UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the period ended
OR
For the transition period from ___________to ____________
Commission
File Number
(f/k/a MassRoots, Inc.)
(Exact name of business as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 14, 2023, there were shares of the registrant’s common stock issued and outstanding.
TABLE OF CONTENTS
| -i- |
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and our other filings with SEC.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable law.
| -ii- |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Inventories | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Advance for asset | ||||||||
| Operating lease right of use assets, net - related party | ||||||||
| Operating lease right of use assets, net | ||||||||
| Licenses, net | ||||||||
| Customer list, net | ||||||||
| Intellectual property, net | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll and related expenses | ||||||||
| Contract liabilities | ||||||||
| Factoring, net of unamortized debt discount of $ | ||||||||
| Non-convertible notes payable, current portion, net of unamortized debt discount of $ | ||||||||
| Convertible notes payable, current portion, net of unamortized debt discount of $ | ||||||||
| Due to related parties | ||||||||
| Operating lease obligations, current portion - related party | ||||||||
| Operating lease obligations, current portion | ||||||||
| Total current liabilities | ||||||||
| Operating lease obligations, less current portion - related party | ||||||||
| Operating lease obligations, less current portion | ||||||||
| Related party note payable | ||||||||
| Convertible notes payable, net of unamortized debt discount of $ | ||||||||
| Non-convertible notes payable, net of unamortized debt discount of $ | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - shares authorized: | ||||||||
| Preferred stock - Series Z, $ par value, $ | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Advertising | ||||||||||||||||
| Payroll and related expense | ||||||||||||||||
| Rent, utilities and property maintenance ($ | ||||||||||||||||
| Hauling and equipment maintenance | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Consulting, accounting and legal | ||||||||||||||||
| Loss on asset | ||||||||||||||||
| Common stock issued for services | ||||||||||||||||
| Other general and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest expense and amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on tax credit | ||||||||||||||||
| Gain on lease termination | ||||||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| Warrant expense for liquidated damages settlements | ( | ) | ( | ) | ||||||||||||
| Gain on conversion of convertible notes | ||||||||||||||||
| Gain on settlement of non-convertible notes payable and advances | ||||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Taxes (Benefit) | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend for the reduction of exercise price of warrants | ( | ) | ( | ) | ||||||||||||
| Deemed dividend for the reduction of the conversion price of a debt note | ( | ) | ( | ) | ||||||||||||
| Deemed dividend for Series Z price protection trigger upon uplisting | ( | ) | ( | ) | ||||||||||||
| Deemed dividend for triggering of warrant price protection upon uplisting | ( | ) | ( | ) | ||||||||||||
| Deemed dividend for repricing of certain warrants for liquidated damages waiver | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) Available to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Income (Loss) Per Common Share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Common Shares Outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
| Preferred Stock | ||||||||||||||||||||||||||||
| Series Z | Common Stock | Additional Paid | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock upon conversion of Series Z Preferred | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for cash, net issuance costs | - | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for services rendered and to be rendered | - | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for the exercise of warrants for cash | - | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for the exercise of warrants pursuant to cashless exercise provisions | - | $ | $ | ( | ) | |||||||||||||||||||||||
| Debt discount for warrants issued in senior secured debt placement | - | - | $ | $ | ||||||||||||||||||||||||
| Debt discount for warrants issued as commission for senior secured debt placement | - | - | $ | $ | ||||||||||||||||||||||||
| Deemed dividend for the reduction of the conversion price of a debt note | - | - | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Deemed dividend for the reduction of the exercise price of warrants | - | - | $ | $ | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock upon conversion of Series Z Preferred | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for cash, net issuance costs | - | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for services rendered and to be rendered | - | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for the exercise of warrants for cash | - | $ | $ | $ | ||||||||||||||||||||||||
| Common stock issued for the exercise of warrants pursuant to cashless exercise provisions | - | $ | $ | ( | ) | |||||||||||||||||||||||
| Debt discount for warrants issued in senior secured debt placement | - | - | $ | $ | ||||||||||||||||||||||||
| Debt discount for warrants issued as commission for senior secured debt placement | - | - | $ | $ | ||||||||||||||||||||||||
| Deemed dividend for the reduction of the conversion price of a debt note | - | - | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Deemed dividend for the reduction of the exercise price of warrants | - | - | $ | $ | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(Unaudited)
| Series Z | Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | | $ | $ | | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock previously recorded as to be issued | - | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Elimination of derivative liabilities due to resolution of authorized share shortfall | - | - | - | $ | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible debt at uplisting | - | $ | - | $ | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series Z Preferred | ( | ) | $ | - | $ | $ | ( | ) | ||||||||||||||||||||||||||||
| Warrant expense for liquidated damages waiver | - | - | - | $ | $ | |||||||||||||||||||||||||||||||
| Deemed dividend for Series Z price protection trigger upon uplisting | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend for repricing & issuance of additional warrants upon uplisting | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend for repricing of certain warrants for liquidated damages waiver | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible debt at uplisting | - | $ | - | $ | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series Z Preferred | ( | ) | $ | - | $ | $ | ( | ) | ||||||||||||||||||||||||||||
| Warrant expense for liquidated damages waiver | - | - | - | $ | $ | |||||||||||||||||||||||||||||||
| Deemed dividend for Series Z price protection trigger upon uplisting | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend for repricing & issuance of additional warrants upon uplisting | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend for repricing of certain warrants for liquidated damages waiver | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(Unaudited)
| For the Nine Months Ended September 30 , | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization of intangible assets | ||||||||
| Amortization of right of use assets, net - related-party | ||||||||
| Amortization of right of use assets, net | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Interest and amortization of debt discount | ||||||||
| Warrant expense for liquidated damages settlement | ||||||||
| Impairments recognized on property and equipment | ||||||||
| (Gain) on conversion of convertible notes payable | ( | ) | ||||||
| (Gain) on termination of operating lease liability | ( | ) | ||||||
| Loss on asset | ||||||||
| Gain on settlement of non-convertible notes payable and accrued interest | ( | ) | ( | ) | ||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Changes in due to related party | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Security deposit | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Accrued payroll and related expenses | ( | ) | ||||||
| Environmental remediation | ( | ) | ||||||
| Principal payments made on operating lease liability - related-party | ( | ) | ( | ) | ||||
| Principal payments made on operating lease liability | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment - related party | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Cash received for the advance given for asset | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from warrant exercises | ||||||||
| Proceeds from issuance of convertible notes | ||||||||
| Proceeds from bridge financing | ||||||||
| Bank overdrafts | ||||||||
| Proceeds from issuance of non-convertible notes payable | ||||||||
| Repayment of a non-convertible notes payable | ( | ) | ( | ) | ||||
| Proceeds from factoring | ||||||||
| Repayments of factoring | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during period for interest | $ | $ | ||||||
| Cash paid during period for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Reclassification of derivative liability to additional paid in capital due to elimination of authorized share shortfall | $ | $ | ||||||
| Increase in right of use assets and operating lease liabilities | $ | $ | ||||||
| Land purchased with deed of trust notes | $ | $ | ||||||
| Note proceeds for equipment purchases | $ | $ | ||||||
| Issuance of common shares previously to be issued | $ | $ | ||||||
| Equipment purchases in accounts payable and accrued expenses | $ | $ | ||||||
| Equipment purchases from issuance of related-party note payable | $ | $ | ||||||
| Deemed dividend for warrant repricing at uplisting | $ | $ | ||||||
| Deemed dividend for price protection trigger in Series Z Preferred at uplisting | $ | $ | ||||||
| Deemed dividend for repricing of certain warrants for liquidated damages waiver | $ | $ | ||||||
| Debt discount for warrants issued in senior secured debt placement | $ | $ | ||||||
| Deemed dividend for exercise price reduction of warrants | $ | $ | ||||||
| Deemed dividend for conversion price reduction of note | $ | $ | ||||||
| Common shares issued upon conversion of convertible notes and accrued interest | $ | $ | ||||||
| Common shares issued upon conversion of Series Z Preferred | $ | $ | ||||||
| Factoring proceeds utilized for payoff of factoring liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2023 (Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Overview
Greenwave Technology Solutions, Inc. (“Greenwave” or the “Company”) was incorporated in the State of Delaware on April 26, 2013 as a technology platform developer under the name MassRoots, Inc. The Company sold its social media assets in October 2021 and has discontinued all operations related to this business. On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 13 metal recycling facilities in Virginia and North Carolina. The acquisition was effective October 1, 2021 upon the effectiveness of the Certificates of Merger in Virginia and Delaware.
