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PART
I
On
October 19, 2021, we changed our corporate name from MassRoots, Inc. to Greenwave Technology Solutions, Inc. We will not distinguish
between our prior and current corporate name and will refer to our current corporate name throughout this Annual Report on Form 10-K.
As such, unless expressly indicated or the content indicates otherwise, as used in this Annual Report on Form 10-K, the terms “Registrant,”
“Company,” “Greenwave,” “we,” “us,” and “our” refers to Greenwave Technology
Solutions, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.
This
Annual Report contains additional trade names, trademarks, and service marks of other companies, which are the property of their respective
owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship
with, or endorsement or sponsorship of us by, these other companies.
ITEM
1. BUSINESS
Overview
We
were formed in 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.” We sold all of our social media assets
on October 28, 2021 for cash consideration equal to $10,000 and has discontinued all operations related to its social media business.
On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 14 metal recycling facilities
in Virginia, North Carolina, and Ohio. The acquisition was effective October 1, 2021 upon the effectiveness of the Certificate of Merger
in Virginia.
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 second 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).
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 employs 143 people as of March 21, 2023.
Background
We
were incorporated in the state of Delaware on April 26, 2013 as a technology platform. Our principal executive office is located at 4016
Raintree Rd, Ste 300, Chesapeake, VA 23321, and our telephone number is (757) 966-1432.
On
January 25, 2017, we consummated a reverse triangular merger (the “Whaxy Merger”) pursuant to which we acquired all of the
outstanding common stock of DDDigtal Inc. d.b.a. Whaxy (“DDDigtal”), a Colorado corporation. Upon closing of the Whaxy Merger,
each share of DDDigtal’s common stock was exchanged for such number of shares of our common stock (or a fraction thereof) based
on an exchange ratio equal to approximately 5.273-for-1, such that 1 share of our common stock was issued for every 5.273 shares of DDDigtal’s
common stock. At the closing of the Whaxy Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole
purpose of effectuating the Whaxy Merger, were converted into and exchanged for one share of common stock of DDDigtal, and all shares
of DDDigtal’s common stock that were outstanding immediately prior to the closing of the Whaxy Merger were automatically cancelled
and retired. Upon the closing of the Whaxy Merger, DDDigtal continued as our surviving wholly-owned subsidiary, and the merger subsidiary
ceased to exist.
On
July 13, 2017, we consummated a reverse triangular merger (the “Odava Merger”) pursuant to which we acquired all of the outstanding
common stock of Odava Inc. (“Odava”), a Delaware corporation. Upon closing of the Odava Merger, each share of Odava’s
common stock was exchanged for such number of shares of our common stock (or a fraction thereof), based on an exchange ratio equal to
approximately 4.069-for-1, such that 1 share of our common stock was issued for every 4.069 shares of Odava’s common stock. At
the closing of the Odava Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole purpose of effectuating
the Odava Merger, were converted into and exchanged for one share of common stock of Odava, and all shares of Odava’s common stock
that were outstanding immediately prior to the closing of the Odava Merger automatically cancelled and retired. Upon the closing of the
Odava Merger, Odava continued as our surviving wholly-owned subsidiary, and the merger subsidiary ceased to exist.
On
October 1, 2021, we consummated a reverse triangular merger (the “Empire Merger”) pursuant to which we acquired all of the
outstanding common stock of Empire Services, Inc. (“Empire”), a Virginia corporation. Upon closing of the Empire Merger,
all of the shares of Empire’s common stock was exchanged for 1,650,000 shares of our common stock. At the closing of the Empire
Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole purpose of effectuating the Empire Merger,
were converted into and exchanged for one share of common stock of Empire, and all shares of Empire’s common stock that were outstanding
immediately prior to the closing of the Empire Merger automatically cancelled and retired. Upon the closing of the Empire Merger, Empire
continued as our surviving wholly-owned subsidiary, and the merger subsidiary ceased to exist.
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.
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.
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.
Technology
In
May 2021, we launched our new website. For the first time, Empire’s customers can see the current prices for each type of scrap
metal. Our website is also integrated with Google’s Business Profiles, listing many of Empire’s locations on Google for the
first time. In late May 2021, the Empire launched a junk car buying platform, where people looking to sell their scrap cars can get a
quote within minutes, and integrated Google Ads, enabling Empire to micro-target their advertising based on location, age, income, and
other factors.
Additionally,
during 2021, the Company moved the operations of each of their yards to WeighPay, a cloud-based Enterprise Resource Planning “ERP”
system, which enables management to track sales, inventory, and operations at each facility in real time, while also establishing stronger
internal controls and systems. Additionally, in 2021, the Company moved Empire’s accounting systems over to a cloud-based QuickBooks
to facilitate collaboration and further growth.
The
technology systems and improvements Empire implemented have resulted in a significant increase in new customers, hundreds of quotes and
dozens of purchases of junk cars, and we believe a material increase in Empire’s revenues as a result of these improvements. These
systems have also streamlined Empire’s accounting and internal operations to enable any future acquisitions to be closed quickly
and efficiently. Lastly, through the data-driven decision processes that have been introduced, Empire’s strategy on future locations
and pricing is being informed by accurate and relevant data.
Now
that strong foundational systems are in place, management has begun to repurpose Greenwave’s technology platform that it developed
from 2013 to 2020 into a marketing and CRM platform for scrap metal yards. This system will enable each facility to:
|
● |
Send
text and email updates and special deals to their customers; |
|
● |
Implement
a points-based rewards system; |
|
● |
Enable
consumers to view scrap metal yards in their local area along with prices; |
|
● |
Receive
quotes for junk cars in real-time; |
|
● |
Leave
and respond to reviews of scrap yards; and |
|
● |
View
analytics and conversion data. |
Over
the past ten years, Greenwave has invested approximately $10 million developing these technologies which we believe we can re-purpose
for a fraction of the cost of development, give our metal recycling facilities and those who pay to use our platform a significant competitive
advantage, and grow our revenues and profits as a result.
There
are few companies developing technology solutions for the scrap metal industry and we believe that by focusing our experience and assets
on this highly-profitable but often overlooked industry, we can create significant value for our shareholders.
Competition
We
compete with several large, well-financed recyclers of scrap metal, steel mills which own their own scrap metal processing operations,
and with smaller metal recycling companies. Demand for metal products are sensitive to global economic conditions, the relative value
of the U.S. dollar, and availability of material alternatives, including recycled metal substitutes. Prices for recycled metal are also
influenced by tariffs, quotas, and other import restrictions, and by licensing and government requirements.
We
aim to create a competitive advantage through our ability to process significant volumes of metal products, our use of processing and
separation equipment, the number and location of our facilities, and the operating synergies we have been able to develop based on our
experience.
Recent
Developments
In
July 2022, the Company’s common stock began trading on the Nasdaq Capital Market (“Nasdaq”). Simultaneously with the listing of the Company’s
common stock on Nasdaq on July 22, 2022, the Company’s senior secured convertible notes in the principal amount of $37,714,966
together with accrued interest in the amount of $1,470,884 were converted into shares of common stock at a conversion price of $6.02
per share.
In
November 2022, we opened a metal recycling facility in Fairmont, NC.
In
January 2023, we leased a property in Chesapeake, VA.
In
April 2023, we are opening a metal recycling facility in Cleveland, Ohio.
Intellectual
Property
None.
Employees
and Human Capital Resources
Greenwave
has 143 full-time employees as of March 21, 2023.
We
view our diverse employee population and our culture as key to our success. Our company culture prioritizes learning, supports growth
and empowers us to reach new heights. We recruit employees with the skills and training relevant to succeed and thrive in their functional
responsibilities. We assess the likelihood that a particular candidate will contribute to the Company’s overall goals, and beyond
their specifically assigned tasks. Depending on the position, our recruitment reach can be local as well as national. We provide competitive
compensation and best in class benefits that are tailored specifically to the needs and requests of our employees. During 2021 and 2022,
we worked to manage through the effects of the COVID-19 pandemic and entered 2023 stronger than ever. As appropriate, others were provided
the option of working remotely or at our facilities with appropriate safeguards. We uphold our commitment to shareholders by working
hard and being thoughtful and deliberate in how we use resources.
Available
Information
We
file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the Securities
and Exchange Commission (SEC). Our filings with the SEC are available free of charge on the SEC’s website at www.sec.gov
and on our website under the “Investors” tab as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC.
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. This Annual Report on Form 10-K contains the risks applicable to an investment
in our securities. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known or unknown
risks might cause you to lose all or part of your investment in the offered securities.
Risk
Factors Summary
Risks
Relating to Our Business and Industry
|
● |
The coronavirus disease (COVID-19) pandemic has had, and may continue to have, an adverse effect on our business, results of operations, financial condition and cash flows. Future epidemics or other public health emergencies could have similar effects. |
|
● |
We operate in industries that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on our operating results, financial condition and cash flows. |
|
● |
Changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions may adversely affect our operating results, financial condition and cash flows. |
|
● |
Changes in the availability or price of inputs such as raw materials and end-of-life vehicles could reduce our sales. |
|
● |
Significant decreases in scrap metal prices may adversely impact our operating results. |
|
● |
Imbalances in supply and demand conditions in the global steel industry may reduce demand for our products. |
|
● |
Impairment of long-lived assets and equity investments may adversely affect our operating results. |
|
● |
We may be unable to renew facility leases, thus restricting our ability to operate. |
|
● |
Increases in the value of the U.S. dollar relative to other currencies may reduce the demand for our products. |
|
● |
Equipment upgrades, equipment failures and facility damage may lead to production curtailments or shutdowns. |
|
● |
We are subject to legal proceedings and legal compliance risks that may adversely impact our financial condition, results of operations and liquidity. |
|
● |
Climate change may adversely impact our facilities and our ongoing operations. |
|
● |
Catastrophic events may disrupt our business and impair our ability to provide our platform to clients and consumers, resulting in costs for remediation, client and consumer dissatisfaction, and other business or financial losses. |
|
● |
We
depend on a small number of suppliers for the materials necessary to run our business. The loss of these suppliers, or their failure
to supply us with these materials, would materially and adversely affect our business. |
|
● |
We
have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our 2022 and
2021 revenues. |
|
● |
We
have a limited history upon which an evaluation of our prospects and future performance can be made and have no history of profitable
operations. |
|
● |
We
are highly dependent on the services of key executives, the loss of whom could materially harm our business and our strategic direction.
