We have filed with the SEC a registration statement
on Form S-1 under the Securities Act with respect to the Resale Shares being offered by this prospectus. This prospectus does not contain
all of the information in the registration statement of which this prospectus is a part and the exhibits to such registration statement.
For further information with respect to us the Resale Shares by this prospectus, we refer you to the registration statement of which this
prospectus is a part and the exhibits to such registration statement. Statements contained in this prospectus as to the contents of any
contract or any other document are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document
incorporated by reference or filed as an exhibit to the registration statement of which this prospectus is a part. Each of these statements
is qualified in all respects by this reference.
You may read and copy the registration statement
of which this prospectus is a part, as well as our reports, proxy statements and other information, at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of
the Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including Greenwave Technology Solutions, Inc. The SEC’s Internet site
can be found at http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing us at 277 Suburban Drive,
Suffolk, VA 23434 or telephoning us at (757) 966-1432.
We are subject to the information and reporting
requirements of the Exchange Act, and, in accordance with this law, file periodic reports, proxy statements and other information with
the SEC. These periodic reports, proxy statements and other information are available for inspection and copying at the SEC’s public
reference facilities and the website of the SEC referred to above. We also maintain a website at www.GreenwaveTechnologySolutions.com.
You may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished
to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus
is an inactive textual reference only.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 1 – NATURE OF OPERATIONS AND BASIS
OF PRESENTATION
MassRoots, Inc. (“MassRoots”
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.
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Our consolidated financial statements include the accounts of DDDigtal, Inc., Odava, Inc., MassRoots Supply Chain, Inc., and MassRoots
Blockchain Technologies, Inc., our wholly-owned subsidiaries. All intercompany transactions were eliminated during consolidation.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of December 31, 2020, the Company had cash
of $1,485 and a working capital deficit (current liabilities in excess of current assets) of $37,623,852. During the year ended December
31, 2020, the net loss available to common stockholders was $111,623,487 and net
cash used in operating activities was $1,037,843. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern for one year from the issuance of the audited consolidated financial statements.
During the year ended December 31, 2020, the Company
received proceeds of $637,000, $132,911, and $321,000 from the issuance of convertible notes, non-convertible notes, and Series X preferred
shares, respectively. The Company does not have sufficient cash to fund operations for the next fiscal year.
The Company’s primary source of operating
funds since inception has been cash proceeds from the public and private placements of the Company’s securities, including debt
and equity securities, and proceeds from the exercise of warrants and options. The Company has experienced net losses and negative cash
flows from operations since inception and expects these conditions to continue for the foreseeable future. The
Company’s ability to continue its operations is dependent upon its ability to obtain additional capital through public or private
equity offerings, debt financings or other sources; however, financing may not
be available to the Company on acceptable terms, or at all. The Company’s failure to raise capital as and when needed could have
a negative impact on its financial condition and its ability to pursue its business strategy, and the Company may be forced to curtail
or cease operations.
Management’s plans regarding these matters
encompass the following actions: 1) obtain funding from new and current investors to alleviate the Company’s working capital deficiency;
and 2) implement a plan to increase revenues. The Company’s continued existence is dependent upon its ability to translate its audience
into revenues. However, the outcome of management’s plans cannot be determined with any degree of certainty.
Accordingly, the accompanying
audited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business for one year from the date the consolidated financial statements are issued.
The carrying amounts of assets and liabilities presented in the audited consolidated financial statements do not necessarily purport to
represent realizable or settlement values. The audited consolidated financial statements do not include any adjustments that might result should
the Company be unable to continue as a going concern.
In March 2020, the World
Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, leading to
an economic downturn. It has also disrupted the normal operations of many businesses, including ours. It is not possible for us to predict
the duration or magnitude of the adverse results of the outbreak of COVID-19 and its effects on our business including our financial condition,
liquidity, or results of operations at this time. Management is actively monitoring the global situation and its impact on the Company’s
financial condition, liquidity, operations, customers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and
the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak will have on its results
of operations, financial condition, or liquidity for fiscal year 2021. As of the date of this Annual Report on Form 10-K, the Company
has experienced delays in securing new customers and related revenues and the longer this pandemic continues there may be additional impacts.
Furthermore, the COVID-19 outbreak has and may continue to impact the Company’s ability to raise capital.
Although the Company cannot
estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material
adverse effect on the Company’s results of future operations, financial position, liquidity, and capital resources, and those of
the third parties on which the Company relies in fiscal year 2021.
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include
the accounts of MassRoots, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America (“U.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 derivative liabilities, fair value of payroll tax liabilities,
deemed dividends and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Emerging Growth Company
We are an “emerging
growth company” under the JOBS Act. For as long as we are an “emerging growth company,” we are not required to: (i)
comply with any new or revised financial accounting standards that have different effective dates for public and private companies until
those standards would otherwise apply to private companies, (ii) provide an auditor’s attestation report on management’s assessment
of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (iii) comply with
any new requirements adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation
or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit
and the financial statements of the issuer or (iv) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the
SEC determines otherwise. However, we have elected to “opt out” of the extended transition period discussed in (i) and will
therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards are required
for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of such extended transition period
for compliance with new or revised accounting standards is irrevocable.
Fair Value of Financial
Instruments
The Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 825-10, “Financial Instruments”
(“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The estimated fair value of certain
financial instruments, including cash, accounts payable and accrued liabilities are 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 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
For purposes of the consolidated
statements of cash flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash
equivalents. As of December 31, 2020 and 2019, the Company had no cash equivalents. The Company maintains 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. At December 31, 2020 and 2019, the uninsured
balances amounted to $0.
Accounts Receivable and
Allowance for Doubtful Accounts
The Company monitors outstanding
receivables based on factors surrounding the credit risk 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 if the financial condition of the Company’s customers
were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances
or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible
and no longer actively pursues its collection.
Property and Equipment
Property and equipment are stated at cost and
depreciated using the straight-line method over their estimated useful lives of three to five years. Repair and maintenance costs are
expensed as incurred. 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.
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 recognizes revenue in accordance with that core principle
by applying the following:
|
(i)
|
Identify the contract(s) with a customer;
|
|
(ii)
|
Identify the performance obligation in the contract;
|
|
(iii)
|
Determine the transaction price;
|
|
(iv)
|
Allocate the transaction price to the performance obligations in the contract; and
|
|
(v)
|
Recognize revenue when (or as) the Company satisfies a performance obligation.
|
The Company primarily generates
revenue by charging businesses to advertise on the Company’s website and social media channels. In cases where clients enter advertising
contracts for an extended period of time, the Company only recognizes revenue for services provided during that quarter and defers the
remaining unearned revenue to future periods.
Advertising
The Company charges the costs of advertising to expense as incurred.
Advertising costs were $58,961 and $29,764 for the year ended December 31, 2020 and 2019, respectively.
Stock-Based Compensation
Stock-based compensation
expense is measured at the grant date fair value of the 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 on the date of grant using the Black-Scholes
option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including
estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value
of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application
of management’s judgment.
Income Taxes
The Company follows ASC Subtopic
740-10, “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.
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.
Convertible Instruments
U.S. GAAP requires companies
to bifurcate conversion options from their host instruments and account for them as freestanding 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, “Distinguishing Liabilities From Equity.”
When the Company has determined
that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in
the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption using
the effective interest method.
Beneficial Conversion Features and Deemed Dividends
The Company records a beneficial conversion feature
for preferred stock when, on the date of issuance, the conversion rate is less than the Company’s stock price. The Company also
records, when necessary, a contingent beneficial conversion resulting from price protection of the conversion price of preferred stock,
based on the change in the intrinsic value of the conversion options embedded in such preferred stock.
The Company records, when necessary, deemed dividends
for: (i) warrant price protection, based on the difference between the fair value of the warrants immediately before and after the repricing
(inclusive of any full ratchet provisions); (ii) the exchange of preferred shares for convertible notes, based on the amount of the face
value of the convertible notes in excess of 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 that: (i) require physical settlement or net-share settlement; 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 that: (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 freestanding derivatives at each reporting date to determine whether a
change in classification between assets and liabilities is required.
The Company’s freestanding
derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and the sale of common
shares, and of embedded conversion options within convertible notes. The Company evaluated these derivatives to assess their proper classification
in the balance sheet as of December 31, 2020 and 2019 using the applicable classification criteria enumerated under ASC 815, “Derivatives
and Hedging.” The Company determined that certain embedded conversion and/or exercise features did not contain fixed settlement
provisions. The convertible notes contained a conversion feature such that the Company could not ensure it would have adequate authorized
shares to meet all possible conversion demands. 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. The Company also
records derivative liabilities for instruments, including convertible notes, preferred stock, and warrants, in which the Company does
not have sufficient authorized shares to cover the conversion of these instruments into shares of common stock.
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 three to five 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.
Indefinite Lived Intangibles
and Goodwill
The Company accounts for
business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where
the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their
estimated fair values. 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 excess of the fair value of the tangible and identified intangible assets acquired less
liabilities assumed is recognized as goodwill.
The Company tests indefinite
lived intangibles and goodwill for impairment in the fourth quarter of each year and whenever events or circumstances indicate that the
carrying amount of the asset exceeds its fair value and may not be recoverable.
Segment Reporting
Operating segments are defined
as components of an enterprise for which separate financial information is available and evaluated regularly by the Chief Executive Officer,
or decision-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.
Net
Earnings (Loss) Per Common Share
The
Company computes earnings (loss) per share under ASC subtopic 260-10, Earnings Per 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. 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, for the year ended December 31, 2020 and 2019 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.
Potentially
dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Common shares issuable upon conversion of convertible notes
|
|
|
2,562,481,459
|
|
|
|
3,697,833,022
|
|
Options to purchase common shares
|
|
|
27,621,765
|
|
|
|
27,621,765
|
|
Warrants to purchase common shares
|
|
|
2,521,077,555
|
|
|
|
3,342,376,365
|
|
Common shares issuable upon conversion of preferred stock
|
|
|
6,709,317,940
|
|
|
|
-
|
|
Total potentially dilutive shares
|
|
|
11,820,498,719
|
|
|
|
7,067,831,152
|
|
Reclassifications
Certain reclassifications
have been made to the prior years’ data to conform to the current year presentation. These reclassifications had no effect on reported
income (losses).
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, which
simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with
a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately
present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt,
unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase
reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU
2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury
stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021,
with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the
impact of ASU 2020-06 on its consolidated financial statements.
In August 2018, the FASB
issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements,
including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements,
and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments
on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU
2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company’s
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.
NOTE 4 – INVESTMENTS
As of December 31, 2020 and
2019, the carrying value of our investments in privately held companies totaled $0 and $0, respectively. These investments are accounted
for as cost method investments, as we owned less than 20% of the voting securities and do not have the ability to exercise significant
influence over operating and financial policies of the entities.
During the year ended December 31, 2017, the Company
acquired 23,810 shares of Class A common stock of Hightimes Holding Corp. for $100,002, or $4.20 per share. As a result of a forward share
split of 1.9308657-for-1 on January 15, 2018, MassRoots owned 45,974 shares of Class A common stock. The acquired Class A common
stock were considered non-marketable securities. The Company incurred an impairment of $65,000 on these shares during the year ended December
31, 2019. The Company sold 45,974 shares of Class A common stock for proceeds of $35,000 during the year ended December 31, 2019.
On July 13, 2017, the Company
purchased an unsecured convertible promissory note in the principal amount of $300,000 from CannaRegs, Ltd, a Colorado limited liability
company (“CannaRegs”). The note bears interest at a rate of 5% per annum and matures on December 19, 2019. In the event CannaRegs
consummates an equity financing in excess of $2,000,000 prior to the maturity date of the note, the outstanding principal and any accrued
and unpaid interest automatically converts into equity securities of the same class or series issued by CannaRegs 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.
On July 17, 2017, MassRoots
converted the note into 430,622 shares of CannaRegs’ common stock. In 2018, CannaRegs re-incorporated as a Delaware C corporation
under the name Regs Technology, Inc. (“Regs Technology”), keeping the same capitalization structure and business operations.
MassRoots valued its holdings at $0 and $147,876 as of December 31, 2019 and 2018, respectively. The Company recorded an impairment expense
of $155,336 on its holdings during 2018 and recorded a $91,931 loss on the sale of investment during the year ended December 31, 2019.
The Company sold its shares of Regs Technology for $55,983 during the year ended December 31, 2019. MassRoots owned less than 1% of Regs
Technology’s issued and outstanding shares prior to the sale.
NOTE 5 – ADVANCES
TO COWA SCIENCE CORPORATION
On February 11, 2019, the Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with MassRoots Supply Chain, Inc., a wholly-owned subsidiary of the
Company (“Merger Subsidiary”), COWA Science Corporation, a Delaware corporation (“COWA”), and Christopher Alameddin,
an individual acting solely in his capacity as a stockholder representative (“Stockholder Representative”). Pursuant to the
Merger Agreement, Merger Subsidiary will be merged with and into COWA, whereby the separate corporate existence of Merger Subsidiary will
cease and COWA will be the surviving entity (the “Surviving Entity”) and will be a wholly-owned subsidiary of the Company
(the “Merger”).
Upon effectiveness of the Merger (such time, the
“Effective Date”), MassRoots will issue 50,000,000 shares of its common stock to the stockholders of COWA, allocated pro-rata based
on each stockholder’s respective holdings of COWA immediately prior to the Effective Date and each share of the common stock of
Merger Subsidiary will be converted into one newly issued, fully paid and non-assessable share of common stock of the Surviving Entity.
If (i) within three years after the Effective Date, COWA has generated an aggregate of $2.5 million in revenue, the Company shall issue
an aggregate of 25 million shares of common stock to the COWA stockholders; and (ii) within three years after the Effective Date, COWA
has generated an aggregate of $7.5 million in revenue (inclusive of the $2.5 million in revenue generated in clause (i)), the Company
shall issue an aggregate of 25 million additional shares of common stock to the COWA stockholders.
On February 24, 2020, the Company terminated the
Agreement and Plan of Merger by and among the Company, Merger Subsidiary, COWA and Christopher Alameddin.
As of December 31, 2019,
MassRoots had advanced $370,500 to COWA for working capital, which is to be repaid on-demand should the Merger not be effectuated. As
of December 31, 2019, COWA had repaid $10,000 and the Company wrote off the $360,500 balance of these advances.
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2020
and December 31, 2019 is summarized as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Computers
|
|
$
|
6,366
|
|
|
$
|
6,366
|
|
Office equipment
|
|
|
17,621
|
|
|
|
17,621
|
|
Subtotal
|
|
|
23,987
|
|
|
|
23,987
|
|
Less accumulated depreciation
|
|
|
(23,987
|
)
|
|
|
(23,987
|
)
|
Property and equipment, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation expense for the years ended December
31, 2020 and 2019 was $0 and $6,720, respectively.
NOTE 7 – SOFTWARE COSTS
In January 2018, MassRoots entered into a Master
Services Agreement with MEV, LLC (“MEV”) pursuant to which MEV will assist with the development and servicing of the Company’s
technology platform, including its mobile applications, business portal and WeedPass. MassRoots has capitalized the billable costs of
engineers that were devoted to building the system and developing additional features that enhanced its ability to generate revenue. MassRoots
did not capitalize any costs associated with maintenance, user-testing, analysis and planning of the system. The Company has been amortizing
these capitalized costs using a straight-line methodology over five years, since July 5, 2018.
During fiscal year 2018, MassRoots paid MEV $521,839
with respect to the development and maintenance of its platform, of which MassRoots capitalized $260,565 in development costs.
During the year ended December 31, 2020 and 2019,
MassRoots incurred amortization of software costs of $0 and $38,549, respectively. During the same period, MassRoots incurred impairment
of software costs of $0 and $196,315, respectively.
NOTE 8 – ADVANCES,
NON-CONVERTIBLE NOTES PAYABLE AND PPP NOTE PAYABLE
During the year ended December 31, 2020 and 2019,
the Company received aggregate proceeds from advances of $3,696 and $0, received forgiveness of advances for $250,000 and $0, and repaid
an aggregate of $3,009 and $595,000, respectively. Included in the year ended December 31, 2020 were $3,696 of advances from and $509
of repayments to the Company’s Chief Executive Officer (See Note 18). The remaining advances were primarily 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 2017 and 2018. As of December 31, 2020 and 2019, the Company owed $88,187 and $337,500 in principal and $0 and $10,500
in accrued interest, respectively.
During the year ended December 31, 2020 and 2019,
the Company received proceeds from the issuance of non-convertible notes of $82,911and $175,000 and repaid an aggregate of $39,641 and
$45,400, respectively, of non-convertible notes. The non-convertible notes have maturity dates ranging from March 18, 2019 to June 26,
2022 and accrue interest at rates ranging from 0% to 36% per annum. On April 17, 2020, the outstanding principal balance of $23,500
and accrued interest of $17,281 on non-convertible notes held by one holder was consolidated into a new non-convertible note with a face
value of $79,000, resulting in a loss on debt settlement of $38,219. As of December 31, 2020 and 2019, the Company owed $269,520 and $115,750
in principal and $251,612 and $117,924 in accrued interest, respectively.
On May 4, 2020, the Company received proceeds
of $50,000 from a PPP note. The note has a maturity date of May 4, 2020 and bears 1% interest per annum. As of December 31, 2020,
the Company owed $50,000 in principal and $330 in accrued interest on this note.
NOTE 9 – ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
As of December 31, 2020 and 2019, the Company
owed accounts payable and accrued expenses of $4,948,890 and $5,455,063, respectively. These are primarily comprised of payments to vendors,
accrued interest on debt, and accrued legal bills.
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, and 2020. As of December
31, 2020 and 2019, the Company owed payroll tax liabilities, including penalties, of $3,864,055 and $3,724,050, 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. The Company expects to settle these liabilities by June 30, 2021.
NOTE 11 – COMMITMENTS AND CONTINGENCES
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 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.
Power Up Lending Group, Ltd. Complaint
On October 11, 2019, Power Up Lending Group, Ltd.
(“Power Up”) filed a complaint against the Company and Isaac Dietrich, an officer and director of the Company, in the Supreme
Court of the State of New York, County of Nassau. The complaint alleges, among other things, (i) the occurrence of events of default in
certain notes (the “Power Up Notes”) issued by the Company to Power Up, (ii) misrepresentations by the Company including,
but not limited to, with respect to the Company’s obligation to timely file its required reports with the SEC and (iii) lost profits
as a result of the Company’s failure to convert the Power Up Notes in accordance with the terms thereof. In addition, the complaint
alleges, among other things, that Mr. Dietrich took affirmative steps to deliberately cause the Company to breach its financial obligations.
As a result of the foregoing, Power Up has requested: (i) the greater of $312,000 and the “parity value” as such term is defined
in the Power Up Notes together with $2,000 per day until the Company issues shares upon conversion of the Power Up Notes together with
applicable interest thereon; (ii) $165,000 as a result of the misrepresentations; (iii) an amount of lost profits to be determined by
the court, but in no event less than $312,000; (iv) $312,000 as against Mr. Dietrich; (v) an award for reasonable legal fees and costs
of litigation; (vi) a judgment awarding specific performance under the Power Up Notes; and (vii) the costs and disbursement of the action,
pre-judgment interest, default interest and such other further relief as the court deems proper. On August 24, 2020, the Supreme Court
of the State of New York, County of Nassau adjourned a hearing on Power Up’s motion for default judgment with respect to the complaint
filed by Power Up on October 11, 2019, against the Company and Mr. Dietrich until September 14, 2020.
On September 14, 2020, Power-Up filed a motion
for leave to enter a default judgment against the Company and Mr. Dietrich, alleging that the defendants failed to appear and did not
establish a meritorious defense to the claims made or a reasonable excuse for the delay in interposing their answer. On February 9, 2021,
a motion for default judgment was granted and the default judgment in the total amount of $350,551.10 was entered against the Company
and Mr. Dietrich jointly and severally.
Sheppard Mullin’s Demand for Arbitration
On December 1, 2020, Sheppard, Mullin, Richter
& Hampton LLP (“Sheppard Mullin”), the 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 an engagement agreement dated January 4, 2018, and a
failure of the Company to pay $487,390.73 of outstanding legal fees to Sheppard Mullin. Sheppard Mullin seeks to collect the entirety
of the amount owed by the Company in accordance with said engagement agreement.
Rother Investments’ Petition
On October 28, 2020, Rother Investments, LLC (“Rother
Investments”) filed a complaint in the District Court of 419th Judicial District, Travis County, Texas against the Company, alleging the
Company’s default under a certain promissory note (the “Rother Investments Note”) in payment of the outstanding principal
amount and interest under the Note, as described in the complaint. Rother Investments seeks to collect the amount of $124,750.00 as of
the date of the complaint with late fees continuing to accrue on a daily basis, monetary relief of over $100,000 but not more than $200,000.00
pursuant to Tex. R. Civ. P. 47(c)(3), court’s costs and attorney’s fees, pre-judgment and post-judgment interest, and such
other relief as the court deems appropriate.
Trawick’s Complaint
On or about January 25, 2021, Travis Trawick (“Trawick”)
filed a complaint against the Company and Isaac Dietrich, an officer and director of the Company, in the Circuit Court for the City of Virginia Beach,
Virginia, asserting the Company’s failure to remit payments under the certain promissory note, as subsequently amended and
modified, and ancillary documents thereto (collectively, the “Note”), and Mr. Dietrich’s failure to fulfill its obligations,
as the guarantor, under the Note. Trawick demands a judgment in his favor in the amount exceeding $130,336.15, the exact amount to be
proven at trial including pre and post-judgment interest, reasonable attorneys’ fees, court costs, other taxable costs, and such
other relief as the court deems appropriate.
NOTE 12 – CONVERTIBLE
NOTES PAYABLE
On
July 5, 2018, the Company issued secured convertible notes to certain accredited investors in the aggregate principal amount of $1,650,000.
The notes matured on January 5, 2019 and accrued no interest. Net proceeds received by the Company were $1,492,500 after deduction of
legal and other fees. During 2019, the remaining principal amount of $390,000 and accrued interest of $22,831 were converted into shares
of the Company’s common stock.
In
connection with the issuance of the July 2018 notes, the Company and the investors also entered into a security agreement pursuant to
which the notes are secured by all of the assets of the Company held as of July 5, 2018 and acquired thereafter. The Company also issued
five-year warrants to purchase an aggregate of 6,600,000 shares of Company’s common stock with an initial exercise price of $0.25.
The warrants contain certain anti-dilutive provisions.
In December 2018, the
Company made payments of an aggregate of $1,762,500 to holders of July 2018 notes. As of December 31, 2018, the aggregate remaining face
value of the notes was $390,000. During the year ended December 31, 2019, holders of the July 2018 notes converted $390,000 in principal
and $22,831 in interest into an aggregate of 10,102,353 shares of the Company’s common stock for settlement of the remaining balance
due. The balance of these notes was $0 as of December 31, 2019.
In December 2018, the
Company issued convertible promissory notes in the aggregate principal amount of $90,000 (including an aggregate original issuance discount
of $15,000) maturing June 1, 2019 and bearing interest of 5% per annum. The Company shall have the right to prepay the notes for an amount
equal to 130% multiplied by the portion of the Outstanding Balance (as defined in the notes) being prepaid. The investors shall have the
right to convert the Outstanding Balance of the note at any time into shares of common stock of the Company at a conversion price of $0.075
per share, subject to adjustment. During the year ended December 31, 2019, the holder converted $90,000 in principal and $9,000 of accrued
interest into an aggregate of 6,879,913 shares of common stock. As of December 31, 2019, the aggregate carrying value of the notes was
$0.
On December 17, 2018,
the Company issued a secured convertible promissory note in the principal amount of $2,225,000 (including an original issuance discount
of $225,000) that matured on December 17, 2019 and bears interest at a rate of 8% per annum (which increased to 22% on July 16, 2019 upon
the occurrence of an event of default). The note is secured by the Security Agreement (as defined below). The investor has the right to
convert the Outstanding Balance (as defined in the note) of the note at any time into shares of common stock of the Company at a conversion
price of $0.35 per share, subject to adjustment. Commencing on June 17, 2019, the investor has the right to redeem all or any portion
of the note; provided, however, the investor may not request redemption in an amount that exceeds $350,000 during any single calendar
month; provided, further however, upon the occurrence of an event of default, the redemption amount in any calendar month may exceed $350,000.
Payments on redemption amounts may be made in cash, by converting the redemption amount into shares of the Company’s common stock
at a conversion price of the lesser of: (a) $0.35 per share, subject to adjustment; and (b) the Market Price (as defined in the note),
or a combination thereof. Upon the occurrence of an event of default, the investor may accelerate the note pursuant to which the Outstanding
Balance will become immediately due and payable in cash at the Mandatory Default Amount (as defined in the note). The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates,
would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving
effect to the issuance of shares of common stock upon conversion of the note, which beneficial ownership limitation may be increased by
the investor up to, but not exceeding, 9.99%.
In connection with the
December 2018 note, the Company also entered into a security agreement (the “Security Agreement”) on the closing date pursuant
to which the Company granted the investor a security interest in the Collateral (as defined in the Security Agreement). On July 16,
2019, the Company received a notice from the noteholder indicating that events of default had occurred and asserting default penalties
of $761,330. During the year ended December 31, 2019, the noteholder converted $345,000 of principal into an aggregate of 53,522,295 shares
of common stock. During the year ended December 31, 2020, (i) the noteholder converted $37,000 of principal into an aggregate of 31,109,551
shares of common stock; and (ii) $1,049,329 of accrued interest was reclassified to the principal balance of this note. As of December
31, 2020 and 2019, the remaining carrying value of the note was $2,892,330 and $1,880,000, respectively, net of debt discount of $0. As
of December 31, 2020 and 2019, accrued interest payable of $1,073,809 and $1,327,110, respectively, was outstanding on the note.
On
January 25, 2019, the Company issued a convertible promissory note in the principal amount of $55,000 (including original issuance discount
of $5,000) that matured July 25, 2019 and bearing a one-time interest fee of 10%. The investor has the right to convert the Outstanding
Balance (as defined in the note) of the note at any time into shares of common stock of the Company at a conversion price of $0.075 per
share, subject to adjustment. Upon maturity, payment may be made in cash, by converting the redemption amount into shares of the Company’s
common stock at a conversion price of the lesser of: (a) $0.075 per share, subject to adjustment; and (b) the Market Price (as defined
in the notes), or a combination thereof. Upon the occurrence of an event of default, the investor may accelerate the note pursuant to
which the Outstanding Balance will become immediately due and payable in cash at the Mandatory Default Amount (as defined in the notes).
The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together
with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the note, which beneficial ownership limitation may be
increased by the investor up to, but not exceeding, 9.99%. As of December 31, 2020 and 2019, the remaining carrying value of the notes
was $55,000 and $50,000, net of debt discount of $0 and $5,000, respectively. As of December 31, 2020 and 2019, accrued interest payable
of $92,600 and $40,219, respectively, was outstanding on the note. During the quarter ended December 31, 2020, this note was included
in convertible notes payable on the consolidated balance sheet whereas it had been previously included in non-convertible notes payable.
The accompanying balance sheet for December 31, 2019 has been adjusted to reflect the reclassification of this note.
From
January to June 2019, the Company issued convertible promissory notes in the aggregate principal amount of $389,000 (including aggregate
original issuance discount of $39,000) that matured at dates ranging from July 15, 2019 to June 6, 2020 and accruing interest at rates
ranging from 5% to 12% per annum. The investors have the right to convert the Outstanding Balance (as defined in the notes) of the notes
at any time into shares of common stock of the Company at a conversion price of $0.075 per share, subject to adjustment. Upon maturity,
payment may be made in cash, by converting the redemption amount into shares of the Company’s common stock at a conversion price
of the lesser of: (a) $0.075 per share, subject to adjustment; and (b) the Market Price (as defined in the notes), or a combination thereof.
Upon the occurrence of an event of default, the investors may accelerate the note pursuant to which the Outstanding Balance will become
immediately due and payable in cash at the Mandatory Default Amount (as defined in the notes). The Company is prohibited from effecting
a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially
own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the note, which beneficial ownership limitation may be increased by the investor up to, but
not exceeding, 9.99%. In January 2020, one of the promissory notes was amended whereby the conversion price for $9,202 which is a portion
of the principal amount of the note was amended to $0.0004 per share. The amendment was deemed a debt modification and accounted
for accordingly. During the year ended December 31, 2019, the noteholders converted $31,180 of principal and $8,000 of accrued interest
into an aggregate of 10,000,000 shares of common stock. During the year ended December 31, 2020, one of the holders converted $24,826
of principal into an aggregate of 35,005,850 shares of common stock; and one of the holders converted $168,820 of principal and $362,027
of accrued interest into 26.54237 shares of Series Y preferred shares having a stated value of $530,847, resulting in a reduction of the
derivative liability by $719,416 and a gain on settlement of $719,416. As of December 31, 2020 and 2019, the remaining carrying value
of the notes was $164,174 and $247,746, net of debt discount of $0 and $110,074, respectively. As of December 31, 2020 and 2019, accrued
interest payable of $1,191,998 and $456,900, respectively, was outstanding on the notes.
On
November 13, 2019, the Company issued convertible promissory notes in the aggregate principal amount of $108,900, having an aggregate
original issuance discount of $9,900, resulting in cash proceeds of $99,000. The notes matured on May 13, 2020 and accrue interest at
a rate of 12% per annum. The investors have the right to convert the Outstanding Balance (as defined in the notes) of the notes at any
time into shares of common stock of the Company at a conversion price of $0.01 per share, subject to adjustment. In the event of default,
the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the
20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result
of such conversion, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the
Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of
the note, which beneficial ownership limitation may be increased if the Market Capitalization (as defined in the notes) falls below $2,500,000,
but not exceeding, 9.99%. During the year ended December 31, 2020, two of the holders converted $72,600 of principal and $112,671 of accrued
interest into 9.26353 shares of Series Y preferred shares having a stated value of $185,271, resulting in a reduction of the derivative
liability by $301,257 and a gain on settlement of $301,257. As of December 31, 2020 and 2019, the remaining carrying value of the notes
was $36,300 and $14,871, net of debt discount of $0 and $94,029, respectively. As of December 31, 2020 and 2019, accrued interest payable
of $57,231 and $48,789, respectively, was outstanding on the notes.