In December 2022, we began offering hauling services to corporate clients. We haul sand, dirt, asphalt, metal, and other materials in a fleet of approximately 50 trucks which we own, manage, and maintain.
The accompanying 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 condensed consolidated financial statements include the accounts of Empire Services, Inc., Empire Staffing, LLC, Liverman Metal Recycling, Inc., Scrap App, Inc. (formed September 2023 in Delaware), Greenwave Elite Sports Facility, Inc., our wholly owned subsidiaries. All intercompany transactions were eliminated during consolidation.
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of 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, 2023 and 2022, its cash flows for the nine months ended September 30, 2023 and 2022, and its financial position as of September 30, 2023 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.
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, 2022 as filed with the SEC on March 31, 2023 and amended on April 13, 2023 (the “Annual Report”). The December 31, 2022 balance sheet is derived from those statements.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of September 30, 2023, the Company had cash of $
The Company believes it has sufficient capital to become cashflow positive from operating activities. Should the Company choose to raise capital, it believes it can do so through non-equity based instruments such as non-convertible notes, lines of credit, and cash advances.
| 6 |
If the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will be impacted by market conditions and the price of the Company’s common stock.
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 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.
NOTE 3 – 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 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 estimates used in the, payroll tax liabilities with interest and penalties, assumptions used in right-of-use and lease liability calculations, impairments of intangible assets acquired in business combination, estimated useful life of long-lived assets and finite life tangible assets, fair value of warrants, 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 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, 2023 and December 31, 2022, 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 $
| 7 |
Accounts Receivable
Accounts receivable represent amounts primarily due from customers on product and other sales. These accounts receivable, which are reduced by an allowance for credit losses, are recorded at the invoiced amount and do not bear interest. The Company delivers shipments of scrap metal to customers and typically receives payment within 45 days of delivery.
The
Company evaluates the collectability of its accounts receivable based on a combination of factors, including the aging of customer receivable
balances, the financial condition of the Company’s customers, historical collection rates, and economic trends. Management uses
this evaluation to estimate the amount of customer receivables that may not be collected in the future and records a provision for expected
credit losses. Accounts are written off when all efforts to collect have been exhausted. As of September 30, 2023 and December 31, 2022,
the accounts receivable balances amounted to $
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. Our property and equipment is pledged as collateral for certain factoring advances and promissory notes, see Note 8 – Factoring Advances and Non-Convertible Notes.
Cost of Revenue
The Company’s cost of revenue consists primarily of the costs of purchasing metal from its suppliers. For the Company’s hauling business line, cost of revenue mainly consists of fuel and payroll for drivers.
Related Party Transactions
Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. See Note 17 – Related Party Transactions.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.
In calculating the right of use asset and lease liability, the Company elected to combine lease and non-lease components. The Company excluded short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. See Note 11 – Leases.
| 8 |
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. See Note 13 – Commitments and Contingencies.
Revenue Recognition
The Company recognizes revenue when services are realized or realizable and earned, less estimated future doubtful accounts.
The Company’s revenues are accounted for under ASC Topic 606, “Revenue From Contracts With Customers” (“ASC 606”) and generally do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.
In accordance with ASC 606, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company 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 suppliers, 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, 2023 and December 31,
2022, the Company had a contract liability of $
Inventories
Although
we ship the ferrous and non-ferrous metals we purchase from suppliers multiple times per day, we do maintain inventories. We calculate
the value of the inventories we do carry, which consist of processed and unprocessed scrap metal (ferrous and nonferrous), used and salvaged
vehicles, and supplies, based on the 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. We calculate the value of finished products based on their net realizable
value as their cost basis is not readily available. The value of our inventories was $
Advertising
The
Company charges the costs of advertising to expense as incurred. Advertising costs were $
| 9 |
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.”
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.
Issuance of Debt Instruments With Detachable Stock Purchase Warrants
Proceeds from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are recorded as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. Such issuances generally result in a discount (or, occasionally, a reduced premium) relative to the debt instrument, which is amortized to interest expense using the effective interest rate method.
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.
| 10 |
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 continuously assesses its potential liability for remediation-related activities and adjusts its environmental-related accruals
as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are
issued. As of September 30, 2023 and December 31, 2022, the Company had accruals reported on the balance sheet as current liabilities
of $
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 believes these contingent environmental-related liabilities have been resolved.
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 to
Factoring Agreements
We
have entered into factoring agreements with various financial institutions to receive cash for our future revenues. These transactions
are treated as a debt instrument and are accounted for as a liability because the Company makes weekly payments towards the balance and
fees. We utilize factoring arrangements as an integral part of our financing for working capital. Any change in the availability of these
factoring arrangements could have a material adverse effect on our financial condition. As of September 30, 2023 and December 31, 2022,
the Company owed $ and $
| 11 |
Goodwill
Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. The Company has adopted the provisions of Accounting Standards Update (“ASU”)_2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that, under existing U.S. GAAP, would not be impaired or have a reduced carrying amount. Furthermore, ASU 2017-04 removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired.
