respectively.
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Net Loss
Our net loss was $6,290,737 during the six months ended June 30, 2023 as compared to $19,310,623 during the same period in 2022, a change of $13,019,886, for the reasons discussed above.
Results of OperationsLiquidity and Capital Resources
Net cash generated by operating activities for the Nine Months Ended Septembersix months ended June 30, 20172023 was $1,234,133 as Comparedcompared to $566,238 for the Nine Months Ended Septembersix months ended June 30, 2016
| Nine Months Ended September 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Revenues: | $ | 289,130 | $ | 794,621 | $ | (505,491 | ) | (64 | )% | |||||||
| Total operating expense | 27,315,960 | 6,795,371 | 20,520,589 | 302 | % | |||||||||||
| Loss from operations | (27,026,830 | ) | (6,000,750 | ) | (21,026,080 | ) | 350 | % | ||||||||
| Total other income (expense): | 871,933 | (2,254,354 | ) | 3,126,287 | 139 | % | ||||||||||
| NET LOSS | $ | (26,154,897 | ) | $ | (8,255,104 | ) | $ | (17,899,793 | ) | 217 | % | |||||
Revenues
2022. For the ninesix months ended SeptemberJune 30, 20172023, the cash flows generated by operating activities were driven by a net loss of $6,290,737, amortization of right of use assets (related-party) of $1,140,331, amortization of right of use assets of $184,757, depreciation and 2016, we generated revenuesamortization of $289,130 and $794,621, respectively, a decrease$2,619,581, accrual of $505,491. The $289,130 generated in the nine months ended September 30, 2017 was primarily compriseddue to related parties of advertising revenue related to the MassRoots network. The decrease in revenues for the nine months ended September 30, 2017 was primarily caused by no revenues from the 420 Rally being generated in 2017.
Operating Expenses
For the nine months ended September 30, 2017 and 2016, our operating$1,608,189, increase of prepaid expenses were $27,315,960 and $6,795,371, respectively,of $596,646, an increase of $20,520,589. This increase was mainly attributable to an increase stock based compensation to our employeesaccounts payable and key consultants which, for 2017 was $19,882,527 as compared to $2,306,662 for the same period last year (a non-cash increaseaccrued expenses of $17,575,865). In addition we incurred additional consulting and other service provider fees and increases$503,252, a decrease in payroll and payroll-related expenditures as we expanded our business.
Other Income (Expense)
For the nine months ended September 30, 2017 and 2016, the Company recorded interest expense of $189,125 and $3,575,008, respectively. As of September 30, 2017, we had outstanding $1,095,000 in convertible notes. For the nine months ended September 30, 2017 and 2016, the Company realized gains related to the fair value mark to market adjustments of its derivativeoperating lease liabilities of $986,058 and $1,320,654, respectively. The derivative$40,425, a decrease in operating lease liabilities are caused by certain price protections included in the warrants issued as part(related-party) of the Company’s convertible debt and common stock offerings. For the nine months ended September 30, 2017 and 2016, the Company recorded amortization of discount on notes payable of $187,272 and $1,549,669, respectively, included in the interest discussion above. Lastly, during the nine months ended September 30, 2017, we sold our security investment in Flowhub for $250,000 realizing$1,269,496, a gain on salethe settlement of securitiesnon-convertible notes and accrued interest of $75,000.
Net Loss
For$75,005, interest and amortization of debt discount of $3,057,053, a decrease in accounts receivable of $11,301, decrease in inventories of $70,037, increase in security deposit of $25,000, accrued payroll and related expenses of $179,206, and bank overdrafts of $180,337. During the ninesix months ended SeptemberJune 30, 20172022, cash flows generated by operating activities were driven by a net loss of $19,310,623, amortization of right of use assets (related-party) of $210,114, amortization of right of use assets of $997,027, depreciation and 2016, we had net lossesamortization of $26,154,897 and $8,255,104, respectively, an$1,815,367, payment of accrued rent to a related party of $122,865, increase of $17,899,793, for the reasons discussed above.