On
December 6, 2019, the Company issued convertible promissory notes in the aggregate principal amount of $110,000, having an aggregate original
issuance discount of $10,000, resulting in cash proceeds of $100,000. The notes matured on June 6, 2020 and accrue interest at a
rate of 12% per annum. The investors have the right to convert the Outstanding Balance (as defined in the notes) of the notes at
any time into shares of common stock of the Company at a conversion price of $0.01 per share, subject to adjustment. In the event of default,
the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the
20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result
of such conversion, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the
Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of
the note, which beneficial ownership limitation may be increased if the Market Capitalization (as defined in the notes) falls below $2,500,000,
but not exceeding, 9.99%. During the year ended December 31, 2020, the holders converted $110,000 of principal and $123,451 of accrued
interest into 11.67255 shares of Series Y preferred shares having a stated value of $233,451, resulting in a reduction of the derivative
liability by $379,600 and a gain on settlement of $379,600. As of December 31, 2020 and 2019, the remaining carrying value of the notes
was $0 and $15,027, net of debt discount of $0 and $94,973, respectively. As of December 31, 2020 and 2019, accrued interest payable of
$0 and $38,904, respectively, was outstanding on the notes.
In
December 2019, the Company and the holders of all of the outstanding Series A and Series B Preferred Shares (the “Preferred Shares”)
entered into Exchange Agreements whereby 2,800 Series A Preferred Shares and 1,126 Series B Preferred Shares were canceled in exchange
for the issuance of an aggregate of $3,500,000 and $1,548,250 of convertible promissory notes, respectively. The notes matured at dates
ranging from December 24, 2019 to May 18, 2020 and accrue interest at a rate of 12% per annum. The investors have the right to convert
the Outstanding Balance (as defined in the notes) of the notes at any time into shares of common stock of the Company at a conversion
price of $0.005 per share, subject to adjustment. In the event of default, the Outstanding Balance shall immediately increase to 130%
of the Outstanding Balance and a penalty of $100 per day shall accrue until the default is remedied. For a period of two years from the
issuance date, in the event the Company issues or sells any additional common shares or common stock equivalents at a price less than
the Conversion Price (as defined in the notes) then in effect (a “Dilutive Issuance”), the Conversion Price of the notes shall
be reduced to the Dilutive Issuance Price and the number of shares issuable upon conversion shall be increased on a full ratchet basis.
The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together
with its affiliates, would beneficially own more than 9.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the note. During the year ended December 31, 2019,
the noteholders converted $185,500 of principal and $300 of accrued interest into an aggregate of 30,669,903 shares of common stock and
37,160,000 shares of common stock to be issued. During the year ended December 31, 2020, the noteholders converted $31,137 of principal
and $128 of accrued interest into an aggregate of 6,253,056 shares of common stock; and the noteholders converted $4,793,113 of principal
and $2,564,325 of accrued interest into 367.8719 shares of Series Y preferred shares having a stated value of $7,357,438, resulting in
a reduction of the derivative liability by $89,648,951 and a gain on settlement of $89,648,951. As of December 31, 2020 and 2019, the
remaining carrying value of the notes was $38,500 and $4,781,395, net of debt discount of $0 and $81,355, respectively. As of December
31, 2020 and 2019, accrued interest payable of $54,473 and $1,583,795, respectively, was outstanding on the notes.
From
January to September 2020, the Company issued convertible promissory notes in the aggregate principal amount of $700,700, having an aggregate
original issuance discount of $63,700, resulting in cash proceeds of $637,000. The notes mature from July 2020 to March 2021 and
accrue interest at a rate of 12% per annum. During the first 180 days the notes are outstanding, the Company shall have the right to prepay
the notes for an amount equal to 120% (during the first 90 days) or 135% (during the subsequent 90 days) of the Outstanding Balance (as
defined in the notes) being prepaid. The investors have the right to convert the Outstanding Balance of the notes at any time into shares
of common stock of the Company at a conversion price of $0.01 per share, subject to adjustment. In the event of default, the conversion
price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the 20 days prior
to the conversion date. Notwithstanding the foregoing, upon the occurrence of an event of default, the conversion price for the April
2020 notes, having an aggregate original principal amount of $330,000, shall not be less than $0.001. The Company is prohibited from effecting
a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially
own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the note, which beneficial ownership limitation may be increased if the Market Capitalization
(as defined in the notes) falls below $2,500,000, but not exceeding, 9.99%. During the year ended December 31, 2020, the noteholders converted
$700,700 of principal and $462,763 of accrued interest into 58.17315 shares of Series Y preferred shares having a stated value of $1,163,463,
resulting in a reduction of the derivative liability by $1,885,194, a reduction in debt discount by $72,637 and a gain on settlement of
$1,812,557. As of December 31, 2020, the remaining carrying value of the notes was $0, net of debt discount of $0. As of December 31,
2020, accrued interest payable of $13,844 was outstanding on the notes.
On
December 15, 2020, $79,143 of accrued compensation owed to the Company’s Chief Financial Officer was settled by the issuance of
a convertible note in the amount of $64,143, having a maturity date of June 15, 2021 and bearing interest of 12% per annum, resulting
in a gain on settlement of accounts payable of $15,000. The holder has the right to convert the Outstanding Balance (as defined in the
note) of the note at any time into shares of common stock of the Company at a conversion price of $0.0003 per share, subject to adjustment.
In the event of default, the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s
common stock during the 20 days prior to the conversion date. As a result of the beneficial conversion feature of the note, debt discount
of $64,143 was recognized with a corresponding increase in additional paid-in capital. On December 24, 2020, the holder converted $64,143
of principal into 3.20716 shares of Series Y preferred shares having a stated value of $64,143, resulting in a reduction in debt discount
by $60,971 and a loss on settlement of $60,971. As of December 31, 2020, the remaining carrying value of the note was $0, net of debt
discount of $0. As of December 31, 2020, accrued interest payable of $0 was outstanding on the note (See Note 18).
As of December 31, 2020
and 2019, the remaining carrying value of the convertible notes was $3,186,303 and $6,989,039, net of debt discount of $0 and $380,431,
respectively. As of December 31, 2020 and 2019, accrued interest payable of $2,483,955 and $3,495,717, respectively, was outstanding on
the notes.
Upon the issuance of certain convertible notes,
the Company determined that the features associated with the embedded conversion option embedded in the notes, 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.
The Company does not have enough authorized and
unissued common shares to convert all of the convertible promissory notes into common shares. As a result of this authorized shares shortfall,
all of the convertible notes payable, including those where the maturity date has not yet been reached, are in default. Accordingly, (i)
interest has been accrued at the default interest rate, if applicable, and (ii) the embedded conversion option has been accounted for,
at fair value, as a derivative liability (See Note 13).
NOTE 13 – DERIVATIVE
LIABILITIES AND FAIR VALUE MEASUREMENTS
Upon the issuance of certain convertible debentures,
warrants, and preferred stock, the Company determined that the features associated with the embedded conversion option embedded in the
debentures, 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 year ended December 31, 2019, upon
issuance, the Company estimated the fair value of the embedded derivatives using the Black-Scholes Pricing Model based on the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 110.59% to 119.18%, (3) risk-free interest rate of 1.48% to 2.33%, and
(4) expected life of 0.01 to 3.0 years.
On December 31, 2019, the Company estimated
the fair value of the embedded derivatives of $20,236,870 using the Black-Scholes Pricing Model based on the following assumptions: (1)
dividend yield of 0%, (2) expected volatility of 119.18%, (3) risk-free interest rate of 1.48% to 1.62%, and (4) expected life of 0.01
to 3.09 years.
During the
year ended December 31, 2020, upon issuance of the instruments underlying the derivative liabilities and upon revaluation (immediately
prior to conversion of the underlying instrument), the Company estimated the fair value of the embedded derivatives using the Black-Scholes
Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 119.33% to 128.94%, (3) risk-free
interest rate of 0.06% to 1.56%, and (4) expected life of 0.06 to 2.11 years.
On December 31, 2020, the Company estimated
the fair value of the embedded derivatives of $25,475,514 using the Black-Scholes Pricing Model based on the following assumptions: (1)
dividend yield of 0%, (2) expected volatility of 132.11%, (3) risk-free interest rate of 0.08% to 0.13%, and (4) expected life of 0.04
to 2.08 years.
The Company adopted the provisions
of 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 non-performance. 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:
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Level 1 – Quoted prices
in active markets for identical assets or liabilities.
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Level 2 – Observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be
derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
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Level 3 – Unobservable inputs
to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
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All items required to be
recorded or measured on a recurring basis are based upon Level 3 inputs.
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 December 31, 2020,
the Company did not have any derivative instruments that were designated as hedges.
Items recorded or measured
at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December
31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivative liability
|
|
$
|
25,475,514
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,475,514
|
|
|
|
December 31,
2019
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivative liability
|
|
$
|
20,236,870
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,236,870
|
|
The following table provides
a summary of changes in fair value of the Company’s Level 3 financial liabilities for the two years ended December 31, 2020:
Balance, December 31, 2018
|
|
$
|
-
|
|
Transfers in due to issuance of convertible notes and warrants with embedded conversion and reset provisions
|
|
|
686,059
|
|
Transfers out due to conversions of convertible notes and accrued interest into common shares
|
|
|
(56,142
|
)
|
Derivative liability due to authorized shares shortfall
|
|
|
18,921,538
|
|
Mark to market to December 31, 2019
|
|
|
685,415
|
|
Balance, December 31, 2019
|
|
$
|
20,236,870
|
|
Transfers in due to issuance of convertible notes and warrants with embedded conversion and reset provisions
|
|
|
573,230
|
|
Transfers out due to conversions of convertible notes and accrued interest into common shares
|
|
|
(278,545
|
)
|
Transfers out due to conversions of convertible notes, accrued interest and warrants into Series Y preferred shares
|
|
|
(165,826,982
|
)
|
Derivative liability due to authorized shares shortfall
|
|
|
170,319,590
|
|
Mark to market to December 31, 2020
|
|
|
451,351
|
|
Balance, December 31, 2020
|
|
$
|
25,475,514
|
|
|
|
|
|
|
Loss on change in derivative liabilities for the year ended December 31, 2020
|
|
$
|
(451,351
|
)
|
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/(decreases) for each of the related derivative instruments, the value to the holder of the instrument
generally increases/(decreases), therefore increasing/(decreasing) the liability on the Company’s balance sheet. Decreases in the
conversion price of the Company’s convertible notes are another driver for the changes in the derivative valuations during each
reporting period. As the conversion price decreases for each of the related derivative instruments, the value to the holder of the instrument
(especially those with full ratchet price protection) 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 measurements. 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 14 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is authorized
to issue 10,000,000 shares of blank check preferred stock, par value $0.001 per share.
On July 2, 2019, the Company authorized the issuance
of 6,000 Series A preferred stock, par value $0.001 per share. The Series A preferred stock have a $1,250 stated value and are convertible
into shares of common stock at $0.05 per share, subject to certain adjustments. The Certificate of Designation for the Series A preferred
stock was filed on July 9, 2019.
On July 2, 2019 and July 11, 2019, the Company
entered into exchange agreements with certain stockholders pursuant to which it exchanged warrants issued in July 2018 to purchase an
aggregate of 26,000,000 shares of the Company’s common stock for an aggregate of 6,000 shares of Series A Preferred Stock. Accordingly,
the fair value of the Series A Preferred Stock of $5,882,340 was recognized, offset by preferred stock issuance costs of $5,585,594, net
of a decrease in additional paid in capital of $296,746 for the fair value of the canceled warrants.
From July 5, 2019 to September 19, 2019, the Company
issued an aggregate of 80,000,000 shares of common stock and 903,823,564 shares of common stock to be issued upon the conversion of 3,200
shares of Series A Preferred Stock. Accordingly, Series A Preferred Stock was decreased by $3,137,248, common stock was increased
by the par value of the common shares issued of $80,000, common stock to be issued was increased by the par value of the common shares
to be issued $903,824, and additional paid in capital was increased by $2,153,424.
On December 3, 2019, the Company retired the remaining
2,800 shares of Series A Preferred Stock in exchange for the issuance of convertible notes (the “Exchange”) in the aggregate
principal amount of $3,500,000. Accordingly, Series A Preferred Stock was decreased by $2,745,086, additional paid in capital was
decreased by $754,914 (stemming from recognition of a deemed dividend recognized immediately prior to the Exchange), and convertible notes
payable was increased by $3,500,000. In addition, the derivative liabilities on the Series A Preferred Stock (stemming from the inability
to convert caused by the authorized shares shortfall) of $2,012,420 was eliminated with a corresponding decrease in derivative liability
for authorized shares shortfall expense. Lastly, derivative liabilities on the newly issued convertible notes (stemming from the inability
to convert caused by the authorized shares shortfall) of $54,364 was recognized as an increase in derivative liabilities and a corresponding
increase in debt discount on the convertible notes payable.
As of December 31, 2020 and 2019, there were 0 shares of Series A Preferred
Stock outstanding.
On June 24, 2019, the Company
authorized the issuance of 2,000 shares of Series B Preferred Stock, par value $0.001 per share. The Series B Preferred Stock have a $1,250
stated value and are convertible into shares of common stock at $0.05 per share, subjected to certain adjustments. The Certificate of
Designation for the Series B Preferred Stock was filed on July 9, 2019.
From June 24 to November
16, 2019, the Company issued 1,126 shares of Series B Preferred Stock for proceeds of $1,407,500.
From December 3 through December
31, 2019, the Company retired the remaining 1,126 shares of Series B Preferred Stock in exchange for the issuance of convertible notes
(the “Exchange”) in the aggregate principal amount of $1,548,250. Accordingly, Series B Preferred Stock was decreased
by the par value of the preferred shares of $1, additional paid in capital was decreased by $826,883 (for the remaining carrying value
of the preferred shares), additional paid in capital was decreased by $721,366 (stemming from recognition of a deemed dividend recognized
immediately prior to the Exchange), and convertible notes payable was increased by $1,548,250. In addition, the derivative liabilities
on the Series B Preferred Stock (stemming from the inability to convert caused by the authorized shares shortfall) of $776,965 was eliminated
with a corresponding decrease in derivative liability for authorized shares shortfall expense. Lastly, derivative liabilities on the newly
issued convertible notes (stemming from the inability to convert caused by the authorized shares shortfall) of $85,370 was recognized
as an increase in derivative liabilities and a corresponding increase in debt discount on the convertible notes payable.
As of December 31, 2020 and
2019, there were 0 shares of Series B Preferred Stock outstanding.
On July 16, 2019, the Company
authorized the issuance of 1,000 Series C Preferred Stock, par value $0.001 per share. The 1,000 Series C preferred shares are convertible
into 1,000,000 shares of common stock upon the Company listing on a national exchange and other conditions. The Certificate of Designation
for the Series C Preferred Stock was filed on July 19, 2019.
On October 21, 2019, the Company issued 1,000
Series C Preferred Shares with a value of $10,000 for services rendered.
As of December 31, 2020 and
2019, there were 1,000 shares of Series C Preferred Stock outstanding.
On November 23, 2020, the
Company authorized the issuance of 100 shares of Series X Preferred Stock, par value $0.0001 per share. The Series X Preferred Stock has
a $20,000 stated value and is convertible into shares of common stock at $0.002 per share, subjected to certain adjustments. In the event
the Company issues or sells any securities with an effective price or exercise or conversion price less than the Conversion Price, the
Conversion Price shall be reduced to the sale price or exercise or conversion price of the securities issued or sold. The Certificate
of Designation for the Series X Preferred Stock was filed on November 23, 2020.
From November 25 to December
23, 2020, the Company issued an aggregate of 16.05 shares of Series X Preferred Stock for aggregate proceeds of $321,000. Upon each issuance
of Series X shares, the conversion price was less than the Company’s stock price. Accordingly, during the year ended December 31,
2020, the Company recognized an aggregate beneficial conversion feature of $454,200 upon issuance of the Series X preferred shares. The
resulting amortization of the preferred stock discount of $46,448 is recognized as a deemed dividend in the accompanying statement of
operations. The preferred stock discount is being amortized over 120 days, which is the maximum amount of time the Company has to conduct
a stockholder vote to increase the Company’s authorized shares.
As of December 31, 2020 and
2019, there were 16.05 and 0 shares, respectively, of Series X Preferred Stock outstanding.
On December 30, 2020, the
Company authorized the issuance of 1,000 shares of Series Y Preferred Stock, par value $0.001 per share. The Series Y Preferred Stock
has a $20,000 stated value and is convertible into shares of common stock at $0.002 per share, subjected to certain adjustments. In the
event the Company issues or sells any securities with an effective price or exercise or conversion price less than the Conversion Price,
the Conversion Price shall be reduced to the sale price or exercise or conversion price of the securities issued or sold. The Certificate
of Designation for the Series Y Preferred Stock was filed on December 30, 2020.
From December 23 to December
30, 2020, the Company issued 654.781794 shares of Series Y Preferred Stock, having a stated value of $13,095,636, in exchange for convertible
notes payable of $5,775,767 (net of debt discount of $133,608), accrued interest of $3,625,237, and 14,765,624,721 warrants. The exchanges
resulted in a reduction of derivative liabilities related to the convertible notes and accrued interest of $92,934,419, a reduction of
derivative liabilities related to the warrants of $72,892,563, and a net gain on settlement of $162,132,350. Included in the foregoing
amounts is 3.20716 shares of Series Y Preferred Stock, having a stated value of $64,143, issued to the Company’s Chief Financial
Officer, in exchange for convertible notes of $3,172 (net of debt discount of $60,971), resulting in a loss on settlement of $60,971.
Upon each issuance of Series Y shares, the conversion price was less than the Company’s stock price. Accordingly, during the year
ended December 31, 2020, the Company recognized an aggregate beneficial conversion feature of $21,594,115 upon issuance of the Series
Y preferred shares. The resulting amortization of the preferred stock discount of $1,028,091 is recognized as a deemed dividend in the
accompanying statement of operations. The preferred stock discount is being amortized over 120 days, which is the maximum amount of time
the Company has to conduct a stockholder vote to increase the Company’s authorized shares.
As of December 31, 2020,
there were 626.995464 shares of Series Y Preferred Stock outstanding and 27.786334 shares to be issued.
Common Stock
The Company is authorized to issue 500,000,000
shares of common stock, par value $0.001 per share.
During the year ended December 31, 2019, the Company
issued an aggregate of 80,000 shares of its common stock recorded as to be issued on December 31, 2018 for a cash warrant exercise.
During the year ended December 31, 2019, the Company
issued an aggregate of 1,591,240 shares of its common stock as interest expense with a value of $36,830.
During the year ended December 31, 2019, the Company
issued 5,553,191 shares of its common stock to satisfy a true-up provision with a value of $22,213.
During the year ended December 31, 2019, the Company
issued an aggregate of 2,950,000 shares of its common stock and recorded an additional 2,550,000 shares as to be issued, having an aggregate
fair value of $208,700, for services rendered.
During the year ended December 31, 2019, the Company
issued an aggregate of 3,997,661 shares of its common stock upon the cashless exercise of outstanding warrants. Accordingly, common stock
was increased by the par value of the common shares issued of $3,998 with a corresponding decrease in additional paid in capital.
During the year ended December 31, 2019, the Company
issued 9,000,000 shares for the settlement of a warrant provision. The fair value of the common shares issued of $437,400 was recognized
as a deemed dividend whereby common stock was increased by the par value of the common shares issued of $9,000, additional paid in capital
was increased by $428,400 and retained earnings was decreased by $437,400.
During the year ended December 31, 2019, the Company
issued an aggregate of 1,555,160 shares of its common stock and recorded an additional 1,126,250 shares of common stock as to be issued
for the cash exercise of warrants for proceeds of $172,950.
During the year ended December 31, 2019, the Company
issued an aggregate of 111,174,464 shares of its common stock and 37,160,000 shares of common stock to be issued, having an aggregate
fair value of $1,732,318, for the settlement of convertible debt with a principal amount of $1,041,680 and accrued interest of $40,131,
which resulted in the elimination of $46,978 of derivative liabilities and an aggregate loss on conversion of convertible notes of $603,529. Accordingly,
common stock was increased by the par value of the common shares issued of $111,174, common stock to be issued was increased by the par
value of the common shares to be issued of $37,160 and additional paid in capital was increased by $1,583,984.
During the year ended December 31, 2019, the Company
issued an aggregate of 1,250,000 shares of its common stock as origination shares with a principal amount of $141,333.
During the year ended December 31, 2019, the Company
issued an aggregate of 80,000,000 shares of common stock and 903,823,564 shares of common stock to be issued upon the conversion of 3,200
shares of Series A Preferred Stock. Accordingly, Series A Preferred Stock was decreased by $3,137,248, common stock was increased
by the par value of the common shares issued of $80,000, common stock to be issued was increased by the par value of the common shares
to be issued of $903,824 and additional paid in capital was increased by $2,153,424.
On January 8, 2020, the Company
issued 37,160,000 shares of the Company’s common stock previously recorded as to be issued as of December 31, 2019.
On March 7, 2020, a stockholder returned 69,000
shares of the Company’s common stock back to the Company. The shares were immediately retired. Accordingly, common stock was decreased
by the par value of the common shares contributed of $69 with a corresponding increase in additional paid in capital.
During the year ended December
31, 2020, a warrant exercise in 2019, to purchase 120,000 common shares, was rescinded. The rescission was recorded as a decrease in common
stock to be issued of $120 and a decrease in additional paid-in capital of $5,880 with a corresponding increase in accounts payable and
accrued expenses of $6,000.
During the year ended December 31, 2020, the Company
issued an aggregate of 72,368,457 shares of its common stock, having an aggregate fair value of $370,755, upon the conversion of convertible
notes with a principal amount of $92,964 and accrued interest of $128, which resulted in the elimination of $278,545 of derivative liabilities
and an aggregate net gain on conversion of convertible notes of $882. Accordingly, common stock was increased by the par value
of the common shares issued of $72,369 and additional paid in capital was increased by $298,386.
As of December 31, 2020 and 2019, there were 493,726,405
and 384,266,948 shares, respectively, of common stock issued and outstanding.
NOTE 15 – WARRANTS
During the year ended December 31, 2019, the Company
received $172,950 from cash exercises of warrants to purchase 1,555,160 shares of common stock. During the same period, the Company issued
3,997,661 shares of common stock upon the cashless exercise of warrants to purchase 12,686,249 shares of common stock.
On July 2, 2019 and July 11, 2019, the Company
entered into exchange agreements with certain stockholders pursuant to which it exchanged warrants issued in July 2018 to purchase an
aggregate of 26,000,000 shares of the Company’s common stock for an aggregate of 6,000 shares of Series A Preferred Stock.
During the year ended December
31, 2019, the Company issued 568,118,340 warrants to purchase shares of common stock at $0.075 per share pursuant to the Series B Preferred
Stock offering.
During the year ended December 31, 2019, as a
result of the Company’s Series B Preferred Stock offering, the ratchet provisions in certain warrants were triggered, causing the
exercise price to be reset to $0.00224 per share. Accordingly, warrants to purchase 600,551,672 shares of common stock were repriced to
a $0.00224 per share exercise price as of December 31, 2019. In addition, warrants to purchase an additional 2,729,734,691 shares of common
stock at $0.00224 per share were issued as a result of this ratchet provision.
During the year ended December 31, 2019, the Company
recorded $28,933,472 in deemed dividends as a result of the triggering of price protection provisions in certain outstanding warrants.
Accordingly, additional paid in capital was increased by $28,933,472 with a corresponding decrease in the accumulated deficit.
From December 23 to December
30, 2020, the Company issued 654.78 shares of Series Y Preferred Stock, having a stated value of $13,095,636, in exchange for convertible
notes payable of $5,775,767 (net of debt discount of $133,608), accrued interest of $3,625,237, and 14,764,624,721 warrants. The exchanges
resulted in a reduction of derivative liabilities related to the convertible notes and accrued interest of $92,934,419, a reduction of
derivative liabilities related to the warrants of $72,892,563, and a net gain on settlement of $162,132,350.
During the year ended December 31, 2020, the Company
recorded $95,838,488 in deemed dividends as a result of the triggering of price protection provisions in certain outstanding warrants.
Accordingly, additional paid in capital was increased by $95,838,488 with a corresponding decrease in the accumulated deficit.
A summary of the warrant activity for the years
ended December 31, 2020 and 2019 is as follows:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2018
|
|
|
74,910,002
|
|
|
$
|
0.14
|
|
|
|
3.89
|
|
|
$
|
-
|
|
Granted
|
|
|
3,321,040,292
|
|
|
$
|
0.00064
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(15,367,659
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
Canceled/Exchanged
|
|
|
(38,206,270
|
)
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
3,342,376,365
|
|
|
$
|
0.00265
|
|
|
|
2.96
|
|
|
$
|
8,791,956
|
|
Granted
|
|
|
13,943,650,911
|
|
|
$
|
0.00040
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled/Exchanged
|
|
|
(14,764,949,721
|
)
|
|
$
|
0.00042
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
2,521,077,555
|
|
|
$
|
0.00109
|
|
|
|
2.04
|
|
|
$
|
14,804,944
|
|
Exercisable at December 31, 2020
|
|
|
2,521,077,555
|
|
|
$
|
0.00109
|
|
|
|
2.04
|
|
|
$
|
14,804,944
|
|
Exercise Price
|
|
Warrants
Outstanding
|
|
|
Weighted Avg.
Remaining Life
|
|
|
Warrants
Exercisable
|
|
$0.0001 – 0.25
|
|
|
2,520,512,553
|
|
|
|
2.04
|
|
|
|
2,520,512,553
|
|
0.26 – 0.50
|
|
|
465,002
|
|
|
|
0.68
|
|
|
|
465,002
|
|
0.51 – 0.75
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
0.76 – 1.00
|
|
|
100,000
|
|
|
|
0.04
|
|
|
|
100,000
|
|
|
|
|
2,521,077,555
|
|
|
|
2.04
|
|
|
|
2,521,077,555
|
|
The aggregate intrinsic value
of outstanding stock warrants was $14,804,944, based on warrants with an exercise price less than the Company’s stock price of $0.0063
as of December 31, 2020 which would have been received by the warrant holders had those holders exercised the warrants as of that date.
NOTE 16 – STOCK OPTIONS
Our 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 (the “2016 Plan”) in October 2016, our 2017 Equity Incentive Plan in December 2016 (the “2017
Plan” and together with the 2014 Plan, 2015 Plan, the 2016 Plan, the “Prior Plans”) and our 2018 Equity Incentive Plan
in June 2018 (the “2018 Plan,” and together with the Prior Plans, the “Plans”). The Prior Plans are identical,
except for number of shares reserved for issuance under each. As of December 31, 2020, the Company had granted an aggregate of 64,310,000
securities under the Plans, with 190,000 shares available for future issuances.
The Plans provide for the
grant of incentive stock options to our employees and our parent and subsidiary corporations’ 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. The Prior Plans also provide that the grant of performance stock awards may be paid out
in cash as determined by the committee administering the Prior Plans.
The Company estimates the
fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such
as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest
rate over the expected option term and expected dividend yield rate over the expected option term. The Company believes this valuation
methodology is appropriate for estimating the fair value of stock options granted. These amounts are estimates and thus may not be reflective
of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line
basis over the requisite service period for each award.
During the year ended December
31, 2019, the Company granted ten-year options outside of our Plans to purchase up to 250,000 shares of the Company’s common stock
for advisory services. The fair value of $14,000, was determined using the Black-Scholes option pricing model, assuming approximately
2.43% risk-free interest, 0% dividend yield, 114% volatility, and expected life of ten years and will be charged to operations over the
vesting terms of the options.
A summary
of the Company’s stock option activity during the year ended December 31, 2019, is presented below:
Exercise
Price
|
|
|
Number of
Options
|
|
|
Vesting Terms
|
$
|
0.075
|
|
|
|
250,000
|
|
|
Immediately
|
There were no options issued during the year ended December 31, 2020.
A summary of the stock option activity for the
years ended December 31, 2020 and 2019 is as follows:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2018
|
|
|
27,371,765
|
|
|
$
|
0.50
|
|
|
|
8.42
|
|
|
$
|
-
|
|
Granted
|
|
|
250,000
|
|
|
$
|
0.075
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture/Cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
27,621,765
|
|
|
$
|
0.49
|
|
|
|
7.49
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture/Cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
27,621,765
|
|
|
$
|
0.49
|
|
|
|
6.49
|
|
|
$
|
-
|
|
Exercisable at December 31, 2020
|
|
|
27,621,765
|
|
|
$
|
0.49
|
|
|
|
6.49
|
|
|
$
|
-
|
|
Exercise Price
|
|
Number of
Options
|
|
|
Remaining Life
In Years
|
|
|
Number of Options
Exercisable
|
|
$0.01 – 0.25
|
|
|
13,306,786
|
|
|
|
7.26
|
|
|
|
13,306,786
|
|
0.26 - 0.50
|
|
|
1,939,631
|
|
|
|
6.26
|
|
|
|
1,939,631
|
|
0.51 – 0.75
|
|
|
1,820,112
|
|
|
|
5.68
|
|
|
|
1,820,112
|
|
0.76 - 1.00
|
|
|
9,926,072
|
|
|
|
5.70
|
|
|
|
9,926,072
|
|
1.01 - 2.00
|
|
|
629,164
|
|
|
|
5.60
|
|
|
|
629,164
|
|
|
|
|
27,621,765
|
|
|
|
|
|
|
|
27,621,765
|
|
The aggregate intrinsic value
of outstanding stock options was $0, based on options with an exercise price less than the Company’s stock price of $0.0063 as of
December 31, 2020, 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 that were vested
as of the year ended December 31, 2020 and 2019 was $0 and $14,000, respectively. Unrecognized compensation expense
of $0 as of December 31, 2020 will be expensed in future periods.
NOTE 17 – INCOME TAXES
The Tax Cuts and Jobs Acts (the “Act”)
was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%. ASC 740, “Income Taxes,”
requires that effects of changes in tax rates to be recognized in the period enacted. Recognizing the late enactment of the Act and complexity
of accurately accounting for its impact, the Securities and Exchange Commission in Staff Accounting Bulletin 118 provides guidance that
allows registrants to provide a reasonable estimate of the Act in their financial statements and adjust the reported impact in a measurement
period not to exceed one year.
At December 31, 2020, the Company has available for income
tax purposes of approximately $69,757,321 in federal and $56,394,019 in Colorado state net operating loss carry forward. which begin expiring
in the year 2033, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount
of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely
than not that the benefits will not be realized. Due to possible significant changes in the Company’s ownership, the future use
of its existing net operating losses may be limited. All or portion of the remaining valuation allowance may be reduced in future
years based on an assessment of earnings sufficient to fully utilize these potential tax benefits. During the year ended December 31, 2020,
the Company has increased the valuation allowance from $17,520,829 to $18,379,120.
The Company has adopted the provisions of ASC
740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken
in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial
statements when it is more likely than not that the position would be sustained upon examination by tax authorities.
Tax position that meet the more likely than not
threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50%
likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered
to be uncertain.