If we lose key management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or
experience increases in our compensation costs, our business may materially suffer. |
|
● |
We
may need to obtain additional financing to fund our operations. |
|
● |
Our
independent registered accounting firm has expressed concerns about our ability to continue as a going concern. |
|
● |
In
the past we have experienced material weaknesses in our internal control over financial reporting, which if continued, could impair our
financial condition. |
Risks
Relating to Government Laws and Regulations
|
● |
Tax
increases and changes in tax rules may adversely affect our financial results. |
|
● |
We
may not realize our deferred tax assets in the future. |
|
● |
Environmental
compliance costs and potential environmental liabilities may have a material adverse effect on our financial condition and results
of operations. |
|
● |
Governmental
agencies may refuse to grant or renew our licenses and permits, thus restricting our ability to operate. |
|
● |
Compliance
with existing and future climate change and greenhouse gas emission laws and regulations may adversely impact our operating results. |
Risks
Relating to Intellectual Property
|
● |
We
may not be able to protect our intellectual property rights throughout the world. |
|
● |
We
may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful
and the outcome might have an adverse effect on the success of our business. |
|
● |
We
may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or
claiming ownership of what we regard as our own intellectual property. |
Risks
Related to our Common Stock
|
● |
The
market price of our common stock may be volatile and adversely affected by several factors. |
|
● |
If
our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares. |
|
● |
We
are a “smaller reporting company” within the meaning of the Securities Act, and if we decide to take advantage of certain
exemptions from various reporting requirements applicable to smaller reporting companies, our common stock could be less attractive
to investors. |
|
● |
We
do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment. |
|
● |
You
could lose some or all of your investment. |
|
● |
Our
management controls a large block of our common stock that will allow them to control us. |
|
● |
Because
we can issue additional shares of Common Stock, purchasers of our Common Stock may incur immediate dilution and experience further
dilution. |
|
● |
Provisions
in our Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Delaware law might discourage,
delay or prevent a change in control of our Company or changes in our management and, therefore, depress the market price of our
Common Stock. |
|
● |
If
securities or industry research analysts do not publish research or reports about our business, or if they issue unfavorable or misleading
opinions regarding common stock, the market price and trading volume of our Common Stock could decline. |
|
● |
Future
sales and issuances of our Common Stock or rights to purchase our Common Stock, including pursuant to our equity incentive plans,
could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. |
|
● |
We
have broad discretion in the use of the net proceeds from our public offerings and may not use them effectively. |
|
● |
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud. |
|
● |
As a newly Nasdaq-listed company, we will incur material increased costs
and become subject to additional regulations and requirements. |
Risks
Relating to Our Business and Industry
The
coronavirus disease (COVID-19) pandemic has had, and may continue to have, an adverse effect on our business, results of operations,
financial condition and cash flows. Future epidemics or other public health emergencies could have similar effects.
Our
operations expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic
which spread to many other countries including the United States. In March 2020, the World Health Organization characterized COVID-19
as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak resulted in governments
around the world implementing stringent measures to help control the spread of the virus, followed by phased regulations and guidelines
for reopening communities and economies. In addition, governments and central banks in several parts of the world have enacted fiscal
and monetary stimulus measures to counteract the impacts of COVID-19.
We
are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with
federal guidelines and with state and local orders to date, we have continued to operate across our footprint. Notwithstanding our continued
operations, COVID-19 has negatively impacted and may have further negative impacts on our financial performance, operations, supply chain
and flows of raw materials, transportation and logistics networks and customers. Due in large part to the impacts of and response to
the spread of COVID-19, global economic conditions declined sharply during the second quarter of fiscal 2020, resulting in historic unemployment
levels, rapid changes in supply and demand in certain industry sectors, businesses switching to remote work or ceasing operations, and
consumers eliminating, restricting or redirecting spending. The economic downturn adversely affected demand for our products and contributed
to weaker supply and demand conditions affecting prices and volumes in the markets for our products, services and raw materials. During
fiscal 2020, in particular the second quarter, our operations, margins and results were adversely impacted by lower sales volumes of
recycled metals driven by severely constrained supplies of scrap metal including end-of-life vehicles, leading to lower processed volumes
at our recycling facilities. We also experienced significant decreases in selling prices for our recycled metal products, softer demand,
supply chain disruptions, reduced availability of shipping containers, and other logistics constraints. During 2021, metal prices recovered,
contributing to an increase in revenues, although supply chain disruptions persisted. During 2022, we experienced minimal impacts from
the COVID-19 pandemic.
The
COVID-19 pandemic could further negatively impact our business or results of operations through the temporary closure of our operating
locations or those of our customers or suppliers, disrupting scrap metal inflows to our recycling facilities, limiting our ability to
process scrap metal through our shredder, inhibiting the manufacture of steel products at our steel mill, and delaying or preventing
deliveries to our customers, among others. In addition, the ability of our employees and our suppliers’ and customers’ employees
to work may be significantly impacted by individuals contracting or being exposed to COVID-19, or as a result of prevention and control
measures, which may significantly hamper our production throughout the supply chain and constrict sales channels.
Because
the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, continually changing and difficult
to predict, the pandemic’s impacts on our operations and financial performance, as well as its impact on our ability to successfully
execute our business strategies and initiatives, are also uncertain and difficult to predict. Further, the ultimate impact of the COVID-19
pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited
to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including
restrictions on travel and transportation and workforce pressures); the impact of the pandemic and actions taken in response on global
and regional economies and on levels of economic activity; the availability of federal, state or local funding programs; general economic
uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the
pace of recovery when the COVID-19 pandemic subsides. While we expect the COVID-19 pandemic to continue to negatively impact our results
of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19
means the related financial impact cannot be reasonably estimated at this time.
We
operate in industries that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on our
operating results, financial condition and cash flows.
Demand
for most of our products is cyclical in nature and sensitive to general economic conditions. The timing and magnitude of the cycles in
the industries in which our products are used, including global steel manufacturing and nonresidential and infrastructure construction
in the U.S., are difficult to predict. The cyclical nature of our operations tends to reflect and be amplified by changes in economic
conditions, both domestically and internationally, and foreign currency exchange fluctuations. Economic downturns or a prolonged period
of slow growth in the U.S. and foreign markets or any of the industries in which we operate could have a material adverse effect on our
results of operations, financial condition and cash flows.
Changing
conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions may
adversely affect our operating results, financial condition and cash flows.
A
significant portion of the metal we process is sold to end customers located outside the U.S., including countries in Asia, the Mediterranean
region and North, Central and South America. Our ability to sell our products profitably, or at all, is subject to a number of risks
including adverse impacts of political, economic, military, terrorist or major pandemic events; labor and social issues; legal and regulatory
requirements or limitations imposed by foreign governments including quotas, tariffs or other protectionist trade barriers, sanctions,
adverse tax law changes, nationalization, currency restrictions, or import restrictions for certain types of products we export; and
disruptions or delays in shipments caused by customs compliance or other actions of government agencies. The occurrence of such events
and conditions may adversely affect our operating results, financial condition and cash flows.
For
example, in fiscal 2017, regulators in China began implementing the National Sword initiative involving inspections of Chinese industrial
enterprises, including recyclers, in order to identify rules violations with respect to discharge of pollutants or illegally transferred
scrap imports. Restrictions resulting from the National Sword initiative include a ban on certain imported recycled products, lower contamination
limits for permitted recycled materials, and more comprehensive pre- and post-shipment inspection requirements. Disruptions in pre-inspection
certifications and stringent inspection procedures at certain Chinese destination ports have limited access to these destinations and
resulted in the renegotiation or cancellation of certain nonferrous customer contracts in connection with the redirection of such shipments
to alternate destinations. Commencing July 1, 2019, China imposed further restrictions in the form of import license requirements and
quotas on certain scrap products, including certain nonferrous products we sell. Chinese import licenses and quotas are issued to Chinese
scrap consumers on a quarterly basis for the importation of scrap products. Since the implementation of this program, the size of import
quotas has been steadily reduced on a quarter-over-quarter basis. We have continued to sell our recycled metal products into China; however,
additional or modified license requirements and quotas, as well as additional product quality requirements, may be issued in the future.
We believe that the potential impact on our recycling operations of the Chinese regulatory actions described above could include requirements
that would necessitate additional processing and packaging of certain nonferrous recycled scrap metal products, increased inspection
and certification activities with respect to exports to China, or a change in the use of our sales channels in the event of delays in
the issuance of licenses, restrictive quotas or an outright ban on certain or all of our recycled metals products by China. As regulatory
developments progress, we may need to make further investments in nonferrous processing equipment beyond existing planned investments
where economically justified, incur additional costs in order to comply with new inspection requirements, or seek alternative markets
for the impacted products, which may result in lower sales prices or higher costs and may adversely impact our business or results of
operations.
In
March 2018, the U.S. imposed a 25% tariff on certain imported steel products and a 10% tariff on certain imported aluminum products under
Section 232 of the Trade Expansion Act of 1962. These new tariffs, along with other U.S. trade actions, have triggered retaliatory actions
by certain affected countries, and other foreign governments have initiated or are considering imposing trade measures on other U.S.
goods. For example, China has imposed a series of retaliatory tariffs on certain U.S. products, including a 25 percent tariff on all
grades of U.S. scrap and an additional 25 percent tariff on U.S. aluminum scrap. These tariffs and other trade actions could result in
a decrease in international steel demand beyond that already experienced and further negatively impact demand for our products, which
would adversely impact our business. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. or other
countries, the impact of the trade actions on our operations or results remains uncertain, but this impact could be material.
Changes
in the availability or price of inputs such as raw materials and end-of-life vehicles could reduce our sales.
Our
businesses require certain materials that are sourced from third party suppliers. Industry supply conditions generally involve risks,
including the possibility of shortages of raw materials, increases in raw material and other input costs, and reduced control over delivery
schedules. We procure our scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have
no obligation to sell scrap metal to us. In periods of declining or lower scrap metal prices suppliers may elect to hold scrap metal
to wait for higher prices or intentionally slow their metal collection activities, tightening supply. If a substantial number of suppliers
cease selling scrap metal to us, we will be unable to recycle metal at desired levels, and our results of operations and financial condition
could be materially adversely affected. For instance, in the second quarter of fiscal 2020 a lower price environment for recycled metals
in combination with economic and other restrictions on suppliers relating to COVID-19 severely constricted the supply of scrap metal
including end-of-life vehicles, which resulted in significantly reduced processed volumes. A slowdown of industrial production in the
U.S. may also reduce the supply of industrial grades of metal to the metals recycling industry, resulting in less recyclable metal available
to process and market. Increased competition for domestic scrap metal, including as a result of overcapacity in the scrap recycling industry
in the U.S. and Canada, may also reduce the supply of scrap metal available to us. Failure to obtain a steady supply of scrap material
could both adversely impact our ability to meet sales commitments and reduce our operating margins. Failure to obtain an adequate supply
of end-of-life vehicles could adversely impact our ability to attract customers and charge admission fees and reduce our parts sales.
Failure to obtain raw materials and other inputs to steel production such as graphite electrodes, alloys and other required consumables,
could adversely impact our ability to make steel to the specifications of our customers.
Significant
decreases in scrap metal prices may adversely impact our operating results.
The
timing and magnitude of the cycles in the industries in which we operate are difficult to predict and are influenced by different economic
conditions in the domestic market, where we typically acquire our raw materials, and foreign markets, where we typically sell the majority
of our products. Purchase prices for scrap metal including end-of-life vehicles and selling prices for recycled scrap metal are subject
to market forces beyond our control. While we attempt to respond to changing recycled scrap metal selling prices through adjustments
to our metal purchase prices, our ability to do so is limited by competitive and other market factors. As a result, we may not be able
to reduce our metal purchase prices to fully offset a sharp reduction in recycled scrap metal sales prices, which may adversely impact
our operating income and cash flows. In addition, a rapid decrease in selling prices may compress our operating margins due to the impact
of average inventory cost accounting, which causes cost of goods sold recognized in the Consolidated Statements of Operations to decrease
at a slower rate than metal purchase prices.
For
instance, in fiscal 2020, weaker market conditions for recycled metals, including as a result of the sharp decline in global economic
conditions during the third quarter of fiscal 2020 in large part due to the impacts of the COVID-19 pandemic, and structural changes
to the market for certain recycled nonferrous products primarily from Chinese import restrictions and tariffs, resulted in periods of
sharply declining commodity prices and lower average net selling prices for our ferrous and nonferrous recycled metal products compared
to fiscal 2019. As a result, operating margins in fiscal 2020 compressed as the decline in average net selling prices for our recycled
metal products outpaced the reduction in purchase costs for raw materials. In fiscal 2021, prices for our ferrous and non-ferrous metals
increased significantly, resulting in an increase in revenue and purchasing costs for raw materials. In fiscal 2022, prices for our ferrous
and non-ferrous metals declined during the second half of the year, but remained historically strong, resulting in a decrease in revenue
and purchasing costs for raw materials.