Liquidityprepaid expenses of $70,109, decrease of security deposit of $2,437, increase of accounts payable and Capital Resources
Net cash usedaccrued expenses of $58,462, a change in operations for the nine months ended September 30, 2017 and 2016 was $7,200,176 and $2,915,832, respectively. This increase was primarily causedoperating lease liabilities of $1,008,459, largely offset by a widening net loss ingain on the Company’s operations, an increasesettlement of convertible notes and accrued interest of $163,420, interest and amortization of debt discount of $32,577,069, change in the value of options issued to employees,derivative liabilities of $14,264,476, increase in accounts receivable of $82,925, increases in inventories of $122,154, and an expansiona decrease in environmental remediation liabilities of MassRoots’ development team.$22,207.
Net cash used in investing activities was $826,422 and $2,547,323 for the ninesix months ended SeptemberJune 30, 20172023 and 20162022, respectively. For the six months ended June 30, 2023, there was $236,833 and $19,100, respectively. These investing activitiescash used in 2017 were proceeds from sale of securities of $250,000 and received $11,273 in connection with the acquisitions of DDDigtal Inc and Odava, net with the purchase of equipment primarily computers, of $57,533, investment in convertible note of $300,000 and equity investment of $100,002. $826,422. For the ninesix months ended SeptemberJune 30, 2016, $19,1002022, there was cash used in the purchase of equipment of $2,394,823, of which $152,500 was paid to purchase office equipment.a related-party.
Net cash used by financing activities was $854,564 during the six months ended June 30, 2023, as compared to cash provided by financing activities forof $62,961 during the ninesix months ended SeptemberJune 30, 2017 and 2016 was $7,429,841 and $2,675,231, respectively.2022. During the ninesix months ended SeptemberJune 30, 2017, these funds came mainly from warrant and option exercises of $4,753,196, proceeds from sale of common stock and warrants of $1,198,000, proceeds from issuance of convertible debt of $942,500 and proceeds from related party advances of $442,500. While for the nine months ended September 30, 20162023, the Company received $3,746,109 from the issuance of factoring advances and $1,000,000 from the issuance of non-convertible notes, while utilizing $1,301,846 in the repayment of non-convertible notes and utilizing $4,298,827 for the repayment of factoring advances. During the six months ended June 30, 2022, the Company utilized $162,039 towards payments on non-convertible notes and received $225,000 in proceeds from its March 2016 convertible debt offering and warrants of $1,420,000, for sale of common stock of $1,660,500 and option and warrant exercises of $621,331.a non-convertible note.
Capital Resources
As of SeptemberJune 30, 2017,2023, we had cash on hand of $267,322 and as of September 30, 2017; there are warrants outstanding to purchase up to aggregate of 10,640,672 shares with an exercise prices of $0.50 to $.90 per share, which, if all were exercised, would supply $7,745,437 in cash to the Company.
$374,951. We currently have no external sources of liquidity such as arrangements with credit institutions with the exception of a credit card from American Express, or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
We are dependent on the sale of our securities to fund our operations, and will remain so until we generate sufficient revenues to pay for our operating costs. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees.
Fundraising
During the nine months ended September 30, 2017, we received approximately $4,753,000 proceeds from the exercise of our previously issued warrants.
On July 21, 2017, we received aggregate gross proceeds to the Company of $1,198,000 in connection with the sale of 2,394,000 shares of common stock and warrants to purchase up to 2,394,000 shares of common stock.
On August 24, 2017, we received net proceeds to the Company of $942,500 in connection with the issuance of convertible notes and warrants to purchase $2,090,000 shares of common stock.
On September 27, 2017, we received aggregate gross proceeds to the Company of $420,000 in connection with the sale to two investors of a right to receive units of a cryptographic token at a fifty percent (50%) discount, if the Company conducts a public sale of such tokens on or before November 30, 2017. The $420,000 is included in amounts due to related parties at September 30, 2017.
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Required Capital Overover the Next Fiscal Year
We do not believe MassRoots has sufficientAs of June 30, 2023, the Company had cash of $374,951 and a working capital to become cash-flow positive from operations. We expect to need to raise at least $2,500,000 over the next quarter to continue to fund operations.
We prepared the accompanying condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation ofdeficit (current liabilities in excess of current assets) of $22,364,325. The accumulated deficit as of June 30, 2023 was $368,559,752. These conditions raise substantial doubt about the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. OurCompany’s ability to continue as a going concern dependsfor one year from the issuance of the consolidated financial statements.