We test our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31. We fully impaired our goodwill as of December 31, 2022.
None of the goodwill is deductible for income tax purposes.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the Chief Financial 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.
The Company computes earnings (loss) per common 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 period. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable.
The computation of basic and diluted income (loss) per share, for the three and nine months ended September 30, 2023 and 2022 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.
| September 30, 2023 | September 30, 2022 | |||||||
| Common shares issuable upon conversion of convertible notes | ||||||||
| Options to purchase common shares | ||||||||
| Warrants to purchase common shares | ||||||||
| Common shares issuable upon conversion of preferred stock | ||||||||
| Total potentially dilutive shares | ||||||||
On
February 17, 2022 the Company effectuated a
| 12 |
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (ASU 2021-08). which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, as if it had originated the contracts. Prior to ASU 2021-08, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. ASU 2021-08 is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The adoption of ASU 2021-08 did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.
There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses requiring, instead, that all financial assets (or group of financial assets) measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. The ASU also applies to certain off-balance-sheet credit exposures such as unfunded commitments and non-derivative financial guarantees. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) in order to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The income statement under this ASU will reflect the initial recognition of current expected credit losses for newly recognized assets, as well as any increases or decreases of expected credit losses that have occurred during the period. ASU 2016-13 retains many currently-existing disclosures related to the credit quality of an entity’s assets and the related allowance for credit losses amended to reflect the change to an expected credit loss methodology, as well as enhanced disclosures to provide information to users at a more disaggregated level. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is effective, except for debt securities for which an other-than-temporary impairment has previously been recognized. For these debt securities, a prospective transition is provided in order to maintain the same amortized cost prior to and subsequent to the effective date of the ASU. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. The adoption of ASU 2016-13 did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.
NOTE 4 – CONCENTRATIONS OF RISK
Accounts Receivable
The
Company has a concentration of credit risk with its accounts receivable balance. Three customers individually accounted for $
| 13 |
Customer Concentrations
The
Company has a concentration of customers. For the three months ended September 30, 2023, three customers individually accounted for $
The Company’s sales are concentrated in the Virginia and northeastern North Carolina markets.
NOTE 5 – INVENTORIES
Inventories as of September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Processed and unprocessed scrap metal | $ | $ | ||||||
| Finished products | ||||||||
| Inventories | $ | $ | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
On
July 31, 2023, the Company entered into a bill of sale with an entity wholly-owned by the Company’s Chief Executive Officer,
pursuant to which the Company agreed to purchase certain equipment with a cost basis of $
Property and equipment as of September 30, 2023 and December 31, 2022 is summarized as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Furniture and Fixtures | ||||||||
| Land | ||||||||
| Buildings | ||||||||
| Vehicles | ||||||||
| Leaseholder Improvements | ||||||||
| Subtotal | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three months ended September
30, 2023 and 2022 was $
| 14 |
NOTE 7 – AMORTIZATION OF INTANGIBLE ASSETS
All of the Company’s current identified intangible assets were assumed upon consummation of the Empire acquisition on October 1, 2021. Identified intangible assets consisted of the following at the dates indicated below:
| September 30, 2023 | ||||||||||||||
Gross carrying amount | Accumulated amortization | Carrying value | Estimated remaining useful life | |||||||||||
| Intellectual Property | $ | $ | ( | ) | $ | |||||||||
| Customer List | ( | ) | ||||||||||||
| Licenses | ( | ) | ||||||||||||
| Total intangible assets, net | $ | $ | ( | ) | $ | |||||||||
| December 31, 2022 | ||||||||||||||
Gross carrying amount | Accumulated amortization | Carrying value | Remaining estimated useful life | |||||||||||
| Intellectual Property | $ | $ | ( | ) | $ | |||||||||
| Customer List | ( | ) | ||||||||||||
| Licenses | ( | ) | ||||||||||||
| Total finite-lived intangibles | ( | ) | ||||||||||||
| Total intangible assets, net | $ | $ | ( | ) | $ | |||||||||
Amortization
expense for intangible assets was $
Total estimated amortization expense for our intangible assets for the years 2023 through 2027 is as follows:
| Year ended December 31, | ||||
| 2023 (remaining) | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
NOTE 8 – FACTORING ADVANCES AND NON-CONVERTIBLE NOTES PAYABLE
Factoring Advances
On
December 8, 2022, the Company entered into a revenue factoring advance in the principal amount of $
On
December 8, 2022, the Company entered into a revenue factoring advance in the principal amount of $
On
December 29, 2022, the Company entered into a revenue factoring advance in the principal amount of $
| 15 |
On
January 17, 2023, the Company entered into a revenue factoring advance in the principal amount of $
On
January 17, 2023, the Company entered into a revenue factoring advance in the principal amount of $
On
March 29, 2023, the Company entered into a revenue factoring advance in the principal amount of $
On
March 29, 2023, the Company entered into a revenue factoring advance in the principal amount of $
On
May 26, 2023, the Company entered into a revenue factoring advance in the principal amount of $
| 16 |
On
May 26, 2023, the Company entered into a revenue factoring advance in the principal amount of $
On
June 7, 2023, the Company entered into a revenue factoring advance in the principal amount of $
The
remaining advances are for Simple Agreements for Future Tokens, entered into with accredited investors issued pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and/or Regulation
D thereunder in 2018. As of December 31, 2022, the Company owed $
Non-Convertible Notes Payable
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $
On
April 11, 2022, the Company entered into a vehicle financing agreement with GM Financial for the purchase of a vehicle for use by the
Company’s Chief Executive Officer in the principal amount of $
On
April 21, 2022, the Company entered into a secured promissory note in the principal amount of $
On
September 1, 2022, the Company entered into a Deed of Trust note for the purchase of land and buildings. The note has a principal amount
of $
| 17 |
On
September 1, 2022, the Company entered into an additional Deed of Trust note for the purchase of land and buildings. The note has a principal
amount of $
On
September 14, 2022, the Company entered into a secured promissory note in the principal amount of $
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $
On
December 15, 2022, the Company entered into a secured promissory note in the principal amount of $
| 18 |
On
January 10, 2023, the Company entered into a secured promissory note in the principal amount of $
On
January 12, 2023, the Company entered into a secured promissory note in the principal amount of $
On
February 23, 2023, the Company entered into a secured promissory note in the principal amount of $
On
February 24, 2023, the Company entered into a secured promissory note in the principal amount of $
On
March 1, 2023, the Company entered into a secured promissory note in the principal amount of $
On
April 12, 2023, the Company entered into a secured promissory note in the principal amount of $
On
July 31, 2023, the Company entered into a secured promissory note with an entity controlled by the Company’s Chief Executive Officer
in the principal amount of $
| 19 |
The following table details the current and long-term principal due under non-convertible notes as of September 30, 2023.