Sections 382 and 383 of the Internal Revenue Code
of 1986, as amended (the “Code”), provide for annual limitations on the utilization of net operating loss and credit carryforwards
if the Company were to undergo an ownership change, as defined in Section 382 of the Code. In general, an ownership change occurs whenever
the percentage of the shares of a corporation owned, directly or indirectly, by 5-percent shareholders, as defined in Section 382 of the
Code, increases by more than 50 percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly,
by such 5-percent shareholders at any time over the preceding three years. In the event such ownership change occurs, the annual limitation
may result in the expiration of the net operating losses prior to full utilization.
The Company is required to file income tax returns
in the U.S. Federal jurisdiction and in California and Colorado. The Company is no longer subject to income tax examinations by tax authorities
for tax years ending before December 31, 2015.
The Company’s deferred taxes as of December 31, 2020
and 2019 consist of the following:
|
|
2020
|
|
|
2019
|
|
Deferred Tax Assets/(Liability) Detail
|
|
|
|
|
|
|
|
|
Stock Compensation
|
|
$
|
52,313
|
|
|
$
|
-
|
|
Amortization
|
|
|
156,072
|
|
|
|
-
|
|
Depreciation
|
|
|
1,180
|
|
|
|
-
|
|
Interest
|
|
|
1,213,854
|
|
|
|
-
|
|
Change in Fair Market Value of Derivative Liabilities
|
|
|
279,582
|
|
|
|
-
|
|
NOL DTA
|
|
|
16,676,120
|
|
|
|
17,520,826
|
|
Valuation allowance
|
|
|
(18,379,120
|
)
|
|
|
(17,520,826
|
)
|
Total gross deferred tax assets
|
|
|
-
|
|
|
|
-
|
|
The Company follows 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.
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.
|
|
2020
|
|
|
2019
|
|
Expected tax at statutory rates
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Nondeductible Expenses
|
|
|
(11.72
|
)%
|
|
|
(11.00
|
)%
|
State Income Tax, Net of Federal benefit
|
|
|
1.59
|
%
|
|
|
5.00
|
%
|
Current Year Change in Valuation Allowance
|
|
|
(5.83
|
)%
|
|
|
(15.00
|
)%
|
Prior Deferred True-Ups
|
|
|
(5.03
|
)%
|
|
|
-
|
|
NOTE 18 – RELATED PARTY TRANSACTIONS
On October 1, 2019, Isaac Dietrich, the Company’s
Chief Executive Officer, forfeited warrants received on July 21, 2017.
On October 21, 2019, the Company issued 1,000
shares of Series C Preferred Stock, having an aggregate fair value of $10,000, to Isaac Dietrich in recognition of his service to the
Company.
During the year ended December 31, 2020, the Company
received aggregate advances of $3,696 and repaid an aggregate of $509 to the Company’s Chief Executive Officer. The advances are
non-interest bearing and due on demand. As of December 31, 2020, the Company owed $3,187 in advances to the Company’s Chief Executive
Officer (See Note 8).
On December 15, 2020, the Company
entered into a settlement agreement (the “Settlement Agreement”) with JDE Development, LLC (“JDE”), a Florida
limited liability company wholly-owned and managed by Jesus Quintero, the Company’s former Chief Financial Officer, in connection
with the outstanding sum of $89,143 due to JDE for the services of Jesus Quintero as the Chief Financial Officer of the Company pursuant
to that certain CFO Services Agreement entered into as of April 1, 2018, by and between the Company and Jesus Quintero. Pursuant to the
Settlement Agreement, the Company agreed to pay JDE $25,000 (the “Cash Settlement”) and to enter into a convertible note with
JDE in the principal amount of $64,143 (the “Note”). In addition, both parties agreed, on behalf of themselves, their past
and present shareholders, members, directors, employees, managers, parents, affiliates, subsidiaries, principals, officers, related entities,
assigns and successors, to irrevocably and fully release each other, and their respective past and present shareholders, members, directors,
employees, managers, parents, affiliates, subsidiaries, principals, officers, related entities, assigns and successors, from any and all
claims and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever at
law or in equity, upon or by reason of any matter, cause or thing of any nature whatsoever, including but not limited to claims related
to sums payable by the Company to JDE. In accordance with the Settlement Agreement, (i) on December 23, 2020, the Company paid JDE the
Cash Settlement, and (ii) on December 15, 2020, the Company entered into the Note with JDE for a principal amount of $64,143. The Note
had a maturity date of June 15, 2021 and accrued interest at a rate of 12% per annum. The holder
has the right to convert the Outstanding Balance of the Note at any time into shares of common stock of the Company at a conversion price
of $0.0003 per share, subject to adjustment. In the event of default, the conversion price shall be 60% of the average of the three lowest
closing bid prices of the Company’s common stock during the 20 days prior to the conversion date. The shares of Series Y
Preferred Stock are not convertible to the extent that (i) the Company’s Certificate of Incorporation has not been amended to increase
the number of authorized shares of Common Stock of the Company, or (ii) the holder (together with such holder’s affiliates) would
beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such conversion (which
provision may be increased to a maximum of 9.99% by the holder by written notice from such holder to the Company, which notice shall be
effective 61 calendar days after the date of such notice). As a result of the beneficial conversion
feature of the Note, debt discount of $64,143 was recognized with a corresponding increase in additional paid-in capital. On December
24, 2020, the holder converted $64,143 of principal into 3.20716 shares of Series Y preferred shares having a stated value of $64,143,
resulting in a reduction in debt discount by $60,971 and a loss on settlement of $60,971. As of December 31, 2020, the remaining carrying
value of the Note was $0, net of debt discount of $0. As of December 31, 2020, accrued interest payable of $0 was outstanding on the Note
(See Note 12).
NOTE 19 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued.
On January 21, 2021, MassRoots issued 4,448,251
shares of common stock for the settlement of $13,345 in convertible debt and accrued interest.
From February 16 to March 16, 2021, MassRoots
received proceeds of $200,000 for the sale of 10 shares of Series X Preferred Stock.
From January 7 to March 25, 2021, MassRoots exchanged
$35,000 in convertible debt, $60,444 in accrued interest, and warrants to purchase 131,249,975
shares of common stock at $0.0004/share into 4.82388 shares of
Series Y Preferred Stock.
On March 17, 2021, MassRoots issued 27.78633
shares of Series Y Preferred Stock that were recorded as to be issued as of December 31, 2020.
GREENWAVE TECHNOLOGY
SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
1,082
|
|
|
$
|
1,485
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
97,132
|
|
Total current assets
|
|
|
1,082
|
|
|
|
98,617
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,082
|
|
|
$
|
98,617
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,242,821
|
|
|
$
|
4,948,890
|
|
Accrued payroll and related expenses
|
|
|
4,037,298
|
|
|
|
3,864,055
|
|
Deferred revenue
|
|
|
25,000
|
|
|
|
-
|
|
Advances
|
|
|
122,000
|
|
|
|
88,187
|
|
Non-convertible notes payable, current portion, net of debt discount of $15,862 and $0, respectively
|
|
|
1,760,082
|
|
|
|
159,520
|
|
Derivative liabilities
|
|
|
4,289,634
|
|
|
|
25,475,514
|
|
Convertible notes payable
|
|
|
3,063,970
|
|
|
|
3,186,303
|
|
Total current liabilities
|
|
|
17,540,805
|
|
|
|
37,722,469
|
|
|
|
|
|
|
|
|
|
|
Non-convertible notes payable, net of debt discount of $1,636 and $0, respectively
|
|
|
128,364
|
|
|
|
60,000
|
|
PPP note payable
|
|
|
-
|
|
|
|
50,000
|
|
Total liabilities
|
|
|
17,669,169
|
|
|
|
37,832,469
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred stock - 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Preferred stock - Series X, $0.0001 par value, $20,000 stated value, 100 shares authorized; 26.05 and 16.05 shares issued and outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
Preferred stock - Series Y, $0.001 par value, $20,000 stated value, 1,000 shares authorized; 720.515674 and 654.781794 shares issued; 720.515674 and 626.995464 shares outstanding, and 0 and 27.78633 to be issued, respectively
|
|
|
1
|
|
|
|
1
|
|
Preferred stock - Series Z, $0.001 par value, $20,000 stated value, 500 shares authorized; 500 and 0 shares issued; 0 and 0 shares outstanding, and 500 and 0 to be issued, respectively
|
|
|
1
|
|
|
|
-
|
|
Preferred stock - Series C, $0.001 par value, 1,000 shares authorized; 1,000 shares issued and outstanding
|
|
|
1
|
|
|
|
1
|
|
Preferred stock - Series A, $0.001 par value, 6,000 shares authorized; 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Preferred stock - Series B, $0.001 par value, 2,000 shares authorized; 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001par value, 1,200,000,000 shares authorized; 499,871,337 and 493,726,405 shares issued and outstanding, respectively
|
|
|
499,871
|
|
|
|
493,727
|
|
Common stock to be issued, 906,373,564 and 907,379,814 shares, respectively
|
|
|
906,374
|
|
|
|
907,380
|
|
Additional paid in capital
|
|
|
306,046,151
|
|
|
|
283,024,527
|
|
Discount on preferred stock
|
|
|
-
|
|
|
|
(20,973,776
|
)
|
Accumulated deficit
|
|
|
(325,120,486
|
)
|
|
|
(301,185,712
|
)
|
Total stockholders’ deficit
|
|
|
(17,668,087
|
)
|
|
|
(37,733,852
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
1,082
|
|
|
$
|
98,617
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(As Restated)
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
54
|
|
|
$
|
2,316
|
|
|
$
|
1,660
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
150
|
|
|
|
297
|
|
|
|
150
|
|
Advertising
|
|
|
(4,578
|
)
|
|
|
43,020
|
|
|
|
18,125
|
|
|
|
43,020
|
|
Payroll and related expense
|
|
|
66,693
|
|
|
|
63,879
|
|
|
|
225,603
|
|
|
|
239,770
|
|
Other general and administrative expenses
|
|
|
333,197
|
|
|
|
101,189
|
|
|
|
953,927
|
|
|
|
413,417
|
|
Total Operating Expenses
|
|
|
395,312
|
|
|
|
208,238
|
|
|
|
1,197,952
|
|
|
|
696,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(395,258
|
)
|
|
|
(205,922
|
)
|
|
|
(1,196,292
|
)
|
|
|
(694,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,191,405
|
)
|
|
|
(1,602,204
|
)
|
|
|
(2,159,564
|
)
|
|
|
(3,607,210
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
2,641,481
|
|
|
|
66,572,635
|
|
|
|
(159,633,797
|
)
|
|
|
(43,406,183
|
)
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
(85,287
|
)
|
|
|
300,885
|
|
|
|
303,593
|
|
Gain (loss) on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares in exchange for Series Y and Series Z preferred shares and cash
|
|
|
(1,578,559
|
)
|
|
|
-
|
|
|
|
173,361,276
|
|
|
|
-
|
|
Gain on forgiveness of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
192,521
|
|
|
|
-
|
|
Gain (loss) on conversion of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
(880
|
)
|
|
|
882
|
|
Total Other Income (Expense)
|
|
|
(128,483
|
)
|
|
|
64,885,144
|
|
|
|
12,060,441
|
|
|
|
(46,708,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes
|
|
|
(523,741
|
)
|
|
|
64,679,222
|
|
|
|
10,864,149
|
|
|
|
(47,402,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
(523,741
|
)
|
|
|
64,679,222
|
|
|
|
10,864,149
|
|
|
|
(47,402,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend resulting from amortization of preferred stock discount
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,798,923
|
)
|
|
|
-
|
|
Deemed dividend from warrant price protection
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(95,002,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Available to Common Stockholders
|
|
$
|
(523,741
|
)
|
|
$
|
64,679,222
|
|
|
$
|
(23,934,774
|
)
|
|
$
|
(142,405,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
|
$
|
0.05
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
Diluted
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,406,244,901
|
|
|
|
1,401,226,219
|
|
|
|
1,405,511,082
|
|
|
|
1,387,478,585
|
|
Diluted
|
|
|
1,406,244,901
|
|
|
|
40,198,748,273
|
|
|
|
1,405,511,082
|
|
|
|
1,387,478,585
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
GREENWAVE TECHNOLOGY
SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(unaudited)
(As Restated)
|
|
Preferred
Stock
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
X
|
|
|
Series
Y
|
|
|
Series
Z
|
|
|
Series
C
|
|
|
Common
Stock
|
|
|
to
be Issued
|
|
|
Paid
|
|
|
Discount on
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
In
Capital
|
|
|
Preferred Stock
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30,
2021 (unaudited)
|
|
|
26.05
|
|
|
$
|
-
|
|
|
|
720.515674
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
499,871,337
|
|
|
$
|
499,871
|
|
|
|
906,373,564
|
|
|
|
906,374
|
|
|
$
|
298,648,071
|
|
|
$
|
-
|
|
|
$
|
(324,596,745
|
)
|
|
$
|
(24,542,427
|
)
|
Series Z preferred shares issued
as equity kicker for note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867,213
|
|
Series Z preferred shares issued
as part of settlement agmt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,530,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,530,868
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(523,741
|
)
|
|
|
(523,741
|
)
|
Balance
at September 30, 2021 (unaudited)
|
|
|
26.05
|
|
|
$
|
-
|
|
|
|
720.515674
|
|
|
|
1
|
|
|
|
500
|
|
|
|
1
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
499,871,337
|
|
|
$
|
499,871
|
|
|
|
906,373,564
|
|
|
|
906,374
|
|
|
$
|
306,046,151
|
|
|
$
|
-
|
|
|
$
|
(325,120,486
|
)
|
|
$
|
(17,668,087
|
)
|
|
|
Preferred
Stock
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Discount on
|
|
|
|
|
|
|
|
|
|
Series
X
|
|
|
Series
Y
|
|
|
Series
Z
|
|
|
Series
C
|
|
|
Common
Stock
|
|
|
to
be Issued
|
|
|
Paid
|
|
|
Preferred
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
In
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2020
|
|
|
16.05
|
|
|
$
|
-
|
|
|
|
654.781794
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
493,726,405
|
|
|
$
|
493,727
|
|
|
|
907,379,814
|
|
|
|
907,380
|
|
|
$
|
283,024,527
|
|
|
$
|
(20,973,776
|
)
|
|
$
|
(301,185,712
|
)
|
|
$
|
(37,733,852
|
)
|
Issuance of common shares previously
to be issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,006,250
|
|
|
|
1,006
|
|
|
|
(1,006,250
|
)
|
|
|
(1,006
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common shares for
services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,175,431
|
|
|
|
2,175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
166,855
|
|
Common shares issued upon conversion
of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,448,251
|
|
|
|
4,448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,002
|
|
Cancelation of common shares and
warrants in exchange for cash paid per cancelation agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,485,000
|
)
|
|
|
(1,485
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,515
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,000
|
)
|
Sale of Series X preferred shares
|
|
|
10.00
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
BCF recognized upon issuance of
Series X preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,852,500
|
|
|
|
(2,852,500
|
)
|
|
|
-
|
|
|
|
-
|
|
Series Y preferred shares issued
in exchange for convertible notes, accrued interest and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
65.733880
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,314,678
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,314,678
|
|
BCF recognized upon issuance of
Series Y preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,972,647
|
|
|
|
(10,972,647
|
)
|
|
|
-
|
|
|
|
-
|
|
Deemed dividend resulting from
amortization of preferred stock discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,798,923
|
|
|
|
(34,798,923
|
)
|
|
|
-
|
|
Series Z preferred shares issued
as equity kicker for note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867,213
|
|
Series Z preferred shares issued
as part of settlement agmt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,530,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,530,868
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,864,149
|
|
|
|
10,864,149
|
|
Balance
at September 30, 2021 (unaudited)
|
|
|
26.05
|
|
|
$
|
-
|
|
|
|
720.515674
|
|
|
|
1
|
|
|
|
500
|
|
|
|
1
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
499,871,337
|
|
|
$
|
499,871
|
|
|
|
906,373,564
|
|
|
|
906,374
|
|
|
$
|
306,046,151
|
|
|
$
|
-
|
|
|
$
|
(325,120,486
|
)
|
|
$
|
(17,668,087
|
)
|
The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements.
GREENWAVE TECHNOLOGY
SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2020
(unaudited)
|
|
Preferred
Stock
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Series
B
|
|
|
Series
C
|
|
|
Common
Stock
|
|
|
to
be Issued
|
|
|
Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
In
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
493,726,405
|
|
|
$
|
493,727
|
|
|
|
907,499,814
|
|
|
$
|
907,500
|
|
|
|
246,665,759
|
|
|
|
(396,647,339
|
)
|
|
$
|
(148,580,352
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,679,222
|
|
|
|
64,679,222
|
|
Balance at September 30, 2020 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
493,726,405
|
|
|
$
|
493,727
|
|
|
|
907,499,814
|
|
|
$
|
907,500
|
|
|
|
246,665,759
|
|
|
|
(331,968,117
|
)
|
|
$
|
(83,901,130
|
)
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Series
B
|
|
|
Series
C
|
|
|
Common
Stock
|
|
|
to
be Issued
|
|
|
Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
In
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
384,266,948
|
|
|
$
|
384,267
|
|
|
|
944,659,814
|
|
|
$
|
944,660
|
|
|
|
151,364,371
|
|
|
|
(189,562,225
|
)
|
|
$
|
(36,868,926
|
)
|
Issuance of common shares previously
to be issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,160,000
|
|
|
|
37,160
|
|
|
|
(37,160,000
|
)
|
|
|
(37,160
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common shares issued upon conversion
of convertible notes and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,368,457
|
|
|
|
72,369
|
|
|
|
-
|
|
|
|
-
|
|
|
|
298,386
|
|
|
|
-
|
|
|
|
370,755
|
|
Common shares contributed back
to the Company and promptly retired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(69,000
|
)
|
|
|
(69
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
Deemed dividend related to warrant
price protection
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95,002,933
|
|
|
|
(95,002,933
|
)
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,402,959
|
)
|
|
|
(47,402,959
|
)
|
Balance
at September 30, 2020 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
493,726,405
|
|
|
$
|
493,727
|
|
|
|
907,499,814
|
|
|
$
|
907,500
|
|
|
|
246,665,759
|
|
|
|
(331,968,117
|
)
|
|
$
|
(83,901,130
|
)
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS
OF CASHFLOWS
(unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(As Restated)
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,864,149
|
|
|
$
|
(47,402,959
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(300,885
|
)
|
|
|
(303,593
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
159,633,797
|
|
|
|
43,406,183
|
|
Interest and amortization of debt discount
|
|
|
2,157,964
|
|
|
|
3,607,210
|
|
(Gain) loss on conversion of convertible notes payable
|
|
|
880
|
|
|
|
(882
|
)
|
Gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares in exchange for Series Y and Series Z preferred shares and cash
|
|
|
(173,361,276
|
)
|
|
|
-
|
|
Gain on forgiveness of debt
|
|
|
(192,521
|
)
|
|
|
-
|
|
Share-based compensation
|
|
|
166,855
|
|
|
|
-
|
|
Expenses paid directly by non-convertible note holder on behalf of company
|
|
|
158,371
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
97,132
|
|
|
|
1,975
|
|
Accounts payable and accrued expenses
|
|
|
187,022
|
|
|
|
(119,176
|
)
|
Accrued payroll and related expenses
|
|
|
173,243
|
|
|
|
94,180
|
|
Deferred revenue
|
|
|
25,000
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(390,269
|
)
|
|
|
(717,062
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Bank overdrafts
|
|
|
-
|
|
|
|
(13,678
|
)
|
Proceeds from sale of Series X preferred shares
|
|
|
200,000
|
|
|
|
-
|
|
Proceeds from issuance of convertible notes payable
|
|
|
-
|
|
|
|
637,000
|
|
Proceeds from issuance of non-convertible notes payable
|
|
|
357,053
|
|
|
|
132,911
|
|
Repayment of non-convertible notes payable
|
|
|
-
|
|
|
|
(39,641
|
)
|
Proceeds from advances
|
|
|
28,991
|
|
|
|
-
|
|
Repayments of advances
|
|
|
(20,178
|
)
|
|
|
-
|
|
Cash paid in settlement of debt and warrants
|
|
|
(176,000
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
389,866
|
|
|
|
716,592
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(403
|
)
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,485
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,082
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during period for interest
|
|
$
|
1,600
|
|
|
$
|
-
|
|
Cash paid during period for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Amortization of discount on preferred stock
|
|
$
|
34,798,923
|
|
|
$
|
-
|
|
Common shares issued upon conversion of convertible notes and accrued interest
|
|
$
|
133,002
|
|
|
$
|
370,755
|
|
Series Y preferred shares issued as settlement for convertible notes payable, accrued interest and warrants
|
|
$
|
1,314,678
|
|
|
$
|
-
|
|
Issuance of common shares previously to be issued
|
|
$
|
1,006
|
|
|
$
|
37,160
|
|
Common shares contributed back to the Company and promptly retired
|
|
$
|
-
|
|
|
$
|
69
|
|
Deemed dividend related to warrant price protection
|
|
$
|
-
|
|
|
$
|
95,002,933
|
|
Derivative liability recognized as debt discount on newly issued convertible notes
|
|
$
|
-
|
|
|
$
|
528,076
|
|
Reclassify accrued interest to convertible notes payable
|
|
$
|
93,685
|
|
|
$
|
-
|
|
Reduction of derivative liabilities stemming from settlement of convertible notes payable, accrued interest and warrants in exchange for Series Y preferred shares
|
|
$
|
4,834,911
|
|
|
$
|
-
|
|
Reduction of derivative liabilities stemming from settlement of convertible notes payable and accrued interest and cancelation of common shares and warrants for cash
|
|
$
|
169,815,037
|
|
|
$
|
-
|
|
Series Z preferred shares issued as equity kicker for note payable
|
|
$
|
867,213
|
|
|
$
|
-
|
|
Series Z preferred shares issued as part of settlement agreement
|
|
$
|
6,530,868
|
|
|
$
|
-
|
|
Expenses paid directly by non-convertible note holder on behalf of company
|
|
$
|
158,371
|
|
|
$
|
-
|
|
Settlement paid directly by CEO on behalf of company
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
Settlement payment made directly by CEO on behalf of company
|
|
$
|
25,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
GREENWAVE TECHNOLOGY
SOLUTIONS, INC.
(FORMERLY MASSROOTS,
INC.)
Notes to Condensed
Consolidated Financial Statements
September 30, 2021
(Unaudited)
(As
Restated)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Overview
Greenwave Technology Solutions, Inc. (“Greenwave” or the
“Company”) is a technology company focused on developing cloud-based solutions to deliver informative content and improve
operating efficiencies. The Company was incorporated in the State of Delaware on April 26, 2013 under the name MassRoots, Inc.
Our unaudited condensed consolidated
financial statements include the accounts of DDDigtal, Inc., Odava, Inc., MassRoots Supply Chain, Inc., and MassRoots Blockchain Technologies,
Inc., our wholly-owned subsidiaries.
Basis of Presentation
The interim unaudited condensed
consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting
of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly the Company’s results
of operations for the three and nine months ended September 30, 2021 and 2020, its cash flows for the nine months ended September 30,
2021 and 2020, and its financial position as of September 30, 2021 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.
Certain information and disclosures normally included
in the notes to the annual consolidated financial statements have been condensed or omitted 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 notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2020 as filed with the SEC on April 16, 2021 (the “Annual Report”). The December 31, 2020 balance sheet is derived from
those statements.
NOTE 2 – RESTATEMENT
Due to a communication issue, the Company
filed the Original 10-Q for the three and nine months ended September 30, 2021 prior to the completion of the required pre-issuance review
by its independent accountant.
Accordingly, the Company is restating herein
its previously issued condensed consolidated financial statements and the related disclosures for the three and nine months ended September
30, 2021 (the “Restated Period”) following the completion of a pre-issuance review by its independent accountant.
The financial statement misstatements reflected
in previously issued condensed consolidated interim financial statements have been changed as follows:
Accounts payable and accrued expenses increased
by $12,200 with a corresponding decrease in Gain (loss) on settlement of convertible notes payable and accrued interest, warrants and
accounts payable and cancelation of commons shares in exchange for Series Y and Series Z preferred shares and cash.
Debt discount recognized upon the issuance
of 250 Series Z shares to the Chief Executive Officer increased by $479,951 with a corresponding increase in Additional paid-in capital.
Amortization of debt discount to Interest
expense was increased by $479,951 with a corresponding reduction of Debt discount on non-convertible notes payable.
Gain (loss) on settlement of convertible notes
payable and accrued interest, warrants and accounts payable and cancelation of commons shares in exchange for Series Y and Series Z preferred
shares and cash was decreased by $5,898,848 with a corresponding increase in Additional paid-in capital.
For Non-convertible notes payable, $493 was
reclassified from long-term to current liabilities.
The statement of cashflows for the nine months
ended September 30, 2021 was revised to reflect non-cash transactions including: (i) expenses paid directly by creditors on behalf of
the Company; (ii) a settlement paid directly by the Chief Executive Officer on behalf of the Company; and (iii) a settlement payment
made directly by the Chief Executive Officer on behalf of the Company.
Accordingly, the following notes to the financial
statements have been restated to reflect the corrections of misstatements discussed above as well as to add disclosure language as appropriate:
Note 3 – Going Concern and Management’s
Liquidity Plans
Note 4 – Summary
of Significant Accounting Policies
Note 6 – Advances, Non-Convertible Notes Payable and PPP
Note Payable
Note 7 – Accounts Payable and Accrued
Expenses
Note 9 – Commitments and Contingencies
Note 12 – Stockholders’ Deficit
Note 13 - Warrants
Note 15 – Related Party Transactions
Note 16 – Subsequent Events
Comparison of restated financial statements
to financial statements as previously reported
The following tables compare the Company’s
previously issued condensed Consolidated Balance Sheets, condensed Consolidated Statements of Operations, and condensed Consolidated Statements
of Cashflows as of and for the fiscal periods ended September 30, 2021 to the corresponding restated condensed consolidated interim financial
statements for those respective periods.