In July 2023, the Company’s downstream commenced operations, enabling the Company to recover millimeter-minus pieces of metal from Greenwave’s automotive shred residue, which is on track to generate several hundred thousand dollars of additional high margin revenue per month. The Company believes it is generating positive cashflows from operating activities and may not need to raise any additional capital to continue operations. Further, the Company closed a $15 million private placement on July 31, 2023, retiring all outstanding merchant cash advances and reducing the Company’s equipment debt. Should the Company choose to raise capital, it believes it can do so through non-equity based instruments such as non-convertible notes, lines of credit, and cash advances.
If the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to obtain adequateincur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital to fund operating losses until we generate adequate cash flows from operations to fund its operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.
We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management has determined that there is substantial doubt about our ability to continue as a going concern within one year afterimpacted by market conditions and the condensed consolidated financial statements are issued.
price of the Company’s common stock. The accompanying unaudited condensed consolidated financial statements do not include any adjustments relatingthat might be necessary if the Company is unable to continue as a going concern.
Contractual Obligations
Our contractual obligations are included in our notes to the recoverability and classificationcondensed consolidated financial statements included in Part I, Item I of recorded asset amounts,this Quarterly Report on Form 10-Q. To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or amounts and classification of liabilitiesdebt financings. No assurance can be given that might result from this uncertainty.any additional financing will be made available to us or will be available on acceptable terms should such a need arise.
Off-Balance Sheet Arrangements
As of September 30, 2017, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
For a discussion of our accounting policies and related items, please see the Notesnotes to the Financial Statements,condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report.Report on Form 10-Q.
ITEM 3. QUANTITATIVE &AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required underPursuant to Rules 13a-15(e)13a-15(b) and 15d-15(e)15-d-15(b) under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Principal AccountingInterim Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon thatsuch evaluation, the Chief Executive Officerour CEO and Principal Accounting OfficerCFO concluded that our disclosure controls and procedures as of SeptemberJune 30, 20172023 were not effective (at a reasonable assurance level) due to identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.
To address the same reasons as previously disclosed under Item 9A. “Controlsmaterial weaknesses, we performed additional analysis and Procedures”other post-closing procedures in an effort to ensure our Annualfinancial statements included in this Quarterly Report on Form 10-K10-Q have been prepared in accordance with generally accepted accounting principles in the U.S. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
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Our principal executive officer and principal financial officer do not expect that our fiscal year ended December 31, 2016.
Becausedisclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controlsall control issues and procedures will detect or uncover every situation involving the failureinstances of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.fraud, if any, have been detected.
Changes inManagement’s Report on Internal ControlsControl over Financial Reporting
There have been no changes in ourOur management is responsible for establishing and maintaining adequate internal controlscontrol over financial reporting (asas defined in Rule 13a-15(f) and 15d-(f) ofunder the Exchange Act) that occurred duringAct. Our management, including our principal executive officer and principal financial officer, assessed the last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect,effectiveness of our internal control over financial reporting.reporting as of June 30, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (issued in 2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Based upon the assessments, management has concluded that as of June 30, 2023, there was a material weakness in our internal control over financial reporting due to the fact that we did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion.
We plan to take steps to enhance and improve the design of our internal control over financial reporting. To remediate our material weaknesses, we plan to appoint additional qualified personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters; however, such remediation efforts are largely dependent upon our securing additional financing or generating significant revenue to cover the costs of implementing the changes required.
Until we remediate our material weakness in internal control over financial reporting such weaknesses could result in material misstatements in our financial statements not being prevented or detected.
Inherent Limitations on Effectiveness of Controls and Procedures
The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s CEO and CFO has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of June 30, 2023, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.
This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report.
Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, the Company began hiring additional accounting personnel to enhance its segregation of duties and establishment of procedures in an effort to ensure appropriate levels of review of accounting and financial reporting matters.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.As disclosed in Note 12 – Commitments and Contingencies to the Company’s Condensed Consolidated Financial Statements, the Company is engaged in certain legal matters and there have been no material developments since December 31, 2022 with respect to our legal proceedings, except as described in Note 12 – Commitments and Contingencies. The disclosures set forth in Note 12 – Commitments and Contingencies relating to certain legal matters are incorporated herein by reference.
ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
As a “smaller reporting company”,company,” we are not required to provide the information required by this Item.Item 1A. Please see the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 31, 2023 as amended on April 13, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The transactions described below were exempt from registration underDuring the Securities Act of 1933, as amended (the “Securities Act”), as transactions not involving a public offering. The recipients of the securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions. The recipient of the securities were also each an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act. All proceeds from the subscriptions for Common Stock and warrants to purchase shares of the Common Stock noted below will be, or have been, used for general working capital purposes.
On July 13, 2017, the Company consummated a reverse triangular merger, whereby it acquired all of the outstanding common stock of Odava Inc., a Colorado corporation. In connection with the merger,six months ended June 30, 2023, the Company issued 3,250,000 shares of Common Stock pro rata to all stockholders of Odava Inc., in exchange for all of their288,494 shares of common stock of Odava Inc., now our wholly-owned subsidiary.
In July 2017, the Company conducted an offering consisting of up to $2,000,000 of its shares of Common Stock and warrants. On July 21, 2017, the Company completed the first and final closing of the offering, thereby issuing 2,394,000 shares of unregistered Common Stock, along with five-year warrants to purchase up to 2,394,000 shares of Common Stock at $0.65 per share, to certain accredited investors, for gross proceeds of $1,198,000. On October 17, 2017, the Company issued stock certificates for, in the aggregate, 349,000 shares of Common Stock which were inadvertently not issued following the closing. However, one of such stock certificates was issued for 70,000 shares of the Company’s common stock, but should have been for 30,000 shares, so the Company will rescind 40,000 of such shares.
In August 2017, MassRoots completed a private offering to certain accredited investors of six (6) month secured convertible notes with a principal amount of $1,045,000 (the “Bridge Notes”) together with five (5) year warrants to purchase an amount of shares of Common Stock equal to the number of shares of Common Stock issuable upon the conversion of the notes in full and having an exercise price of $0.50 per share. The Bridge Notes were secured by all the assets of the Company, and each of the executive officers of the Company entered into a lock-up agreement whereby they agreed to not sell or offer any72 shares of Common Stock owned by them until the Bridge Notes were fully repaid, redeemed or converted. The Bridge Notes were convertible into shares of Common Stock at a price per share equal to the lower of (i) seventy five cents ($0.75), and (ii) a 25% discount to the price at which the Company next conducts an offering after the issuance date of the note; provided, however, if any part of the principal amount of the note remains unpaid at its maturity date, the conversion price would be equal to 65% of the average of the three (3) trading days with the lowest daily weighted average prices of Common Stock occurring during the fifteen (15) days prior to the notes’ maturity date. Gross proceeds received by MassRoots in this offering were $950,000, while net proceeds were $942,500, after deducting any legal fees.Series Z Preferred Stock.
On September 27, 2017, the Company sold to two investors a right to receive units of a cryptographic token at a fifty percent (50%) discount, if the Company conducts a public sale of such tokens on or before November 30, 2017, for aggregate gross proceeds of $420,000. On October 4, 2017 and October 5, 2017, the Company sold to two investors a right to receive units of a cryptographic token at a fifty percent (50%) discount, if the Company conducts a public sale of such tokens on or before November 30, 2017, for aggregate gross proceeds of $25,000 and $100,000, respectively.
During the nine months ended September 30, 2017, the Company issued an aggregate of 41,153 shares of Common Stock upon the cashless exercise of options to purchase Common Stock, not including the cashless exercise by a member of our Board of Directors noted above, and issued an aggregate of 355,689 shares of Common Stock upon the cashless exercise of Common Stock purchase warrants.
During the nine months ended September 30, 2017, the Company issued an aggregate of 6,933,041 shares of Common Stock upon the cash exercise of Common Stock purchase warrants having an average exercise price of $0.696 per share, resulting in aggregate proceeds to the Company of $4,753,196.
During the nine months ended September 30, 2017, the Company issued an aggregate of 1,081,000 shares of its Common Stock in settlement of $108,100 of convertible debt.
Under the Company’s 2017 Equity Incentive Plan, from January 1, 2017 through September 30, 2017, the Company issued, in the aggregate, 22,745,898 shares Common Stock for services rendered, valued at $14,204,255. During the same period, under the Company’s 2017 Equity Incentive Plan, the Company issued ten (10) year options to purchase, in the aggregate, up to 2,854,000 shares of Common Stock at exercise prices ranging from $0.50 per share to $1.07 per share.