Imbalances
in supply and demand conditions in the global steel industry may reduce demand for our products.
Economic
expansions and contractions in global economies can result in supply and demand imbalances in the global steel industry that can significantly
affect the price of commodities used and sold by our business, as well as the price of and demand for finished steel products. In a number
of foreign countries, such as China, steel producers are generally government-owned and may therefore make production decisions based
on political or other factors that do not reflect free market conditions. In the past, overcapacity and excess steel production in these
foreign countries resulted in the export of aggressively priced semi-finished and finished steel products. This led to disruptions in
steel-making operations within other countries, negatively impacting demand for our recycled scrap metal. Existing or new trade laws
and regulations may cause or be inadequate to prevent disadvantageous trade practices, which could have a material adverse effect on
our financial condition and results of operations. Although trade regulations restrict or impose duties on the importation of certain
products, if foreign steel production significantly exceeds consumption in those countries, global demand for our recycled scrap metal
products could decline and imports of steel products into the U.S. could increase, resulting in lower volumes and selling prices for
our recycled metal products and finished steel products.
Impairment
of long-lived assets and equity investments may adversely affect our operating results.
Our
long-lived asset groups are subject to an impairment assessment when certain triggering events or circumstances indicate that their carrying
value may be impaired. If the carrying value exceeds our estimate of future undiscounted cash flows of the operations related to the
asset group, an impairment is recorded for the difference between the carrying amount and the fair value of the asset group. The results
of these tests for potential impairment may be adversely affected by unfavorable market conditions, our financial performance trends,
or an increase in interest rates, among other factors. If, as a result of the impairment test, we determine that the fair value of any
of our long-lived asset groups is less than its carrying amount, we may incur an impairment charge that could have a material adverse
effect on our financial condition and results of operations.
We
may be unable to renew facility leases, thus restricting our ability to operate.
We
lease a significant portion of our facilities. The cost to renew such leases may increase significantly, and we may not be able to renew
such leases on commercially reasonable terms or at all. Failure to renew these leases or find suitable alternative locations for our
facilities may impact our ability to continue operations within certain geographic areas, which could have a material adverse effect
on our financial condition, results of operations and cash flows.
Increases
in the value of the U.S. dollar relative to other currencies may reduce the demand for our products.
A
significant portion of our recycled scrap metal revenues is generated from sales to foreign customers, which are denominated in U.S.
dollars, including customers located in Asia, the Mediterranean region and North, Central and South America. A strengthening U.S. dollar,
as experienced during recent years including fiscal 2020, makes our products more expensive for non-U.S. customers, which may negatively
impact export sales. A strengthening U.S. dollar also makes imported metal products less expensive, which may result in an increase in
imports of steel products into the U.S. As a result, our finished steel products, which are made in the U.S., may become more expensive
for our U.S. customers relative to imported steel products thereby reducing demand for our products.
Equipment
upgrades, equipment failures and facility damage may lead to production curtailments or shutdowns.
Our
business operations and recycling and manufacturing processes depend on critical pieces of equipment, including information technology
equipment, shredders, nonferrous sorting technology, furnaces and a rolling mill, which may be out of service occasionally for scheduled
upgrades or maintenance or as a result of unanticipated failures. Our facilities are subject to equipment failures and the risk of catastrophic
loss due to unanticipated events such as fires, earthquakes, accidents or violent weather conditions. Interruptions in our processing
and production capabilities and shutdowns resulting from unanticipated events could have a material adverse effect on our financial condition,
results of operations and cash flows.
We
are subject to legal proceedings and legal compliance risks that may adversely impact our financial condition, results of operations
and liquidity.
We
spend substantial resources ensuring that we comply with domestic and foreign regulations, contractual obligations and other legal standards.
Notwithstanding this, we are subject to a variety of legal proceedings and compliance risks in respect of various matters, including
regulatory, safety, environmental, employment, transportation, intellectual property, contractual, import/export, international trade
and governmental matters that arise in the course of our business and in our industry. An outcome in an unusual or significant legal
proceeding or compliance investigation in excess of insurance recoveries could adversely affect our financial condition and results of
operations. For information regarding our current significant legal proceedings and contingencies, see “Legal Proceedings”
in Part I, Item 3 and “Contingencies – Other” within Note 12 – Commitments and Contingencies in the notes to the financial
statements.
Climate
change may adversely impact our facilities and our ongoing operations.
The
potential physical impacts of climate change on our operations are highly uncertain and depend upon the unique geographic and environmental
factors present, for example rising sea levels at deep water port facilities, changing storm patterns and intensities, and changing temperature
levels. As many of our recycling facilities are located near deep water ports, rising sea levels may disrupt our ability to receive scrap
metal, process the scrap metal through our shredders and ship products to our customers. Extreme weather events and conditions, such
as hurricanes, thunderstorms, tornadoes, wildfires and snow or ice storms, may increase our costs or cause damage to our facilities,
and any damage resulting from extreme weather may not be fully insured. Increased frequency and duration of adverse weather events and
conditions may also inhibit construction activity utilizing our products, scrap metal inflows to our recycling facilities, and retail
admissions and parts sales at our auto parts stores. Potential adverse impacts from climate change, including rising temperatures and
extreme weather events and conditions, may create health and safety issues for employees operating at our facilities and may lead to
an inability to maintain standard operating hours.
Catastrophic
events may disrupt our business and impair our ability to provide our platform to clients and consumers, resulting in costs for remediation,
client and consumer dissatisfaction, and other business or financial losses.
Our
operations depend, in part, on our ability to protect our facilities against damage or interruption from natural disasters, power or
telecommunications failures, criminal acts and similar events. Despite precautions taken at our facilities, the occurrence of a natural
disaster, an act of terrorism, vandalism or sabotage, spikes in usage volume or other unanticipated problems at a facility could result
in lengthy interruptions in the availability of our platform. Even with current and planned disaster recovery arrangements, our business
could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses
that we may incur. These factors in turn could further reduce revenue, subject us to liability and lead to decreased usage of our platform
and decrease sales of our advertising placements, any of which could harm our business.
We
depend on a small number of suppliers for the materials necessary to run our business. The loss of these suppliers, or their failure
to supply us with these materials, would materially and adversely affect our business.
We
depend on the availability of key materials for our business from a small number of third-party suppliers. Because there are a limited
number of suppliers for these materials, we may need to engage alternate suppliers to prevent a possible disruption. We do not have any
control over the availability of materials. If we or our manufacturers are unable to purchase these materials on acceptable terms, at
sufficient quality levels, or in adequate quantities, if at all, the successful operation of our business would be delayed or there would
be a shortage in supply, which would impair our ability to generate revenues from our business.
We
have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our 2022 and 2021
revenues.
We
currently derive a significant portion of our revenues from three large corporate customers. For the fiscal year ended December 31,
2022, three certain large customers individually accounted for $17,962,176, $5,332,834, and $4,301,328, or approximately 53%, 16%,
and 13% of our revenues, respectively. For the fiscal year ended December 31, 2021, one customer accounted for $6,682,019, or
approximately 83% of our revenue.
There
are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible
for us to predict the future level of demand for our services that will be generated by this customer or the future demand for the products
and services of this customer in the end-user marketplace. In addition, revenues from larger customers, especially our largest customer
may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions
or other facts, some of which may be outside of our control. Further, some of our contracts with larger customers permit them to terminate
our relationship at any time (subject to notice and certain other provisions). If any of these customers experience declining or delayed
sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services which
could have an adverse effect on our margins and financial position and could negatively affect our revenues and results of operations
and/or trading price of our common stock. If our largest customer terminates our services, such termination would negatively affect our
revenues and results of operations and/or trading price of our common stock.
We
have a limited history upon which an evaluation of our prospects and future performance can be made and have no history of profitable
operations.
We
were incorporated in April 2013 and have a limited operating history and our business is subject to all of the risks inherent in the
establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with development and expansion of a new business enterprise. We may sustain
losses in the future as we implement our business plan. There can be no assurance that we will operate profitably.
We
are highly dependent on the services of key executives, the loss of whom could materially harm our business and our strategic direction.
If we lose key management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience
increases in our compensation costs, our business may materially suffer.
We
are highly dependent on our management team, specifically our Chief Executive Officer, Danny Meeks. While we have an employment agreement
with Danny Meeks, such employment agreement permits Mr. Meeks to terminate such agreement upon notice. If we lose key employees, our
business may suffer. Furthermore, our future success will also depend in part on the continued service of our key management personnel
and our ability to identify, hire, and retain additional personnel. We carry “key-man” life insurance on the life of our
executive officer. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary
for the development of our business. Because of this competition, our compensation costs may increase significantly.
We
may need to obtain additional financing to fund our operations.
We
may need additional capital in the future to continue to execute our business plan. Therefore, we may be dependent upon additional capital
in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise additional
capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange
enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot
obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity
financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations,
covenants and financial ratios that may restrict our ability to operate and grow our business.
Our
independent registered accounting firm has expressed concerns about our ability to continue as a going concern.
The
report of our independent registered accounting firm expresses concern about our ability to continue as a going concern based on our
historical losses from operations and the potential need for additional financing to fund our operations. It is not possible at this
time for us to predict with assurance the potential success of our business. If we cannot continue as a viable entity, we may be unable
to continue our operations and you may lose some or all of your investment in our securities.
In
the past we have experienced material weaknesses in our internal control over financial reporting, which if continued, could impair our
financial condition.
As
reported in Item 9A of this Annual Report on Form 10-K, our management concluded that our internal control over financial reporting was
not effective as of December 31, 2022 and 2021 due to material weaknesses regarding our controls and procedures. The Company did not
have sufficient segregation of duties to support its internal control over financial reporting. Due to our small size and limited resources,
segregation of all conflicting duties has not always been possible and may not be economically feasible in the near term; however, we
do expect to hire additional accounting personnel in the near future. We have and do endeavor to take appropriate and reasonable steps
to make improvements to remediate these deficiencies. If we have continued material weaknesses in our internal financial reporting, our
financial condition could be impaired or we may have to restate our financials, which could cause us to expend additional funds that
would have a material impact on our ability to generate profits and on the success of our business.
Risks
Relating to Government Laws and Regulations
Tax
increases and changes in tax rules may adversely affect our financial results.
As
a company conducting business on a global basis with physical operations throughout North America, we are exposed, both directly and
indirectly, to the effects of changes in U.S., state, local and foreign tax rules. Taxes for financial reporting purposes and cash tax
liabilities in the future may be adversely affected by changes in such tax rules. In many cases, such changes put us at a competitive
disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs through to our customers.
We
may not realize our deferred tax assets in the future.
The
assessment of recoverability of our deferred tax assets is based on an evaluation of existing positive and negative evidence as to whether
it is more-likely-than-not that they will be realized. If negative evidence outweighs positive evidence, a valuation allowance is required.
Impairment of deferred tax assets may result from significant negative industry or economic trends, a decrease in earnings performance
and projections of future taxable income, adverse changes in laws or regulations, and a variety of other factors. Impairment of deferred
tax assets could have a material adverse impact on our results of operations and financial condition and could result in not realizing
the deferred tax assets. Deferred tax assets may require further valuation allowances if it is not more-likely-than-not that the deferred
tax assets will be realized.
Environmental
compliance costs and potential environmental liabilities may have a material adverse effect on our financial condition and results of
operations.