Restated condensed consolidated balance sheet as of September 30, 2021
and statements of operations and statements of cashflows for the fiscal periods ended September 30, 2021 are as follows:
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
September 30,
|
|
|
Restatement
|
|
|
September 30,
|
|
|
|
2021
|
|
|
Adjustment
|
|
|
2021
|
|
|
|
(As Reported)
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,082
|
|
|
$
|
-
|
|
|
$
|
1,082
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total current assets
|
|
|
1,082
|
|
|
|
-
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,082
|
|
|
$
|
-
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,218,421
|
|
|
$
|
24,400
|
|
|
$
|
4,242,821
|
|
Accrued payroll and related expenses
|
|
|
4,037,298
|
|
|
|
-
|
|
|
|
4,037,298
|
|
Deferred revenue
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
Advances
|
|
|
122,000
|
|
|
|
-
|
|
|
|
122,000
|
|
Non-convertible notes payable, current portion, net of debt discount of $15,862 and $0, respectively
|
|
|
1,759,589
|
|
|
|
493
|
|
|
|
1,760,082
|
|
Derivative liabilities
|
|
|
4,289,634
|
|
|
|
-
|
|
|
|
4,289,634
|
|
Convertible notes payable
|
|
|
3,063,970
|
|
|
|
-
|
|
|
|
3,063,970
|
|
Total current liabilities
|
|
|
17,515,912
|
|
|
|
24,893
|
|
|
|
17,540,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-convertible notes payable, net of debt discount of $1,636 and $0, respectively
|
|
|
128,857
|
|
|
|
(493
|
)
|
|
|
128,364
|
|
PPP note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
17,644,769
|
|
|
|
24,400
|
|
|
|
17,669,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - Series X, $0.0001 par value, $20,000 stated value, 100 shares authorized; 26.05 and 16.05 shares issued and outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock - Series Y, $0.001 par value, $20,000 stated value, 1,000 shares authorized; 720.515674 and 654.781794 shares issued; 720.515674 and 626.995464 shares outstanding, and 0 and 27.78633 to be issued, respectively
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Preferred stock - Series Z, $0.001 par value, $20,000 stated value, 500 shares authorized; 500 and 0 shares issued; 0 and 0 shares outstanding, and 500 and 0 to be issued, respectively
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Preferred stock - Series C, $0.001 par value, 1,000 shares authorized; 1,000 shares issued and outstanding
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Preferred stock - Series A, $0.001 par value, 6,000 shares authorized; 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock - Series B, $0.001 par value, 2,000 shares authorized; 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001par value, 1,200,000,000 shares authorized; 499,871,337 and 493,726,405 shares issued and outstanding, respectively
|
|
|
499,871
|
|
|
|
-
|
|
|
|
499,871
|
|
Common stock to be issued, 906,373,564 and 907,379,814 shares, respectively
|
|
|
906,374
|
|
|
|
-
|
|
|
|
906,374
|
|
Additional paid in capital
|
|
|
299,667,352
|
|
|
|
6,378,799
|
|
|
|
306,046,151
|
|
Discount on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(318,717,287
|
)
|
|
|
(6,403,199
|
)
|
|
|
(325,120,486
|
)
|
Total stockholders' deficit
|
|
|
(17,643,687
|
)
|
|
|
(24,400
|
)
|
|
|
(17,668,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
1,082
|
|
|
$
|
-
|
|
|
$
|
1,082
|
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months
Ended
September 30,
2021
|
|
|
Restatement
Adjustment
|
|
|
Three Months
Ended
September 30,
2021
|
|
|
|
(As Reported)
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
54
|
|
|
$
|
-
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Advertising
|
|
|
(4,578
|
)
|
|
|
-
|
|
|
|
(4,578
|
)
|
Payroll and related expense
|
|
|
66,693
|
|
|
|
-
|
|
|
|
66,693
|
|
Other general and administrative expenses
|
|
|
333,197
|
|
|
|
-
|
|
|
|
333,197
|
|
Total Operating Expenses
|
|
|
395,312
|
|
|
|
-
|
|
|
|
395,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(395,258
|
)
|
|
|
-
|
|
|
|
(395,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(699,254
|
)
|
|
|
(479,951
|
)
|
|
|
(1,179,205
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
2,641,481
|
|
|
|
-
|
|
|
|
2,641,481
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain (loss) on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares in exchange for Series Y and Series Z preferred shares and cash
|
|
|
4,332,489
|
|
|
|
(5,923,248
|
)
|
|
|
(1,590,759
|
)
|
Gain on forgiveness of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain (loss) on conversion of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Other Income (Expense)
|
|
|
6,274,716
|
|
|
|
(6,403,199
|
)
|
|
|
(128,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes
|
|
|
5,879,458
|
|
|
|
(6,403,199
|
)
|
|
|
(523,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
5,879,458
|
|
|
|
(6,403,199
|
)
|
|
|
(523,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend resulting from amortization of preferred stock discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deemed dividend from warrant price protection
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Available to Common Stockholders
|
|
$
|
5,879,458
|
|
|
$
|
(6,403,199
|
)
|
|
$
|
(523,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Diluted
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,406,244,901
|
|
|
|
-
|
|
|
|
1,406,244,901
|
|
Diluted
|
|
|
1,406,244,901
|
|
|
|
-
|
|
|
|
1,406,244,901
|
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Nine Months
Ended
September 30,
2021
|
|
|
Restatement
Adjustment
|
|
|
Nine Months
Ended
September 30,
2021
|
|
|
|
(As Reported)
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,660
|
|
|
$
|
-
|
|
|
$
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
297
|
|
|
|
-
|
|
|
|
297
|
|
Advertising
|
|
|
18,125
|
|
|
|
-
|
|
|
|
18,125
|
|
Payroll and related expense
|
|
|
225,603
|
|
|
|
-
|
|
|
|
225,603
|
|
Other general and administrative expenses
|
|
|
953,927
|
|
|
|
-
|
|
|
|
953,927
|
|
Total Operating Expenses
|
|
|
1,197,952
|
|
|
|
-
|
|
|
|
1,197,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(1,196,292
|
)
|
|
|
-
|
|
|
|
(1,196,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,667,413
|
)
|
|
|
(492,151
|
)
|
|
|
(2,159,564
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
(159,633,797
|
)
|
|
|
-
|
|
|
|
(159,633,797
|
)
|
Change in fair value of derivative liabilities
|
|
|
300,885
|
|
|
|
-
|
|
|
|
300,885
|
|
Gain (loss) on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares in exchange for Series Y and Series Z preferred shares and cash
|
|
|
179,272,324
|
|
|
|
(5,911,048
|
)
|
|
|
173,361,276
|
|
Gain on forgiveness of debt
|
|
|
192,521
|
|
|
|
-
|
|
|
|
192,521
|
|
Gain (loss) on conversion of convertible notes
|
|
|
(880
|
)
|
|
|
-
|
|
|
|
(880
|
)
|
Total Other Income (Expense)
|
|
|
18,463,640
|
|
|
|
(6,403,199
|
)
|
|
|
12,060,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes
|
|
|
17,267,348
|
|
|
|
(6,403,199
|
)
|
|
|
10,864,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
17,267,348
|
|
|
|
(6,403,199
|
)
|
|
|
10,864,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend resulting from amortization of preferred stock discount
|
|
|
(34,798,923
|
)
|
|
|
-
|
|
|
|
(34,798,923
|
)
|
Deemed dividend from warrant price protection
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Available to Common Stockholders
|
|
$
|
(17,531,575
|
)
|
|
$
|
(6,403,199
|
)
|
|
$
|
(23,934,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,405,511,082
|
|
|
|
-
|
|
|
|
1,405,511,082
|
|
Diluted
|
|
|
1,405,511,082
|
|
|
|
-
|
|
|
|
1,405,511,082
|
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(unaudited)
|
|
Nine Months
Ended
September 30,
2021
|
|
|
Restatement
Adjustment
|
|
|
Nine Months
Ended
September 30,
2021
|
|
|
|
(As Reported)
|
|
|
|
|
|
(As Restated)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,267,348
|
|
|
$
|
(6,403,199
|
)
|
|
$
|
10,864,149
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(300,885
|
)
|
|
|
-
|
|
|
|
(300,885
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
159,633,797
|
|
|
|
-
|
|
|
|
159,633,797
|
|
Interest and amortization of debt discount
|
|
|
1,665,813
|
|
|
|
492,151
|
|
|
|
2,157,964
|
|
(Gain) loss on conversion of convertible notes payable
|
|
|
880
|
|
|
|
-
|
|
|
|
880
|
|
Gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares in exchange for Series Y and Series Z preferred shares and cash
|
|
|
(179,272,324
|
)
|
|
|
5,911,048
|
|
|
|
(173,361,276
|
)
|
Gain on forgiveness of debt
|
|
|
(192,521
|
)
|
|
|
-
|
|
|
|
(192,521
|
)
|
Share-based compensation
|
|
|
166,855
|
|
|
|
-
|
|
|
|
166,855
|
|
Expenses paid directly by non-convertible note holder on behalf of company
|
|
|
-
|
|
|
|
158,371
|
|
|
|
158,371
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
97,132
|
|
|
|
-
|
|
|
|
97,132
|
|
Accounts payable and accrued expenses
|
|
|
187,022
|
|
|
|
-
|
|
|
|
187,022
|
|
Accrued payroll and related expenses
|
|
|
173,243
|
|
|
|
-
|
|
|
|
173,243
|
|
Deferred revenue
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
Net cash used in operating activities
|
|
|
(548,640
|
)
|
|
|
158,371
|
|
|
|
(390,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from sale of Series X preferred shares
|
|
|
200,000
|
|
|
|
-
|
|
|
|
200,000
|
|
Proceeds from issuance of convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from issuance of non-convertible notes payable
|
|
|
1,515,424
|
|
|
|
(1,158,371
|
)
|
|
|
357,053
|
|
Repayment of non-convertible notes payable
|
|
|
(25,000
|
)
|
|
|
25,000
|
|
|
|
-
|
|
Proceeds from advances
|
|
|
53,991
|
|
|
|
(25,000
|
)
|
|
|
28,991
|
|
Repayments of advances
|
|
|
(20,178
|
)
|
|
|
-
|
|
|
|
(20,178
|
)
|
Cash paid in settlement of debt and warrants
|
|
|
(1,176,000
|
)
|
|
|
1,000,000
|
|
|
|
(176,000
|
)
|
Net cash provided by financing activities
|
|
|
548,237
|
|
|
|
(158,371
|
)
|
|
|
389,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(403
|
)
|
|
|
-
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,485
|
|
|
|
-
|
|
|
|
1,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,082
|
|
|
$
|
-
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for interest
|
|
$
|
1,600
|
|
|
$
|
-
|
|
|
$
|
1,600
|
|
Cash paid during period for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on preferred stock
|
|
$
|
34,798,923
|
|
|
$
|
-
|
|
|
$
|
34,798,923
|
|
Common shares issued upon conversion of convertible notes and accrued interest
|
|
$
|
133,002
|
|
|
$
|
-
|
|
|
$
|
133,002
|
|
Series Y preferred shares issued as settlement for convertible notes payable, accrued interest and warrants
|
|
$
|
1,314,678
|
|
|
$
|
-
|
|
|
$
|
1,314,678
|
|
Issuance of common shares previously to be issued
|
|
$
|
1,006
|
|
|
$
|
-
|
|
|
$
|
1,006
|
|
Common shares contributed back to the Company and promptly retired
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deemed dividend related to warrant price protection
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liability recognized as debt discount on newly issued convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Reclassify accrued interest to convertible notes payable
|
|
$
|
93,685
|
|
|
$
|
-
|
|
|
$
|
93,685
|
|
Reduction of derivative liabilities stemming from settlement of convertible notes payable, accrued interest and warrants in exchange for Series Y preferred shares
|
|
$
|
4,834,911
|
|
|
$
|
-
|
|
|
$
|
4,834,911
|
|
Reduction of derivative liabilities stemming from settlement of convertible notes payable and accrued interest and cancelation of common shares and warrants for cash
|
|
$
|
169,815,037
|
|
|
$
|
-
|
|
|
$
|
169,815,037
|
|
Series Z preferred shares issued as equity kicker for note payable
|
|
$
|
387,262
|
|
|
$
|
479,951
|
|
|
$
|
867,213
|
|
Series Z preferred shares issued as part of settlement agreement
|
|
$
|
632,020
|
|
|
$
|
5,898,848
|
|
|
$
|
6,530,868
|
|
Expenses paid directly by non-convertible note holder on behalf of company
|
|
$
|
-
|
|
|
$
|
158,371
|
|
|
$
|
158,371
|
|
Settlement paid directly by CEO on behalf of company
|
|
$
|
-
|
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Settlement payment made directly by CEO on behalf of company
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTE 3 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of September 30, 2021, the Company had
cash of $1,082 and a working capital deficit (current liabilities in excess of current assets) of $17,539,723. During the nine months
ended September 30, 2021, the net loss available to common stockholders was $23,934,774 and net
cash used in operating activities was $390,269. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern for one year from the issuance of the unaudited condensed consolidated financial statements.
During the nine months ended September 30,
2021, the Company received proceeds of $200,000 and $357,053 from the issuance of preferred shares and non-convertible notes, respectively.
The Company does not have sufficient cash to fund operations for the next fiscal year.
The Company’s primary source of operating
funds since inception has been cash proceeds from the public and private placements of the Company’s securities, including debt
and equity securities, and proceeds from the exercise of warrants and options. The Company has experienced net losses and negative cash
flows from operations since inception and expects these conditions to continue for the foreseeable future. The
Company’s ability to continue its operations is dependent upon its ability to obtain additional capital through public or private
equity offerings, debt financings or other sources; however, financing may not
be available to the Company on acceptable terms, or at all. The Company’s failure to raise capital as and when needed could have
a negative impact on its financial condition and its ability to pursue its business strategy, and the Company may be forced to curtail
or cease operations.
Management’s plans
regarding these matters encompass the following actions: 1) obtain funding from new and current investors to alleviate the Company’s
working capital deficiency; and 2) implement a plan to increase revenues. The Company’s continued existence is dependent upon its
ability to translate its audience into revenues. However, the outcome of management’s plans cannot be determined with any degree
of certainty.
Accordingly,
the accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business for one year from the date the unaudited 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 consolidated financial
statements do not include any adjustments that might result should the Company be unable to continue
as a going concern.
In March 2020, the World
Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, leading
to an economic downturn. It has also disrupted the normal operations of many businesses, including ours. It is not possible for us to
predict the duration or magnitude of the adverse results of the outbreak of COVID-19 and its effects on our business including our financial
condition, liquidity, or results of operations at this time. Management is actively monitoring the global situation and its impact on
the Company’s financial condition, liquidity, operations, customers, industry, and workforce. Given the daily evolution of the
COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak
will have on its results of operations, financial condition, or liquidity for fiscal year 2021. As of the date of this Quarterly Report
on Form 10-Q/A, the Company has experienced delays in securing new customers and related revenues and the longer this pandemic continues
there may be additional impacts. Furthermore, the COVID-19 outbreak has and may continue to impact the Company’s ability to raise
capital.
Although the Company cannot
estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material
adverse effect on the Company’s results of future operations, financial position, liquidity, and capital resources, and those of
the third parties on which the Company relies in fiscal year 2021.
NOTE 4 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The unaudited condensed consolidated financial statements include the
accounts of Greenwave Technology Solutions, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America (“U.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 derivative liabilities, fair value of payroll tax liabilities, deemed dividends 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”) Subtopic 825-10, “Financial Instruments”
(“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The estimated fair value of certain
financial instruments, including cash, accounts payable and accrued liabilities are 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
For purposes of the unaudited
condensed consolidated statements of cash flows, the Company considers highly liquid investments with an original maturity of three months
or less to be cash equivalents. As of September 30, 2021 and December 31, 2020, the Company had no cash equivalents. The Company maintains
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. At September
30, 2021 and December 31, 2020, the uninsured balances amounted to $0.
Property and Equipment
Property and equipment are stated at cost and
depreciated using the straight-line method over their estimated useful lives of three to five years. Repair and maintenance costs are
expensed as incurred. 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.
Accounts Receivable and
Allowance for Doubtful Accounts
The Company monitors outstanding
receivables based on factors surrounding the credit risk 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 if the financial condition of the Company’s customers
were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances
or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible
and no longer actively pursues its collection.
Revenue Recognition and
Deferred Revenue
Revenues are accounted
for under ASC Topic 606, “Revenue From Contracts With Customers” (“ASC 606”). ASC 606 is based on the principle
that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature,
amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments.
In accordance with ASC 606, the Company recognizes
revenue in accordance with that core principle by applying the following:
|
(i)
|
Identify the contract(s) with a customer;
|
|
|
|
|
(ii)
|
Identify the performance obligation in the contract;
|
|
|
|
|
(iii)
|
Determine the transaction price;
|
|
|
|
|
(iv)
|
Allocate the transaction price to the performance obligations in the contract; and
|
|
|
|
|
(v)
|
Recognize revenue when (or as) the Company satisfies a performance obligation.
|
The Company primarily generates
revenue by charging businesses to advertise on the Company’s website and social media channels. In cases where clients enter advertising
contracts for an extended period of time, the Company recognizes revenue pro rata over the contract term and any unearned revenue is deferred
to future periods.
Based on the nature of
the Company’s revenue streams, revenues generally do not require significant estimates or judgments. 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.
Deferred revenue represents the amount of prepaid
advertising fees the Company has received from customers and it is included in current liabilities in the accompanying condensed consolidated
balance sheets. Deferred revenue shall be recognized in the future as the advertising services are provided.
Advertising
The Company charges the costs of advertising
to expense as incurred. For co-marketing campaigns in which the Company advertises with a partner, the Company records payment for the
co-marketing campaign as a credit to advertising costs. Advertising costs were $18,125 and $43,020 for the nine months ended September
30, 2021 and 2020, respectively.
Stock-Based Compensation
Stock-based compensation
expense is measured at the grant date fair value of the 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 on the date of grant using the Black-Scholes
option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including
estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value
of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application
of management’s judgment.
Income Taxes
The Company follows ASC Subtopic
740-10, “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.
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.
Convertible Instruments
U.S. GAAP requires companies
to bifurcate conversion options from their host instruments and account for them as freestanding 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, “Distinguishing Liabilities From Equity.”
When the Company has determined
that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in
the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption using
the effective interest method.
Beneficial Conversion Features and Deemed
Dividends
The Company records a
beneficial conversion feature for preferred stock when, on the date of issuance, the conversion rate is less than the Company’s
stock price. The Company also records, when necessary, a contingent beneficial conversion resulting from price protection of the conversion
price of preferred stock, based on the change in the intrinsic value of the conversion options embedded in such preferred stock.
The Company records,
when necessary, deemed dividends for: (i) warrant price protection, based on the difference between the fair value of the warrants immediately
before and after the repricing (inclusive of any full ratchet provisions); (ii) the exchange of preferred shares for convertible notes,
based on the amount of the face value of the convertible notes in excess of the carrying value of the preferred shares; (iii) the settlement
of warrant provisions, based on the fair value of the shares of common stock 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 that: (i) require physical settlement or net-share settlement; 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 that: (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 freestanding derivatives at each reporting date to determine whether a
change in classification between assets and liabilities is required.
The Company’s freestanding
derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and the sale of shares
of common stock, and of embedded conversion options within convertible notes. The Company evaluated these derivatives to assess their
proper classification in the balance sheet as of September 30, 2021 and December 31, 2020 using the applicable classification criteria
enumerated under ASC 815, “Derivatives and Hedging.” The Company determined that certain embedded conversion and/or exercise
features did not contain fixed settlement provisions. The convertible notes contained a conversion feature such that the Company could
not ensure it would have adequate authorized shares to meet all possible conversion demands. As such, the Company is 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. The Company also records derivative liabilities for instruments, including convertible notes, preferred
stock, and warrants, in which the Company does not have sufficient authorized shares to cover the conversion of these instruments into
shares of common stock.
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 three to five 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.
Indefinite Lived Intangibles and Goodwill
The Company accounts for
business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where
the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their
estimated fair values. 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 excess of the fair value of the tangible and identified intangible assets acquired less
liabilities assumed is recognized as goodwill.
The Company tests indefinite
lived intangibles and goodwill for impairment in the fourth quarter of each year and whenever events or circumstances indicate that the
carrying amount of the asset exceeds its fair value and may not be recoverable.
Segment Reporting
Operating segments are defined
as components of an enterprise for which separate financial information is available and evaluated regularly by the Chief Executive Officer,
or decision-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.
Net Loss Per Common Share
Net loss per share is computed
by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per
share includes 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 diluted earnings (loss)
per share 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.
Potentially dilutive securities
excluded from the computation of basic and diluted net loss per share are as follows:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Shares of common stock issuable upon conversion of convertible notes
|
|
|
226,347,786
|
|
|
|
-
|
|
Options to purchase shares of common stock
|
|
|
27,621,765
|
|
|
|
27,621,765
|
|
Warrants to purchase shares of common stock
|
|
|
11,575,000
|
|
|
|
12,015,002
|
|
Shares of common stock issuable upon conversion of preferred stock
|
|
|
7,817,778,624
|
|
|
|
1,000,000
|
|
Total potentially dilutive shares
|
|
|
8,083,323,175
|
|
|
|
40,636,767
|
|
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, which
simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with
a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately
present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt,
unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase
reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU
2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury
stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021,
with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the
impact of ASU 2020-06 on its unaudited condensed consolidated financial statements.
In August 2018, the FASB
issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements,
including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements,
and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments
on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU
2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company’s
unaudited 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.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2021
and December 31, 2020 is summarized as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Computers
|
|
$
|
6,366
|
|
|
$
|
6,366
|
|
Office equipment
|
|
|
17,621
|
|
|
|
17,621
|
|
Subtotal
|
|
|
23,987
|
|
|
|
23,987
|
|
Less accumulated depreciation
|
|
|
(23,987
|
)
|
|
|
(23,987
|
)
|
Property and equipment, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation expense for the nine months ended September 30, 2021 and
2020 was $0.
NOTE 6 – ADVANCES, NON-CONVERTIBLE NOTES PAYABLE AND PPP
NOTE PAYABLE
Advances
During the nine months ended September 30, 2021 and 2020, the Company
received aggregate proceeds from non-interest bearing advances of $28,991 and $0 and repaid an aggregate of $20,178 and $0, respectively,
of advances. Included in the nine months ended September 30, 2021 were $2,091 of advances from and $5,278 of repayments to the Company’s
Chief Information Officer and a $25,000 settlement payment made by Empire Services, Inc. on behalf of the Company (See Note 15). The remaining
advances are primarily 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 September 30, 2021 and December 31, 2020, the Company owed $122,000 and $88,187 in principal and $4,000 and
$0 in accrued interest, respectively, on advances.
Non-Convertible Notes
Payable
During the nine months
ended September 30, 2021 and 2020, the Company received proceeds from the issuance of non-convertible notes of $357,053 and $132,911
and repaid an aggregate of $0 and $39,641, respectively, of non-convertible notes. Included in the nine months ended September 30, 2021
and 2020 were $357,053 and $20,520, respectively, of advances from and $0 of repayments to the Company’s Chief Executive Officer
and Empires Services, Inc. In addition, Empire Services, Inc. paid the following on behalf of the Company: (i) the $1,000,000 settlement
payment to Iroquois; and (ii) $158,371 of operating expenses to vendors (See Note 15). The non-convertible notes have maturity dates
ranging from March 31, 2019 to June 24, 2023 and accrue interest at rates ranging from 0% to 35% (default interest rate) per annum.
On June 2, 2021, one
of the holders of non-convertible notes entered into an agreement to cancel the entire amount owed to him (including principal of $79,000
and accrued interest of $63,055), resulting in gain on forgiveness of debt of $142,055 (See Note 9 – Trawick’s Complaint).
On June 4, 2021, one of the
holders of a non-convertible note payable for $60,000 extended the due date of the note from June 26, 2022 to June 24, 2023.
On June 25, 2021, a law firm
the Company formerly used received an arbitration award of $459,251 for unpaid legal bills. On September 23, 2021, the Company entered
into a Resolution Agreement to settle the arbitration award for an aggregate of $275,000 to be paid as follows: (i) $25,000 by September
30, 2021; (ii) $15,000 per month by the last day of each month from October 2021 through January 2023; and (iii) $10,000 by February 28,
2023. The Company imputed an interest rate of 10% and discounted the note accordingly. The imputed debt discount of $17,991 is being amortized
to interest expense over the term of the note. The Company recognized a $202,242 gain on settlement. As of September 30, 2021, the remaining
carrying value of the note was $232,502, net of debt discount of $17,498.
As of September 30, 2021
and December 31, 2020, the Company owed principal of $1,888,446 and $219,520 (of which $128,364 and $60,000 is long-term), net of debt
discount of $17,498 and $0, and accrued interest of $372,480 and $251,612, respectively, on non-convertible notes.
PPP Note Payable
On May 4, 2020, the Company
received proceeds of $50,000 from a PPP note. The note had a maturity date of May 4, 2022 and bore 1% interest per annum. On April
6, 2021, the Small Business Administration forgave the Company’s Paycheck Protection Program loan in the principal amount of $50,000
and accrued interest of $466, resulting in gain on forgiveness of debt of $50,466. As of September 30, 2021 and December 31, 2020, the
Company owed $0 and $50,000 in principal and $0 and $330 in accrued interest, respectively, on this note.
NOTE 7 – ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
As of September 30, 2021 and December 31,
2020, the Company owed accounts payable and accrued expenses of $4,242,821 and $4,948,890, respectively. These are primarily comprised
of payments to vendors, accrued interest on debt, and accrued legal bills.
NOTE 8 – 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 through 2021. As of September
30, 2021 and December 31, 2020, the Company owed payroll tax liabilities, including penalties, of $4,037,298 and $3,864,055, 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. The Company expects to settle these liabilities during 2022.
NOTE 9 – 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 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.
Power Up Lending Group, Ltd. Complaint
As disclosed in the Company’s Annual
Report on Form 10-K filed with the SEC on April 16, 2021, on October 11, 2019, Power Up Lending Group, Ltd. (“Power Up”)
filed a complaint against the Company and Isaac Dietrich, a former officer and director of the Company, in the Supreme Court of the State
of New York, County of Nassau. The complaint alleged, among other things, (i) the occurrence of events of default in certain notes (the
“Power Up Notes”) issued by the Company to Power Up, (ii) misrepresentations by the Company including, but not limited to,
with respect to the Company’s obligation to timely file its required reports with the SEC and (iii) lost profits as a result of
the Company’s failure to convert the Power Up Notes in accordance with the terms thereof.
On April 30, 2021, the Company entered into
a settlement agreement (the “Settlement”) with PowerUp by accepting an offer communicated to the Company via electronic mail.
In accordance with the terms of the Settlement, PowerUp, the judgment creditor of a judgment against the Company and Isaac Dietrich,
the Company’s former Chief Information Officer and director, in the total amount of $350,551.10 entered in the Office of the Clerk
of the County of Nassau on February 23, 2021 (the “Judgement”), agreed to a settlement and filing of a satisfaction of judgment
in consideration of receipt of the sum of $150,000.00 (the “Settlement Amount”) on April 30, 2021. The Company accepted the
aforementioned offer by remitting the Settlement Amount timely and in full. Accordingly, a satisfaction of Judgment was filed by PowerUp
with the Office of the Clerk of the County of Nassau on May 3, 2021.
Sheppard Mullin’s Demand for Arbitration
On December 1, 2020, Sheppard, Mullin, Richter&
Hampton LLP (“Sheppard Mullin”), the 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 an engagement agreement dated January 4, 2018, and a failure
of the Company to pay $487,390.73 of 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 has made both the September
and October 2021 payments.
Rother Investments’ Petition
On October 28, 2020, Rother Investments, LLC (“Rother Investments”)
filed a complaint in the District Court of 419th Judicial District, Travis County, Texas against the Company, alleging the Company’s
default under a certain promissory note (the “Rother Investments Note”) in payment of the outstanding principal amount and
interest under the Note, as described in the complaint. Rother Investments seeks to collect the amount of $124,750 as of the date of the
complaint with late fees continuing to accrue on a daily basis, monetary relief of over $100,000 but not more than $200,000 pursuant to
Tex. R. Civ. P. 47(c)(3), court’s costs and attorney’s fees, pre-judgment and post-judgment interest, and such other relief
as the court deems appropriate. On May 19, 2021, Rother Investments, LLC received a default judgment against the Company in the amount
of $144,950. On June 17, 2021, Greenwave filed a motion to set aside default and motion for new trial asserting it was improperly served.
On July 20, 2021, the court granted the Company’s motion finding and ordered a new trial of the matter.
Trawick’s Complaint
As previously reported by the Company in its
Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 16, 2021, on or about January 25, 2021, Travis
Trawick (“Trawick”) filed a complaint (“Trawick’s Lawsuit”) against the Company and Isaac Dietrich, the
Company’s former Chief Information Officer and director, in the Circuit Court for the City of Virginia Beach, Virginia (the “Court”),
asserting the Company’s failure to remit payments under the certain promissory note, as subsequently amended and modified, and
ancillary documents thereto (collectively, the “Note”), and Mr. Dietrich’s failure to fulfill its obligations, as the
guarantor, under the Note.
On May 4, 2021, Trawick requested that the Clerk
of the Court filed for entry an order to dismiss Trawick’s Lawsuit with prejudice.
Iroquois Master Fund
On June 30, 2021, the Company received an
e-mail containing a demand (the “Demand”) for arbitration (the “Arbitration”) at American Arbitration Association
in Denver, Colorado, by Iroquois Master Fund Ltd. (“Iroquois”) against the Company, Isaac Dietrich, a former officer and
director, and Danny Meeks, the Company’s director, and Empire Services, Inc. (“Empire”). The Demand alleges breach
of contract and various related state law claims against the defendants, and sought, inter alia, specific performance of the subject
warrant, damages in an amount not less than $12 million, equitable relief, and attorney’s fees for the Company’s alleged
failure to reserve more than 150 million shares of common stock that Iroquois is allegedly entitled to in connection with the exercise
of a certain warrant issued by the Company on July 21, 2017, and subsequently purchased by Iroquois from an unrelated third party. As
a result of a legal action commenced by Isaac Dietrich, Danny Meeks, and Empire (See – “Litigation” below),
Iroquois informed the American Arbitration Association (the arbitral body overseeing the Arbitration) that it would (i) dismiss the Counterclaim
Defendants from the Arbitration without prejudice, (ii) assert its claims against Isaac Dietrich, Danny Meeks, and Empire the in the
action commended by them, and (iii) proceed with the Arbitration with respect to the Company only.
Litigation
On July 21, 2021, in response to the Demand, Isaac
Dietrich, Danny Meeks, and Empire, filed a complaint (the “Complaint”) against Iroquois in the United States District Court
of the Southern District of New York alleging that the aforementioned plaintiffs were not parties to the warrant the Demand based on,
and as such, the Demand could not have brought against them. Declaratory relief and injunctive relief were sought in the Complaint. On
August 20, 2021, Iroquois submitted an answer with counterclaims stating that Iroquois informed the American Arbitration Association (the
arbitral body overseeing the Arbitration) that it would (i) dismiss the Counterclaim Defendants from the Arbitration without prejudice,
(ii) assert its claims against Isaac Dietrich, Danny Meeks, and Empire the in the action commended by them, and (iii) proceed with the
Arbitration with respect to the Company only. In its answer, Iroquois made allegations substantially similar to the claims made in the
Arbitration, asserted defenses, and requested an award in not less than $12 million against Demand, Isaac Dietrich, Danny Meeks, and Empire,
an entry of an award of a constructive trust against them, and costs and expenses, including its reasonable attorneys’ fees, incurred
in prosecuting said action and the Arbitration.
Settlement
On September 30,
2021, the Company entered into a Settlement Agreement (the “Settlement Agreement”)
with Iroquois; Dietrich; Meeks; and Empire. Pursuant to the Settlement Agreement, in
exchange for terminating any duties owed by the Company to Iroquois under the Warrant, the Company agreed to pay, on its own behalf and
on behalf of Dietrich, Meeks, and Empire, one million dollars ($1,000,000) and issue shares of the Series Z Convertible Preferred Stock,
par value $0.001 per share (the “Series Z”), sufficient in number such that if they are converted into the Company’s
common stock, par value $0.001 per share (“Common Stock”) by Iroquois, such shares of Common Stock will be equal in number
to 9.99% of the issued and outstanding shares of Common Stock at the time of such conversion. Accordingly, on September 30, 2021,
250 Series Z Preferred Shares were issued to the investor (See Note 12). The payment of $1,000,000
was made to Iroquois on October 5, 2021 due to an administrative delay.
NOTE 10 –
CONVERTIBLE NOTES PAYABLE
On December 17, 2018,
the Company issued a secured convertible promissory note in the principal amount of $2,225,000 (including an original issuance discount
of $225,000) that matured on December 17, 2019 and bears interest at a rate of 8% per annum (which increased to 22% on July 16, 2019 upon
the occurrence of an event of default). The note is secured by the Security Agreement (as defined below). The investor has the right to
convert the Outstanding Balance (as defined in the note) of the note at any time into shares of common stock of the Company at a conversion
price of $0.35 per share, subject to adjustment. Commencing on June 17, 2019, the investor has the right to redeem all or any portion
of the note; provided, however, the investor may not request redemption in an amount that exceeds $350,000 during any single calendar
month; provided, further however, upon the occurrence of an event of default, the redemption amount in any calendar month may exceed $350,000.
Payments on redemption amounts may be made in cash, by converting the redemption amount into shares of the Company’s common stock
at a conversion price of the lesser of: (a) $0.35 per share, subject to adjustment; and (b) the Market Price (as defined in the note),
or a combination thereof. Upon the occurrence of an event of default, the investor may accelerate the note pursuant to which the Outstanding
Balance will become immediately due and payable in cash at the Mandatory Default Amount (as defined in the note). The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the investor, together with its affiliates,
would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving
effect to the issuance of shares of common stock upon conversion of the note, which beneficial ownership limitation may be increased by
the investor up to, but not exceeding, 9.99%.
In connection with the
December 2018 note, the Company also entered into a security agreement (the “Security Agreement”) on the closing date pursuant
to which the Company granted the investor a security interest in the Collateral (as defined in the Security Agreement). On July 16,
2019, the Company received a notice from the noteholder indicating that events of default had occurred and asserting default penalties
of $761,330. During the year ended December 31, 2019, the noteholder converted $345,000 of principal into an aggregate of 53,522,295 shares
of common stock. During the year ended December 31, 2020, (i) the noteholder converted $37,000 of principal into an aggregate of 31,109,551
shares of common stock; and (ii) $1,049,329 of accrued interest was reclassified to the principal balance of this note. On January 20,
2021, the noteholder converted $13,345 of principal into an aggregate of 4,448,251 shares of common stock, having
a fair value of $133,002, resulting in a reduction of the derivative liability by $118,778 and a loss on conversion of $880. As
of September 30, 2021 and December 31, 2020, the remaining carrying value of the note was $2,878,985 and $2,892,330, respectively. As
of September 30, 2021 and December 31, 2020, accrued interest payable of $1,575,001 and $1,073,809, respectively, was outstanding on the
note.