Principal (Current) | Principal (Long Term) | |||||||
| GM Financial (Issued April 11, 2022) | $ | $ | ||||||
| Non-Convertible Note (Issued March 8, 2019) | ||||||||
| Deed of Trust Note (Issued September 1, 2022) | ||||||||
| Deed of Trust Note (Issued September 1, 2022) | ||||||||
| Equipment Finance Note (Issued April 21, 2022) | ||||||||
| Equipment Finance Note (Issued September 14, 2022) | ||||||||
| Equipment Finance Note (Issued November 28, 2022) | ||||||||
| Equipment Finance Note (Issued November 28, 2022) | ||||||||
| Equipment Finance Note (Issued November 28, 2022) | ||||||||
| Equipment Finance Note (Issued December 15, 2022) | ||||||||
| Equipment Finance Note (Issued January 10, 2023) | ||||||||
| Equipment Finance Note (Issued January 12, 2023) | ||||||||
| Equipment Finance Note (Issued February 24, 2023) | ||||||||
| Equipment Finance Note (Issued February 23, 2023) | ||||||||
| Equipment Finance Note (Issued April 12, 2023) | ||||||||
| Related-party Equipment Note (Issued July 31, 2023) | ||||||||
| SAFTs | ||||||||
| Debt Discount | ( | ) | ( | ) | ||||
| Total Principal of Non-Convertible Notes | $ | $ | ||||||
Total principal payments due on non-convertible notes for 2023 through 2027 and thereafter is as follows:
| Year ended December 31, | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As
of September 30, 2023 and December 31, 2022, the Company owed accounts payable and accrued expenses of $
| September 30, 2023 | December 31, 2022 | |||||||
| Accounts Payable | $ | $ | ||||||
| Credit Cards | ||||||||
| Accrued Interest | ||||||||
| Accrued Expenses | ||||||||
| Total Accounts Payable and Accrued Expenses | $ | $ | ||||||
| 20 |
NOTE 10 – ACCRUED PAYROLL AND RELATED EXPENSES
The
Company is delinquent in filing its payroll taxes, primarily related to stock compensation awards in 2016 and 2017, but also including
payroll for 2018, 2019, 2020, and 2021. Additionally, there is accrued payroll for the last three days of the year ended December 31,
2022 and ten days of the quarter ended September 30, 2023. As of September 30, 2023 and December 31, 2022, the Company owed payroll tax
liabilities, including penalties, of $
NOTE 11 – CONVERTIBLE NOTES PAYABLE
On
July 3, 2023, the Company closed a bridge financing in the principal amount of $
On
July 31, 2023, the Company entered into a Purchase Agreement with certain institutional investors as purchasers whereby, the Company
sold, and the investors purchased, approximately $
The
Company estimated the fair value of the warrants using the Black-Scholes Pricing Model based on the following assumptions: (1)
dividend yield of
On
August 21, 2023, as a result of the Company’s registered direct offering, the conversion price of the Senior Notes was reduced
from $
As
of September 30, 2023, the Senior Notes has a principal balance of $
As of September 30, 2023, the current and non-current portions of the note are $
| 21 |
NOTE 12 – LEASES
Property Leases (Operating Leases)
The Company leases its facilities and certain automobiles under operating leases which expire on various dates through 2025. The Company determines if an arrangement is a lease at inception and whether it is a finance or operating leases. Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. The ROU asset also includes any fixed lease payments, including in-substance fixed lease payments and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease term is determined at lease commencement and includes any non-cancellable period for which the Company has the right to use the underlying asset, together with any options to extend that the Company is reasonably certain to exercise.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
On
October 11, 2021, Empire entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing
of the Company’s Virginia Beach metal recycling location.
On
January 24, 2022,
| 22 |
Effective
February 1, 2022, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of
Greenwave for the leasing of the Company’s Fairmont metal scrap yard located at 406 Sandy Street, Fairmont, NC 28340.
Effective
October 13, 2022, the Company entered into an office space/land lease agreement for the leasing of 900 Broad Street, Suite C, Portsmouth,
VA 23707.
Effective
January 1, 2023, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of
Greenwave for the leasing of the Company’s Chesapeake facility located at 101 Freeman Ave, Chesapeake, VA 23324.
Automobile Leases (Operating Leases)
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
On
December 23, 2021, Empire entered into a lease agreement for the leasing of an automobile.
On
July 1, 2022, Empire entered into a lease agreement for the leasing of certain equipment.
The
Company is leasing the properties underlying its metal recycling facilities on a month-to-month basis and is expected to purchase the
land in December 2023. Upon termination of the leases the right of use assets and lease liabilities were derecognized and a gain on termination
of $
| 23 |
ROU assets and liabilities consist of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| ROU assets – related party | $ | $ | ||||||
| ROU assets | ||||||||
| Total ROU assets | ||||||||
| Current portion of lease liabilities – related party | $ | $ | ||||||
| Current portion of lease liabilities | ||||||||
| Long term lease liabilities – related party, net of current portion | ||||||||
| Long term lease liabilities, net of current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
Aggregate minimum future commitments under non-cancellable operating leases and other obligations at September 30, 2023 were as follows:
| Year ended December 31, | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total Minimum Lease Payments | $ | |||
| Less: Imputed Interest | $ | ( | ) | |
| Present Value of Lease Payments | $ | |||
| Less: Current Portion | $ | ( | ) | |
| Long Term Portion | $ | |||
The
Company leases its facilities, automobiles, and offices under operating leases which expire on various dates through 2027. Rent expense
related to these leases is recognized based on the payment amount charged under the lease. Rent expense for the three months ended September
30, 2023 and 2022 was $
NOTE 13 – 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.
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 $
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $
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NOTE 14 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of blank check preferred stock, par value $ per share.
Series Z
On
September 30, 2021, the Company authorized the issuance of shares of Series Z Preferred Stock, par value $ per share. The Series
Z Preferred Stock has a $ stated value per share and all Series Z preferred shares, in aggregate, are convertible into
On January 23, 2023, shares of Series Z Preferred Stock were converted into shares of common stock.
On July 28, 2023, the Company issued shares of common stock to the Company’s Chief Executive Officer for the exchange of shares of Series Z preferred stock.
On August 1, 2023, the Company filed a Certificate of Elimination to retire the class of Series Z preferred stock.
As of September 30, 2023 and December 31, 2022, there were and shares of Series Z Preferred Stock issued and outstanding.
Common Stock
The Company is authorized to issue shares of common stock, par value $ per share.
During the nine months ended September 30, 2023, the Company issued shares of common stock for the conversion and exchange of shares of Series Z Preferred Stock.