Compliance
with environmental laws and regulations is a significant factor in our business. We are subject to local, state and federal environmental
laws and regulations in the U.S. and other countries relating to, among other matters:
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Air
emissions; |
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Waste
water and storm water management, treatment and discharge; |
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The
use and treatment of groundwater; |
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Soil
and groundwater contamination and remediation; |
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Climate
change; |
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Generation,
discharge, storage, handling and disposal of hazardous materials and secondary materials; and |
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Employee
health and safety. |
We
are also required to obtain environmental permits from governmental authorities for certain operations. Violation of or failure to obtain
permits or comply with these laws or regulations could result in our business being fined or otherwise sanctioned by regulators or becoming
subject to litigation by private parties. Future environmental compliance costs, including capital expenditures for environmental projects,
may increase because of new laws and regulations, changing interpretations and stricter enforcement of current laws and regulations by
regulatory authorities, expanding emissions, groundwater and other testing requirements and new information on emission or contaminant
levels, uncertainty regarding adequate pollution control levels, the future costs of pollution control technology and issues related
to climate change. We have seen an increased focus by federal, state and local regulators on metals recycling and auto dismantling facilities
and new or expanding regulatory requirements.
Our
operations use, handle and generate hazardous substances. In addition, previous operations by others at facilities that we currently
or formerly owned, operated or otherwise used may have caused contamination from hazardous substances. As a result, we are exposed to
possible claims, including government fines and penalties, costs for investigation and clean-up activities, claims for natural resources
damages and claims by third parties for personal injury and property damage, under environmental laws and regulations, especially for
the remediation of waterways and soil or groundwater contamination. These laws can impose liability for the cleanup of hazardous substances
even if the owner or operator was neither aware of nor responsible for the release of the hazardous substances. We have, in the past,
been found not to be in compliance with certain of these laws and regulations, and have incurred liabilities, expenditures, fines and
penalties associated with such violations. Environmental compliance costs and potential environmental liabilities could have a material
adverse effect on our financial condition, results of operations and cash flows. See “Contingencies – Environmental”
in Note 12 – Commitments and Contingencies in the Notes to the Consolidated Financial Statements.
Governmental
agencies may refuse to grant or renew our licenses and permits, thus restricting our ability to operate.
We
conduct certain of our operations subject to licenses, permits and approvals from state and local governments. Governmental agencies
often resist the establishment of certain types of facilities in their communities, including auto parts facilities. Changes in zoning
and increased residential and mixed-use development near our facilities are reducing the buffer zones and creating land use conflicts
with heavy industrial uses such as ours. This could result in increased complaints, increased inspections and enforcement including fines
and penalties, operating restrictions, the need for additional capital expenditures and increased opposition to maintaining or renewing
required approvals, licenses and permits. In addition, from time to time, both the U.S. and foreign governments impose regulations and
restrictions on trade in the markets in which we operate. In some countries, governments require us to apply for certificates or registration
before allowing shipment of recycled metal to customers in those countries. There can be no assurance that future approvals, licenses
and permits will be granted or that we will be able to maintain and renew the approvals, licenses and permits we currently hold. Failure
to obtain these approvals could cause us to limit or discontinue operations in these locations or prevent us from developing or acquiring
new facilities, which could have a material adverse effect on our financial condition and results of operations.
Compliance
with existing and future climate change and greenhouse gas emission laws and regulations may adversely impact our operating results.
Future
legislation or increased regulation regarding climate change and greenhouse gas “GHG” emissions could impose significant
costs on our business and our customers and suppliers, including increased energy, capital equipment, emissions controls, environmental
monitoring and reporting and other costs in order to comply with laws and regulations concerning and limitations imposed on climate change
and GHG emissions. The potential costs of allowances, taxes, fees, offsets or credits that may be part of “cap and trade”
programs or similar future legislative or regulatory measures are still uncertain and the future of these programs or measures is unknown.
Future climate change and GHG laws or regulations could negatively impact our ability (and that of our customers and suppliers) to compete
with companies situated in areas not subject to such requirements. Until the timing, scope and extent of any future laws or regulations
becomes known, we cannot predict the effect on our financial condition, operating performance or ability to compete. Furthermore, even
without such laws or regulations, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies
in the metals recycling and steel manufacturing industries could harm our reputation and reduce customer demand for our products. See
“Business – Environmental Matters” in Part I, Item 1 of this Annual Report for further detail.
Risks
Relating to Intellectual Property
We
may not be able to protect our intellectual property rights throughout the world.
The
success of our business depends on our continued ability to use our existing tradename in order to increase our brand awareness. The
unauthorized use or other misappropriation of any our brand names could diminish the value of our business which would have a material
adverse effect on our financial condition and results of operation.
We
may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful
and the outcome might have an adverse effect on the success of our business.
Competitors
may infringe our trademarks or other intellectual property. Moreover, it may be difficult or impossible to obtain evidence of infringement
by a competitor. To counter infringement or unauthorized use, we may be required to file infringement claims on an individual basis,
which can be expensive and time-consuming and divert the time and attention of our management. There can be no assurance that we will
have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they
are concluded.
We
may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or claiming
ownership of what we regard as our own intellectual property.
Some
of our employees may have executed non-disclosure and non-competition agreements in connection with their previous employment. Although
we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject
to claims that we or these employees have used or disclosed confidential information or intellectual property, including trade secrets
or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.
Risks
Relating to Ownership of our Common Stock
The
market price of our Common Stock may be volatile and adversely affected by several factors.
The
market price of our Common Stock could fluctuate significantly in response to various factors and events, including, but not limited
to: our ability to execute our business plan; operating results below expectations; our issuance of additional securities, including
debt or equity or a combination thereof, necessary to fund our operating expenses; announcements of technological innovations or new
products by us or our competitors; and period-to-period fluctuations in our financial results.
In
addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of
our Common Stock.
If
our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.
The
SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized
for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. If we do not obtain a listing on a national securities exchange and if the
price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer,
before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing
specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise
exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for
the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written
agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure
requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders
may have difficulty selling their shares.
We
are a “smaller reporting company” within the meaning of Rule 12b-2 of the Exchange Act, and if we decide to take advantage
of certain exemptions from various reporting requirements applicable to smaller reporting companies, our Common Stock could be less attractive
to investors.
We
qualify as a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned
subsidiary of a parent company that is not a “smaller reporting company,” and have either: (i) a public float of less than
$250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float
or (B) a public float of less than $700 million. As a “smaller reporting company,” we are entitled to rely on certain reduced
disclosure requirements, such as an exemption from providing executive compensation information in our periodic reports and proxy statements.
We are also exempt from the auditor attestation requirements provided in Section 404(b) of the Sarbanes-Oxley Act. These exemptions and
reduced disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our
results of operations and financial prospects. We cannot predict if investors will find our Common Stock less attractive because we may
rely on these exemptions. If some investors find our Common Stock or warrants less attractive as a result, there may be a less active
trading market for our Common Stock and our stock prices may be more volatile.
We
do not anticipate paying dividends on our Common Stock, and investors may lose the entire amount of their investment.
Cash
dividends have never been declared or paid on our Common Stock, and we do not anticipate such a declaration or payment for the foreseeable
future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent
a sale of their shares of common stock. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment
will only occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell
their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
You
could lose some or all of your investment.
An
investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of
an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment
in the Company will fully reflect its underlying value. You could lose some or all of your investment.
Our
management controls a large block of our Common Stock that will allow them to control us.
As
of March 29, 2023 members of our management team beneficially own approximately 39.35% of our outstanding common stock.
As
a result, management may have the ability to control substantially all matters submitted to our stockholders for approval including:
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of our Second Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws; and |
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Adoption
of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving
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In
addition, management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to
obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock
price. Any additional investors will own a minority percentage of our common stock and will have minority voting rights.
Because
we can issue additional shares of Common Stock, purchasers of our Common Stock may incur immediate dilution and experience further dilution.
We
are authorized to issue up to 1,200,000,000 shares of Common Stock, of which 11,250,813 shares of Common Stock are issued and outstanding
as of March 29, 2023. Our Board of Directors has the authority to cause us to issue additional shares of Common Stock without consent
of any of stockholders. Consequently, our stockholders may experience further dilution in their ownership of our stock in the future,
which could have an adverse effect on the trading market for our Common Stock.
Provisions
in our Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Delaware law might discourage,
delay or prevent a change in control of our Company or changes in our management and, therefore, depress the market price of our
Common Stock.
Our
Second Amended and Restated Certificate of Incorporation provides that all Internal Corporate Claims must be brought solely and exclusively
in the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware,
or, if such other court does not have jurisdiction, the United States District Court for the District of Delaware). The exclusive forum
provision may limit a stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes based upon
Internal Corporate Claims, which may discourage lawsuits against us or our current or former directors or officers and/or stockholders
in such capacity. In addition, if a court were to find this exclusive forum provision to be inapplicable or unenforceable in an action,
we may incur costs associated with resolving the dispute in other jurisdictions, which could have a material adverse effect on our business
and operations.
If
securities or industry research analysts do not publish research or reports about our business, or if they issue an unfavorable or misleading
opinion regarding our common stock, the market price and trading volume of our Common Stock could decline.
The
trading market for our Common Stock will rely in part on the research and reports that securities or industry research analysts, over
whom we have no control, publish about us and our business. If any of the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model, our intellectual property or our stock performance, our stock price would likely decline. If one or
more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
Future
sales and issuances of our Common Stock or rights to purchase our Common Stock, including pursuant to our equity incentive plans, could
result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We
expect that significant additional capital may be needed in the future to continue our planned operations, including expanded research
and development activities and costs associated with operating a public company. To raise capital, we may sell Common Stock, convertible
securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell
common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales
may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior
to the holders of our common stock.
We
have broad discretion in the use of the net proceeds from our public offerings and may not use them effectively.
Our
management has broad discretion in the application of the net proceeds from our public offerings, and you will be relying on the judgment
of our management regarding the application of these proceeds. Our management might not apply the net proceeds from our public offerings
in ways that ultimately increase the value of your investment. If we do not invest or apply the net proceeds from our public offerings
in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably
assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management
and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that
any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people
or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements
due to error or fraud may occur and not be detected.
As a newly Nasdaq-listed company, we will incur material increased costs and become subject to additional regulations and requirements.
As a newly Nasdaq-listed public company, we will incur material additional
legal, accounting and other expenses including recruiting and retaining qualified independent directors, payment of annual Nasdaq fees,
and satisfying Nasdaq’s standards for companies listed with it. Because our common stock is listed on the Nasdaq, we must meet certain
financial and liquidity criteria to maintain such listing. If we violate Nasdaq’s listing requirements, our common stock may be
delisted. If we fail to meet any of the Nasdaq’s listing standards, our common stock may be delisted. In addition, our Board may
determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting
of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have
an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common
stock could significantly impair our ability to raise capital and the value of your investment.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM
2. PROPERTIES
We
lease our scrap yard located at 22097 Brewers Neck Blvd., Carrollton, VA 23314, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $55,850 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 1576 Millpond Rd., Elizabeth City, NC 27909, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 130 Courtland Rd., Emporia, VA 23847, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 623 Highway 903 N., Greenville, NC 27834, from DWM Properties, LLC, which is owned by our Chairman and
Chief Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 8952 Richmond Rd., Toano, VA 23168, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 945 NC 11N, Kelford, NC 27805, from DWM Properties, LLC, which is owned by our Chairman and Chief Executive
Officer, for $39,293 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s election.