On January
25, 2019, the Company issued a convertible promissory note in the principal amount of $55,000 (including original issuance discount of
$5,000) that matured July 25, 2019 and bearing a one-time interest fee of 10%. The investor has the right to convert the Outstanding
Balance (as defined in the note) of the note at any time into shares of common stock of the Company at a conversion price of $0.075 per
share, subject to adjustment. Upon maturity, payment may be made in cash, by converting the redemption amount into shares of the Company’s
common stock at a conversion price of the lesser of: (a) $0.075 per share, subject to adjustment; and (b) the Market Price (as defined
in the note), or a combination thereof. Upon the occurrence of an event of default, the investor may accelerate the note pursuant to
which the Outstanding Balance will become immediately due and payable in cash at the Mandatory Default Amount (as defined in the note).
The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor, together
with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the note, which beneficial ownership limitation may
be increased by the investor up to, but not exceeding, 9.99%. On May 19, 2021, the investor received a default judgment against
the Company in the amount of $144,950. In accordance with the judgment, commencing May 19, 2021, the Company began accruing interest
at the rate of 18% per annum. On June 17, 2021, the Company filed a motion to set aside default and motion for new trial asserting it
was improperly served. On July 20, 2021, the court granted the Company’s motion finding and ordered a new trial of the matter.
As of September 30, 2021 and December 31, 2020, the remaining carrying value of the note was $148,685
and $55,000, respectively. As of September 30, 2021 and December 31, 2020, accrued interest payable of $0 and $92,600, respectively,
was outstanding on the note (See Note 9 – Rother Investments’ Petition).
From
January to June 2019, the Company issued convertible promissory notes in the aggregate principal amount of $389,000 (including aggregate
original issuance discount of $39,000) that matured at dates ranging from July 15, 2019 to June 6, 2020 and accruing interest at rates
ranging from 5% to 12% per annum. The investors have the right to convert the Outstanding Balance (as defined in the notes) of the notes
at any time into shares of common stock of the Company at a conversion price of $0.075 per share, subject to adjustment. Upon maturity,
payment may be made in cash, by converting the redemption amount into shares of the Company’s common stock at a conversion price
of the lesser of: (a) $0.075 per share, subject to adjustment; and (b) the Market Price (as defined in the notes), or a combination thereof.
Upon the occurrence of an event of default, the investors may accelerate the note pursuant to which the Outstanding Balance will become
immediately due and payable in cash at the Mandatory Default Amount (as defined in the notes). The Company is prohibited from effecting
a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially
own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the note, which beneficial ownership limitation may be increased by the investor up to,
but not exceeding, 9.99%. In January 2020, one of the promissory notes was amended whereby the conversion price for $9,202 which is a
portion of the principal amount of the note was amended to $0.0004 per share. The amendment was deemed a debt modification and accounted
for accordingly. During the year ended December 31, 2019, the noteholders converted $31,180 of principal and $8,000 of accrued interest
into an aggregate of 10,000,000 shares of common stock. During the year ended December 31, 2020, one of the holders converted $24,826
of principal into an aggregate of 35,005,850 shares of common stock; and one of the holders converted $168,820 of principal and $362,027
of accrued interest into 26.54237 shares of Series Y preferred shares having a stated value of $530,847, resulting in a reduction of
the derivative liability by $719,416 and a gain on settlement of $719,416. On April 30, 2021, one of the holders of non-convertible
notes entered into an agreement to cancel the entire amount owed to them (including principal of
$131,174 and accrued interest of $304,485) in exchange for a cash payment of $150,000 by the Company, resulting in a reduction of the
derivative liability of $300,424 and a gain on settlement of debt of $586,083 (See Note 9 – Power Up Lending Group, Ltd. Complaint).
On May 1, 2021, one of the holders converted $33,000 of principal and $1,185,200 of accrued interest
into 60.91 shares of Series Y preferred shares having a stated value of $1,218,200, resulting in a reduction of the derivative liability
by $936,405 and a gain on settlement of $936,405. As of September 30, 2021 and December 31, 2020, the remaining carrying value of the
notes was $0 and $164,174, respectively. As of September 30, 2021 and December 31, 2020, accrued interest payable of $0 and $1,191,998,
respectively, was outstanding on the notes.
On
November 13, 2019, the Company issued three convertible promissory notes in the aggregate principal amount of $108,900, having an aggregate
original issuance discount of $9,900, resulting in cash proceeds of $99,000. The notes matured on May 13, 2020 and accrue interest at
a rate of 12% per annum. The investors have the right to convert the Outstanding Balance (as defined in the notes) of the notes at any
time into shares of common stock of the Company at a conversion price of $0.01 per share, subject to adjustment. In the event of default,
the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the
20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result
of such conversion, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the
Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of
the note, which beneficial ownership limitation may be increased if the Market Capitalization (as defined in the notes) falls below $2,500,000,
but not exceeding, 9.99%. During the year ended December 31, 2020, two of the holders converted $72,600 of principal and $112,671 of accrued
interest into 9.26353 shares of Series Y preferred shares having a stated value of $185,271, resulting in a reduction of the derivative
liability by $301,257 and a gain on settlement of $301,257. As of September 30, 2021 and December 31, 2020, the carrying value of the
remaining note was $36,300. As of September 30, 2021 and December 31, 2020, accrued interest payable of $87,789 and $57,231, respectively,
was outstanding on the remaining note.
On
December 6, 2019, the Company issued convertible promissory notes in the aggregate principal amount of $110,000, having an aggregate original
issuance discount of $10,000, resulting in cash proceeds of $100,000. The notes matured on June 6, 2020 and accrue interest at a
rate of 12% per annum. The investors have the right to convert the Outstanding Balance (as defined in the notes) of the notes at
any time into shares of common stock of the Company at a conversion price of $0.01 per share, subject to adjustment. In the event of default,
the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the
20 days prior to the conversion date. The Company is prohibited from effecting a conversion of any note to the extent that, as a result
of such conversion, the investor, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the
Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of
the note, which beneficial ownership limitation may be increased if the Market Capitalization (as defined in the notes) falls below $2,500,000,
but not exceeding, 9.99%. During the year ended December 31, 2020, the holders converted $110,000 of principal and $123,451 of accrued
interest into 11.67255 shares of Series Y preferred shares having a stated value of $233,451, resulting in a reduction of the derivative
liability by $379,600 and a gain on settlement of $379,600. As of September 30, 2021 and December 31, 2020, the remaining carrying value
of the notes was $0. As of September 30, 2021 and December 31, 2020, accrued interest payable of $0 was outstanding on the notes.
In
December 2019, the Company and the holders of all of the outstanding Series A and Series B Preferred Shares (the “Preferred Shares”)
entered into Exchange Agreements whereby 2,800 Series A Preferred Shares and 1,126 Series B Preferred Shares were canceled in exchange
for the issuance of an aggregate of $3,500,000 and $1,548,250 of convertible promissory notes, respectively. The notes matured at dates
ranging from December 24, 2019 to May 18, 2020 and accrue interest at a rate of 12% per annum. The investors have the right to convert
the Outstanding Balance (as defined in the notes) of the notes at any time into shares of common stock of the Company at a conversion
price of $0.005 per share, subject to adjustment. In the event of default, the Outstanding Balance shall immediately increase to 130%
of the Outstanding Balance and a penalty of $100 per day shall accrue until the default is remedied. For a period of two years from the
issuance date, in the event the Company issues or sells any additional shares of common stock or common stock equivalents at a price less
than the Conversion Price (as defined in the notes) then in effect (a “Dilutive Issuance”), the Conversion Price of the notes
shall be reduced to the Dilutive Issuance Price and the number of shares issuable upon conversion shall be increased on a full ratchet
basis. The Company is prohibited from effecting a conversion of any note to the extent that, as a result of such conversion, the investor,
together with its affiliates, would beneficially own more than 9.99% of the number of shares of the Company’s common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon conversion of the note. During the year ended December
31, 2019, the noteholders converted $185,500 of principal and $300 of accrued interest into an aggregate of 30,669,903 shares of common
stock and 37,160,000 shares of common stock to be issued. During the year ended December 31, 2020, the noteholders converted $31,137 of
principal and $128 of accrued interest into an aggregate of 6,253,056 shares of common stock; and the noteholders converted $4,793,113
of principal and $2,564,325 of accrued interest into 367.8719 shares of Series Y preferred shares having a stated value of $7,357,438,
resulting in a reduction of the derivative liability by $89,648,951 and a gain on settlement of $89,648,951. On January 7, 2021, a noteholder
converted $38,500 of principal and $55,261 of accrued interest into 3.72667 shares of Series Y preferred shares having a stated value
of $74,533, resulting in a reduction of the derivative liability by $3,880,958 and a gain on settlement of $3,900,186. As of September
30, 2021 and December 31, 2020, the remaining carrying value of the notes was $0 and $38,500, respectively. As of September 30, 2021 and
December 31, 2020, accrued interest payable of $0 and $54,473, respectively, was outstanding on the notes.
From
January to September 2020, the Company issued convertible promissory notes in the aggregate principal amount of $700,700, having an aggregate
original issuance discount of $63,700, resulting in cash proceeds of $637,000. The notes mature from July 2020 to March 2021 and
accrue interest at a rate of 12% per annum. During the first 180 days the notes are outstanding, the Company shall have the right to prepay
the notes for an amount equal to 120% (during the first 90 days) or 135% (during the subsequent 90 days) of the Outstanding Balance (as
defined in the notes) being prepaid. The investors have the right to convert the Outstanding Balance of the notes at any time into shares
of common stock of the Company at a conversion price of $0.01 per share, subject to adjustment. In the event of default, the conversion
price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the 20 days prior
to the conversion date. Notwithstanding the foregoing, upon the occurrence of an event of default, the conversion price for the April
2020 notes, having an aggregate original principal amount of $330,000, shall not be less than $0.001. The Company is prohibited from effecting
a conversion of any note to the extent that, as a result of such conversion, the investor, together with its affiliates, would beneficially
own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the note, which beneficial ownership limitation may be increased if the Market Capitalization
(as defined in the notes) falls below $2,500,000, but not exceeding, 9.99%. During the year ended December 31, 2020, the noteholders converted
$700,700 of principal and $462,763 of accrued interest into 58.17315 shares of Series Y preferred shares having a stated value of $1,163,463,
resulting in a reduction of the derivative liability by $1,885,194, a reduction in debt discount by $72,637 and a gain on settlement of
$1,812,557. On March 23, 2021, a noteholder converted $21,944 of accrued interest into 1.09721 shares of Series Y preferred shares having
a stated value of $21,945, resulting in a reduction of the derivative liability by $17,548 and a gain on settlement of $17,548. As of
September 30, 2021 and December 31, 2020, the remaining carrying value of the notes was $0. As of September 30, 2021 and December 31,
2020, accrued interest payable of $0 and $13,844 was outstanding on the notes.
On
December 15, 2020, $79,143 of accrued compensation owed to the Company’s former Chief Financial Officer was settled by the issuance
of a convertible note in the amount of $64,143, having a maturity date of June 15, 2021 and bearing interest of 12% per annum, resulting
in a gain on settlement of accounts payable of $15,000. The holder has the right to convert the Outstanding Balance (as defined in the
note) of the note at any time into shares of common stock of the Company at a conversion price of $0.0003 per share, subject to adjustment.
In the event of default, the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s
common stock during the 20 days prior to the conversion date. As a result of the beneficial conversion feature of the note, debt discount
of $64,143 was recognized with a corresponding increase in additional paid-in capital. On December 24, 2020, the holder converted $64,143
of principal into 3.20716 shares of Series Y preferred shares having a stated value of $64,143, resulting in a reduction in debt discount
by $60,971 and a loss on settlement of $60,971. As of September 30, 2021 and December 31, 2020, the remaining carrying value of the note
was $0. As of September 30, 2021 and December 31, 2020, accrued interest payable of $0 was outstanding on the note.
As of September 30, 2021
and December 31, 2020, the remaining carrying value of the convertible notes was $3,063,970 and $3,186,303, respectively. As of September
30, 2021 and December 31, 2020, accrued interest payable of $1,661,704 and $2,483,955, respectively, was outstanding on the notes.
Upon the issuance of
certain convertible notes, the Company determined that the features associated with the embedded conversion option embedded in the notes,
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.
The Company does
not have enough authorized and unissued shares of common stock to convert all of the convertible promissory notes into shares of common
stock. As a result of this authorized shares shortfall, all of the convertible notes payable, including those where the maturity date
has not yet been reached, are in default. Accordingly, (i) interest has been accrued at the default interest rate, if applicable, and
(ii) the embedded conversion option has been accounted for, at fair value, as a derivative liability (See Note 11).
NOTE 11 – DERIVATIVE
LIABILITIES AND FAIR VALUE MEASUREMENTS
Upon the issuance of
certain convertible debentures, warrants, and preferred stock, the Company determined that the features associated with the embedded conversion
option embedded in the debentures, 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 nine months
ended September 30, 2021, upon issuance of the instruments underlying the derivative liabilities
and upon revaluation (immediately prior to conversion of the underlying instrument), the Company estimated the fair value of the
embedded derivatives using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 133.69% to 138.77%, (3) risk-free interest rate of 0.01% to 0.14%, and (4) expected life of 0.06 to 1.85 years.
On September 30, 2021,
the Company estimated the fair value of the embedded derivatives of $4,289,634 using the Black-Scholes Pricing Model based on the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 137.90%, (3) risk-free interest rate of 0.07% to 0.09%, and (4) expected
life of 0.01 to 1.33 years.
During
the year ended December 31, 2020, upon issuance of the instruments underlying the derivative liabilities and upon revaluation (immediately
prior to conversion of the underlying instrument), the Company estimated the fair value of the embedded derivatives using the Black-Scholes
Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 119.33% to 128.94%, (3) risk-free
interest rate of 0.06% to 1.56%, and (4) expected life of 0.06 to 2.11 years.
On December 31, 2020,
the Company estimated the fair value of the embedded derivatives of $25,475,514 using the Black-Scholes Pricing Model based on the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 132.11%, (3) risk-free interest rate of 0.08% to 0.13%, and (4) expected
life of 0.04 to 2.08 years.
The
Company adopted the provisions of 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 non-performance. 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:
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Level 1 – Quoted prices in active markets for identical assets or liabilities.
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Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
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Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
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All
items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.
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 above. 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, 2021 and December 31, 2020, the Company did not have any derivative instruments that were designated as hedges.
Items
recorded or measured at fair value on a recurring basis consisted of the following items as of September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivative liabilities
|
|
$
|
4,289,634
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,289,634
|
|
|
|
December 31,
2020
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivative liabilities
|
|
$
|
25,475,514
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,475,514
|
|
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, 2021:
Balance, December 31, 2020
|
|
$
|
25,475,514
|
|
Transfers out due to conversions of convertible notes, accrued interest and warrants into shares of Series Y preferred stock
|
|
|
(4,834,911
|
)
|
Transfers out due to conversions of convertible notes and accrued interest into shares of common stock
|
|
|
(118,778
|
)
|
Transfers out due to cash payments made pursuant to settlement agreements
|
|
|
(175,565,103
|
)
|
Change in derivative liability due to authorized shares shortfall
|
|
|
159,633,797
|
|
Mark to market to September 30, 2021
|
|
|
(300,885
|
)
|
Balance, September 30, 2021
|
|
$
|
4,289,634
|
|
|
|
|
|
|
Gain on change in derivative liabilities for the nine months ended September 30, 2021
|
|
$
|
300,885
|
|
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/(decreases)
for each of the related derivative instruments, the value to the holder of the instrument generally increases/(decreases), therefore increasing/(decreasing)
the liability on the Company’s balance sheet. Decreases in the conversion price of the Company’s convertible notes are another
driver for the changes in the derivative valuations during each reporting period. As the conversion price decreases for each of the related
derivative instruments, the value to the holder of the instrument (especially those with full ratchet price protection) 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 measurements. 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 12 – STOCKHOLDERS’ DEFICIT
Preferred
Stock
Series
A
The
Company is authorized to issue 10,000,000 shares of blank check preferred stock, par value $0.001 per share.
On July 2, 2019, the
Company authorized the issuance of 6,000 Series A preferred stock, par value $0.001 per share. The Series A preferred stock has a $1,250
stated value per share and is convertible into shares of common stock at $0.05 per share, subject to certain adjustments. The Certificate
of Designation for the Series A preferred stock was filed on July 9, 2019.
During the periods presented, there were 0
shares of Series A Preferred Stock outstanding.
Series
B
On
June 24, 2019, the Company authorized the issuance of 2,000 shares of Series B Preferred Stock, par value $0.001 per share. The Series
B Preferred Stock has a $1,250 stated value per share and is convertible into shares of common stock at $0.05 per share, subjected to
certain adjustments. The Certificate of Designation for the Series B Preferred Stock was filed on July 9, 2019.
During
the periods presented, there were 0 shares of Series B Preferred Stock outstanding.
Series
C
On
July 16, 2019, the Company authorized the issuance of 1,000 Series C Preferred Stock, par value $0.001 per share. The 1,000 Series C preferred
shares are convertible into 1,000,000 shares of common stock upon the Company listing on a national exchange and other conditions. The
Certificate of Designation for the Series C Preferred Stock was filed on July 19, 2019.
As
of September 30, 2021 and December 31, 2020, there were 1,000 shares of Series C Preferred Stock outstanding.
Series
X
On
November 23, 2020, the Company authorized the issuance of 100 shares of Series X Preferred Stock, par value $0.0001 per share. The Series
X Preferred Stock has a $20,000 stated value per share and is convertible into shares of common stock at $0.002 per share, subjected to
certain adjustments. In the event the Company issues or sells any securities with an effective price or exercise or conversion price less
than the Conversion Price, the Conversion Price shall be reduced to the sale price or exercise or conversion price of the securities issued
or sold. The Certificate of Designation for the Series X Preferred Stock was filed on November 23, 2020.
From
November 25 to December 23, 2020, the Company issued an aggregate of 16.05 shares of Series X Preferred Stock for aggregate proceeds of
$321,000. Upon each issuance of Series X shares, the conversion price was less than the Company’s stock price. Accordingly, during
the year ended December 31, 2020, the Company recognized an aggregate beneficial conversion feature of $454,200 upon issuance of the Series
X preferred shares with a $454,200 increase in Discount on preferred stock and a corresponding increase in additional paid-in capital.
The preferred stock discount was amortized over 120 days commencing November 25, 2020 (the date of the initial issuance of the Series
X preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote to increase the Company’s
authorized shares. Amortization of the preferred stock discount of $46,448 was recognized as a deemed dividend for the year ended December
31, 2020. As of December 31, 2020, unamortized debt discount on Series X Preferred Stock was $407,752.
From
February 16 to March 10, 2021, the Company issued an aggregate of 10.00 shares of Series X Preferred Stock for aggregate proceeds of $200,000.
Upon each issuance of Series X shares, the conversion price was less than the Company’s stock price. Accordingly, during the nine
months ended September 30, 2021, the Company recognized an aggregate beneficial conversion feature of $2,852,500 upon issuance of the
Series X preferred shares with a $2,852,500 increase in Discount on preferred stock and a corresponding increase in additional paid-in
capital. The preferred stock discount was amortized over 120 days commencing November 25, 2020 (the date of the initial issuance of the
Series X preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote to increase the Company’s
authorized shares. Amortization of the preferred stock discount of $3,260,252 was recognized as a deemed dividend for the nine months
ended September 30, 2021. As of September 30, 2021, unamortized debt discount on Series X Preferred Stock was $0.
As
of September 30, 2021 and December 31, 2020, there were 26.05 and 16.05 shares, respectively, of Series X Preferred Stock outstanding.
Series
Y
On
December 30, 2020, the Company authorized the issuance of 1,000 shares of Series Y Preferred Stock, par value $0.001 per share. The Series
Y Preferred Stock has a $20,000 stated value per share and is convertible into shares of common stock at $0.002 per share, subjected to
certain adjustments. In the event the Company issues or sells any securities with an effective price or exercise or conversion price less
than the Conversion Price, the Conversion Price shall be reduced to the sale price or exercise or conversion price of the securities issued
or sold. The Certificate of Designation for the Series Y Preferred Stock was filed on December 30, 2020.
From
December 23 to December 30, 2020, the Company issued 654.781794 shares of Series Y Preferred Stock, having a stated value of $13,095,636,
in exchange for convertible notes payable of $5,775,767 (net of debt discount of $133,608), accrued interest of $3,625,237, and 14,765,624,721
warrants. The exchanges resulted in a reduction of derivative liabilities related to the convertible notes and accrued interest of $92,934,419,
a reduction of derivative liabilities related to the warrants of $72,892,563, and a net gain on settlement of $162,132,350. Included in
the foregoing amounts is 3.20716 shares of Series Y Preferred Stock, having a stated value of $64,143, issued to the Company’s Chief
Financial Officer, in exchange for convertible notes of $3,172 (net of debt discount of $60,971), resulting in a loss on settlement of
$60,971. Upon each issuance of Series Y shares, the conversion price was less than the Company’s stock price. Accordingly, during
the year ended December 31, 2020, the Company recognized an aggregate beneficial conversion feature of $21,594,115 upon issuance of the
Series Y preferred shares with a $21,594,115 increase in Discount on preferred stock and a corresponding increase in additional paid-in
capital. The preferred stock discount was amortized over 120 days commencing December 23, 2020 (the date of the initial issuance of the
Series Y preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote to increase the Company’s
authorized shares. Amortization of the preferred stock discount of $1,028,091 was recognized as a deemed dividend for the year ended December
31, 2020. As of December 31, 2020, unamortized debt discount on Series Y Preferred Stock was $20,566,024.
From
January 7 to March 23, 2021, the Company issued 4.82388 shares of Series Y Preferred Stock, having a stated value of $96,478, in exchange
for convertible notes payable of $38,500, accrued interest of $77,205, and 131,249,975 warrants. The exchanges resulted in a reduction
of derivative liabilities related to the convertible notes and accrued interest of $2,502,223, a reduction of derivative liabilities related
to the warrants of $1,396,283, and a net gain on settlement of $3,917,734. On May 1, the Company issued 60.91 shares of Series Y Preferred
Stock, having a stated value of $1,218,200, in exchange for a convertible note payable of $33,000 and accrued interest of $1,185,200.
The exchange resulted in a reduction of derivative liabilities related to the convertible notes and accrued interest of $936,405, and
a net gain on settlement of $936,405. Upon each issuance of Series Y shares, the conversion price was less than the Company’s stock
price. Accordingly, during the nine months ended September 30, 2021, the Company recognized an aggregate beneficial conversion feature
of $10,972,647 upon issuance of the Series Y preferred shares with a $10,972,647 increase in Discount on preferred stock and a corresponding
increase in additional paid-in capital. The preferred stock discount was amortized over 120 days commencing December 23, 2020 (the date
of the initial issuance of the Series Y preferred shares), which is the maximum amount of time the Company had to conduct a stockholder
vote to increase the Company’s authorized shares. Amortization of the preferred stock discount of $31,538,671 was recognized as
a deemed dividend for the nine months ended September 30, 2021. As of September 30, 2021, unamortized debt discount on Series Y Preferred
Stock was $0.
On
March 17, 2021, the Company issued 27.78633 shares of Series Y Preferred Stock that were recorded as to be issued as of December 31, 2020.
As
of September 30, 2021 and December 31, 2020, there were 720.515674 and 626.995464 shares of Series Y Preferred Stock outstanding and 0
and 27.78633 shares to be issued, respectively.
Series
Z
On September 30, 2021,
the Company authorized the issuance of 500 shares of Series Z Preferred Stock, par value $0.001 per share. The Series Z Preferred Stock
has a $20,000 stated value per share and all 500 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.
On September 30, 2021,
the Company entered into a Series Z Preferred Stock Issuance Agreement with the Company’s Chief Executive Officer whereby the Company
entered into a note payable agreement for$1,000,000 in exchange for: (i) a $1,000,000 cash payment directly paid to the warrant holder;
and (ii) the issuance of 250 Series Z Preferred Shares having a fair value of $6,530,867 (See Note 15). The note bears interest of 8%
per annum and is due within three days of the Company’s next closing of equity financing of $3,000,000 or more. The proceeds received
were allocated to the debt and equity on a relative fair value basis. Accordingly, debt discount of $867,213 was recognized with a corresponding
increase in additional paid-in capital. Since the due date is contingent upon a future event, the entire debt discount was amortized
to interest expense immediately.
On September 30, 2021, an investor owning warrants to purchase 156,250,079
common shares at $0.0004 per share entered into an agreement to cancel the aforementioned warrants in exchange for: (i) a cash payment
of $1,000,000 received directly from the Chief Executive Officer; and (ii) 250 Series Z Preferred Shares having a fair value of $6,530,867.
The settlement resulted in a reduction in the derivative liability of $5,750,067, an increase in non-convertible notes payable of $1,000,000,
an increase in additional paid-in capital of $6,530,867 and a loss on settlement of debt of $1,780,800.
Common
Stock
On
September 30, 2021, the Company amended its Articles of Incorporation to change the number of authorized common shares to 1,200,000,000
shares of common stock, par value $0.001 per share, which has been reflected retroactively in the accompanying consolidated financial
statements.
On
January 8, 2020, the Company issued 37,160,000 shares of the Company’s common stock previously recorded as to be issued as of December
31, 2019.
On March 7, 2020, a stockholder
returned 69,000 shares of the Company’s common stock back to the Company. The shares were immediately retired. Accordingly, common
stock was decreased by the par value of the shares of common stock contributed of $69 with a corresponding increase in additional paid
in capital.
During
the year ended December 31, 2020, a warrant exercise in 2019, to purchase 120,000 shares of common stock, was rescinded. The rescission
was recorded as a decrease in common stock to be issued of $120 and a decrease in additional paid-in capital of $5,880 with a corresponding
increase in accounts payable and accrued expenses of $6,000.
During the year ended
December 31, 2020, the Company issued an aggregate of 72,368,457 shares of its common stock, having an aggregate fair value of $370,755,
upon the conversion of convertible notes with a principal amount of $92,964 and accrued interest of $128, which resulted in the reduction
of $278,545 of derivative liabilities and an aggregate net gain on conversion of convertible notes of $882. Accordingly, common stock
was increased by the par value of the shares of common stock issued of $72,369 and additional paid in capital was increased by $298,386.
On January 20, 2021,
the Company issued 4,448,251 shares of its common stock, having a fair value of $133,002, upon the
conversion of convertible notes with a principal amount of $13,345, which resulted in the
reduction of $118,778 of derivative liabilities and a loss on conversion of $880.
On
June 2, 2021, the Company issued 1,006,250 shares of the Company’s common stock previously recorded as to be issued as of December
31, 2020.
On June 4, 2021, an investor
owning 1,485,000 shares of the Company’s common stock and warrants to purchase 971,562,497 common shares at $0.0004 per share entered
into an agreement to cancel the aforementioned common shares and warrants in exchange for a cash payment of $11,000 by the Company. Accordingly,
the cancelation agreement resulted in a reduction in common stock of $1,485 for the par value of the common shares, a reduction in additional
paid-in capital of $9,515, and a reduction in the derivative liability of $74,134,327 and a gain on settlement of $74,134,327.
On
June 6, 2021, the Company awarded an aggregate of 2,175,431 fully-vested shares of common stock, having a fair value of $166,855, to the
Chief Executive Officer for services rendered.
As of September 30, 2021
and December 31, 2020, there were 499,871,337 and 493,726,405 shares, respectively, of common stock issued and outstanding.
NOTE 13 – WARRANTS
From January 7 to March 23, 2021, the Company
issued 4.82388 shares of Series Y preferred stock, having a stated value of $96,478, in exchange for convertible notes payable of $38,500,
accrued interest of $77,205, and 131,249,975 warrants. The exchanges resulted in a reduction of derivative liabilities related to the
convertible notes and accrued interest of $2,502,223, a reduction of derivative liabilities related to the warrants of $1,396,283, and
a net gain on settlement of $3,917,734 (See Note 9).
On June 4, 2021,
an investor owning 1,485,000 shares of the Company’s common stock and warrants to purchase 971,562,497 common shares at $0.0004
per share entered into an agreement to cancel the aforementioned common shares and warrants in exchange for a cash payment of $11,000
by the Company. The cancelation agreement resulted in a reduction in common stock of $1,485 for the par value of the common shares, a
reduction in additional paid-in capital of $9,515, and a reduction in the derivative liability of $74,134,327 and a gain on settlement
of debt of $74,134,327 (See Note 12).
On June 4, 2021, an investor
owning warrants to purchase 1,250,000,002 common shares at $0.0004 per share entered into an agreement to cancel the aforementioned common
shares and warrants in exchange for a cash payment of $15,000 by the Company. Accordingly, the cancelation agreement resulted in a reduction
in the derivative liability of $95,380,286 and a gain on settlement of $95,365,286.
On September 30, 2021,
an investor owning warrants to purchase 156,250,079 common shares at $0.0004 per share entered into an agreement to cancel the aforementioned
in exchange for: (i) a cash payment of $1,000,000 received directly from the Chief Executive Officer; and (ii) 250 Series Z Preferred
Shares having a fair value of $6,530,867. The settlement resulted in a reduction in the derivative liability of $5,750,067, offset by
a reduction in cash of $1,000,000, an increase in additional paid-in capital of $6,530,867 and a loss on settlement of debt of $1,780,800.
A summary of the Company’s warrant activity
during the nine months ended September 30, 2021, is presented below:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
2,521,077,555
|
|
|
$
|
0.00109
|
|
|
|
2.04
|
|
|
$
|
14,804,944
|
|
Grants
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired/Canceled
|
|
|
(2,509,502,555
|
)
|
|
$
|
0.0005
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2021
|
|
|
11,575,000
|
|
|
$
|
0.12927
|
|
|
|
1.17
|
|
|
$
|
9,200
|
|
Exercisable at September 30, 2021
|
|
|
11,575,000
|
|
|
$
|
0.12927
|
|
|
|
1.17
|
|
|
$
|
9,200
|
|
Exercise Price
|
|
Warrants
Outstanding
|
|
|
Weighted Avg.
Remaining
Life
|
|
|
Warrants
Exercisable
|
|
$0.0004 – 0.20
|
|
|
11,450,000
|
|
|
|
1.17
|
|
|
|
11,450,000
|
|
0.40
|
|
|
125,000
|
|
|
|
1.25
|
|
|
|
125,000
|
|
|
|
|
11,575,000
|
|
|
|
1.17
|
|
|
|
11,575,000
|
|
The aggregate intrinsic value
of outstanding stock warrants was $9,200, based on warrants with an exercise price less than the Company’s stock price of $0.0372
as of September 30, 2021, which would have been received by the warrant holders had those holders exercised the warrants as of that date.