During
the nine months ended September 30, 2023, the Company issued shares of common stock with a fair market value of $
During
the nine months ended September 30, 2023, the Company issued shares of common stock for the exercise of warrants for cash proceeds
of $
During
the nine months ended September 30, 2023, the Company issued shares of common stock for the cashless exercise of
During
the nine months ended September 30, 2023, the Company issued shares of common stock for the sale of common stock for proceeds
of $
As of September 30, 2023 and December 31, 2022, there were and shares, respectively, of common stock issued and outstanding.
Additional Paid in Capital
During
the nine months ended September 30, 2023, the Company credited additional paid in capital $
During the nine months ended September 30, 2023, the Company credited additional paid in capital $
During
the nine months ended September 30, 2023, the Company credited additional paid in capital $
During
the nine months ended September 30, 2023, the Company credited additional paid in capital $
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NOTE 15 – WARRANTS
On
July 31, 2023, the Company entered into a letter agreement with the holders of common stock purchase warrants to purchase an
aggregate of
On
July 31, 2023, the Company realized a debt discount of $
During
the nine months ended September 30, 2023, the Company credited additional paid in capital $
On
August 21, 2023, upon the closing of a registered direct offering, the exercise price of the 2021 and 2022 Warrants and warrants issued
as commission for the Company’s July 2023 senior secured debt offering was reduced to $
A summary of the warrant activity for the nine months ended September 30, 2023 is as follows:
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Cancelled/Exchanged | ( | ) | $ | |||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
| Exercise Price | Warrants Outstanding | Weighted Avg. Remaining Life | Warrants Exercisable | |||||||||||
| $ | ||||||||||||||
The
aggregate intrinsic value of outstanding stock warrants was $
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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”), our 2018 Equity Incentive Plan in June 2018 (the “2018 Plan”), our 2021 Equity Incentive Plan in September 2021 (“2021 Plan”), our 2022 Equity Incentive Plan in November 2022, and our 2023 Equity Incentive Plan in October 2023 (“2023 Plan”, and together with the 2014 Plan, 2015 Plan, 2016 Plan, 2017 Plan, 2018 Plan, 2021 Plan, and 2022 Plan, the “Plans”). The Plans are identical, except for the number of shares reserved for issuance under each. As of September 30, 2023, the Company had granted an aggregate of securities under the Plans since inception, with shares available for future issuances.
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.
There were no options issued during the nine months ended September 30, 2023.
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeiture/Cancelled | ||||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
| Exercise Price | Number of Options | Remaining | Number
of | |||||||||||
| $ | - | |||||||||||||
| - | ||||||||||||||
| - | ||||||||||||||
| - | ||||||||||||||
| - | ||||||||||||||
The aggregate intrinsic value of outstanding stock options was $, based on options with an exercise price less than the Company’s stock price of $ as of September 30, 2023, which would have been received by the option holders had those option holders exercised their options as of that date.
The fair value of all options that vested during the three months ended September 30, 2023 and 2022 was $ and $, respectively. The fair value of all options that vested during the nine months ended September 30, 2023 and 2022 was $ and $, respectively. Unrecognized compensation expense of $ as of September 30, 2023 will be expensed in future periods.
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NOTE 17 – RELATED PARTY TRANSACTIONS
On
January 1, 2023, the Company entered into a lease agreement for the Company’s Chesapeake location with an entity controlled by
the Company’s Chief Executive Officer. Under the terms of the lease agreement, the Company pays $
From
January 1 to July 31, 2023, the Company leased 13 scrap yard facilities and equipment from an entity controlled by the Company’s
Chief Executive Officer, including the lease for the Chesapeake location described above. During the three and nine months ended September
30, 2023, the Company had a rent expense of $
On July 28, 2023, the Company issued shares of common stock to the Company’s Chief Executive Officer for the exchange of shares of Series Z preferred stock.
On
July 31, 2023, the Company entered into a Bill of Sale (the “Bill of Sale”) with DWM Properties LLC (“DWM”),
an entity wholly-owned by Danny Meeks, the Company’s Chief Executive Officer, pursuant to which the Company agreed to purchase
certain assets held by DWM in exchange for the issuance of a secured promissory note to DWM (the “DWM Note”) in an
aggregate principal amount equal to $
Since
August 1, 2023, the Company has been renting the land underlying 13 scrap yards from an entity controlled by the Company’s Chief
Executive Officer, including the lease for the Chesapeake location described above, for an aggregate rent of $
NOTE 18 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date but before the unaudited condensed consolidated financial statements are issued.
From
October 1 to November 8, 2023, the Company issued shares for the cashless exercise of
From
October 1 to November 8, 2023, the Company issued shares for the cash exercise of warrants for proceeds of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes contained in Part I, Item 1 of this Quarterly Report. Please also refer to the note about forward-looking information for information on such statements contained in this Quarterly Report immediately preceding Part I, Item 1.
Overview
We were formed on April 26, 2013 as a technology platform developer under the name MassRoots, Inc. In October 2021, we changed our corporate name from “MassRoots, Inc.” to “Greenwave Technology Solutions, Inc.” On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 13 metal recycling facilities and 1 metal processing facility in Virginia, North Carolina, and Ohio. The acquisition was deemed effective October 1, 2021 on the effective date of the Certificate of Merger in Virginia.
In December 2022, we began offering hauling services to corporate clients. We haul sand, dirt, asphalt, metal, and other materials in a fleet of approximately 50 trucks which we own, manage, and maintain.
Upon the acquisition of Empire, we transitioned into the scrap metal industry which involves collecting, classifying and processing appliances, construction material, end-of-life vehicles, boats, and industrial machinery. We process these items by crushing, shearing, shredding, separating, and sorting, into smaller pieces and categorize these recycled ferrous, nonferrous, and mixed metal pieces based on density and metal prior to sale. In cases of scrap cars, we remove the catalytic converters, aluminum wheels, and batteries for separate processing and sale prior to shredding the vehicle. We have designed our systems to maximize the value of metals produced from this process.
We operate an automotive shredder at our Kelford, North Carolina location and a second automotive shredder at our Carrollton, Virginia is expected to come online in the fourth quarter of 2023. Our shredders are designed to produce a denser product and, in concert with advanced separation equipment, more refined recycled ferrous metals, which are more valuable as they require less processing to produce recycled steel products. In totality, this process reduces large metal objects like auto bodies into baseball-sized pieces of shredded recycled metal.
The shredded pieces are then placed on a conveyor belt under magnetized drums to separate the ferrous metal from the mixed nonferrous metal and residue, producing consistent and high-quality ferrous scrap metal. The nonferrous metals and other materials then go through a number of additional mechanical systems which separate the nonferrous metal from any residue. The remaining nonferrous metal is further processed to sort the metal by type, grade, and quality prior to being sold as products, such as zorba (mainly aluminum), zurik (mainly stainless steel), and shredded insulated wire (mainly copper and aluminum).