We
lease our scrap yard located at 1100 E Princess Anne Rd, Norfolk, VA 23504, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $16,391 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 277 Suburban Drive, Suffolk, VA 23434, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $15,450 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 9922 Hwy 17 S., Vanceboro, NC 28586, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $8,742 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 1040 Oceana Blvd, Virginia Beach, VA 23454, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $15,407 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 406 Sandy Street, Fairmont, NC 28340, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $8,000 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease office space at 505 Crawford Street, Portsmouth, VA 23704 for $1,185 per month. The lease expires on March 31, 2024.
On
January 24, 2022, the Company entered into leasing agreements for 3,521 square feet of office space commencing upon the completion of
tenant improvements which is expected to be on April 1, 2022 but shall be no later than May 1, 2022 (“Commencement Date”).
Under the terms of the lease, the Company is required to pay $3,668 for the first twelve months of the lease and increasing by approximately
3% every 12 months thereafter until the expiration of the lease. The lease is for a period of five years from the Commencement Date and
the Company was required to make a security deposit of $3,668. The Company does not have an option to extend the lease.
We
own the property underlying our scrap yard located at 4091 Portsmouth Blvd., Portsmouth, VA 23701. Further, we own properties
located at 278 and 276 Suburban Drive, Suffolk, VA 23434 and 4087, 4089, 4091, 4103, 4105 and 4117 Portsmouth Blvd, Portsmouth, VA
23701.
We
believe that our facilities are adequate for our current needs and that, if required, we will be able to expand our current space or
locate suitable new office space and obtain a suitable replacement for our executive and administrative headquarters.
ITEM
3. LEGAL PROCEEDINGS
On
December 1, 2020, Sheppard, Mullin, Richter & Hampton LLP (“Sheppard Mullin”), the Company’s former securities
counsel, filed a demand for arbitration at JAMS in New York, New York against the Company, alleging the Company’s breach of an
engagement agreement dated January 4, 2018, and a failure of the Company to pay $487,390.73 of outstanding legal fees to Sheppard Mullin.
Sheppard Mullin was awarded $459,250.88 in unpaid legal fees, disbursements and interest on June 25, 2021. A judgement confirming the
arbitration award was entered on September 8, 2021 in the Federal District Court located in Denver, Colorado.
On
September 23, 2021, the Company entered into a Resolution Agreement and Release (the “Resolution Agreement”) with
Sheppard Mullin concerning the $459,250.88 judgement entered against the Company. Under the terms of the Resolution Agreement, the
Company was required to make a $25,000 initial payment by September 30, 2021 and is required to make $15,000 monthly payments from
October 2021 to January 2023 with a final $10,000 payment due in February 2023. The Company has made all of its required payments
under the Resolution Agreement.
We
are unable to estimate a reasonably possible loss or range of loss, if any, that may result from these matters.
From
time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We investigate these claims as
they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. Regardless of
outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative
publicity and reputational harm, and other factors.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
Notes
to Consolidated Financial Statements
December
31, 2022 and 2021
NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
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 11 metal recycling facilities in Virginia and North Carolina. The acquisition was effective October 1, 2021 upon the effectiveness
of the Certificate of Merger in Virginia.
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”). Our consolidated financial statements include the accounts of Empire Services, Inc.,
Liverman Metal Recycling, Inc., Empire Staffing, LLC, and Greenwave Elite Sports Facility, Inc., our wholly owned subsidiaries.
NOTE
2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of December 31, 2022, the Company had cash of $821,804 and a working capital deficit (current liabilities in excess of current assets)
of $(17,773,380). During the year ended December 31, 2022, the net cash used in operating activities was $(2,609,173). The accumulated
deficit as of December 31, 2022 was $(362,269,015). 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.
During
the year ended December 31, 2022, the Company received proceeds of $2,725,000 and $6,518,310 from the issuance of non-convertible notes
and factoring advances, respectively.
Until
the Company’s consummation of the Empire acquisition, the Company had experienced net losses and negative cash flows from operations.
The Company believes it could generate positive cashflows from operations going forward but in the event the market for recycled metals
experiences a sharp downturn or if it experiences delays in its growth plans, the Company may need to raise additional capital. The Company’s
failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business
strategy.
Accordingly,
the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business for one year from the date the consolidated financial statements
are issued. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport
to represent realizable or settlement values. The 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
consolidated financial statements include the accounts of Greenwave Technology Solutions, Inc. and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Significant estimates include estimates used in the calculation of stock-based compensation, fair values relating
to derivative liabilities, payroll tax liabilities with interest and penalties, deemed dividends, assumptions used in right-of-use and
lease liability calculations, valuations and impairments of goodwill and intangible assets acquired in business combination, estimated
useful life of long-lived assets and finite life tangible assets, determination of environmental remediation liabilities, 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 consolidated financial statements
together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.
The
Company follows ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
Cash
For
purposes of the consolidated statements of cash flows, the Company considers highly liquid investments with an original maturity of three
months or less to be cash equivalents. As of December 31, 2022 and 2021, the Company had no cash equivalents. The Company maintains its
cash in banks insured by the Federal Deposit Insurance Corporation in accounts that at times may be in excess of the federally insured
limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with multiple major financial institutions.
At December 31, 2022 and 2021, the uninsured balances amounted to $434,399 and $2,727,928, respectively.
Property
and Equipment, net
We
state property and equipment at cost or, if acquired through a business combination, fair value at the date of acquisition. We calculate
depreciation and amortization using the straight-line method over the estimated useful lives of the assets, except for our leasehold
improvements, which are depreciated over the shorter of their estimated useful lives or their related lease term. Upon the sale or retirement
of assets, the cost and related accumulated depreciation are removed from our accounts and the resulting gain or loss is credited or
charged to income. We expense costs for repairs and maintenance when incurred. Our property and equipment is pledged as collateral for
certain non-convertible notes, see “Note 9 – Advances, Non-Convertible and PPP Notes Payable.”
Cost
of Revenue
The
Company’s cost of revenue consists primarily of the costs of purchasing metal from its suppliers.
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 20 – 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 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 13 – Leases.
Paycheck
Protection Program Notes
We
classified the loan we received under the Paycheck Protection Program (“PPP”) and the PPP note we assumed upon consummation
of the Empire acquisition as non-convertible notes. We accrued interest on the PPP notes through the date of forgiveness of the respective
notes by the Small Business Administration (“SBA”). On the date of forgiveness of the respective PPP notes by the SBA, the
principal and interest due under the PPP notes were recorded as gains on forgiveness of debt. See
“Note 9 – Advances, Non-Convertible and PPP Notes Payable.”
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 12 – Commitments and Contingencies.
Revenue
Recognition
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 customers.
The
Company realizes revenue upon the fulfillment of its performance obligations to customers. As of December 31, 2022 and 2021, the Company
had a contract liability of $25,000 and $25,000, respectively, for contracts under which the customer had paid for and the Company had
not yet delivered.
The
following table details our contract liability activity for the years ended December 31, 2021 and 2022:
SCHEDULE
OF CONTRACT LIABILITY
Balance,
December 31, 2020 | |
$ | - | |
Net
transfers in due to new contract liabilities | |
| 25,000 | |
Net
transfers out to revenue | |
| - | |
Balance,
December 31, 2021 | |
$ | 25,000 | |
Net
transfers in due to new contract liabilities | |
| - | |
Net
transfers out to revenue | |
| - | |
Balance,
December 31, 2022 | |
$ | 25,000 | |
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 on hand, 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 cost 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 $189,646 and $381,002, respectively, as of December
31, 2022 and 2021. See “Note 6 – Inventories.”
Advertising
The
Company charges the costs of advertising to expense as incurred. Advertising costs were $83,993 and $33,595 for the year ended December
31, 2022 and 2021, respectively.
Stock-Based
Compensation
Stock-based
compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For stock-based
awards to employees, non-employees and directors, the Company calculates the fair value of the award on the date of grant using the Black-Scholes
option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including
estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value
of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application
of management’s judgment.
Income
Taxes
The
Company follows ASC Subtopic 740-10, “Income Taxes” (“ASC 740-10”) for recording the provision for income taxes.
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled.
Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period.
If
available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized,
a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes
in different periods. See “Note 19 – Income Taxes.”
Business
Combinations
Our
business combinations are accounted for under the acquisition method of accounting in accordance with ASC Topic 805, “Business
Combinations” (“ASC 805”). Under the acquisition method, we recognize 100% of the assets we acquire and liabilities
we assume, regardless of the percentage we own, at their estimated fair values as of the date of acquisition. Any excess of the purchase
price over the fair value of the net assets and other identifiable intangible assets we acquire is recorded as goodwill. To the extent
the fair value of the net assets we acquire, including other identifiable assets, exceeds the purchase price, a bargain purchase gain
is recognized. The assets we acquire, and liabilities we assume from contingencies, are recognized at fair value if we can readily determine
the fair value during the measurement period. The operating results of businesses we acquire are included in our consolidated statement
of operations from the date of acquisition. Acquisition-related costs are expensed as incurred. See “Note 4— Empire Acquisition.”
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.”
Deemed
Dividends
The
Company records, when necessary, deemed dividends for: (i) warrant price protection, based on the difference between the fair value of
the warrants immediately before and after the repricing (inclusive of any full ratchet provisions); (ii) the exchange of preferred shares
for convertible notes, based on the amount of the face value of the convertible notes in excess of the carrying value of the preferred
shares; (iii) the settlement of warrant provisions, based on the fair value of the common shares issued; and (iv) amortization of discount
on preferred stock resulting from recognition of a beneficial conversion feature.
Derivative
Financial Instruments
The
Company classifies as equity any contracts that: (i) require physical settlement or net-share settlement; or (ii) provide the Company
with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such
contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that: (i) require
net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s
control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to
determine whether a change in classification between assets and liabilities is required.
The
Company’s freestanding derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance
of debt and the sale of common shares, and of embedded conversion options within convertible notes. The Company evaluated these derivatives
to assess their proper classification in the balance sheet as of December 31, 2022 and 2021 using the applicable classification criteria
enumerated under ASC 815, “Derivatives and Hedging.” The Company determined that certain embedded conversion and/or exercise
features did not contain fixed settlement provisions. The convertible notes contained a conversion feature such that the Company could
not ensure it would have adequate authorized shares to meet all possible conversion demands. As such, the Company was required to record
the derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at
the end of each reporting period. The Company also records derivative liabilities for instruments, including convertible notes, preferred
stock, and warrants, in which the Company does not have sufficient authorized shares to cover the conversion of these instruments into
shares of common stock.
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. At December 31, 2022 and 2021, the Company had accruals reported on the balance sheet as current liabilities of $0 and $22,207,
respectively.
Actual
costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the nature and
magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation
with respect to a particular site. Additionally, costs for environmental-related activities may not be reasonably estimable and therefore
would not be included in our current liabilities.
Management
believes its environmental remediation liabilities were resolved in fiscal year 2022.
Long-Lived
Assets
The
Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management
at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Intangible assets are stated
at cost and reviewed annually to examine any impairments, usually assuming an estimated useful life of five to ten years. When retired
or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference
less any amount realized from disposition, is reflected in earnings. The estimated useful lives of the Intellectual Property, Customer
List, and Licenses assumed in the Empire acquisition is 5 years, 10 years, and 10 years, respectively. See Note 8 – Amortization
of Intangible Assets.
Indefinite
Lived Intangibles and Goodwill
The
Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,”
where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on
their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one
year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and
revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill.
The
Company tests indefinite lived intangibles and goodwill for impairment in the fourth quarter of each year and whenever events or
circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. During the fiscal
years ended December 31, 2022 and 2021, the Company recorded $2,499,753
and $0
in impairment expense related to intangibles and goodwill and $2,958,500
and $739,625
in amortization of intangible assets, respectively.
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 ASU 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment. 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 GAAP, would not be impaired or have a reduced carrying amount.