NOTE 14 – STOCK OPTIONS
Our 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 in October 2016 (“2016 Plan”), our 2017 Equity Incentive Plan in December 2016 (“2017 Plan” and together
with the 2014 Plan, 2015 Plan, 2016 Plan, the “Prior Plans”), our 2018 Equity Incentive Plan in June 2018 (the “2018
Plan”), and our 2021 Equity Incentive Plan in September 2021 (“2021 Plan” , and together with the Prior Plans, the “Plans”).
The Prior Plans are identical, except for the number of shares reserved for issuance under each. As of September 30, 2021,
the Company had granted an aggregate of 64,310,000 securities under the Plans since inception, with 50,190,000 shares available for future
issuances. The Company has made no grants under the plans thus far in 2021.
The Plans provide for the
grant of incentive stock options to our employees and our subsidiaries’ employees, and for the grant of 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. The Prior Plans also provide that the grant of performance stock awards may be paid out in cash as determined
by the committee administering the Prior Plans.
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.
A summary of the Company’s stock option
activity during the nine months ended September 30, 2021, is presented below:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
27,621,765
|
|
|
$
|
0.49
|
|
|
|
6.59
|
|
|
$
|
-
|
|
Grants
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/Canceled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2021
|
|
|
27,621,765
|
|
|
$
|
0.49
|
|
|
|
5.74
|
|
|
$
|
-
|
|
Exercisable at September 30, 2021
|
|
|
27,621,765
|
|
|
$
|
0.49
|
|
|
|
5.74
|
|
|
$
|
-
|
|
Exercise Price
|
|
Number of
Options
|
|
|
Remaining Life
In Years
|
|
|
Number of Options
Exercisable
|
|
$0.01 – 0.25
|
|
|
13,306,786
|
|
|
|
6.51
|
|
|
|
13,306,786
|
|
0.26 – 0.50
|
|
|
1,939,631
|
|
|
|
5.51
|
|
|
|
1,939,631
|
|
0.51 – 0.75
|
|
|
1,820,112
|
|
|
|
4.93
|
|
|
|
1,820,112
|
|
0.76 – 1.00
|
|
|
9,926,072
|
|
|
|
4.96
|
|
|
|
9,926,072
|
|
1.01 – 2.00
|
|
|
629,164
|
|
|
|
4.85
|
|
|
|
629,164
|
|
|
|
|
27,621,765
|
|
|
|
5.74
|
|
|
|
27,621,765
|
|
The aggregate intrinsic value
of outstanding stock options was $0, based on options with an exercise price less than the Company’s stock price of $0.0372 as of
September 30, 2021, which would have been received by the option holders had those option holders exercised their options as of that date.
NOTE 15 – RELATED PARTY TRANSACTIONS
During the nine months
ended September 30, 2021 and 2020, the Company received aggregate advances of $2,091 and $0 and repaid an aggregate of $5,278 and $0,
respectively, to the Company’s Chief Information Officer and a $25,000 settlement payment was made by Empire Services, Inc. on
behalf of the Company. The advances are non-interest bearing and due on demand. As of September 30, 2021 and December 31, 2020, the Company
owed $0 and $3,187, respectively, in advances to the Company’s Chief Information Officer and $25,000 and $0, respectively, in advances
to Empire Services, Inc. (See Note 6).
During the nine months
ended September 30, 2021 and 2020, the Company received aggregate proceeds of $357,053 and $20,520, respectively, and repaid $0 from
the issuance of non-convertible notes to the Company’s Chief Executive Officer and Empires Services, Inc. In addition, Empire Services, Inc. paid the following on behalf of
the Company: (i) the $1,000,000 settlement payment to Iroquois; and (ii) $158,371 of operating expenses to vendors. The non-convertible notes
bear interest from 15% to 20% and have maturity dates ranging from December 31, 2020 through October 15, 2021. For those notes in default,
the interest rate increases to 35% per annum from the date of default. As of September 30, 2021 and December 31, 2020, the Company owed
$1,535,944 and $0, respectively, in non-convertible notes payable to the Company’s Chief Executive Officer and Empire Services,
Inc. (See Note 6).
On
September 30, 2021, the Company entered into a Series Z Preferred Stock Issuance Agreement with the Company’s Chief Executive Officer
whereby the Company received $1,000,000 in exchange for the issuance of: (i) a $1,000,000 note payable; and (ii) 250 Series Z Preferred
Shares having a fair value of $6,530,867 (See Note 15). The note bears interest of 8% per annum and is due within three days of the Company’s
next closing of equity financing of $3,000,000 or more. The proceeds received were allocated to the debt and equity on a relative fair
value basis. Accordingly, debt discount of $867,213 was recognized with a corresponding increase in additional paid-in capital. Since
the due date is contingent upon a future event, the entire debt discount was amortized to interest expense immediately (See Note 12).
NOTE 16 – 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 September 30, 2021, Greenwave Technology Solutions,
Inc. entered into definitive agreements to acquire Empire Services, Inc. for consideration of (i) 495,000,000
shares of Common Stock, (ii) within 3 business days of the closing of the Company’s next capital raise, repayment of a $1 million
advance made to purchase Empire’s Virginia Beach location and (iii) a promissory note in the principal amount of $3.7 million with
a maturity date of September 30, 2023. The acquisition was effective October 1, 2021 upon the effectiveness of a Certificate of Merger
in Virginia.
EMPIRE SERVICES, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
EMPIRE SERVICES, INC.
YEARS ENDED DECEMBER 31, 2020 AND 2019
I N D E X
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Empire Services, Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Empire Services, Inc. and subsidiary (The “Company”) as of December 31, 2020 and 2019, and the related consolidated
statements of operations, shareholders’ deficit and cash flows for each of the years in the two year period ended December 31, 2020
and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the consolidated
results of its operations and its cash flows for each of the years in the two year period ended December 31, 2020, in conformity with
accounting principles generally accepted in the United States of America.
The Company's Ability to Continue as a Going
Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements,
the Company has an accumulated deficit, recurring losses, and expects continuing future losses. Management's evaluation of the events
and conditions and management’s plans regarding these matters are also described in Note 2. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern for one year from the issuance of the audited consolidated financial
statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
New York | Washington, DC | California | Nevada
China | India | Greece
Member of ANTEA International with offices worldwide
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there were no critical audit matters.
/S/ RBSM LLP
|
|
|
|
We have served as the Company’s auditor since 2021.
|
|
|
|
Henderson, Nevada
|
|
November 16, 2021
|
|
New York | Washington, DC | California | Nevada
China | India | Greece
Member of ANTEA International with offices worldwide
EMPIRE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
301,012
|
|
|
$
|
54,795
|
|
Deposits
|
|
|
-
|
|
|
|
2,014
|
|
Total current assets
|
|
|
301,012
|
|
|
|
56,809
|
|
|
|
|
|
|
|
|
|
|
Equipment - net of accumulated depreciation of $1,939,638 and $1,557,394, respectively
|
|
|
2,370,591
|
|
|
|
1,999,348
|
|
Operating lease right of use assets
|
|
|
4,533,747
|
|
|
|
5,777,550
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,205,350
|
|
|
$
|
7,833,707
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDER’S DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,488,713
|
|
|
$
|
1,315,482
|
|
Advances
|
|
|
2,843,525
|
|
|
|
1,083,977
|
|
Contract liability
|
|
|
52,955
|
|
|
|
-
|
|
Operating lease liability
|
|
|
1,766,552
|
|
|
|
1,776,726
|
|
Notes payable
|
|
|
1,924,645
|
|
|
|
2,895,500
|
|
Environmental remediation liability
|
|
|
140,000
|
|
|
|
140,000
|
|
Total current liabilities
|
|
|
8,216,390
|
|
|
|
7,211,685
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability, net current portion
|
|
|
2,911,556
|
|
|
|
4,086,922
|
|
PPP note payable
|
|
|
176,233
|
|
|
|
-
|
|
EIDL note payable
|
|
|
480,504
|
|
|
|
-
|
|
Notes payable, net current portion
|
|
|
2,983,596
|
|
|
|
3,596,202
|
|
Total liabilities
|
|
|
14,768,279
|
|
|
|
14,894,809
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s deficit:
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value, 5,000 shares authorized, 1,000 shares issued and outstanding
|
|
|
1,000
|
|
|
|
1,000
|
|
Additional paid in capital
|
|
|
3,247,543
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(10,811,472
|
)
|
|
|
(7,062,102
|
)
|
Total shareholder’s deficit
|
|
|
(7,562,929
|
)
|
|
|
(7,061,102
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholder’s deficit
|
|
$
|
7,205,350
|
|
|
$
|
7,833,707
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
EMPIRE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,956,728
|
|
|
$
|
17,121,212
|
|
Cost of revenues
|
|
|
6,879,413
|
|
|
|
8,687,887
|
|
Gross Profit
|
|
|
6,077,315
|
|
|
|
8,433,325
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Rent, utilities, and property maintenance
|
|
|
2,374,860
|
|
|
|
2,310,421
|
|
Consulting, accounting, and legal
|
|
|
295,364
|
|
|
|
99,640
|
|
Payroll and related expense
|
|
|
2,405,871
|
|
|
|
2,459,020
|
|
Depreciation expense
|
|
|
382,244
|
|
|
|
327,080
|
|
Environmental remediation expense
|
|
|
-
|
|
|
|
140,000
|
|
Hauling and equipment maintenance
|
|
|
2,043,551
|
|
|
|
1,954,730
|
|
Other general and administrative expenses
|
|
|
1,038,708
|
|
|
|
376,134
|
|
Total Operating Expenses
|
|
|
8,540,598
|
|
|
|
7,667,025
|
|
|
|
|
|
|
|
|
|
|
(Loss) Profit From Operations
|
|
|
(2,463,283
|
)
|
|
|
766,300
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(1,328,527
|
)
|
|
|
(651,361
|
)
|
Gain on settlement of legal matter
|
|
|
-
|
|
|
|
285,000
|
|
Gain of settlement of debt
|
|
|
19,440
|
|
|
|
127,984
|
|
Other income
|
|
|
23,000
|
|
|
|
19,761
|
|
Total Other Income (Expense)
|
|
|
(1,286,087
|
)
|
|
|
(218,616
|
)
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income Before Income Taxes
|
|
|
(3,749,370
|
)
|
|
|
547,684
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$
|
(3,749,370
|
)
|
|
$
|
547,684
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
EMPIRE SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S
DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
|
|
Common
Stock
|
|
|
Additional
Paid
|
|
|
Accumulated
|
|
|
Shareholder’s
Equity
|
|
|
|
Contribution
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
|
1,000
|
|
|
$
|
78,587
|
|
|
$
|
(5,230,691
|
)
|
|
$
|
(5,151,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution for lease rent
|
|
|
-
|
|
|
|
1,692,201
|
|
|
|
-
|
|
|
|
1,692,201
|
|
Cash Distribution
|
|
|
-
|
|
|
|
(1,770,788
|
)
|
|
|
(2,379,095
|
)
|
|
|
(4,149,883
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
547,684
|
|
|
|
547,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
1,000
|
|
|
$
|
-
|
|
|
$
|
(7,062,102
|
)
|
|
$
|
(7,061,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution for lease rent
|
|
|
-
|
|
|
|
1,718,463
|
|
|
|
-
|
|
|
|
1,718,463
|
|
Cash Contribution
|
|
|
-
|
|
|
|
1,529,080
|
|
|
|
-
|
|
|
|
1,529,080
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,749,370
|
)
|
|
|
(3,749,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
1,000
|
|
|
$
|
3,247,543
|
|
|
$
|
(10,811,472
|
)
|
|
$
|
(7,562,929
|
)
|
The accompanying notes are an integral part of these audited consolidated financial statements.
EMPIRE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,749,370
|
)
|
|
$
|
547,684
|
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
382,244
|
|
|
|
327,080
|
|
Bad Debts
|
|
|
-
|
|
|
|
8,748
|
|
Lease payment contributed
|
|
|
1,718,463
|
|
|
|
1,692,201
|
|
Environmental remediation expense
|
|
|
-
|
|
|
|
140,000
|
|
Interest Expense non-cash
|
|
|
1,092,173
|
|
|
|
233,394
|
|
Interest income (expense)
|
|
|
|
|
|
|
3,361
|
|
Gain on settlement of debt
|
|
|
(19,440
|
)
|
|
|
(127,984
|
)
|
Gain on settlement of legal matter
|
|
|
-
|
|
|
|
(285,000
|
)
|
Changes in operating Assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
175,241
|
|
|
|
703,697
|
|
Change in lease liability
|
|
|
58,263
|
|
|
|
91,478
|
|
Contract liability
|
|
|
52,955
|
|
|
|
-
|
|
Net cash (used in) provided by operating activities
|
|
|
(289,471
|
)
|
|
|
3,334,659
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(243,652
|
)
|
|
|
(159,407
|
)
|
Net cash (used in) investing activities
|
|
|
(243,652
|
)
|
|
|
(159,407
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of PPP note payable
|
|
|
543,000
|
|
|
|
-
|
|
Proceeds from issuance of EIDL note payable
|
|
|
500,000
|
|
|
|
-
|
|
Proceeds from issuance of notes payable
|
|
|
197,000
|
|
|
|
1,240,000
|
|
Proceeds from advances
|
|
|
3,309,500
|
|
|
|
1,109,601
|
|
Repayments of notes payable
|
|
|
(2,753,536
|
)
|
|
|
(1,288,115
|
)
|
Repayments of advances
|
|
|
(2,545,704
|
)
|
|
|
(32,060
|
)
|
Cash distribution
|
|
|
-
|
|
|
|
(4,149,883
|
)
|
Cash Contribution
|
|
|
1,529,080
|
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
|
779,340
|
|
|
|
(3,120,457
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
246,217
|
|
|
|
54,795
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
54,795
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
301,012
|
|
|
$
|
54,795
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during period for interest
|
|
$
|
236,354
|
|
|
$
|
417,972
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Non cash Notes proceeds
|
|
$
|
-
|
|
|
$
|
2,945,844
|
|
Non cash notes payment
|
|
$
|
31,351
|
|
|
$
|
(2,945,844
|
)
|
Notes proceeds for equipment
|
|
$
|
509,836
|
|
|
$
|
450,000
|
|
Write off AR Affiliates and Building
|
|
$
|
-
|
|
|
$
|
(2,597,402
|
)
|
The accompanying notes are an integral part of
these consolidated financial statements.
EMPIRE SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 1 – NATURE OF OPERATIONS AND BASIS
OF PRESENTATION
Empire Services, Inc. (“Empire”
or the “Company”) operates 11 metal recycling facilities in Virginia and North Carolina. The Company was incorporated in the
State of Virginia on February 12, 2004.
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Our consolidated financial statements include the accounts of Liverman Metal Recycling, Inc., our wholly-owned subsidiary. All intercompany
transactions were eliminated during consolidation.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As
of December 31, 2020, the Company had cash of $301,012 and a working capital deficit (current liabilities in excess of current assets)
of $7,915,378. During the year ended December 31, 2020, the net loss was $3,749,370 and net
cash used in operating activities was $289,471. As of December 31, 2019, the Company had cash of $54,795 and a working capital deficit
(current liabilities in excess of current assets) of $7,154,876. During the year ended December 31, 2019, the
net income was $547,684 and net cash provided by operating activities was $3,334,659 conditions raise substantial doubt about
the Company’s ability to continue as a going concern for one year from the issuance of the audited consolidated financial statements.
During the year ended December 31, 2020, the Company
received proceeds of $3,309,500, $543,000, $500,000 and $197,000 from the issuance of advances, a paycheck protection program loan, an
emergency injury disaster loan and non-convertible notes, respectively. During fiscal year 2020, the Company used $243,652 to purchase
equipment. The Company may not have sufficient cash to fund operations for the next fiscal year. During the year ended December 31, 2019,
the Company received proceeds of $1,109,601 and $1,240,000 from the issuance of advances and non-convertible notes, respectively. During
fiscal year 2019, the Company used $159,407 to purchase equipment. The Company may not have sufficient cash to fund operations for the
next fiscal year.
The Company’s primary source of operating
funds since inception has been cash proceeds from operating activities. The Company has occasionally experienced net losses and negative
cash flows from operations. The Company’s ability to continue its operations is dependent
upon its ability to obtain additional capital through public or private equity offerings, debt financings or other sources; however, financing
may not be available to the Company on acceptable terms, or at all. The Company’s failure to raise capital as and when needed could
have a negative impact on its financial condition and its ability to pursue its business strategy, and the Company may be forced to curtail
or cease operations.
Management’s plans regarding these matters
encompass the following actions: 1) obtain funding from new and current investors to alleviate the Company’s working capital deficiency;
and 2) implement a plan to increase revenues. The Company’s continued existence is dependent upon its ability to raise additional
capital. However, the outcome of management’s plans cannot be determined with any degree of certainty.
Accordingly, the accompanying
audited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business for one year from the date the consolidated financial statements are issued.
The carrying amounts of assets and liabilities presented in the audited consolidated financial statements do not necessarily purport to
represent realizable or settlement values. The audited consolidated financial statements do not include any adjustments that might result should
the Company be unable to continue as a going concern.
In March 2020, the World
Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, leading to
an economic downturn. It has also disrupted the normal operations of many businesses, including ours. It is not possible for us to predict
the duration or magnitude of the adverse results of the outbreak of COVID-19 and its effects on our business including our financial condition,
liquidity, or results of operations at this time. Management is actively monitoring the global situation and its impact on the Company’s
financial condition, liquidity, operations, customers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and
the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak will have on its results
of operations, financial condition, or liquidity for fiscal year 2021. As of the date these financial statements were issued, the Company
has experienced delays in securing new customers and related revenues and the longer this pandemic continues there may be additional impacts.
Furthermore, the COVID-19 outbreak has and may continue to impact the Company’s ability to raise capital.
Although the Company cannot
estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material
adverse effect on the Company’s results of future operations, financial position, liquidity, and capital resources, and those of
the third parties on which the Company relies in fiscal year 2021.
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include
the accounts of Empire Services, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America (“U.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 right-of-use, lease liability, and environmental remediation calculations. Actual results may differ from
these estimates.
Fair Value of Financial
Instruments
The Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 825-10, “Financial Instruments”
(“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The estimated fair value of certain
financial instruments, including cash, accounts payable and accrued liabilities are 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 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
For purposes of the consolidated
statements of cash flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash
equivalents. As of December 31, 2020 and 2019, the Company had no cash equivalents. The Company maintains 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. At December 31, 2020 and 2019, the uninsured
balances amounted to $57,041 and $0, 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 gain or loss is credited or charged to income.
We expense costs for repairs and maintenance when incurred. Property and equipment includes assets recorded under finance leases, see
“Note 9—Leases.” We pledge property and equipment as collateral for our line of credit. See “Note 8—Long
Term Debt.”
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 recognizes revenue in accordance with that core principle
by applying the following:
(i)
|
Identify
the contract(s) with a customer;
|
(ii)
|
Identify
the performance obligation in the contract;
|
(iii)
|
Determine
the transaction price;
|
(iv)
|
Allocate
the transaction price to the performance obligations in the contract; and
|
(v)
|
Recognize
revenue when (or as) the Company satisfies a performance obligation.
|
The Company primarily generates
revenue by purchasing scrap metal from businesses and retail customers, processing it, and selling the ferrous and non-ferrous metals
to clients.
The Company realizes revenue
upon the fulfillment of its performance obligations to customers. As of December 31, 2020 and 2019, the Company had a contract liability
of $52,955 and $0, respectively, for scrap metal customers had paid for and the Company had not yet delivered.
Inventories
We maintain minimal inventories
as we ship the ferrous and non-ferrous metals we purchase to customers multiple times per day. We calculate the value of the minimal inventories
we do carry, which consist of processed and unprocessed scrap metal (ferrous and nonferrous), used and salvaged vehicles, and supplies,
based on the net realizable value or the cost of the inventories, whichever is less. We calculate the value of the inventory based on
the first-in-first-out (FIFO) methodology. The value of our inventories was $0 and $0, respectively, as of December 31, 2019 and 2020.
Advertising
The Company charges the costs of advertising to
expense as incurred. Advertising costs were $1,095 and $6,671 for the years ended December 31, 2020 and 2019, respectively.
Income Taxes
The Company is organized as a Corporation and has elected to be taxed
as S-Corporation for state and federal tax purposes. Income taxes are not payable by the Company. Shareholders of S-Corporations are taxed
individually on their applicable share of earnings. Accordingly, no provision for income taxes is reflected in these financial statements.
Net income or loss is allocated to the shareholder of the corporation.
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 three to five 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.
Segment Reporting
Operating segments are defined
as components of an enterprise for which separate financial information is available and evaluated regularly by the Chief Executive Officer,
or decision-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.
Environmental Remediation Liability
The operations of the
Company, like those of other companies in its industry, are subject to various 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 the Company conducts its operations in compliance with applicable environmental laws
and regulations and has implemented various programs designed to protect the environment and promote continued compliance.
The Company is involved
with environmental investigation and remediation activities at some of its currently operated sites. In addition, the Company, together
with other parties, has been designated a potentially responsible party under federal and state environmental protection laws for the
investigation and remediation of environmental matters. In general, these laws provide that potentially responsible parties may be held
jointly and severally liable for investigation and remediation costs regardless of fault.
The Company initially
provides for estimated costs of environmental-related activities relating to its past operations for which commitments or clean-up plans
have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated
costs, which are undiscounted, are determined based on currently available facts regarding each site. If the reasonably estimable costs
can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within
the range, the minimum of the range is provided.
The Company continuously
assesses its potential liability for investigation and 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.
At December 31, 2020 and 2019, the Company had accruals reported on the balance
sheet as current liabilities of $140,000 and $140,000, respectively.
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 be reasonably
estimable and therefore would not be included in our current liabilities.
Management expects these
contingent environmental-related liabilities to be resolved over the next fiscal year.
Recent Accounting Pronouncements
In February 2016, the
Financial Accounting (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842),
which, among other things, requires lessees to recognize substantially all leases on their balance sheets and disclose key information
about leasing arrangements. The new standard establishes a right of use (“ROU”) model that requires a lessee to recognize
a ROU asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating,
with classification affecting the pattern and classification of expense recognition in the statement of operations. The new standard became
effective for the Company on January 1, 2019.
We adopted Topic 842
utilizing the modified retrospective adoption method with an effective date of January 1, 2019. We made the election to not apply the
recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less) for all classes of underlying assets. Instead,
we recognize lease payments in profit or loss on a straight-line basis over the lease term. In addition, in accordance with Topic 842,
variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a
lease liability or right-of-use asset. We elected to not separate non-lease components from the associated lease component for all underlying
classes of assets with lease and non-lease components. The adoption of Topic 842 resulted in the recognition of operating lease liabilities
of $4,678,108 and $5,863,648 and operating ROU assets of $4,533,747 and $5,777,550 as of December 31, 2020 and 2019, respectively,
primarily related to leases for the company’s metal recycling facilities. There was no cumulative effect adjustment to beginning
Stockholders’ Deficit on the consolidated balance sheet. The accounting for our finance leases remained substantially unchanged,
as finance lease liabilities and their corresponding ROU assets were already recorded on the consolidated balance sheets under the previous
guidance. The adoption of Topic 842 did not have a significant effect on our results from operations or cash flows. See “Note 9—Leases”
for additional disclosures required by Topic 842.
In August 2020, the FASB issued ASU 2020-06, which
simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with
a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately
present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt,
unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase
reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU
2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury
stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021,
with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The adoption of this update is not expected
to have a material impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB
issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements,
including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements,
and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments
on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU
2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company’s
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.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2020
and December 31, 2019 is summarized as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Equipment
|
|
$
|
4,310,229
|
|
|
$
|
3,556,742
|
|
Less accumulated depreciation
|
|
|
(1,939,638
|
)
|
|
|
(1,557,394
|
)
|
Property and equipment, net
|
|
$
|
2,370,591
|
|
|
$
|
1,999,348
|
|
Depreciation expense for the years ended December
31, 2020 and 2019 was $382,244 and $327,080, respectively.
NOTE 5 – MERCHANT
CASH ADVANCES
During the year ended December 31, 2020 and 2019,
the Company received proceeds from the issuance of merchant cash advances of $3,309,500 and $1,109,601 and repaid an aggregate of $2,545,704
and $32,060, respectively, of the advances. The advances have final payment dates ranging from June 19, 2020 to March 31, 2022. The advances
are secured against the assets of the Company. As of December 31, 2020 and 2019, the Company owed $2,843,525 and $1,083,977 on the advances,
net of issuance discounts of $707,646 and $326,112, respectively. The Company paid interest and penalties of $32,290 and $0 on these advances
during the years ended December 31, 2020 and 2019, respectively.
NOTE 6 – ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
As of December 31, 2020 and 2019, the Company
owed accounts payable and accrued expenses of $1,488,713 and $1,315,482, respectively. These are primarily comprised of payments to vendors
of $1,285,788 and $1,224,413, accrued interest on debt of $16,944 and $356, and accrued credit card balances of $142,998 and $86,869 as
of December 31 2020 and 2019, respectively.
NOTE 7 – COMMITMENTS AND CONTINGENCES
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 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.
The Company realized a gain on legal settlement
of $285,000 during the year ended December 31, 2019 on a worker’s compensation-related matter. The Company realized gain on debt
settlements of $19,440 and $127,984 during the years ended December 31, 2020 and 2019, respectively, for the early payoff of advances.
On June 30, 2021, the Company entered into a Consent
Order with the Virginia State Water Control Board. Under the Consent Order, the Company is required to pay a civil penalty of $90,000,
improve its internal control plans regarding recycled and waste materials, remediate certain environmental concerns on the properties
it leases, among other requirements. The Company believes it is appropriate to recognize an environmental remediation liability as a regulatory
claim was asserted in the Notices of Violations issued to the Company in November 2019, for which the June 2021 Consent Order rectifies.
The Company has recognized a $140,000 environmental remediation liability
as of December 31, 2019 and 2020, which the Company believes $50,000 is a fair estimate of the cost to remediate the properties it leases
and the $90,000 civil penalty. The Company is committed to improving its processes and controls to ensure its operations have minimal
environmental impact with the goal of minimizing the number of comments and citations received by the Department of Environmental Quality
going forward.
NOTE 8 – NON-CONVERTIBLE
NOTES PAYABLE, EIDL NOTE PAYABLE AND PPP NOTE PAYABLE
On November 17, 2014, the Company entered into
a secured promissory note in the principal amount of $2,500,000 bearing an interest rate of 5.25% with a maturity date of October 16,
2019. The note is secured by all assets of the Company and property owned by the Company’s Chief Executive Officer. During fiscal
years 2020 and 2019, the Company made payments of $0 and $1,187,938, respectively. As of December 31, 2020 and 2019, the note had a carrying
value of $0 and $0, respectively.
On November 17, 2014, the Company entered into
a secured promissory note in the principal amount of $3,400,000 bearing an interest rate of 5.25% with a maturity date of November 17,
2019. The note is secured by all assets of the Company and property owned by the Company’s Chief Executive Officer. During fiscal
years 2020 and 2019, the Company made payments of $0 and $773,394, respectively. As of December 31, 2020 and 2019, the note had a carrying
value of $0 and $0, respectively.
On November 17, 2014, the Company entered into
a secured promissory note in the principal amount of $3,000,000 bearing an interest rate of 5.25% with a maturity date of October 16,
2019. The note is secured by all assets of the Company and property owned by the Company’s Chief Executive Officer. During fiscal
years 2020 and 2019, the Company made payments of $1,732,686 and $156,035, respectively. As of December 31, 2020 and 2019, the note had
a carrying value of $0 and $1,732,686, respectively.
On July 7, 2015, the Company entered into a secured
promissory note in the principal amount of $294,000 bearing an interest rate of 5.25% with a maturity date of July 7, 2020. The note is
secured by all assets of the Company and property owned by the Company’s Chief Executive Officer. During fiscal years 2020 and 2019,
the Company made payments of $0 and $106,877, respectively. As of December 31, 2020 and 2019, the note had a carrying value of $0 and
$0, respectively.
On August 15, 2015, the Company entered into an
equipment finance note in the principal amount of $202,000 with a maturity date of August 15, 2021. The finance and interest charges were
included in the principal amount. The note is secured against equipment owned by the Company. During fiscal years 2020 and 2019, the Company
made payments of $0 and $111,238, respectively, towards the principal balance and $0 and $8,213, respectively, towards interest and finance
charges. As of December 31, 2020 and 2019, the note had a carrying value of $0 and $0, respectively.
On September 16, 2015, the Company entered into
a secured promissory note in the principal amount of $2,275,000 bearing an interest rate of 5.25% with a maturity date of September 16,
2019. The note is secured by all assets of the Company and property owned by the Company’s Chief Executive Officer. During fiscal
years 2020 and 2019, the Company made payments of $0 and $905,787, respectively. As of December 31, 2020 and 2019, the note had a carrying
value of $0 and $0, respectively.
On September 30, 2015, the Company entered into
an equipment finance note in the amount of $384,176 bearing an interest rate of 0% with a maturity date of September 30, 2020. There is
a one-time financing fee of $14,276 included in the note. The note is secured against equipment owned by the Company. During fiscal years
2020 and 2019, the Company made payments of $82,882 and $56,157, respectively. As of December 31, 2020 and 2019, the note had a carrying
value of $0 and $82,882 respectively.
On March 8, 2017, the Company entered into an
equipment finance note in the principal amount of $120,851 with a maturity date of March 15, 2021. The finance and interest charges were
included in the principal amount. The note is secured against equipment owned by the Company. During fiscal years 2020 and 2019, the Company
made payments of $0 and $73,165, respectively, towards the principal balance and $0 and $5,401, respectively, towards interest and finance
charges. As of December 31, 2020 and 2019, the note had a carrying value of $0 and $0, respectively.
On October 9, 2018, the Company entered into an
equipment finance note in the principal amount of $97,574 with a maturity date of October 9, 2023. The finance and interest charges were
included in the principal amount. The note is secured against equipment owned by the Company. During fiscal years 2020 and 2019, the Company
made payments of $0 and $89,462, respectively, towards the principal balance and $0 and $6,605, respectively, towards interest and finance
charges. As of December 31, 2020 and 2019, the note had a carrying value of $0 and $0, respectively.
On December 27, 2018, the Company entered into
a secured promissory note in the amount of $898,000 bearing an interest rate of 9.25% with a maturity date of February 15, 2024. The note
is secured by assets of the Company. During fiscal years 2020 and 2019, the Company made principal payments of $0 and $770,126, respectively.
There was a gain on settlement of $127,874. As of December 31, 2020 and 2019, the note had a carrying value of $0 and $0, respectively.