In July 2023, Greenwave commenced operation of a downstream processing system at its Kelford, NC location, enabling the Company to recover millimeter-minus pieces of metal from the Company’s automotive shred residue or, “fluff,” as it is known in the industry. As Greenwave continues to optimize the operation of its downstream processing system, and brings a copper extraction component online, the Company could be able to increase its recovery yields.
One of our main corporate priorities is to open a facility with rail or deep-water port access to enable us to efficiently transport our products to domestic steel mills and overseas foundries. Because this would greatly expand the number of potential buyers of our processed scrap products, we believe opening a facility with port or rail access could result in an increase in both the revenue and profitability of our existing operations.
Empire is headquartered in Chesapeake, Virginia and has 145 full-time employees as of November 7, 2023.
Competitors
We compete with other metal recycling facility operators, such as Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) and are focused on utilizing technology to create operating efficiencies and competitive advantages over our peers. We also compete with regional hauling companies.
Products and Services
Our main product is selling ferrous metal, which is used in the recycling and production of finished steel. It is categorized into heavy melting steel, plate and structural, and shredded scrap, with various grades of each of those categorized based on the content, size and consistency of the metal. All of these attributes affect the metal’s value.
We also process nonferrous metals such as aluminum, copper, stainless steel, nickel, brass, titanium, lead, alloys and mixed metal products. Additionally, we sell the catalytic converters recovered from end-of-life vehicles to processors which extract the nonferrous precious metals such as platinum, palladium and rhodium.
We provide metal recycling services to a wide range of suppliers, including large corporations, industrial manufacturers, retail customers, and government organizations.
We also provide hauling services to corporate clients, hauling sand, asphalt, metal and other materials to job sites.
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Pricing and Customers
Prices for our ferrous and nonferrous products are based on prevailing market rates and are subject to market cycles, worldwide steel demand, government regulations and policy, and supply of products that can be processed into recycled steel. Our main buyers adjust the prices they pay for scrap metal products based on market rates usually on a monthly or bi-weekly basis. We are usually paid for the scrap metal we deliver to customers within 14 days of delivery.
Based on any price changes from our customers or our other buyers, we in turn adjust the price for unprocessed scrap we pay suppliers in order to manage the impact on our operating income and cashflows.
The spread we are able to realize between the sales prices and the cost of purchasing scrap metal is determined by a number of factors, including transportation and processing costs. Historically, we have experienced sustained periods of stable or rising metal selling prices, which allow us to manage or increase our operating income. When selling prices decline, we adjust the prices we pay customers to minimize the impact to our operating income.
Prices for hauling services are primarily based on the current demand and range from $85 to $120 per hour.
Sources of Unprocessed Metal
Our main sources of unprocessed metal we purchase are end-of-life vehicles, old equipment, appliances and other consumer goods, and scrap metal from construction or manufacturing operations. We acquire this unprocessed metal from a wide base of suppliers including large corporations, industrial manufacturers, retail customers, and government organizations who unload their metal at our facilities or we pick it up and transport it from the supplier’s location. Currently, our operations and main suppliers are located in the Hampton Roads and northeastern North Carolina markets. In the second quarter of 2023, we are expanding our operations by opening a metal recycling facility in Cleveland, Ohio.
Our supply of scrap metal is influenced by overall health of economic activity in the United States, changes in prices for recycled metal, and, to a lesser extent, seasonal factors such as severe weather conditions, which may prohibit or inhibit scrap metal collection.
For the Three Months Ended September 30, 2023 and 2022
| For the three months ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 8,181,948 | $ | 7,347,223 | $ | 834,725 | 11.36 | % | ||||||||
| Gross Profit | 2,930,947 | 2,484,889 | 466,058 | 17.95 | % | |||||||||||
| Operating Expenses | 16,416,504 | 5,779,051 | 10,637,453 | 184.07 | % | |||||||||||
| Loss from Operations | (13,485,557 | ) | (3,294,162 | ) | 10,191,395 | 309.38 | % | |||||||||
| Other Expense | (3,006,463 | ) | (5,283,373 | ) | 2,276,910 | (43.10 | )% | |||||||||
| Net Loss | $ | (23,153,172 | ) | $ | (37,393,573 | ) | $ | 14,240,401 | (38.08 | )% | ||||||
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Revenues
For the three months ended September 30, 2023, we generated $8,181,948 in revenues, as compared to $7,347,223 during the same period in 2022, an increase of $834,725. This increase was primarily due to an increase in hauling revenue offset by a decline in metal prices. The $8,181,948 in revenue includes $35,660 in rental income, $5,495,255 in revenue generated from the sale of metal, and $2,651,033 generated from hauling services.
Our cost of revenues increased to $5,251,001 for the three months ended September 30, 2023 from $4,862,334 during the same period in 2022, an increase of $388,667, primarily due to the cost of hauling revenue.
Our gross profit was $2,930,947 during the three months ended September 30, 2023, an increase of $466,058 from $2,484,889 during the same period in 2022 primarily due to the addition of a new hauling business line, whose margins were higher than margins realized on metal in 2022. Gross margins were 36% and 34% during the three months ended September 30, 2023 and 2022, respectively
Operating Expenses
For the three months ended September 30, 2023 and 2022, our operating expenses were $16,416,504 and $5,779,051 respectively, an increase of $10,637,453. There was a decrease in payroll and related expenses of $582,311 as payroll and related expenses were $1,473,131 for the three months ended September 30, 2023 as compared to $2,055,442 for the same period in 2022 which was primarily the result of the Company’s Chief Executive Officer waiving his quarterly bonus. Advertising expense increased by $385,338 to $395,000 for the three months ended September 30, 2023 as compared to $9,662 for the same period in 2022 as the Company began advertising its scrap yards and commenced an investor relations campaign. Depreciation of fixed assets, along with amortization of intangible assets, increased by $410,681 to $1,562,221 for the three months ended September 30, 2023 from $1,151,540 in 2022 as the Company continued to depreciate its fixed assets. There were hauling and equipment maintenance costs of $604,032 during the three months ended September 30, 2023, as compared to $926,761 in 2022, a decrease of $322,729, due to the Company bringing hauling service in-house. Consulting, accounting, and legal expenses increased to $939,345 during the three months ended September 30, 2023 from $31,215 during the same period in 2022, an increase of $908,130 as a result of the Company working on financing, which closed in the summer 2023. There was a decrease in rent expenses as a result of the Company purchasing equipment previously leased to the Company, decreasing $167,236 from $810,786 during the three months ended September 30, 2022 to $643,550 during the same period in 2023. Lastly, the Company incurred a common stock issued for services expense of $171,240 during the three months ended September 30, 2023, as compared to $0 in the same period in 2022, as the result of the Company paying certain consultants in equity. There was loss on asset of $9,850,850 during the three months ended September 30, 2022 as compared to none during the same period in 2023 reflecting the difference between the fair market value and cost basis of equipment.