Furthermore, the ASU 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.
None of the goodwill is deductible for income tax
purposes. During the fiscal years ended December 31, 2022 and 2021, the Company recorded $2,499,753
and $0 in impairment expense related
to goodwill, respectively. As of December 31, 2022 and 2021, the carrying value of goodwill was $0
and $2,499,753, respectively.
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 December 31, 2022 and 2021, the Company
owed $4,893,207 and $0, net debt discounts of $1,221,022 and $0, respectively for factoring advances. See “Note 9 – Advances,
Non-Convertible and PPP Notes Payable.”
Segment
Reporting
Operating
segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by
the Chief Executive Officer, or decision-making group, in deciding the method to allocate resources and assess performance. The Company
currently has one reportable segment for financial reporting purposes, which represents the Company’s core business.
Net
Earnings (Loss) Per Common Share
The
Company computes earnings (loss) per share under ASC subtopic 260-10, Earnings Per Share. Net loss per common share is computed by dividing
net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share, if presented,
would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock
using the “treasury stock” and/or “if converted” methods, as applicable.
The
computation of basic and diluted income (loss) per share, for the year ended December 31, 2022 and 2021 excludes potentially dilutive
securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the
common stock during the period.
Potentially
dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:
SCHEDULE
OF POTENTIALLY DILUTIVE SECURITIES EXCLUDED FROM THE COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE
| |
December
31, 2022 | | |
December
31, 2021 | |
Common
shares issuable upon conversion of convertible notes | |
| - | | |
| 2,527,144 | |
Options
to purchase common shares | |
| 92,166 | | |
| 92,166 | |
Warrants
to purchase common shares | |
| 9,757,710 | | |
| 2,752,941 | |
Common
shares issuable upon conversion of preferred stock | |
| 1,301,988 | | |
| 822,593 | |
Total
potentially dilutive shares | |
| 11,151,864 | | |
| 6,194,844 | |
On
February 28, 2022 the Company completed 1-for-300
reverse stock split. Pursuant to GAAP, the Company
retrospectively recasted and restated the weighted-average shares included within its consolidated statements of operations for the years
ended December 31, 2022 and 2021. The basic and diluted weighted-average common shares are retroactively converted to shares of the Company’s
common stock to conform to the recasted consolidated statements of stockholders’ equity.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the
separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion
feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will
account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these
models will reduce reported interest expense and increase reported net income for the Company’s convertible instruments falling
under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method
for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are
applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after
December 15, 2020. The adoption of this update did not have a material impact on the Company’s consolidated financial statements
and related disclosures.
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired
in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally
recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition
date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU 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
Company is currently evaluating the adoption of ASU 2021-08 on its consolidated financial statements and related disclosures.
There
are other various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations
or cash flows.
NOTE
4 – ACQUISITION OF EMPIRE
On
September 30, 2021, the Company entered into an agreement and plan of merger to acquire Empire Services, Inc., a Virginia Corporation
(the “Empire Acquisition”). The Empire Acquisition became effective upon the filing of the articles of merger with the State
Corporation Commission of Virginia on October 1, 2021.
Empire,
a company headquartered in Virginia, operates 11 metal recycling facilities in Virginia and North Carolina, where it collects, classifies
and processes raw scrap metals (ferrous and nonferrous) for recycling, such as iron, steel, aluminum, copper, lead, stainless steel and
zinc. Empire’s business consists of purchasing scrap metals from retail customers, municipal governments and large corporations,
and selling both processed and unprocessed scrap metals to steel mills and other purchasers across the country. Empire utilizes technology
to create operating efficiencies and competitive advantages over other scrap metal recyclers.
At
the effective time of the Empire Acquisition, each share of Empire’s common stock was converted into the right to receive consideration
consisting of: (i) 1,650,000 shares of newly-issued restricted shares of the Company’s common stock, par value $0.001 per share,
(ii) within 3 business days of the closing of the Company’s next capital raise, repayment of a $1 million advance made to purchase
Empire’s Virginia Beach location to Empire’s sole shareholder and Greenwave’s CEO and (iii) a promissory note in the
principal amount of $3.7 million with a maturity date of September 30, 2023 to Empire’s sole shareholder and Greenwave’s
CEO.
The
merger agreement contains representations, warranties and covenants customary for transactions of this type. Investors in, and security
holders of, the Company should not rely on the representations and warranties as characterizations of the actual state of facts since
they were made only as of the date of the Empire Acquisition. Moreover, information concerning the subject matter of such representation
and warranties may change after the date of the Empire Acquisition, which subsequent information may or may not be fully reflected in
public disclosures.
On
September 30, 2021, the Company entered into an employment agreement with the sole owner of Empire which did not represent additional
purchase consideration.
The
fair value of the assets acquired and liabilities assumed are based on management’s initial estimates of the fair values on October
1, 2021 and on subsequent measurement adjustments as of December 31, 2021. Based upon the purchase price allocation, the following table
summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
SCHEDULE OF BUSINESS ACQUISITION
| |
| | |
Assets
acquired: | |
| | |
Cash | |
$ | 141,027 | |
Deposits | |
| 1,150 | |
Notes
receivable – related party | |
| 1,515,778 | |
Property
and equipment, net | |
| 3,224,337 | |
Right
of use and other assets | |
| 3,585,961 | |
Licenses | |
| 21,274,000 | |
Intellectual
Property | |
| 3,036,000 | |
Customer
Base | |
| 2,239,000 | |
Goodwill | |
| 2,499,753 | |
Total
assets acquired at fair value | |
| 37,517,006 | |
| |
| | |
Liabilities
assumed: | |
| | |
Accounts
payable | |
| 845,349 | |
Advances
and environmental remediation liabilities | |
| 4,143,816 | |
Note
payable | |
| 5,684,662 | |
Other
liabilities | |
| 3,729,219 | |
Total
liabilities assumed | |
| 14,403,046 | |
Net
assets acquired | |
| 23,114,000 | |
| |
| | |
Purchase
consideration paid: | |
| | |
Common
stock | |
| 18,414,000 | |
Promissory
Note | |
| 3,700,000 | |
Promissory
Note | |
| 1,000,000 | |
Total
purchase consideration paid | |
$ | 23,114,000 | |
The
assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date as adjusted during the measurement
period with subsequent changes recognized in earnings or loss. The Company utilized an independent specialist for the valuation of the
intangible assets.
The
following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Empire had occurred as of
the beginning of the following period:
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA
| |
Year
Ended December 31, 2021 | |
Net
Revenues | |
$ | 27,755,762 | |
Net
Income (Loss) Available to Common Shareholders | |
$ | 5,233,967 | |
Net
Basic Earnings (Loss) per Share | |
$ | 1.08 | |
Net
Diluted Earnings (Loss) per Share | |
$ | 0.64 | |
Pro
forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning
of the periods presented and is not intended to be a projection of future results.
NOTE
5 – CONCENTRATIONS OF RISK
Supplier
Concentrations
The
Company has a concentration of suppliers. During the year ended December 31, 2022, two suppliers accounted for $1,114,265.68 and $639,676.14,
or 5.3% and 3%, respectively of the scrap metal purchases made by the Company. There was not a concentration of suppliers during the
year ended December 31, 2021.
Accounts
Receivable
The
Company has a concentration of credit risk with its accounts receivable balance. One customer accounted for $164,932, or 77%, of our
accounts receivable at December 31, 2022. For the fiscal year ended December 31, 2021, the Company did not have any accounts receivable.
Customer
Concentrations
The
Company has a concentration of customers. For the fiscal year ended December 31, 2022, certain large customers individually accounted
for $17,962,176, $5,332,834, and $4,301,328, or approximately 53%, 16%, and 13% of our revenues, respectively. For the fiscal year ended
December 31, 2021, one customer accounted for $6,682,019, or approximately 83% of our revenue.
The
Company’s sales are concentrated in the Virginia and northeastern North Carolina markets.
NOTE
6 – INVENTORIES
Inventories
consisted of the following as of:
SCHEDULE
OF INVENTORIES
| |
December
31, 2022 | | |
December
31, 2021 | |
Processed
and unprocessed scrap metal | |
$ | 189,646 | | |
$ | 337,002 | |
Finished
products | |
| - | | |
| 44,000 | |
Inventories | |
$ | 189,646 | | |
$ | 381,002 | |
NOTE
7 – PROPERTY AND EQUIPMENT
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company acquired equipment with a purchase price of
$5,511,568 with accumulated depreciation of $2,287,231. Property and equipment as of December 31, 2022 and 2021 is summarized as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
December
31, 2022 | | |
December
31, 2021 | |
Machinery
& Equipment | |
$ | 12,995,494 | | |
$ | 4,816,756 | |
Furniture
& Fixtures | |
| 6,128 | | |
| - | |
Vehicles | |
| 20,000 | | |
| - | |
Leaseholder
Improvement | |
| 988,100 | | |
| - | |
Land | |
| 980,129 | | |
| - | |
Buildings | |
| 724,170 | | |
| - | |
Subtotal | |
| 15,714,021 | | |
| 4,816,756 | |
Less
accumulated depreciation | |
| (2,546,486 | ) | |
| (1,911,719 | ) |
Property
and equipment, net | |
$ | 13,167,535 | | |
$ | 2,905,037 | |
Depreciation
expense for the years ended December 31, 2022 and 2021 was $875,809
and $149,156,
respectively. Impairment of equipment and land expense for the years ended December 31, 2022 and 2021 was $227,185
and $388,877,
respectively. As of December 31, 2022, the Company’s lenders had advanced $1,193,380
for equipment which had not yet been delivered to the Company.
NOTE
8 – AMORTIZATION OF INTANGIBLE ASSETS
All
of the Company’s current identified intangible assets were assumed upon consummation of the Empire acquisition on October 1, 2021.
Identified intangible assets consisted of the following at the dates indicated below:
SCHEDULE
OF INTANGIBLE ASSETS
| |
December
31, 2022 | |
| |
Gross
carrying amount | | |
Accumulated amortization | | |
Carrying value | | |
Remaining
estimated useful
life |
Intellectual
Property | |
$ | 3,036,000 | | |
$ | (759,000 | ) | |
$ | 2,277,000 | | |
4
years |
Customer
List | |
| 2,239,000 | | |
| (279,875 | ) | |
| 1,959,125 | | |
9
years |
Licenses | |
| 21,274,000 | | |
| (2,659,250 | ) | |
| 18,614,750 | | |
9
years |
Total
finite-lived intangibles | |
| 26,549,000 | | |
| (3,698,125 | ) | |
| 22,850,875 | | |
|
Total
intangible assets, net | |
$ | 26,549,000 | | |
$ | (3,698,125 | ) | |
$ | 22,850,875 | | |
|
| |
December
31, 2021 | | |
|
| |
Gross
carrying amount | | |
Accumulated amortization | | |
Carrying value | | |
Remaining
estimated useful
life |
Intellectual
Property | |
$ | 3,036,000 | | |
$ | (151,800 | ) | |
$ | 2,884,200 | | |
5
years |
Customer
List | |
| 2,239,000 | | |
| (55,975 | ) | |
| 2,183,025 | | |
10
years |
Licenses | |
| 21,274,000 | | |
| (531,850 | ) | |
| 20,742,150 | | |
10
years |
Total
finite-lived intangibles | |
| 26,549,000 | | |
| (739,625 | ) | |
| 25,809,375 | | |
|
Total
intangible assets, net | |
$ | 26,549,000 | | |
$ | (739,625 | ) | |
$ | 25,809,375 | | |
|
The
weighted-average amortization period for intangible assets we acquired during the year ended December 31, 2021 was approximately 8.12
years as of December 31, 2022. There were no intangible assets acquired during the year ended December 31, 2022.