On July 5, 2019, the Company entered into a secured
promissory note in amount of $1,360,800 bearing an interest rate of 10.495% with a maturity date of August 5, 2022. There was an additional
financing cost of $11,474 assessed in fiscal year 2020. The note is secured by assets of the Company. During fiscal years 2020 and 2019,
the Company made principal payments of $274,058 and $0, respectively, and payments towards interest of $34,020 and $14,715, respectively.
There was a principal addition of $11,474 in fiscal year 2020. As of December 31, 2020 and 2019, the note had a principal balance
of $1,066,864 and $1,360,800. As of December 31, 2020 and 2019, the note had a carrying value of $957,817 and $1,183,481, respectively.
On August 15, 2019, the Company entered into a
secured promissory note in the amount of $652,680 bearing an interest rate of 10.495% with a maturity date of November 15, 2025. There
was an additional financing cost of $2,313 assessed in fiscal year 2020. The note is secured by assets of the Company. During fiscal years
2020 and 2019, the Company made principal payments of $58,052 and $0, respectively, and payments towards fees of $9,158 and $0, respectively.
As of December 31, 2020 and 2019, the note had a principal balance of $596,941 and $652,680. As of December 31, 2020 and 2019, the note
had a carrying value of $509,324 and $546,808, respectively.
On December 30, 2019, the Company entered into
a secured promissory note in the principal amount of $2,000,000 bearing an interest rate of 4.75% with a maturity date of January 30,
2024. The note is secured by all assets of the Company and property owned by the Company’s Chief Executive Officer. During fiscal
years 2020 and 2019, the Company made principal payments of $392,288 and $0, respectively, and payments towards interest of $90,977 and
$0, respectively. As of December 31, 2020 and 2019, the note had a carrying value of $1,607,712 and $2,000,000, respectively.
On December 30, 2019, the Company entered into
a secured, demand promissory note in the principal amount of $1,000,000 bearing an interest rate of 4.75% with a maturity date of January
30, 2024, of which the Company received proceeds of $197,000 and $945,844 during the years ended December 31, 2020 and 2019, respectively.
Under the terms of the note, any principal amount that is paid off can be reborrowed. The note is secured by all assets of the Company
and property owned by the Company’s Chief Executive Officer. During fiscal years 2020 and 2019, the Company made principal payments
of $192,585 and $0, respectively, and payments towards interest of $26,837 and $0, respectively. As of December 31, 2020 and 2019, the
note had a carrying value of $950,260 and $945,844, respectively.
On April 19, 2020, the Company received proceeds
of $500,000 from an Economic Injury Disaster Loan (“EIDL”) note. The note has a maturity date of April 19, 2040 and bears
3.75% interest per annum. As of December 31, 2020, the Company owed $500,000 in principal and $13,151 in accrued interest on this
note.
On April 20, 2020, the Company received proceeds
of $543,000 from a Paycheck Protection Program (“PPP”) note. The note has a maturity date of April 20, 2022 and bears 1% interest
per annum. As of December 31, 2020, the Company owed $543,000 in principal and $3,794 in accrued interest on this note. On April 1, 2021,
the Small Business Administration forgave all principal and interest due under this note.
On August 12, 2020, the Company entered into a
secured promissory note in the amount of $335,760, bearing an interest rate of 10.495% with a maturity date of September 12, 2024. The
note is secured by assets of the Company. During fiscal year 2020, the Company made principal payments of $20,985. As of December 31,
2020 and 2019, the note had a principal balance of $314,755 and $0. As of December 31, 2020, the note had a carrying value of $259,757.
On October 28, 2020, the Company entered into
a secured promissory note in the amount of $273,960 bearing an interest rate of 10.015% with a maturity date of November 5, 2023. The
note is secured by assets of the Company. During fiscal year 2020, the Company made principal payments of $0. As of December 31, 2020,
the note had a principal balance of $273,960. As of December 31, 2020, the note had a carrying value of $237,109.
There were interest expense of $233,394 and $1,092,173
for the years ended December 31, 2019 and 2020, respectively.
The following is a summary of the notes payable
balances at December 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Note balance
|
|
$
|
5,564,978
|
|
|
|
6,491,702
|
|
Less: current portion
|
|
|
(1,924,645
|
)
|
|
|
(2,895,500
|
)
|
Long-term portion
|
|
$
|
3,640,333
|
|
|
$
|
3,596,202
|
|
Aggregate
minimum future principal payment maturities at December 31, 2020 were as follows:
Year ended December 31,
|
|
|
|
2021
|
|
$
|
1,924,645
|
|
2022
|
|
|
1,734,112
|
|
2023
|
|
|
1,081,821
|
|
2024
|
|
|
341,261
|
|
2025
|
|
|
80,619
|
|
Thereafter
|
|
|
402,520
|
|
Total principal payments
|
|
$
|
5,564,978
|
|
NOTE 9 – LEASES
Property Leases (Operating Leases)
The Company
leases its facilities and certain office equipment under operating leases which expire on various dates through 2025. The Company determines
if an arrangement is a lease at inception and whether they are 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.
On April
16, 2016, the Company entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, the Company is required
to pay $10,000 for the first month and $725 per month thereafter for 47 months. The lease expires on April 16, 2020 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 December
29, 2017, the Company entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, the Company is required
to pay $7,500 for the first month and $700 per month thereafter for 47 months. The lease expires on December 29, 2021 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.
Effective
January 1, 2019, the Company entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing
of the Company’s metal recycling locations. Under the terms of the leases, the Company is required to pay an aggregate of $137,450
per month for the facilities beginning January 1, 2019 and increasing by 3% on the first 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
the options, the leases will continue on a month-to-month basis. The Company cannot sublease any of the properties under the lease agreements.
On February
18, 2019, the Company entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, the Company is required
to pay $18,200 for the first month and $750 per month thereafter for 59 months. The lease expires on February 18, 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.
ROU assets
and liabilities consist of the following:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Operating leases - ROU assets (included in Other assets)
|
|
$
|
4,533,747
|
|
|
$
|
5,777,550
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
|
$
|
1,766,552
|
|
|
$
|
1,776,726
|
|
Long term lease liabilities, net of current portion
|
|
|
2,911,556
|
|
|
|
4,086,922
|
|
Total lease liabilities
|
|
$
|
4,678,108
|
|
|
$
|
5,863,648
|
|
Aggregate minimum future commitments under non-cancelable
operating leases and other obligations at December 31, 2020 were as follows:
Year ended December 31,
|
|
|
|
2021
|
|
$
|
1,766,552
|
|
2022
|
|
|
1,811,352
|
|
2023
|
|
|
1,865,412
|
|
2024
|
|
|
9,000
|
|
2025
|
|
|
750
|
|
Total Minimum Lease Payments
|
|
$
|
5,453,066
|
|
Less: Imputed Interest
|
|
$
|
774,958
|
|
Present Value of Lease Payments
|
|
$
|
4,678,108
|
|
Less: Current Portion
|
|
$
|
1,766,552
|
|
Long Term Portion
|
|
$
|
2,911,556
|
|
The Company leases its facilities, automobiles,
and offices under operating leases which expire on various dates through 2024. Rent expense related to these leases is recognized based
on the payment amount charged under the lease. Rent expense for the years ended December 31, 2020 and 2019 was $1,776,726 and $1,783,949,
respectively. At December 31, 2020, the leases had a weighted average remaining lease term
of 3.0 years and a weighted average discount rate of 10%.
NOTE 10 – CONCENTRATIONS OF REVENUE
Customer Concentrations
The Company has a concentration of customers.
For the fiscal year ended December 31, 2020, one customer represented approximately 93% of revenue. For the fiscal year ended December
31, 2019, two customers represented approximately 89% and 8% of revenue each. Sims Metal Management accounted for $11,098,172 and $15,302,399
in revenue in 2020 and 2019, respectively, and Techemet LP accounted for $1,115,724 and $1,386,223 in revenue in 2020 and 2019, respectively.
The Company’s sales are concentrated in
the Virginia and northeastern North Carolina markets.
NOTE 11 – STOCKHOLDERS’ EQUITY
The Company is authorized
to issue 5,000 shares of common stock, par value $1.00 per share. There were 1,000 shares of common stock outstanding at December 31,
2019, and December 31, 2020.
During the year ended December 31, 2020, there
were contributions for lease rent of $1,718,463 and cash contributions of $1,529,080. During the year ended December 31, 2019, there contribution
for lease rent of $1,692,201 and cash distributions of $4,149,883.
NOTE 12 – WARRANTS
The Company does not have any outstanding warrants to purchase common
stock.
NOTE 13 – STOCK OPTIONS
The Company does not have
any outstanding options to purchase shares of common stock.
NOTE 14 – INCOME TAXES
The Company, with
stockholder’s consent, has elected to be taxed as an “S Corporation” under the provisions of the Internal Revenue
Code and comparable state income tax law. As an S Corporation, the Company is generally not subject to corporate income taxes and
the Company’s net income or loss is reported on the individual tax return of the stockholder of the Company. Therefore, no
provision or liability for income taxes is reflected in the financial statements.
The Company has not been
audited by the Internal Revenue Service, and accordingly the business tax returns since 2016 are open to examination. Management has evaluated
its tax positions and has concluded that the Company had taken no uncertain tax positions that could require adjustment or disclosure
in the financial statements to comply with provisions set forth in Accounting Standards Codification (ASC) Section 740, Income Taxes.
NOTE 15 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued.
On March 16, 2021, the Company received a $543,275
Paycheck Protection Program loan.
On April 1, 2021, the Small Business Administration
forgave the Company’s Paycheck Protection Program loan in the principal amount of $543,000 and accrued interest of $5,219.
On September 30, 2021, MassRoots, Inc. entered
into definitive agreements to acquire the Company for consideration of (i) 482,504,742 shares of
Common Stock, (ii) within 3 business days of the closing of the Company’s next capital raise, repayment of a $1 million advance
made to purchase Empire’s Virginia Beach location and (iii) a promissory note in the principal amount of $3.7 million with a maturity
date of September 30, 2023. The acquisition was effective October 1, 2021 upon the effectiveness of a Certificate of Merger in Virginia.
EMPIRE SERVICES, INC.
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
AND 2020
EMPIRE SERVICES, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
INDEX
EMPIRE SERVICES, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
September 30
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
141,027
|
|
|
$
|
301,012
|
|
Deposits
|
|
|
1,150
|
|
|
|
-
|
|
Total current assets
|
|
|
142,177
|
|
|
|
301,012
|
|
|
|
|
|
|
|
|
|
|
Due from affiliate - MassRoots
|
|
|
1,515,778
|
|
|
|
|
|
Equipment - net of accumulated depreciation of $2,287,191 and $1,939,638, respectively
|
|
|
3,224,377
|
|
|
|
2,370,591
|
|
Finance lease ROU asset - net
|
|
|
34,261
|
|
|
|
-
|
|
Operating lease right of use assets
|
|
|
3,551,700
|
|
|
|
4,533,747
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,468,293
|
|
|
$
|
7,205,350
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDER’S DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
845,349
|
|
|
$
|
1,488,713
|
|
Advances, net
|
|
|
4,072,799
|
|
|
|
2,843,525
|
|
Contract liability
|
|
|
-
|
|
|
|
52,955
|
|
Operating lease liability
|
|
|
1,815,069
|
|
|
|
1,766,552
|
|
Short term finance lease liability
|
|
|
7,800
|
|
|
|
-
|
|
PPP note payable
|
|
|
7,395
|
|
|
|
|
|
EIDL note payable
|
|
|
29,244
|
|
|
|
|
|
Notes payable
|
|
|
1,917,342
|
|
|
|
1,924,645
|
|
Environmental remediation liability
|
|
|
71,017
|
|
|
|
140,000
|
|
Total current liabilities
|
|
|
8,766,015
|
|
|
|
8,216,390
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability, net current portion
|
|
|
1,887,500
|
|
|
|
2,911,556
|
|
Long term finance lease liability
|
|
|
18,850
|
|
|
|
-
|
|
PPP note payable, net current portion
|
|
|
535,880
|
|
|
|
176,233
|
|
EIDL note payable, net current portion
|
|
|
470,756
|
|
|
|
480,504
|
|
Notes payable, net current portion
|
|
|
2,724,045
|
|
|
|
2,983,596
|
|
Total liabilities
|
|
|
14,403,046
|
|
|
|
14,768,279
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s deficit:
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value, 5,000 shares authorized, 1,000 shares issued and outstanding
|
|
|
1,000
|
|
|
|
1,000
|
|
Additional paid in capital
|
|
|
2,417,778
|
|
|
|
3,247,543
|
|
Accumulated deficit
|
|
|
(8,353,531
|
)
|
|
|
(10,811,472
|
)
|
Total shareholder’s deficit
|
|
|
(5,934,753
|
)
|
|
|
(7,562,929
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholder’s deficit
|
|
$
|
8,468,293
|
|
|
$
|
7,205,350
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
EMPIRE SERVICES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
Nine
Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,657,726
|
|
|
$
|
9,163,115
|
|
Cost of revenues
|
|
|
10,656,628
|
|
|
|
4,796,314
|
|
Gross Profit
|
|
|
9,001,098
|
|
|
|
4,366,800
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Rent, utilities, and property maintenance
|
|
|
1,689,544
|
|
|
|
1,763,076
|
|
Consulting, accounting, and legal
|
|
|
165,792
|
|
|
|
193,688
|
|
Payroll and related expense
|
|
|
2,242,961
|
|
|
|
1,686,034
|
|
Depreciation expense
|
|
|
347,554
|
|
|
|
327,532
|
|
Environmental remediation expense
|
|
|
6,850
|
|
|
|
-
|
|
Hauling and equipment maintenance
|
|
|
952,163
|
|
|
|
1,020,354
|
|
Other general and administrative expenses
|
|
|
563,902
|
|
|
|
713,772
|
|
Total Operating Expenses
|
|
|
5,968,766
|
|
|
|
5,704,456
|
|
|
|
|
|
|
|
|
|
|
(Loss) Profit From Operations
|
|
|
3,032,332
|
|
|
|
(1,337,655
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(1,122,610
|
)
|
|
|
(990,428
|
)
|
Gain on forgiveness of debt
|
|
|
548,218
|
|
|
|
-
|
|
Gain of settlement of debt
|
|
|
-
|
|
|
|
19,440
|
|
Other income
|
|
|
-
|
|
|
|
23,000
|
|
Total Other Income (Expense)
|
|
|
(574,392
|
)
|
|
|
(947,988
|
)
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes
|
|
|
2,457,940
|
|
|
|
(2,285,643
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
2,457,940
|
|
|
$
|
(2,285,643
|
)
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
EMPIRE SERVICES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF SHAREHOLDER’S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
AND 2020
(unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid
|
|
|
Accumulated
|
|
|
Shareholder’s
Equity
|
|
|
|
Contribution
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
|
1,000
|
|
|
$
|
-
|
|
|
$
|
(7,062,102
|
)
|
|
$
|
(7,061,102
|
)
|
Contribution for lease rent
|
|
|
-
|
|
|
|
1,289,516
|
|
|
|
-
|
|
|
|
1,289,516
|
|
Cash Contributions
|
|
|
-
|
|
|
|
346,256
|
|
|
|
-
|
|
|
|
346,256
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,285,643
|
)
|
|
|
(2,285,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
|
|
1,000
|
|
|
$
|
1,635,772
|
|
|
$
|
(9,347,745
|
)
|
|
$
|
(7,710,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
1,000
|
|
|
$
|
3,247,543
|
|
|
$
|
(10,811,472
|
)
|
|
$
|
(7,562,929
|
)
|
Contribution for lease rent
|
|
|
-
|
|
|
|
894,447
|
|
|
|
-
|
|
|
|
894,447
|
|
Non cash contribution for fixed asset
|
|
|
-
|
|
|
|
155,800
|
|
|
|
-
|
|
|
|
155,800
|
|
Non cash distribution
|
|
|
-
|
|
|
|
(133,979
|
)
|
|
|
-
|
|
|
|
(133,979
|
)
|
Cash Distribution
|
|
|
-
|
|
|
|
(1,746,034
|
)
|
|
|
-
|
|
|
|
(1,746,034
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
2,457,940
|
|
|
|
2,457,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
|
|
1,000
|
|
|
$
|
2,417,778
|
|
|
$
|
(8,353,532
|
)
|
|
$
|
(5,934,753
|
)
|
The
accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
EMPIRE SERVICES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASHFLOWS
(unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
2,457,940
|
|
|
$
|
(2,285,643
|
)
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
347,554
|
|
|
|
327,532
|
|
Lease payment contributed
|
|
|
-
|
|
|
|
1,289,516
|
|
Interest Expense non-cash
|
|
|
38,720
|
|
|
|
802,966
|
|
Amortization of debt discount
|
|
|
964,185
|
|
|
|
-
|
|
Gain on forgiveness of debt
|
|
|
(548,218
|
)
|
|
|
-
|
|
Gain on settlement of legal matter
|
|
|
-
|
|
|
|
(19,440
|
)
|
Changes in operating Assets and liabilities
|
|
|
|
|
|
|
|
|
Environmental remediation liability
|
|
|
(68,983
|
)
|
|
|
|
|
Lease payments waived, amortization of ROU, and change in lease liability
|
|
|
1,331,126
|
|
|
|
-
|
|
Deposits
|
|
|
(1,150
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(1,114,378
|
)
|
|
|
42,527
|
|
Change in lease liability
|
|
|
-
|
|
|
|
43,697
|
|
Change in notes receivable
|
|
|
(1,515,778
|
)
|
|
|
-
|
|
Contract liability
|
|
|
(52,953
|
)
|
|
|
-
|
|
Net cash provided by operating activities
|
|
|
1,838,065
|
|
|
|
201,155
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(279,309
|
)
|
|
|
(243,652
|
)
|
Net cash (used in) investing activities
|
|
|
(279,309
|
)
|
|
|
(243,652
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of PPP note payable
|
|
|
543,275
|
|
|
|
543,000
|
|
Proceeds from issuance of EIDL note payable
|
|
|
-
|
|
|
|
500,000
|
|
Proceeds from issuance of notes payable
|
|
|
179,500
|
|
|
|
197,000
|
|
Proceeds from advances
|
|
|
2,692,500
|
|
|
|
2,963,237
|
|
Repayments of notes payable
|
|
|
(1,060,550
|
)
|
|
|
(2,368,783
|
)
|
Repayments of advances
|
|
|
(2,327,432
|
)
|
|
|
(1,816,518
|
)
|
Cash distribution
|
|
|
(1,746,034
|
)
|
|
|
-
|
|
Cash Contribution
|
|
|
-
|
|
|
|
344,943
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,718,741
|
)
|
|
|
227,879
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
(159,985
|
)
|
|
|
185,381
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
301,012
|
|
|
|
54,795
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
141,027
|
|
|
$
|
240,176
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during period for interest
|
|
$
|
119,625
|
|
|
$
|
187,462
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Non cash Notes proceeds
|
|
$
|
221,801
|
|
|
$
|
-
|
|
Non cash notes payment
|
|
$
|
87,822
|
|
|
$
|
31,151
|
|
Notes proceeds for equipment
|
|
$
|
766,500
|
|
|
$
|
275,000
|
|
Contribution of equipment
|
|
$
|
155,800
|
|
|
$
|
-
|
|
Non cash distribution
|
|
$
|
-
|
|
|
$
|
748,973
|
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
EMPIRE SERVICES, INC.
Notes to Condensed
Consolidated Financial Statements
September 30, 2021 (Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS
OF PRESENTATION
Empire Services, Inc. (“Empire”
or the “Company”) operates 11 metal recycling facilities in Virginia and North Carolina. The Company was incorporated in the
State of Virginia on February 12, 2004.
The
accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial
information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Our consolidated
financial statements include the accounts of Liverman Metal Recycling, Inc., our wholly-owned subsidiary. All intercompany transactions
were eliminated during consolidation.
Basis
of Presentation
The
interim unaudited condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s
management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary
to present fairly the Company’s results of operations for nine months ended September 30, 2021 and 2020, its cash flows for the
nine months ended September 30, 2021 and 2020, and its financial position as of September 30, 2021 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.
Certain
information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted
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 notes thereto included in our Current
Report on Form 8-K for the fiscal year ended December 31, 2020. The
December 31, 2020 balance sheet is derived from those statements.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As
of September 30, 2021, the Company had cash of $141,027 and a working capital deficit (current liabilities in excess of current
assets) of $8,623,838. During the nine months ended September 30, 2021, although the net
profit was $2,457,940 and net cash generated by operating activities was $1,838,065,
Empire’s historical losses raise substantial doubt about the Company’s ability to continue as a going
concern for one year from the issuance of the audited consolidated financial statements.
During the nine months ended September 30, 2021,
the Company received proceeds of $2,692,500, $543,275, and $179,500 from the issuance of advances, a paycheck protection program loan,
and non-convertible notes, respectively. The Company may not have sufficient cash to fund operations for the next fiscal year.
The Company’s primary source of operating
funds since inception has been cash proceeds from operating activities. The Company has occasionally experienced net losses and negative
cash flows from operations. The Company’s ability to continue its operations is dependent
upon its ability to obtain additional capital through public or private equity offerings, debt financings or other sources; however, financing
may not be available to the Company on acceptable terms, or at all. The Company’s failure to raise capital as and when needed could
have a negative impact on its financial condition and its ability to pursue its business strategy, and the Company may be forced to curtail
or cease operations.
Management’s plans regarding these matters
encompass the following actions: 1) obtain funding from new and current investors to alleviate the Company’s working capital deficiency;
and 2) implement a plan to increase revenues. The Company’s continued existence is dependent upon its ability to raise additional
capital. However, the outcome of management’s plans cannot be determined with any degree of certainty.
Accordingly,
the accompanying condensed unaudited consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business for one year from the date the consolidated financial statements are issued. The carrying amounts of assets and liabilities
presented in the audited consolidated financial statements do not necessarily purport to represent realizable or settlement values. The
audited consolidated financial statements do not include any adjustments that might result should
the Company be unable to continue as a going concern.
In March 2020, the World
Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, leading to
an economic downturn. It has also disrupted the normal operations of many businesses, including ours. It is not possible for us to predict
the duration or magnitude of the adverse results of the outbreak of COVID-19 and its effects on our business including our financial condition,
liquidity, or results of operations at this time. Management is actively monitoring the global situation and its impact on the Company’s
financial condition, liquidity, operations, customers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and
the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak will have on its results
of operations, financial condition, or liquidity for fiscal year 2022. As of the date these financial statements were issued, the Company
has experienced delays in securing new customers and related revenues and the longer this pandemic continues there may be additional impacts.
Furthermore, the COVID-19 outbreak has and may continue to impact the Company’s ability to raise capital.
Although the Company cannot
estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material
adverse effect on the Company’s results of future operations, financial position, liquidity, and capital resources, and those of
the third parties on which the Company relies in fiscal year 2022.
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include
the accounts of Empire Services, Inc. and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.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 the incremental borrowing rate of the lease liabilities, and
environmental remediation calculations. Actual results may differ from these estimates.
Fair Value of Financial
Instruments
The Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 825-10, “Financial Instruments”
(“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The estimated fair value of certain
financial instruments, including cash, accounts payable and accrued liabilities are 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 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
For purposes of the consolidated
statements of cash flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash
equivalents. At September 30, 2021 and December 31, 2020 the Company had no cash equivalents. The Company maintains 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. At September 30, 2021 and December
31, 2020, the uninsured balances amounted to $0 and $57,041, 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 gain or loss is credited or charged to income.
We expense costs for repairs and maintenance when incurred. Property and equipment includes assets recorded under finance leases, see
“Note 9—Leases.” We pledge property and equipment as collateral for our line of credit. See “Note 8—Long
Term Debt.”
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 recognizes revenue in accordance with that core principle
by applying the following:
|
(i)
|
Identify
the contract(s) with a customer;
|
|
(ii)
|
Identify
the performance obligation in the contract;
|
|
(iii)
|
Determine
the transaction price;
|
|
(iv)
|
Allocate
the transaction price to the performance obligations in the contract; and
|
|
(v)
|
Recognize
revenue when (or as) the Company satisfies a performance obligation.
|
The Company primarily generates
revenue by purchasing scrap metal from businesses and retail customers, processing it, and selling the ferrous and non-ferrous metals
to clients.
The Company realizes revenue
upon the fulfillment of its performance obligations to customers. As of September 30, 2021 and December 31, 2020, the Company had a contract
liability of $0 and $52,955, respectively, for scrap metal customers had paid for and the Company had not yet delivered.
Inventories
We maintain minimal inventories
as we ship the ferrous and non-ferrous metals we purchase to customers multiple times per day. We calculate the value of the minimal inventories
we do carry, which consist of processed and unprocessed scrap metal (ferrous and nonferrous), used and salvaged vehicles, and supplies,
based on the net realizable value or the cost of the inventories, whichever is less. We calculate the value of the inventory based on
the first-in-first-out (FIFO) methodology. The value of our inventories was $0 and $0, respectively, at September 30, 2021 and December
31, 2020.
Advertising
The Company charges the costs of advertising to
expense as incurred. Advertising costs were $5,764 and $807 for the nine months ended September 30, 2021 and 2020, respectively.
Income Taxes
The Company is organized as a Corporation and has elected to be taxed
as S-Corporation for state and federal tax purposes. Income taxes are not payable by the Company. Shareholders of S-Corporations are taxed
individually on their applicable share of earnings. Accordingly, no provision for income taxes is reflected in these financial statements.
Net income or loss is allocated to the shareholder of the corporation.
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 three to five 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.
Segment Reporting
Operating segments are defined
as components of an enterprise for which separate financial information is available and evaluated regularly by the Chief Executive Officer,
or decision-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.
Environmental Remediation Liability
The operations of the
Company, like those of other companies in its industry, are subject to various 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 the Company conducts its operations in compliance with applicable environmental laws
and regulations and has implemented various programs designed to protect the environment and promote continued compliance.
The Company is involved
with environmental investigation and remediation activities at some of its currently operated sites. In addition, the Company, together
with other parties, has been designated a potentially responsible party under federal and state environmental protection laws for the
investigation and remediation of environmental matters. In general, these laws provide that potentially responsible parties may be held
jointly and severally liable for investigation and remediation costs regardless of fault.
The Company initially
provides for estimated costs of environmental-related activities relating to its past operations for which commitments or clean-up plans
have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated
costs, which are undiscounted, are determined based on currently available facts regarding each site. If the reasonably estimable costs
can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within
the range, the minimum of the range is provided.
The Company continuously
assesses its potential liability for investigation and 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.
At September 30, 2021 and December 31, 2020, the Company had accruals reported on the
balance sheet as current liabilities of $71,017 and $140,000, respectively.
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 be reasonably
estimable and therefore would not be included in our current liabilities.
Management expects these
contingent environmental-related liabilities to be resolved over the next fiscal year.
Recent Accounting Pronouncements
In February 2016, the
Financial Accounting (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842),
which, among other things, requires lessees to recognize substantially all leases on their balance sheets and disclose key information
about leasing arrangements. The new standard establishes a right of use (“ROU”) model that requires a lessee to recognize
a ROU asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating,
with classification affecting the pattern and classification of expense recognition in the statement of operations. The new standard became
effective for the Company on January 1, 2019.
We adopted Topic 842
utilizing the modified retrospective adoption method with an effective date of January 1, 2019. We made the election to not apply the
recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less) for all classes of underlying assets. Instead,
we recognize lease payments in profit or loss on a straight-line basis over the lease term. In addition, in accordance with Topic 842,
variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a
lease liability or right-of-use asset. We elected to not separate non-lease components from the associated lease component for all underlying
classes of assets with lease and non-lease components. The adoption of Topic 842 resulted in the recognition of operating lease liabilities
of $3,729,219 and $4,678,108 and operating ROU assets of $3,585,961 and $4,533,747 as of September 30, 2021 and December 31, 2020,
respectively, primarily related to leases for the company’s metal recycling facilities. There was no cumulative effect adjustment
to beginning Stockholders’ Deficit on the consolidated balance sheet. The accounting for our finance leases remained substantially
unchanged, as finance lease liabilities and their corresponding ROU assets were already recorded on the consolidated balance sheets under
the previous guidance. The adoption of Topic 842 did not have a significant effect on our results from operations or cash flows. See “Note
9—Leases” for additional disclosures required by Topic 842.
In August 2020, the FASB issued ASU 2020-06, which
simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with
a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately
present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt,
unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase
reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU
2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury
stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021,
with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The adoption of this update is not expected
to have a material impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB
issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements,
including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements,
and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments
on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU
2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company’s
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.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2021
and December 31, 2020 is summarized as follows:
|
|
September 31,
2021
|
|
|
December 31,
2020
|
|
Equipment
|
|
$
|
5,511,568
|
|
|
$
|
4,310,229
|
|
Less accumulated depreciation
|
|
|
(2,287,191
|
)
|
|
|
(1,939,638
|
)
|
Property and equipment, net
|
|
$
|
3,224,377
|
|
|
$
|
2,370,591
|
|
Depreciation expense for the nine months ended
September 30, 2021 and 2020 was $347,554 and $327,532, respectively.
NOTE 5 – MERCHANT
CASH ADVANCES
During
the nine months ended September 30, 2021 and 2020, the Company received proceeds from the issuance of merchant cash advances of $2,692,500
and $2,963,237 and repaid an aggregate of $2,327,432 and $1,816,518, respectively, of the advances. The advances have final payment dates
ranging from June 19, 2020 to March 31, 2022. The advances are secured against the assets of the Company. As of September 30, 2021 and
December 31, 2020, the Company owed $4,072,799 and $2,843,525 on the advances, net of issuance discounts of $903,141 and $707,646, respectively.
The Company paid interest and penalties of $6,786 and $3,526 on these advances during the nine months ended September 30, 2021 and 2020,
respectively. There was amortization of debt discount of $864,206
and $744,874 during the nine months ended September 30, 2021 and 2020, respectively.
The Company realized gain on debt settlements
of $0 and $19,440 during the nine months ended September 30, 2021 and 2020, respectively, for the early payoff of advances.
NOTE 6 – ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
At September 30, 2021 and December 31, 2020, the
Company owed accounts payable and accrued expenses of $845,349 and $1,488,713, respectively. These are primarily comprised of accounts
payable balances to vendors of $735,087 and $1,285,788, accrued interest on debt of $49,818 and $16,944, and accrued credit card balances
of $60,444 and $142,998 as of September 30, 2021 and December 31 2020, respectively.
NOTE 7 – COMMITMENTS AND CONTINGENCES
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 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.