Our other general and administrative expenses decreased to $777,135 for the three months ended September 30, 2023 from $793,645 for the same period in 2022, a decrease of $16,510, as a result of the Company’s cutting certain overhead expenses.
The increase of these expenditures resulted in our total operating expenses increasing to $16,416,504 during the three months ended September 30, 2023 compared to $5,779,051 during the three months ended September 30, 2022, an increase of $10,637,453.
Loss from Operations
Our loss from operations increased by $10,191,395 to $13,485,557 during the three months ended September 30, 2023, from $3,294,162 during the same period in 2022.
Other Expense
During the three months ended September 30, 2023, we incurred other expenses of $(3,006,463), as compared to $(5,283,373) for the same period in 2022, a decrease of $2,276,910. Interest expenses and amortization of debt discount increased to $(3,672,861) during the three months ended September 30, 2023 from $(688,570) during the three months ended September 30, 2022. There was a gain on termination of leases of $108,863 during the three months ended September 30, 2023, as compared to none during the same period in 2022. There was a warrant expense for liquidated damages settlement of $(7,408,681) during the three months ended September 30, 2022 as compared to none in the same period in 2023. Gain on the settlement of debt increased to $557,535 during the three months ended September 30, 2023 from $188,500 during the same period in 2022. There was a gain on the conversion of debt of $2,625,378 during the three months ended September 30, 2022 as compared to none during the same period in 2023.
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Net Loss Available to Common Stockholders
Our net loss available to common stockholders was $23,153,172 during the three months ended September 30, 2023 as compared to $37,393,573 during the same period in 2022, a decrease of $14,240,401, for the reasons discussed above.
For the Nine Months Ended September 30, 2023 and 2022
| For the nine months ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 26,641,644 | $ | 27,972,612 | $ | (1,330,968 | ) | (4.76 | )% | |||||||
| Gross Profit | 10,956,412 | 10,814,905 | 141,507 | 1.31 | % | |||||||||||
| Operating Expenses | 28,467,422 | 15,270,517 | 13,196,905 | 86.42 | % | |||||||||||
| Loss from Operations | (17,511,010 | ) | (4,455,612 | ) | (13,055,398 | ) | 293.01 | % | ||||||||
| Other Expense | (5,271,747 | ) | (23,432,546 | ) | 18,160,799 | (77.50 | )% | |||||||||
| Net Loss | $ | (29,443,909 | ) | $ | (56,704,196 | ) | $ | 27,260,287 | (48.07 | )% | ||||||
Revenues
For the nine months ended September 30, 2023, we generated $26,641,644 in revenues, as compared to $27,972,612 during the same period in 2022, decrease of $1,330,968. This decrease was primarily due to a decline in metal prices. The $26,629,327 in revenue includes $120,040 in rental income, $19,730,898 in revenue generated from the sale of metal, $6,763,184 generated from hauling services, and $27,510 in miscellaneous revenue, including from the sale of gas from scrap cars.
Our cost of revenues decreased to $15,685,232 for the nine months ended September 30, 2023 from $17,157,707 during the same period in 2022, a decline of $1,472,475, primarily due to a decline in metal prices.
Our gross profit was $10,956,412 during the nine months ended September 30, 2023, an increase of $141,507 from $10,814,905 during the same period in 2022 primarily due to the decrease in revenue. Gross margins were 41% and 39% during the nine months ended September 30, 2023 and 2022, respectively
Operating Expenses
For the nine months ended September 30, 2023 and 2022, our operating expenses were $28,467,422 and $15,270,517 respectively, an increase of $13,196,905. There was a decrease in payroll and related expenses of $15,213 as payroll and related expenses were $4,921,669 for the nine months ended September 30, 2023 as compared to $4,936,882 for the same period in 2022 which was primarily the result of the Company expanding its workforce, offset by the Company’s Chief Executive Officer waiving his bonuses. Advertising expense increased by $340,888 to $410,851 for the nine months ended September 30, 2023 as compared to $69,963 for the same period in 2022 as the Company began to advertise its facilities and commenced an investor relations campaign. Depreciation of fixed assets, along with amortization of intangible assets, increased by $1,214,895 to $4,181,802 for the nine months ended September 30, 2023 from $2,966,907 in 2022 as a result of the Company acquiring more fixed assets. There were hauling and equipment maintenance costs of $2,424,165 during the nine months ended September 30, 2023, as compared to $2,760,755 in 2022, a decrease of $336,590, due to the Company bringing hauling service in-house. Consulting, accounting, and legal expenses increased to $1,414,592 during the nine months ended September 30, 2023 from $552,527 during the same period in 2022, an increase of $862,065 as a result of the Company incurring costs for financings in the summer of 2023. There was an increase in rent expenses as a result of the Company adding additional facilities, increasing $127,328 from $2,573,449 during the nine months ended September 30, 2022 to $2,700,777 during the same period in 2023. Lastly, the Company incurred a common stock issued for services expense of $171,240 during the nine months ended September 30, 2023, as compared to $0 in the same period in 2022, as the result of the Company paying certain consultants in equity. There was loss on asset of $9,850,850 during the nine months ended September 30, 2022 as compared to none during the same period in 2023 reflecting the difference between the fair market value and cost basis of equipment.
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Our other general and administrative expenses increased to $2,391,476 for the nine months ended September 30, 2023 from $1,410,034 for the same period in 2022, an increase of $981,442, as a result of the Company’s operations expanding.
The increase of these expenditures resulted in our total operating expenses increasing to $28,467,422 during the nine months ended September 30, 2023 compared to $15,270,517 during the nine months ended September 30, 2022, an increase of $13,196,905.
Loss from Operations
Our loss from operations increased by $17,511,010 to $13,055,398 during the nine months ended September 30, 2023, from $4,455,612 during the same period in 2022.
Other Expense
During the nine months ended September 30, 2023, we incurred other expenses of $(5,271,747), as compared to $(23,432,546) for the same period in 2022, a decrease of $18,160,799. Interest expenses and amortization of debt discount decreased to $(6,730,071) during the nine months ended September 30, 2023 from $(33,265,639) during the nine months ended September 30, 2022. There was a gain on tax credit of $717,064 during the nine months ended September 30, 2023, as compared to none during the same period in 2022. There was no change in the fair value of derivative liabilities during the nine months ended September 30, 2023, as compared to a gain of $14,264,476 during the nine months ended September 30, 2022. There was a gain on settlement of non-convertible notes and advances of $632,540 and $351,920 for the nine months ended September 30, 2023 and 2022, respectively. There was a gain on termination of leases of $108,863 during the nine months ended September 30, 2023, as compared to none during the same period in 2022. There was a warrant expense for liquidated damages settlement of $(7,408,681) during the nine months ended September 30, 2022 as compared to none in the same period in 2023. There was a gain on the conversion of debt of $2,625,378 during the nine months ended September 30, 2022 as compared to none during the same period in 2023.