Amortization expense for intangible assets was $2,958,500
and $739,625
for the years ended December 31, 2022 and 2021,
respectively. Total estimated amortization expense for our intangible assets for the years 2023 through 2027 is as follows:
SCHEDULE
OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS
Year
ended December 31, | |
| |
2023 | |
$ | 2,958,500 | |
2024 | |
| 2,958,500 | |
2025 | |
| 2,958,500 | |
2026 | |
| 2,806,700 | |
2027 | |
| 2,351,300 | |
Thereafter | |
| 8,817,375 | |
NOTE
9 – ADVANCES, NON-CONVERTIBLE NOTES PAYABLE, AND PPP NOTE PAYABLE
Factoring
Advances
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company became liable for merchant cash advances Empire
had obtained in the amount of $4,975,940 with a carrying value of $4,072,799 as of the acquisition date. The advances had final payment
dates ranging from November 19, 2020 to March 11, 2022. The advances were secured against the assets of Empire. The Company made payments
of $4,104,334 towards these advances during the year ended December 31, 2021. There was amortization of debt discount of $903,141 from
October 1, 2021 to December 8, 2021. The Company realized an aggregate gain on the settlement of these advances of $871,606 from November
30 to December 8, 2021.
On
August 2, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,587,500 for a purchase price of $1,225,000.
The Company’s Chief Executive Officer was personally liable for this factoring advance. The Company was required to make weekly
payments in the amount $37,798 through June 2023. The revenue factoring advance had a maturity date of June 4, 2023. There was amortization
of debt discount of $362,500 and a gain on settlement of debt of $187,505, respectively, during the year ended December 31, 2022. The
Company made repayments of $1,399,995 during the year ended December 31, 2022. As of December 31, 2022, the revenue factoring advance
had a balance of $0 net an unamortized debt discount of $0.
On
August 3, 2022, the Company entered into a revenue factoring advance in the principal amount of $952,500 for a purchase price of $735,000.
The Company’s Chief Executive Officer was personally liable for this factoring advance. The Company was required to make weekly
payments in the amount $22,679 through June 2023. The advance had a maturity of June 4, 2023. There was amortization of debt discount
of $217,500 during the year ended December 31, 2022. The Company made repayments of $952,500 during the year ended December 31, 2022.
As of December 31, 2022, the revenue factoring advance had a balance of $0 net an unamortized
debt discount of $0.
On
September 28, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,815,000 for a purchase price of
$1,477,500. The Company’s Chief Executive Officer
was personally liable for this factoring advance. The Company was required to make weekly payments
in the amount $36,012 through September 2023. The advance had a maturity of October 18, 2023. There was amortization of debt discount
of $337,500 and a gain of settlement of debt of $165,000 during the year ended December 31, 2022. The Company made repayments
of $1,650,000 during the year ended December 31, 2022. As of December 31, 2022, the revenue factoring
advance had a balance of $0 net an unamortized debt discount of $0.
On
December 8, 2022, the Company entered into a revenue factoring advance in the principal amount of $3,025,000 for a purchase price of
$2,500,000. The Company’s Chief Executive Officer
is personally liable for this factoring advance. The Company is required to make weekly payments
in the amount $60,020 through December 2023. The advance matures on December 15, 2023. There was amortization of debt discount of $32,460
during the year ended December 31, 2022. The Company made repayments of $180,060 during the year ended December 31, 2022. As
of December 31, 2022, the revenue factoring advance had a balance of $2,352,000 net an unamortized debt discount of $492,540.
On
December 8, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,815,000 for a purchase price of
$1,470,000. The Company’s Chief Executive Officer
is personally liable for this factoring advance. The Company is required to make weekly payments
in the amount $34,904 through December 2023. The advance matures on December 15, 2023. There was amortization of debt discount of $21,330
during the year ended December 31, 2022. The Company made repayments of $104,712 during the year ended December 31, 2022. As
of December 31, 2022, the revenue factoring advance had a balance of $1,386,619 net an unamortized debt discount of $323,670.
On
December 29, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,474,000 for a purchase price of
$1,067,000. The Company’s Chief Executive Officer
is personally liable for this factoring advance. The Company is required to make weekly payments
in the amount $28,346 through January 2024. The advance matures on January 4, 2024. There was amortization of debt discount of $2,188
during the year ended December 31, 2022. As of December 31, 2022, the revenue factoring advance had a balance of $1,069,188 net an unamortized
debt discount of $404,812.
he
remaining advances are for Simple Agreements for Future Tokens, entered into with accredited investors issued pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and/or Regulation
D thereunder in 2018. As of December 31, 2022, the Company owed $85,000 for Simple Agreements for Future Tokens.
Non-Convertible
Notes Payable
During
the year ended December 31, 2022 and 2021, the Company received proceeds from the issuance of non-convertible notes of $2,725,000 and
$1,465,053, had $0 and $1,515,778 in intercompany loans eliminated, and repaid an aggregate of $212,249 and $5,629,455, respectively,
of non-convertible notes. Included in the years ended December 31, 2022 and 2021 were $0 and $24,647, respectively, of advances from
and $0 and $59,103 of repayments to the Company’s Chief Executive Officer. The $5,629,455 in repayments in 2021 was comprised of
$5,479,288 in payments made towards non-convertible notes assumed in the Empire acquisition, $150,167 was towards non-convertible notes
Greenwave had outstanding and $60,000 was towards the resolution agreement with Sheppard Mullin.
On
April 17, 2020, the outstanding principal balance of $23,500 and accrued interest of $17,281 on non-convertible notes held by one holder
was consolidated into a new non-convertible note with a face value of $79,000, resulting in a loss on debt settlement of $38,219 as of
December 31, 2020. On June 2, 2021, holders of this non-convertible notes entered into an agreement to cancel the entire amount owed
to him (including principal of $79,000 and accrued interest of $63,055), resulting in gain on forgiveness of debt of $142,055. This note
was fully satisfied and retired as of December 31, 2021.
On
May 4, 2020, the Company received proceeds of $50,000 from a PPP note. The note had a maturity date of May 4, 2022 and bore 1% interest
per annum. On April 6, 2021, the Small Business Administration forgave the Company’s Paycheck Protection Program loan in the principal
amount of $50,000 and accrued interest of $466, resulting in gain on forgiveness of debt of $50,466. As of December 31, 2022 and December
31, 2021, the Company owed $0 and $0 in principal and $0 and $330 in accrued interest, respectively, on this note. This note was fully
satisfied and retired as of December 31, 2021.
On
June 4, 2021, one of the holders of a non-convertible note payable for $60,000 extended the due date of the note from June 26, 2022 to
June 24, 2023. On November 30, 2021, the Company settled this note for payment of $100,000.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.495% and a maturity date of August 5, 2022. As of October 1, 2021, the note’s principal balance
was $764,464, had a carrying value of $707,644, and had accrued interest and penalties of $30,330. The note was secured by assets of
Empire. The Company made payments towards the principal and interest of the note of $37,800 from October 1 to November 30, 2021. There
was amortization of debt discount on the note of $56,820 from October 1 to November 30, 2021. The Company paid $730,347 to settle the
note on November 30, 2021. The Company realized a gain on the settlement of this note of $34,117 on November 30, 2021. This note was
fully satisfied and retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.495% and a maturity date of November 15, 2025. As of October 1, 2021, the note’s principal balance
was $524,381, carrying value was $450,268, and had accrued interest and penalties of $7,896. The note was secured by assets of Empire.
The Company made payments towards the principal and interest of the note of $9,070 from October 1 to November 30, 2021. There was amortization
of debt discount on the note of $74,113 from October 1 to November 30, 2021. The Company paid $507,880 to settle the note on November
30, 2021. The Company realized a gain on the settlement of this note of $16,501 on November 30, 2021. This note was fully satisfied and
retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 4.75% and a maturity date of December 30, 2023. As of October 1, 2021, the note’s remaining principal
balance was $1,223,530. The note was secured by all assets of Empire and property owned by the Company’s Chief Executive Officer.
The Company made payments towards the principal and interest of the note of $48,000 from October 1 to November 30, 2021. There was an
interest expense of $11,907 from October 1 to November 30, 2021. The Company paid $1,292,024 to settle the note on November 30, 2021.
The Company realized a loss on the settlement of this note of $69,968 on November 30, 2021. This note was fully satisfied and retired
as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured, demand
promissory note with an interest rate of 4.75% and a maturity date of January 30, 2024. As of October 1, 2021, the note’s remaining
principal balance was $888,555. Under the terms of the note, any principal amount that was paid off could be reborrowed. The note was
secured by all assets Empire and property owned by the Company’s Chief Executive Officer. On October 26, 2021, the Company received
additional proceeds of $108,000 under the note. The Company made payments towards the principal and interest of the note of $23,000 from
October 1 to November 30, 2021. There was an interest expense of $2,146 from October 1 to November 30, 2021. The Company paid $996,554
to settle the note on November 30, 2021. This note was fully satisfied and retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for an Economic Injury
Disaster Loan (“EIDL”) note with a 3.75% interest rate and a maturity date of April 19, 2040. As of October 1, 2021, the
note’s principal balance was $500,000 and had $12,501 in accrued interest. The Company made payments towards interest of the note
of $4,874 from October 1 to November 30, 2021. There was an interest expense of $5,211 on this note from October 1 to November 30, 2021.
The Company paid $512,838 to settle the note on November 30, 2021. This note was fully satisfied and retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.495% and a maturity date of September 12, 2024. As of October 1, 2021, the note’s principal balance
was $258,815, had a carrying value of $220,657, and had accrued interest and late fees of $4,897. The note was secured by assets of Empire.
The Company made payments towards the principal and interest of the note of $6,995 from October 1 to November 30, 2021. There was amortization
of debt discount on the note of $38,158 from October 1 to November 30, 2021. The Company paid $234,914 to settle the note on November
30, 2021. The Company realized a gain on the settlement of this note of $23,901 on November 30, 2021. This note was fully satisfied and
retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.015% and a maturity date of November 5, 2023. As of October 1, 2021, the note’s principal balance
was $213,080, had a carrying value of $188,812, and had accrued interest and penalties of $4,186. The note was secured by assets of Empire.
The Company made payments towards the principal and interest of the note of $7,610 from October 1 to November 30, 2021. There was amortization
of debt discount on the note of $24,898 from October 1 to November 30, 2021. The Company paid $195,896 to settle the note on November
30, 2021. The Company realized a gain on the settlement of this note of $17,184 on November 30, 2021. This note was fully satisfied and
retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a Paycheck Protection
Program (“PPP”) note with a 1% interest rate and a maturity date of March 16, 2023. As of October 1, 2021, the note’s
principal balance was $543,000 in principal and had $2,902 in accrued interest. The note was secured by assets of Empire. The note accrued
interest of $1,012 from October 1 to December 7, 2021. On December 7, 2021, the Small Business Administration forgave the Company’s
Paycheck Protection Program loan in the principal amount of $543,275 and accrued interest of $3,915, resulting in gain on forgiveness
of debt of $547,190. This note was fully satisfied and retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.015% and a maturity date of June 21, 2024. As of October 1, 2021, the note’s principal balance
was $493,000, had a carrying value of $431,201, and had accrued interest and penalties of $7,896. The note was secured by assets of Empire.