On September 6, 2017, a member of our Board of Directors acquired 394,858 shares of Common Stock upon a cashless exercise of 443,214 shares pursuant to a Stock Option Agreement, dated June 4, 2014, relating to options to purchase up to 750,000 shares of the Common Stock at $0.10 per share, was issued pursuant to the Company’s 2014 Stock Incentive Plan. The shares were issued on October 5, 2017.
On October 5, 2017, the Company issued 45,000 shares to a former employee for services rendered.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Simple Agreement for Future TokensNone.
On September 28, 2017, the Company entered into a Simple Agreement for Future Tokens (the “SAFT Agreements”) with two accredited investors (each, an “Investor”), relating to the future right to purchase, in the aggregate, $420,000 in units of a cryptographic token (a “Token”) at a discount, if the Company conducts a public sale of its Tokens (a “Qualifying Token Sale”). On October 4, 2017 and October 5, 2017, the Company entered into SAFT Agreements with two additional Investors relating to the future right to purchase $25,000 and $100,000 of its Tokens, respectively, in a Qualifying Token Sale. Pursuant to the SAFT Agreements, in the event the Company conducts a Qualifying Token Sale, it will automatically issue to each Investor a number of Tokens equal to such Investor’s SAFT Agreement investment, based on a rate that is fifty percent (50%) of the price per Token in the Qualifying Token Sale. In the event the Company sells Tokens in the Qualifying Token Sale at different prices, each Investor’s Tokens shall be determined based on the most advantageous rate publicly marketed. The SAFT Agreements expire and terminate upon the earlier to occur of (a) the issuance of Tokens pursuant thereto; (b) repayment to the Investors in the event of a dissolution, liquidation or winding up of the Company, a termination of Company operations, or an assignment for the benefit of the Company’s creditors; or (c) on November 30, 2017 if a Qualifying Token Sale has not occurred, unless extended for sixty (60) days by the Company in its sole discretion. No placement agents or were used or commissions paid in connection with the foregoing. The SAFT Agreements entered into on October 4, 2017 and October 5, 2017 further provide that (y) the SAFT Agreement will expire and terminate upon the occurrence of a determination that the Investor is not qualified to participate in the Qualifying Token Sale, or if the exchange selected to publicly sell the Tokens fails to issue to the Investor a trading account or similar vehicle before the Qualifying Token Sale and (z) upon a termination, the purchase amount will be repaid to the Investor. The Company has not conducted a Qualifying Token Sale to date, and cannot make any assurances as to when, or if at all, it will conduct a Qualifying Token Sale.
The foregoing description of the SAFT Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of SAFT Agreement filed as Exhibits 10.10 hereto, and incorporated herein by reference. Bracketed language in the form of SAFT Agreement reflects the additional provisions outlined above that are only in the SAFT Agreements entered into on October 4, 2017 and October 5, 2017.
The Company is providing this report in accordance with Rule 135c under the Securities Act, and the notice contained herein does not constitute an offer to sell the Company’s securities, and is not a solicitation for an offer to purchase the Company’s securities. The securities offered have not been registered under the Securities Act, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
The Company has sold the SAFT Agreements in a private placement in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder since, among other things, the above transaction did not involve a public offering. Additionally, the Company relied on similar exemptions under applicable state laws. The subscribers had access to information about the Company and their investments, took the SAFT Agreements for investment and not resale, and the Company took appropriate measures to restrict the transfer of the SAFT Agreements. Upon issuance, the resale of the SAFT Agreements will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
ITEM 6. EXHIBITS
(b) Exhibit Index
| Incorporated by | ||||||||
| No. |
| Description |
| Filing Number |
| Exhibit |
| * | Filed or furnished herewith. |
| + | Attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the U.S. Securities and Exchange Commission. |
| ** | Agreement with management or compensatory plan or arrangement |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned hereuntothereunto duly authorized.
MASSROOTS, INC.
Dated: November 14, 2017
By: /s/ Scott Kveton
Scott Kveton
Chief Executive Officer
(Principal Executive Officer)
(Principal Financial and Accounting Officer)
| GREENWAVE TECHNOLOGY SOLUTIONS, INC. | ||
| Date: August 14, 2023 | By: | /s/ Danny Meeks |
Danny Meeks, Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 14, 2023 | By: | /s/ Isaac Dietrich |
Isaac Dietrich, Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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