PART I. FINANCIAL INFORMATION Financial Statements MassRoots, Inc. reported a net income of $17.3 million for the nine months ended September 30, 2021, driven by a large gain on convertible notes, but faces significant going concern doubts Condensed Consolidated Balance Sheet Data | Indicator | September 30, 2021 (unaudited) ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | $1,082 | $1,485 | | Total Current Assets | $1,082 | $98,617 | | Total Assets | $1,082 | $98,617 | | Liabilities & Stockholders' Deficit | | | | Total Current Liabilities | $17,515,912 | $37,722,469 | | Total Liabilities | $17,644,769 | $37,832,469 | | Total Stockholders' Deficit | $(17,643,687) | $(37,733,852) | Condensed Consolidated Statements of Operations Data | Indicator | Nine Months Ended Sep 30, 2021 ($) | Nine Months Ended Sep 30, 2020 ($) | | :--- | :--- | :--- | | Revenues | $1,660 | $2,316 | | Loss From Operations | $(1,196,292) | $(694,041) | | Gain on settlement of convertible notes, etc. | $179,272,324 | $0 | | Net Income (Loss) | $17,267,348 | $(47,402,959) | | Net Income (Loss) Available to Common Stockholders | $(17,531,575) | $(142,405,892) | - The company had cash of $1,082 and a working capital deficit of $17.5 million as of September 30, 2021, which raises substantial doubt about its ability to continue as a going concern29 - Subsequent to the quarter end, on October 1, 2021, the company acquired Empire Services, Inc. for consideration including 495 million shares of common stock, a $1 million cash repayment, and a $3.7 million promissory note169 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a strategic shift to metal recycling, with revenues decreasing and operating expenses increasing, resulting in a $1.2 million loss from operations and significant going concern uncertainty - The company's primary focus has shifted to expanding the metal recycling facilities of its newly acquired subsidiary, Empire Services, Inc., and using technology to improve efficiency172 Results of Operations Comparison (Nine Months Ended Sep 30) | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,660 | $2,316 | $(656) | (28.32%) | | Operating Expenses | $1,196,292 | $696,357 | $502,251 | 72.37% | | Loss from Operations | $(1,196,292) | $(694,041) | $(502,251) | 72.37% | | Net Income (Loss) Available to Common Stockholders | $(17,531,575) | $(142,405,892) | $124,874,317 | (87.69%) | - The increase in operating expenses for the nine months ended Sep 30, 2021 was primarily due to a $0.54 million increase in general and administrative expenses, attributed to higher travel and legal costs183 - The significant improvement in Net Income (Loss) Available to Common Stockholders was mainly due to a $179.3 million gain on settlement of convertible notes and warrants and a reduction in deemed dividends185186 - The company's ability to continue operations is dependent on obtaining additional capital through equity or debt financing, as it has experienced net losses and negative cash flows from operations since inception190 Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," MassRoots, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risks as it qualifies as a "smaller reporting company"196 Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to material weaknesses like lack of segregation of duties, with remediation plans underway - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of September 30, 2021198 - Identified control deficiencies include a lack of segregation of duties and an inadequate process for reviewing accounting and financial reporting matters199 - No changes were made to the company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting202 PART II. OTHER INFORMATION Legal Proceedings The company is involved in several legal matters, including settlements with Power Up Lending Group, Sheppard Mullin, and Iroquois Master Fund, as detailed in Note 8 - The company settled a lawsuit with Power Up Lending Group for $150,000 in April 202185 - An arbitration award of $459,251 for unpaid legal fees to Sheppard Mullin was settled in September 2021 for an aggregate of $275,000 to be paid in installments8687 - The company settled a dispute with Iroquois Master Fund on September 30, 2021, by agreeing to pay $1 million and issue Series Z Preferred Stock convertible into 9.99% of outstanding common stock94 Risk Factors As a "smaller reporting company," MassRoots, Inc. is not required to provide risk factor disclosures in this 10-Q report - The company is not required to provide risk factor information in this report as it is a "smaller reporting company"206 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None reported for the period207 Defaults Upon Senior Securities The company is in default on its convertible promissory notes due to insufficient authorized shares for conversion, triggering default interest rates and derivative liability accounting for $3.06 million in principal - The company is in default on its convertible notes due to an insufficient number of authorized shares to satisfy all potential conversions208 - As of September 30, 2021, the principal amount of convertible notes in default is $3,063,970208 Other Information No other information was reported for this item - None210 Exhibits This section lists all exhibits filed with the report, including the Merger Agreement, preferred stock certificates, settlement agreements, and officer certifications
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