Net Loss Available to Common Stockholders
Our net loss available to common stockholders was $29,443,909 during the nine months ended September 30, 2023 as compared to $56,704,196 during the same period in 2022, a change of $27,260,287, for the reasons discussed above.
Liquidity and Capital Resources
Net cash used in operating activities for the nine months ended September 30, 2023 was $2,587,000 as compared to $2,067,257 for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, the cash flows used in operating activities were driven by a net loss of $22,782,757, amortization of right of use assets, net -related party of $1,404,791, amortization of right of use assets of $184,757, loss on asset of $9,850,850, depreciation and amortization of $4,181,802, accrual of due to related parties of $1,018,349 increase of prepaid expenses of $388,972, an increase of accounts payable and accrued expenses of $607,900 a decrease in operating lease liabilities of 1,572,248, a gain on the settlement of non-convertible notes and accrued interest of $632,540, interest and amortization of debt discount of $6,730,214, an increase in accounts receivable of $277,871, increase in inventories of $42,945, increase in security deposit of $25,000, and accrued payroll and related expenses of $224,204.During the nine months ended September 30, 2022, cash flows used in operating activities were driven by a net loss of $27,888,158, amortization of right of use assets (related-party) of $1,590,136, amortization of right of use assets of $304,349, depreciation and amortization of $2,790,714, payment of accrued rent to a related party of $107,884, increase of prepaid expenses of $38,635, decrease of security deposit of $994, increase of accounts payable and accrued expenses of $922,318, a change in operating lease liabilities of $304,349, largely offset by a gain on the settlement of non-convertible notes and accrued interest of $351,920, interest and amortization of debt discount of $33,265,639, change in the value of derivative liabilities of $14,264,476, increase in accounts receivable of $672,664, increases in inventories of $336,677, and a decrease in environmental remediation liabilities of $22,207.
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Net cash used in investing activities was $1,577,768 and $3,684,307 for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, there was cash used in the purchase of equipment of $1,660,537 and cash received for advance of asset of $82,769. For the nine months ended September 30, 2022, there was cash used in the purchase of equipment of $3,684,307, of which $172,500 was paid to a related-party.
Net cash generated by financing activities was $4,792,304 during the nine months ended September 30, 2023, as compared to cash provided by financing activities of $4,362,042 during the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company received $3,746,109 from the issuance of factoring advances, $1,000,000 from the issuance of non-convertible notes, $13,118,750 from the sale of convertible notes, $825,000 from bridge financing, $205,719 from bank overdrafts, $2,841,181 from the sale of common stock, and $8,240 from the cash exercise of warrants, while utilizing $4,381,809 in the repayment of non-convertible notes and utilizing $12,570,886 for the repayment of factoring advances. During the nine months ended September 30, 2022, the Company utilized $1,788,458 and $12,000 towards payments on non-convertible notes and advances, respectively, while receiving $6,162,500 in proceeds from non-convertible notes
Capital Resources
As of September 30, 2023, we had cash on hand of $1,449,340. We currently have no external sources of liquidity such as arrangements with credit institutions that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
Required Capital over the Next Fiscal Year
As of September 30, 2023, the Company had cash of $1,449,340 and a working capital deficit (current liabilities in excess of current assets) of $16,206,953. The accumulated deficit as of September 30, 2023 was $391,213,316. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the consolidated financial statements.
The Company believes it has sufficient capital to become cashflow positive from operating activities. Should the Company choose to raise capital, it believes it can do so through non-equity based instruments such as non-convertible notes, lines of credit, and cash advances.
If the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will be impacted by market conditions and the price of the Company’s common stock. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Contractual Obligations
Our contractual obligations are included in our notes to the condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q. To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.
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Critical Accounting Policies and Estimates
For a discussion of our accounting policies and related items, please see the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a “smaller reporting company” we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Exchange Act, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) and Interim Chief Financial Officer (“CFO”) of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon such evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of September 30, 2023 were not effective (at a reasonable assurance level) due to identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.
To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the U.S. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Our principal executive officer and principal financial officer do not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (issued in 2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Based upon the assessments, management has concluded that as of September 30, 2023, there was a material weakness in our internal control over financial reporting due to the fact that we did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion.
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We plan to take steps to enhance and improve the design of our internal control over financial reporting. To remediate our material weaknesses, we plan to appoint additional qualified personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters; however, such remediation efforts are largely dependent upon our securing additional financing or generating significant revenue to cover the costs of implementing the changes required.
Until we remediate our material weakness in internal control over financial reporting such weaknesses could result in material misstatements in our financial statements not being prevented or detected.
Inherent Limitations on Effectiveness of Controls and Procedures
The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s CEO and CFO has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of September 30, 2023, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.
This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report.
Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, the Company began hiring additional accounting personnel to enhance its segregation of duties and establishment of procedures in an effort to ensure appropriate levels of review of accounting and financial reporting matters.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in Note 13 – Commitments and Contingencies to the Company’s Condensed Consolidated Financial Statements, the Company is engaged in certain legal matters and there have been no material developments since December 31, 2022 with respect to our legal proceedings, except as described in Note 13 – Commitments and Contingencies. The disclosures set forth in Note 13 – Commitments and Contingencies relating to certain legal matters are incorporated herein by reference.
ITEM 1A. RISK FACTORS
As a “smaller reporting company,” we are not required to provide the information required by this Item 1A. Please see the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 31, 2023 as amended on April 13, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended September 30, 2023, the Company issued 1,301,994 shares of common stock for the conversion and exchange of 322 shares of Series Z Preferred Stock.
During the nine months ended September 30, 2023, the Company issued 275,929 shares of common stock with a fair market value of $254,447.58 for services rendered and to be rendered under the Company’s employee stock option plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
(b) Exhibit Index
| Incorporated by Reference | ||||||||||
| No. | Description | Form | Filing Number | Exhibit | Filing Date | |||||
| 31.1* | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 31.2* | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 32.1* | Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 32.2* | Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 101.INS* | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | |||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||||
| * | Filed or furnished herewith. |
| + | Attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the U.S. Securities and Exchange Commission. |
| ** | Agreement with management or compensatory plan or arrangement |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GREENWAVE TECHNOLOGY SOLUTIONS, INC. | ||
| Date: November 14, 2023 | By: | /s/ Danny Meeks |
Danny Meeks, Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Isaac Dietrich |
Isaac Dietrich, Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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