On June 30, 2021, the Company entered into a Consent
Order with the Virginia State Water Control Board. Under the Consent Order, the Company is required to pay a civil penalty of $90,000,
improve its internal control plans regarding recycled and waste materials, remediate certain environmental concerns on the properties
it leases, among other requirements. The Company believes it is appropriate to recognize an environmental remediation liability as a regulatory
claim was asserted in the Notices of Violations issued to the Company in November 2019, for which the June 2021 Consent Order rectifies.
The
Company has recognized a $71,017 and $140,000 environmental remediation liability as of September 30, 2021 and December 31, 2020, respectively,
of which the Company believes a balance of $15,017 and $50,000, respectively, are a fair estimate of the cost to remediate the properties
it leases and a balance of $56,000 and $90,000, respectively, for the civil penalty. The Company paid $34,983 towards the remediation
of the properties and $34,000 towards the civil penalty during the nine months ended September 30, 2021. The Company is committed to
improving its processes and controls to ensure its operations have minimal environmental impact with the goal of minimizing the number
of comments and citations received by the Department of Environmental Quality going forward.
NOTE 8 – NON-CONVERTIBLE
NOTES PAYABLE, EIDL NOTE PAYABLE AND PPP NOTE PAYABLE
On July 5, 2019, the Company entered into a secured
promissory note in amount of $1,360,800 bearing an interest rate of 10.495% with a maturity date of August 5, 2022. There was an additional
financing cost of $11,474 assessed in fiscal year 2020. There were late fees of $30,330 assessed during the nine months ended September
30, 2021. The note is secured by assets of the Company. During the nine months ended September 30, 2021, the Company made principal payments
of $302,400. At September 30, 2021 and December 31, 2020, the note had a principal balance of $764,464 and $1,066,864. As of September
30, 2021 and December 31, 2020, the note had a carrying value of $707,644 and $957,817, respectively. There was accrued interest on the
note of $30,330 and $0 at September 30, 2021 and December 31, 2020, respectively.
On August 15, 2019, the Company entered into a secured promissory note
in the amount of $652,680 bearing an interest rate of 10.495% with a maturity date of November 15, 2025. There was an additional financing
cost of $2,313 assessed in fiscal year 2020. There were late fees of $7,896 assessed during the nine months ended September 30, 2021.
The note is secured by assets of the Company. During the nine months ended September 30, 2021, the Company made payments towards the principal
of the note of $72,560. At September 30, 2021 and December 31, 2020, the note had a principal balance of $524,381 and $596,941, respectively.
At September 30, 2021 and December 31, 2020, the note had a carrying value of $450,268 and $509,324, respectively. There was accrued interest
on the note of $7,896 and $0 at September 30, 2021 and December 31, 2020, respectively.
On
December 30, 2019, the Company entered into a secured promissory note in the principal amount of $2,000,000 bearing an interest rate
of 4.75% with a maturity date of December 30, 2023. The note is secured by all assets of the Company and property owned by the Company’s
Chief Executive Officer. During the nine months ended September 30, 2021, the Company made payments towards the principal of the note
of $384,181 and payments towards interest of $59,053. At September 30, 2021 and December 31, 2020, the note had a remaining principal
balance of $1,223,530 and $1,607,712, respectively.
On December 30, 2019, the Company entered into
a secured, demand promissory note in the principal amount of $1,000,000 bearing an interest rate of 4.75% with a maturity date of January
30, 2024. Under the terms of the note, any principal amount that is paid off can be reborrowed. The note is secured by all assets of the
Company and property owned by the Company’s Chief Executive Officer. During the nine months ended September 30, 2021, the Company
received proceeds of the note of $179,500. During the nine months ended September 30, 2021, the Company made payments towards the principal
of the note of $241,205 and payments towards interest of $34,357. At September 30, 2021 and December 31, 2020, the note had a carrying
value of $888,555 and $950,260, respectively.
On April 19, 2020, the Company received proceeds
of $500,000 from an Economic Injury Disaster Loan (“EIDL”) note. The note has a maturity date of April 19, 2040 and bears
3.75% interest per annum. During the nine months ended September 30, 2021, the Company made payments towards the principal of the
note of $0 and $14,622 towards the interest on the note. At September 30, 2021 and December 31, 2020, the Company owed $500,000
and $500,000 in principal and $12,501 and $13,151 in accrued interest on this note, respectively.
On
April 20, 2020, the Company received proceeds of $543,000 from a Paycheck Protection Program (“PPP”) note. The note has a
maturity date of April 20, 2022 and bears 1% interest per annum. At December 31, 2020, the Company owed $543,000 in principal and
$3,794 in accrued interest on this note. On April 1, 2021, the Small Business Administration forgave $543,000 in principal and $7,294
in interest due under this note and the note was retired. The Company recorded a $548,218 gain on forgiveness of debt.
On August 12, 2020, the Company entered into a
secured promissory note in the amount of $335,760, bearing an interest rate of 10.495% with a maturity date of September 12, 2024. The
note is secured by assets of the Company. There were late fees of $4,897 assessed during the nine months ended September 30, 2021. During
the nine months ended September 30, 2021, the Company made payments towards the principal of the note of $55,960. At September
30, 2021 and December 31, 2020, the note had a principal balance of $258,815 and $314,775, respectively. At September 30, 2021 and December
31, 2020, the note had a carrying value of $220,657 and $259,757, respectively. There was accrued interest on the note of $4,897 and $0
at September 30, 2021 and December 31, 2020, respectively.
On October 28, 2020, the Company entered into
a secured promissory note in the amount of $273,960 bearing an interest rate of 10.015% with a maturity date of November 5, 2023. The
note is secured by assets of the Company. There were late fees of $4,186 assessed during the nine months ended September 30, 2021. During
the nine months ended September 30, 2021, the Company made payments towards the principal of the note of $60,880. At September
30, 2021 and December 31, 2020, the note had a principal balance of $213,080 and $273,960, respectively. At September 30, 2021 and December
31, 2020, the note had a carrying value of $188,812 and $237,109, respectively. There was accrued interest on the note of $4,186 and $0
at September 30, 2021 and December 31, 2020, respectively.
On March 16, 2021, the Company received proceeds
of $543,275 from a Paycheck Protection Program (“PPP”) note. The note has a maturity date of March 16, 2023 and bears 1% interest
per annum. At September 30, 2021, the Company owed $543,000 in principal and $2,902 in accrued interest on this note.
On June 21, 2021, the Company entered into a secured
promissory note in the amount of $522,000 bearing an interest rate of 10.015% with a maturity date of June 21, 2024. The note is secured
by assets of the Company. There were late fees of $7,896 assessed during the nine months ended September 30, 2021. During the nine months
ended September 30, 2021, the Company made payments towards the principal of the note of $29,000. At September 30, 2021, the note
had a principal balance of $493,000. At September 30, 2021, the note had a carrying value of $431,201. There was accrued interest on the
note of $7,896 at September 30, 2021.
On July 7, 2021, the Company entered into a secured
promissory note in the amount of $202,500 bearing an interest rate of 10.015% with a maturity date of June 21, 2024. The note is secured
by assets of the Company. There were late fees of $844 assessed during the nine months ended September 30, 2021. During the nine months
ended September 30, 2021, the Company made payments towards the principal of the note of $0. At September 30, 2021, the note had
a principal balance of $202,500. At September 30, 2021, the note had a carrying value of $172,893. There was accrued interest on the note
of $844 at September 30, 2021.
On August 23, 2021, the Company entered into a
secured promissory note in the amount of $257,400 bearing an interest rate of 10.015% with a maturity date of August 23, 2024. The note
is secured by assets of the Company. There were late fees of $215 assessed during the nine months ended September 30, 2021. During the
nine months ended September 30, 2021, the Company made payments towards the principal of the note of $0. At September 30, 2021,
the note had a principal balance of $257,400. At September 30, 2021, the note had a carrying value of $223,036. There was accrued interest
on the note of $358 at September 30, 2021.
On September 7, 2021, the Company entered into
a secured promissory note in the amount of $154,980 bearing an interest rate of 10.015% with a maturity date of September 7, 2024. The
note is secured by assets of the Company. There were late fees of $358 assessed during the nine months ended September 30, 2021. During
the nine months ended September 30, 2021, the Company made payments towards the principal of the note of $0. At September 30, 2021,
the note had a principal balance of $154,980. At September 30, 2021, the note had a carrying value of $135,420. There was accrued interest
on the note of $215 at September 30, 2021.
There was interest expense and amortization of
debt discount of $1,122,610 and $990,428 for the nine months ended September 30, 2021 and 2020, respectively.
The following is a summary of the notes payable
balances at September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Note balance
|
|
$
|
6,018,555
|
|
|
|
5,564,978
|
|
Less: current portion
|
|
|
(1,953,981
|
)
|
|
|
(1,924,645
|
)
|
Less: debt discount
|
|
|
(333,974
|
)
|
|
|
-
|
|
Long-term portion
|
|
$
|
3,730,681
|
|
|
$
|
3,640,333
|
|
Aggregate minimum future principal payment maturities
at September 30, 2021 were as follows:
Year ended December 31,
|
|
|
|
2021
|
|
$
|
494,447
|
|
2022
|
|
|
2,175,250
|
|
2023
|
|
|
1,989,322
|
|
2024
|
|
|
783,733
|
|
2025
|
|
|
200,090
|
|
Thereafter
|
|
|
375,713
|
|
Total principal payments
|
|
$
|
6,018,555
|
|
NOTE 9 – LEASES
Property Leases (Operating Leases)
The
Company leases its facilities and certain office equipment under operating leases which expire on various dates through 2025 and
thereafter. The Company determines if an
arrangement is a lease at inception and whether they are 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.
On December
29, 2017, the Company entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, the Company is required
to pay $7,500 for the first month and $700 per month thereafter for 47 months. The lease expires on December 29, 2021 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.
Effective
January 1, 2019, the Company entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing
of the Company’s metal recycling locations. Under the terms of the leases, the Company is required to pay an aggregate of $137,450
per month for the facilities beginning January 1, 2019 and increasing by 3% on the first 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
the options, the leases will continue on a month-to-month basis. The Company cannot sublease any of the properties under the lease agreements.
On February
18, 2019, the Company entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, the Company is required
to pay $18,200 for the first month and $750 per month thereafter for 59 months. The lease expires on February 18, 2023 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 February
15, 2021, the Company entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, the Company is required
to pay $12,450 for the first month and $650 per month thereafter for 59 months. The lease expires on February 15, 2026 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 March
2, 2021, the Company entered into leasing agreements for office space beginning on March 15, 2021. Under the terms of the leases, the
Company is required to pay a $631 for March 15 to March 31, 2021, $1,150 per month for the facilities beginning April 1, 2021 and increasing
by 3% on April 1st of every year thereafter. The leases expire on March 31, 2024 and the Company 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 any of the properties under the
lease agreements.
ROU assets
and liabilities consist of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Operating leases - ROU assets (included in Other assets)
|
|
$
|
3,551,700
|
|
|
$
|
4,553,747
|
|
Finance lease ROU asset - net
|
|
$
|
34,261
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
|
$
|
1,822,869
|
|
|
$
|
1,766,552
|
|
Long term lease liabilities, net of current portion
|
|
|
1,906,350
|
|
|
|
2,911,556
|
|
Total lease liabilities
|
|
$
|
3,729,219
|
|
|
$
|
4,678,108
|
|
Aggregate minimum future commitments under non-cancelable
operating leases, finance leases and other obligations at September 30, 2021 were as follows:
Year ended December 31,
|
|
|
|
2021
|
|
$
|
446,513
|
|
2022
|
|
|
1,833,297
|
|
2023
|
|
|
1,887,781
|
|
2024
|
|
|
11,600
|
|
2025
|
|
|
7,800
|
|
2026
|
|
|
1,300
|
|
Total Minimum Lease Payments
|
|
$
|
4,188,291
|
|
Less: Imputed Interest
|
|
$
|
(459,072
|
)
|
Present Value of Lease Payments
|
|
$
|
3,729,219
|
|
Less: Current Portion
|
|
$
|
1,822,869
|
|
Long Term Portion
|
|
$
|
1,906,350
|
|
The Company leases its facilities, automobiles,
and offices under operating leases which expire on various dates through 2026. Rent expense related to these leases is recognized based
on the payment amount charged under the lease. Rent expense for the nine months ended September 30, 2021 and 2020 was $1,336,413 and $1,282,421,
respectively. At September 30, 2021, the leases had a weighted average remaining lease term
of 2.25 years and a weighted average discount rate of 10%.
NOTE 10 – CONCENTRATIONS OF REVENUE
Customer Concentrations
The Company has a concentration of customers.
For the nine months ended September 30, 2021 and 2020, one customer represented approximately 90.78% and 84.38% of revenue, respectively.
Sims Metal Management accounted for $17,845,073 and $7,732,025 in revenue.
The Company’s sales are concentrated in
the Virginia and northeastern North Carolina markets.
NOTE 11 – STOCKHOLDERS’ EQUITY
The Company is authorized
to issue 5,000 shares of common stock, par value $1.00 per share. There were 1,000 shares of common stock outstanding at December 31,
2019, and December 31, 2020.
During
nine months ended September 30, 2021 and 2020, there were contributions for lease rent of $894,448 and $1,289,516, respectively. During
the nine months ended September 30, 2021 and 2020, there were cash contributions of $0 and $346,256, respectively, and contributions
of fixed assets of $155,800 and $0, respectively. There were cash distributions of $1,746,034 and $0 during the nine months ended September
30, 2021 and 2020, respectively. During the nine months ended September
30, 2021 and 2020, there were non-cash distributions of $133,979 and $0, respectively.
NOTE 12 – WARRANTS
The Company does not have any outstanding warrants to purchase common
stock.
NOTE 13 – STOCK OPTIONS
The Company does not have
any outstanding options to purchase shares of common stock.
NOTE 14 – INCOME TAXES
The Company, with stockholder’s
consent, has elected to be taxed as an “S Corporation” under the provisions of the Internal Revenue Code and comparable state
income tax law. As an S Corporation, the Company is generally not subject to corporate income taxes and the Company’s net income or loss
is reported on the individual tax return of the stockholder of the Company. Therefore, no provision or liability for income taxes is reflected
in the financial statements.
The Company has not been
audited by the Internal Revenue Service, and accordingly the business tax returns since 2016 are open to examination. Management has evaluated
its tax positions and has concluded that the Company had taken no uncertain tax positions that could require adjustment or disclosure
in the financial statements to comply with provisions set forth in Accounting Standards Codification (ASC) Section 740, Income Taxes.
NOTE 15 – RELATED PARTY DUE FROM AFFILIATE
During the nine months ended September 30, 2021,
Empire paid $1,515,778 in bills, operating costs, and settlements of legal matters, debt, and warrants on behalf of MassRoots, Inc. under
notes payable agreements and advances. Under the notes payable agreements, Empire had accrued interest receivable of $22,206 at September
30, 2021. Empire’s owner, Danny Meeks, is the Chairman and Chief Executive Officer of Greenwave Technology Solutions, Inc. (“Greenwave”)
(formerly known as MassRoots, Inc.). The balance of this note and accrued interest was eliminated as an inter-company debt upon consummation
of the merger with Greenwave.
NOTE 16 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued.
On September 30, 2021, MassRoots, Inc. entered
into definitive agreements to acquire the Company for consideration of (i) 482,504,742 shares of
Common Stock, (ii) within 3 business days of the closing of the Company’s next capital raise, repayment of a $1 million advance
made to purchase Empire’s Virginia Beach location and (iii) a promissory note in the principal amount of $3.7 million with a maturity
date of September 30, 2023. The acquisition was effective October 1, 2021 upon the effectiveness of a Certificate of Merger in Virginia.
GREENWAVE
TECHNOLOGY SOLUTIONS, INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AS
OF DECEMBER 31, 2020
AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
Pro
Forma Condensed Combined Financial Statements
On
September 30, 2021, Greenwave Technology Solutions, Inc. (the “Company” or “Greenwave”) formerly
known as MassRoots, Inc. entered into an agreement and plan of merger (the “Merger Agreement”) with Empire Merger Corp.,
a Delaware corporation (“Merger Sub”), Empire Services, Inc., a Virginia corporation (“Empire”),
and Danny Meeks, the sole shareholder of Empire (the “Stockholder”), to acquire Empire.
Pursuant
to the terms of the Merger Agreement, Merger Sub merged with and into Empire (the “Merger”), with Empire as the surviving
corporation (the “Surviving Corporation”). The Merger was consummated upon the filing of a certificate of merger with
the Secretary of State of the State of Delaware and articles of merger with the State Corporation Commission of Virginia on October 1,
2021.
The
following unaudited pro forma condensed combined financial statements have been prepared to illustrate the estimated effects of the Acquisition.
The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2021 combines the historical consolidated balance
sheets of Greenwave and Empire, giving effect to the Acquisition as if it had been completed on September 30, 2021. The unaudited pro
forma condensed combined statements of operations for the nine months ended September 30, 2021 and for the year ended December 31, 2020
combine the historical consolidated income statements of Greenwave and Empire, giving effect to the Acquisition as if it had been completed
on January 1, 2020.
These
unaudited pro forma condensed combined financial statements are based on, and should be read in conjunction with the accompanying notes
as well as the historical audited consolidated financial statements of both Greenwave and Empire as of and for the year ended December
31, 2020, which are incorporated by reference.
The
unaudited pro forma condensed combined financial information is provided for illustrative and information purposes only and is not intended
to represent or necessarily be indicative of the combined company’s results of operations or financial condition had the Acquisition
been completed on the dates indicated, nor do they purport to project our results of operations or financial condition for any future
period or as of any future date. The unaudited pro forma condensed combined financial information does not include any expected cost
savings or operating synergies, which may be realized subsequent to the combination, or the impact of any non-recurring activity and
one-time transaction-related or integration-related items. Moreover, the pro forma adjustments represent best estimates based upon the
information available to date and are preliminary and subject to change after more detailed information is obtained.
Empire and Greenwave Technology Solutions, Inc.
Unaudited Proforma Combined Balance Sheet
as of September 30, 2021
|
|
|
|
|
|
|
|
Transaction
|
|
|
Other
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Accounting
|
|
|
Transaction
|
|
|
Pro Forma
|
|
|
|
Greenwave
|
|
|
Empire
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,082
|
|
|
$
|
141,027
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
142,109
|
|
Deposits
|
|
|
-
|
|
|
|
1,150
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,150
|
|
Total current assets
|
|
|
1,082
|
|
|
|
142,177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment - net of accumulated depreciation
|
|
|
-
|
|
|
|
3,224,377
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,224,377
|
|
Operating lease right of use assets
|
|
|
-
|
|
|
|
3,551,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,551,700
|
|
Finance lease right of use assets
|
|
|
-
|
|
|
|
34,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,261
|
|
Due from a related party
|
|
|
-
|
|
|
|
1,515,778
|
|
|
|
(1,515,778
|
)(A)
|
|
|
-
|
|
|
|
-
|
|
Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000,000
|
(B)
|
|
|
-
|
|
|
|
10,000,000
|
|
Customer base
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
(B)
|
|
|
-
|
|
|
|
5,000,000
|
|
Intellectual property
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500,000
|
(B)
|
|
|
-
|
|
|
|
2,500,000
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
11,548,753
|
(B)
|
|
|
-
|
|
|
|
11,548,753
|
|
Total assets
|
|
$
|
1,082
|
|
|
$
|
8,468,293
|
|
|
$
|
27,532,975
|
|
|
$
|
-
|
|
|
$
|
36,002,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,242,821
|
|
|
$
|
845,349
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,088,170
|
|
Advances
|
|
|
122,000
|
|
|
|
4,072,799
|
|
|
|
(25,000
|
)(A)
|
|
|
-
|
|
|
|
4,169,799
|
|
Accrued payroll and related expense
|
|
|
4,037,298
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,037,298
|
|
Deferred revenue
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
Finance lease, current portion
|
|
|
-
|
|
|
|
7,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,800
|
|
Operating lease liability, current portion
|
|
|
-
|
|
|
|
1,815,069
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,815,069
|
|
Notes payable, current portion
|
|
|
1,760,082
|
|
|
|
1,953,981
|
|
|
|
(1,490,778
|
)(A)
|
|
|
-
|
|
|
|
2,223,285
|
|
Convertible notes payable
|
|
|
3,063,970
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,063,970
|
|
Derivative liabilities
|
|
|
4,289,634
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,289,634
|
|
Environmental remediation liability
|
|
|
-
|
|
|
|
71,017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,017
|
|
Total current liabilities
|
|
|
17,540,805
|
|
|
|
8,766,015
|
|
|
|
(1,515,778
|
)
|
|
|
-
|
|
|
|
24,791,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
4,700,000
|
(C)
|
|
|
-
|
|
|
|
4,700,000
|
|
Operating lease liability, net current portion
|
|
|
-
|
|
|
|
1,887,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,887,500
|
|
Finance lease liability, net current portion
|
|
|
-
|
|
|
|
18,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,850
|
|
PPP note payable
|
|
|
-
|
|
|
|
535,880
|
|
|
|
-
|
|
|
|
-
|
|
|
|
535,880
|
|
EIDL note payable
|
|
|
-
|
|
|
|
470,756
|
|
|
|
-
|
|
|
|
-
|
|
|
|
470,756
|
|
Notes payable, net of debt discounts and current portion
|
|
|
128,364
|
|
|
|
2,724,045
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,852,409
|
|
Total liabilities
|
|
|
17,669,169
|
|
|
|
14,403,046
|
|
|
|
3,184,222
|
|
|
|
-
|
|
|
|
35,256,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - Series X, $0.001 par value, $20,000 stated valued, 100 shares authorized; 26.05 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock - Series Y, $0.001 par value, $20,000 stated valued, 1,000 shares authorized; 720.515674 shares issued and outstanding
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Preferred stock - Series Z, $0.001 par value, $20,000 stated value, 500 shares authorized; 500 and 0 shares issued; 0 and 0 shares outstanding, and 500 and 0 to be issued, respectively
|
|
|
1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Preferred stock - Series C, $0.001 par value, $20,000 stated valued, 1,000 shares authorized; 1,000 shares issued and outstanding
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Preferred stock - Series A, $0.001 par value, 6,000 shares authorized; 6,000 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock - Series B, $0.001 par value, 2,000 shares authorized; 2,000 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, 500,000,000 shares authorized; 499,871,337 shares issued and outstanding
|
|
|
499,871
|
|
|
|
1,000
|
|
|
|
494,000
|
(D)
|
|
|
-
|
|
|
|
994,871
|
|
Common stock to be issued, 906,373,564 shares
|
|
|
906,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
906,374
|
|
Additional paid in capital
|
|
|
306,046,151
|
|
|
|
2,417,778
|
|
|
|
15,501,222
|
(D)
|
|
|
-
|
|
|
|
323,965,151
|
|
Accumulated deficit
|
|
|
(325,120,486
|
)
|
|
|
(8,353,531
|
)
|
|
|
8,353,531
|
(E)
|
|
|
-
|
|
|
|
(325,120,486
|
)
|
Total shareholders’ deficit
|
|
|
(17,668,087
|
)
|
|
|
(5,934,753
|
)
|
|
|
24,348,753
|
|
|
|
-
|
|
|
|
745,913
|
|
Total liabilities and shareholders’ deficit
|
|
$
|
1,082
|
|
|
$
|
8,468,293
|
|
|
$
|
27,532,975
|
|
|
$
|
-
|
|
|
$
|
36,002,350
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Empire and Greenwave Technology Solutions, Inc.
Unaudited Proforma Combined Statement of Operating Statement
For the nine months ended September 30, 2021
|
|
|
|
|
|
|
|
Transaction
|
|
|
Other
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Accounting
|
|
|
Transaction
|
|
|
Pro Forma
|
|
|
|
Greenwave
|
|
|
Empire
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,660
|
|
|
$
|
19,657,726
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,659,386
|
|
Cost of revenues
|
|
|
297
|
|
|
|
10,656,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,656,925
|
|
Gross Profit
|
|
|
1,363
|
|
|
|
9,001,098
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,002,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
18,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,125
|
|
Rent, utilities, and property maintenance
|
|
|
-
|
|
|
|
1,689,544
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,689,544
|
|
Consulting, accounting, and legal
|
|
|
-
|
|
|
|
165,792
|
|
|
|
-
|
|
|
|
-
|
|
|
|
165,792
|
|
Payroll and related expense
|
|
|
225,603
|
|
|
|
2,242,961
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,468,564
|
|
Depreciation expense
|
|
|
-
|
|
|
|
347,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
347,554
|
|
Environmental remediation expense
|
|
|
-
|
|
|
|
6,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,850
|
|
Hauling and equipment maintenance
|
|
|
-
|
|
|
|
952,163
|
|
|
|
-
|
|
|
|
-
|
|
|
|
952,163
|
|
Other general and administrative expenses
|
|
|
953,927
|
|
|
|
563,902
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,517,829
|
|
Total Operating Expenses
|
|
|
1,197,655
|
|
|
|
5,968,766
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,166,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) From Operations
|
|
|
(1,196,292
|
)
|
|
|
3,032,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,836,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(2,159,564
|
)
|
|
|
(1,122,610
|
)
|
|
|
(282,000
|
)(P)
|
|
|
-
|
|
|
|
(3,564,174
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
(159,633,797
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159,633,797
|
)
|
Change in fair value of derivative liabilities
|
|
|
300,885
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,885
|
|
Gain (loss) on conversion of convertible notes
|
|
|
(880
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(880
|
)
|
Gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable in exchange for Series Y Preferred shares
|
|
|
173,361,276
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
173,361,276
|
|
Gain on forgiveness of debt
|
|
|
192,521
|
|
|
|
548,218
|
|
|
|
-
|
|
|
|
-
|
|
|
|
740,739
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,500,000
|
)(O)
|
|
|
-
|
|
|
|
(1,500,000
|
)
|
Total Other Income (Expense)
|
|
|
12,060,441
|
|
|
|
(574,392
|
)
|
|
|
(1,782,000
|
)
|
|
|
-
|
|
|
|
9,704,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes
|
|
|
10,864,149
|
|
|
|
2,457,940
|
|
|
|
(1,782,000
|
)
|
|
|
-
|
|
|
|
11,540,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
10,864,149
|
|
|
|
2,457,940
|
|
|
|
(1,782,000
|
)
|
|
|
-
|
|
|
|
11,540,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend resulting from amortization of preferred stock discount
|
|
|
(34,798,923
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,798,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Available to Common Stockholders
|
|
$
|
(23,934,774
|
)
|
|
$
|
2,457,940
|
|
|
$
|
(1,782,000
|
)
|
|
$
|
-
|
|
|
$
|
(23,258,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,405,511,082
|
|
|
|
|
|
|
|
495,000,000
|
(d)
|
|
|
-
|
|
|
|
1,900,511,082
|
|
Diluted
|
|
|
1,405,511,082
|
|
|
|
|
|
|
|
495,000,000
|
(d)
|
|
|
-
|
|
|
|
1,900,511,082
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Empire and Greenwave Technology Solutions, Inc.
Unaudited Proforma Combined Statement of Operating Statement
For the year ended December 31, 2020
|
|
|
|
|
|
|
|
Transaction
|
|
|
Other
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Accounting
|
|
|
Transaction
|
|
|
Pro Forma
|
|
|
|
Greenwave
|
|
|
Empire
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,964
|
|
|
$
|
12,956,728
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,963,692
|
|
Cost of revenues
|
|
|
1,283
|
|
|
|
6,879,413
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,880,696
|
|
Gross Profit
|
|
|
5,681
|
|
|
|
6,077,315
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,082,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent, utilities, and property maintenance
|
|
|
-
|
|
|
|
2,374,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,374,860
|
|
Consulting, accounting, and legal
|
|
|
-
|
|
|
|
295,364
|
|
|
|
-
|
|
|
|
-
|
|
|
|
295,364
|
|
Payroll and related expense
|
|
|
303,850
|
|
|
|
2,405,871
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,709,721
|
|
Depreciation expense
|
|
|
-
|
|
|
|
382,244
|
|
|
|
-
|
|
|
|
-
|
|
|
|
382,244
|
|
Hauling and equipment maintenance
|
|
|
-
|
|
|
|
2,043,551
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,043,551
|
|
Other general and administrative expenses
|
|
|
862,042
|
|
|
|
1,038,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,900,750
|
|
Total Operating Expenses
|
|
|
1,165,892
|
|
|
|
8,540,598
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,706,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) From Operations
|
|
|
(1,160,211
|
)
|
|
|
(2,463,283
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,623,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(5,139,321
|
)
|
|
|
(1,328,527
|
)
|
|
|
(376,000
|
)(P)
|
|
|
-
|
|
|
|
(6,843,848
|
)
|
Change in derivative liability for authorized shares shortfall
|
|
|
(170,319,590
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(170,319,590
|
)
|
Change in fair value of derivative liabilities
|
|
|
(451,351
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(451,351
|
)
|
Gain (loss) on conversion of convertible notes
|
|
|
882
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
882
|
|
Gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable in exchange for Series Y Preferred shares
|
|
|
162,109,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
162,109,131
|
|
Gain on forgiveness of debt
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
Gain of settlement of debt
|
|
|
-
|
|
|
|
19,440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,440
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,000,000
|
)(O)
|
|
|
|
|
|
|
(2,000,000
|
)
|
Other income
|
|
|
-
|
|
|
|
23,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,000
|
|
Total Other Income (Expense)
|
|
|
(13,550,249
|
)
|
|
|
(1,286,087
|
)
|
|
|
(2,376,000
|
)
|
|
|
-
|
|
|
|
(17,212,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes
|
|
|
(14,710,460
|
)
|
|
|
(3,749,370
|
)
|
|
|
(2,376,000
|
)
|
|
|
-
|
|
|
|
(20,835,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
(14,710,460
|
)
|
|
|
(3,749,370
|
)
|
|
|
(2,376,000
|
)
|
|
|
-
|
|
|
|
(20,835,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend resulting from amortization of preferred stock discount
|
|
|
(1,074,539
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,074,539
|
)
|
Deemed dividend from warrant price protection
|
|
|
(95,838,488
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(95,838,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Available to Common Stockholders
|
|
$
|
(111,623,487
|
)
|
|
$
|
(3,749,370
|
)
|
|
$
|
(2,376,000
|
)
|
|
$
|
-
|
|
|
$
|
(117,748,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,390,934,274
|
|
|
|
|
|
|
|
495,000,000
|
(d)
|
|
|
-
|
|
|
|
1,885,934,274
|
|
Diluted
|
|
|
1,390,934,274
|
|
|
|
|
|
|
|
495,000,000
|
(d)
|
|
|
-
|
|
|
|
1,885,934,274
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
Greenwave
Technology Solutions, Inc. and Empire
Notes
to the unaudited pro forma combined financial information