The Company made payments towards the principal and interest of the note of $14,500 from October 1 to November 30, 2021. There was amortization
of debt discount on the note of $61,799 from October 1 to November 30, 2021. The Company paid $460,453 to settle the note on November
30, 2021. The Company realized a gain on the settlement of this note of $32,547 on November 30, 2021. This note was fully satisfied and
retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.015% with a maturity date of June 21, 2024. As of October 1, 2021, the note’s principal balance
was $196,875, had carrying value of $172,893, and had accrued interest and penalties of $844. The note was secured by assets of Empire.
The Company made payments towards the principal and interest of the note of $5,625 from October 1 to November 30, 2021. There was amortization
of debt discount on the note of $23,982 from October 1 to November 30, 2021. The Company paid $186,087 to settle the note on November
30, 2021. The Company realized a gain on the settlement of this note of $10,788 on November 30, 2021. This note was fully satisfied and
retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.015% and a maturity date of August 23, 2024. As of October 1, 2021, the note’s principal balance
was $257,400, had a carrying value of $223,036, and had accrued interest and penalties of $358. The note was secured by assets of Empire.
The Company made payments towards the principal and interest of the note of $7,150 from October 1 to November 30, 2021. There was amortization
of debt discount on the note of $34,364 from October 1 to November 30, 2021. The Company paid $239,608 to settle the note on November
30, 2021. The Company realized a gain on the settlement of this note of $17,792 on November 30, 2021. This note was fully satisfied and
retired as of December 31, 2021.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred a liability for a secured promissory
note with an interest rate of 10.015% and a maturity date of September 7, 2024. As of October 1, 2021, the note had a principal balance
of $154,980, carrying value of $135,420, and accrued interest and penalties of $215. The note was secured by assets of Empire. There
was amortization of debt discount on the note of $19,560 from October 1 to November 30, 2021. The Company paid $135,523 to settle the
note on November 30, 2021. The Company realized a gain on the settlement of this note of $19,457 on November 30, 2021. This note was
fully satisfied and retired as of December 31, 2021.
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $459,250.88
judgement entered against the Company (See Note
12 – Commitments and Contingencies). Under
the terms of the Resolution Agreement, which the Company has classified as a non-convertible note, the Company was required to make a
$25,000 initial payment by September 30, 2021 and is required to make $15,000 monthly payments from October 2021 to January 2023 with
a final $10,000 payment due in February 2023. There was amortization of the debt discount of $10,297
and
$5,978
during
the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company made $165,000
and
$70,000
in
payments, respectively towards the Resolution Agreement. As of December 31, 2022 and 2021, the Resolution Agreement had a balance of
$38,284
and
$192,987,
net an unamortized debt discount of $1,716
and
$12,013,
respectively.
On
January 24, 2022, the Company settled a non-convertible note in the principal amount of $55,000 with accrued interest and penalties of
$358,420 for a cash payment of $250,000. The Company realized a gain on settlement of debt of debt of $163,420. This was accounted for
as a debt extinguishment. This note was fully satisfied and retired as of December 31, 2022.
On
April 11, 2022, the Company entered into a vehicle financing agreement with GM Financial for the purchase of a vehicle for use by the
Company’s Chief Executive Officer in the principal amount of $74,186. GM Financial financed $65,000 of the purchase price of the
vehicle and the Company was required to make a $10,000 down payment. There was a $2,400 rebate applied to the purchase price. The Company
is required to make 60 monthly payments of $1,236. During the year ended December 31, 2022, the Company made $6,182 in payments towards
the financing agreement. There was amortization of debt discount of $1,296 during the year ended December 31, 2022. As of December 31,
2022, the financing agreement had a balance of $60,114, net an unamortized debt discount of $7,890.
On
April 21, 2022, the Company entered into a secured promissory note in the principal amount of $964,470 for the financing and installation
of a piece of equipment in the amount $750,000. The Company is required to make monthly payments in the amount $6,665 through October
2022 and monthly payments of $19,260 until October 2026. The note bears an interest rate of 10.6%, is secured by certain assets of the
Company, and matures on October 21, 2026. During the year ended December 31, 2022, the Company made $46,655 in payments towards the note.
There was amortization of debt discount of $34,440 during the year ended December 31, 2022. As of December 31, 2022, the note had a balance
of $732,550 net an unamortized debt discount of $180,030.
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 $600,000, bears an interest rate of 6.5%, and matures on September 1, 2032. The Company is required to make monthly payments of $4,476
until September 1, 2032, when the remaining principal and accrued interest becomes due. The Company made principal and interest payments
of $4,046 and $9,382, respectively, during the year ended December 31, 2022. As of December 31, 2022, the note had a principal balance
of $595,954 and accrued interest of $3,184.
On
September 1, 2022, the Company entered into an additional Deed of Trust note for the purchase of land and buildings. The note has a principal
amount of $600,000, bears an interest rate of 6.5%, and matures on September 1, 2032. The Company is required to make monthly payments
of $4,476 until September 1, 2032, when the remaining principal and accrued interest becomes due. The Company made principal and interest
payments of $4,046 and $9,382, respectively, during the year ended December 31, 2022. As of December 31, 2022, the note had a principal
balance of $595,954 and accrued interest of $3,184.
On
September 14, 2022, the Company entered into a secured promissory note in the principal amount of $2,980,692 for a purchase price of
$2,505,000. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount $82,797
through September 2025. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on September
14, 2025. There was amortization of debt discount of $47,411 during the year ended December 31, 2022. There were payments of $165,594
towards the note during the year ended December 31, 2022. As of December 31, 2022, the note had a balance of $2,386,817 net an unamortized
debt discount of $428,281.
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,539,630 for a purchase price of $1,078,502.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,410 through
March 2023 and then monthly payments in the amount of $20,950 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $6,618 during the year ended
December 31, 2022. As of December 31, 2022, the note had a balance of $1,085,120 net an unamortized debt discount of $454,510.
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,560,090 for a purchase price of $1,092,910.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,630 through
March 2023 and then monthly payments in the amount of $21,225 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $6,867 during the year ended
December 31, 2022. As of December 31, 2022, the note had a balance of $1,099,614 net an unamortized debt discount of $460,476.
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,597,860 for a purchase price of $1,119,334.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,860 through
March 2023 and then monthly payments in the amount of $21,740 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $6,867 during the year ended
December 31, 2022. As of December 31, 2022, the note had a balance of $1,126,201 net an unamortized debt discount of $471,659.
On
December 15, 2022, the Company entered into a secured promissory note in the principal amount of $1,557,435 for a purchase price of $1,093,380.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,585 through
March 2023 and then monthly payments in the amount of $21,190 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 15, 2029. There was amortization of debt discount of $3,254 during the year ended
December 31, 2022. As of December 31, 2022, the note had a balance of $1,096,634 net an unamortized debt discount of $460,801.
The
following table details the current and long-term principal due under non-convertible notes as of December 31, 2022.
SCHEDULE
OF CURRENT AND LONG TERM PRINCIPAL DUE UNDER NONCONVERTIBLE NOTE
| |
Principal
(Current) | | |
Principal
(Long Term) | |
GM
Financial (Issued April 11, 2022) | |
$ | 18,546 | | |
$ | 49,457 | |
Non-Convertible
Note (Issued March 8, 2019) | |
| 5,000 | | |
| - | |
Sheppard
Mullin Resolution Agreement (Issued September 23, 2021) | |
| 40,000 | | |
| - | |
Deed
of Trust Note (Issued September 1, 2022) | |
| 53,712 | | |
| 542,242 | |
Deed
of Trust Note (Issued September 1, 2022) | |
| 53,712 | | |
| 542,242 | |
Equipment
Finance Note (Issued April 21, 2022) | |
| 231,120 | | |
| 681,460 | |
Equipment
Finance Note (Issued September 14, 2022) | |
| 993,564 | | |
| 1,821,534 | |
Equipment
Finance Note (Issued November 28, 2022) | |
| 230,320 | | |
| 1,309,310 | |
Equipment
Finance Note (Issued November 28, 2022) | |
| 233,510 | | |
| 1,326,580 | |
Equipment
Finance Note (Issued November 28, 2022) | |
| 239,120 | | |
| 1,358,740 | |
Equipment
Finance Note (Issued December 15, 2022) | |
| 222,465 | | |
| 1,334,970 | |
Debt
Discount | |
| (500,250 | ) | |
| (1,965,113 | ) |
Total
Principal of Non-Convertible Notes | |
$ | 1,820,819 | | |
$ | 7,001,422 | |
Total
principal payments due on non-convertible notes 2023 through 2027 and thereafter is as follows:
SCHEDULE OF PRINCIPAL PAYMENTS DUE ON NON-CONVERTIBLE NOTES
Year
ended December 31, | |
| |
2023 | |
$ | 2,321,069 | |
2024 | |
| 2,368,205 | |
2025 | |
| 2,202,611 | |
2026 | |
| 1,336,121 | |
2027 | |
| 1,327,466 | |
Thereafter | |
| 1,732,133 | |
NOTE
10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As
of December 31, 2022 and 2021, the Company owed accounts payable and accrued expenses of $5,035,330 and $2,773,894, respectively. These
are primarily comprised of payments to vendors, accrued interest on debt, and accrued legal bills.
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| |
December
31, 2022 | | |
December
31, 2021 | |
Accounts
Payable | |
$ | 1,548,847 | | |
$ | 623,557 | |
Credit
Cards | |
| 206,669 | | |
| 126,063 | |
Accrued
Interest | |
| 1,708,965 | | |
| 1,880,066 | |
Accrued
Expenses | |
| 1,570,849 | | |
| 144,208 | |
Total
Accounts Payable and Accrued Expenses | |
$ | 5,035,330 | | |
$ | 2,773,894 | |
NOTE
11 – 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. As of December 31, 2022 and 2021, the Company owed payroll tax liabilities, including penalties,
of $3,946,411 and $4,001,470, respectively, to federal and state taxing authorities. The actual liability may be higher or lower due
to interest or penalties assessed by federal and state taxing authorities.
NOTE
12 – 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 $487,390.73 of outstanding legal fees to Sheppard Mullin.
Sheppard Mullin was awarded $459,251 in unpaid legal fees, disbursements and interest on June 25, 2021. A judgement confirming the arbitration
award was entered on September 8, 2021 in the Federal District Court located in Denver, Colorado.
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $459,250.88
judgement entered against the Company. Under the terms of the Resolution Agreement, the Company was required to make a $25,000 initial
payment by September 30, 2021 and is required to make $15,000 monthly payments from October 2021 to January 2023 with a final $10,000
payment due in February 2023. The Company has made all its required payments under the Resolution Agreement.
Virginia
DEQ Consent Order
On
June 30, 2021, the Company entered into a Consent Order with the Virginia State Water Control Board. Under the Consent Order, the Company
is required to pay a civil penalty of $90,000, improve its internal control plans regarding recycled and waste materials, remediate certain
environmental concerns on the properties it leases, among other requirements. The Company believes it is appropriate to recognize an
environmental remediation liability as a regulatory claim that was asserted in the Notices of Violations issued to the Company in November
2019, for which the June 2021 Consent Order rectifies.
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred $71,017 in environmental remediation
liabilities, of which $15,017 was a fair estimate of the cost to remediate the properties it leases and a balance of $56,000 for the
civil penalty as of the acquisition date. The Company paid $34,983 towards the remediation of the properties and $42,000 towards the
civil penalty from October 1, 2021 to December 31, 2021. The Company had $22,207 in environmental remediation liabilities as of December
31, 2021, of which $14,000 is the remaining civil penalty and $8,207 is the estimated cost to remediate the properties in accordance
with the Consent Order. The Company is committed to improving its processes and controls to ensure its operations have minimal environmental
impact with the goal of minimizing the number of comments and citations received by the Department of Environmental Quality going forward.
As of December 31, 2022, the environmental remediation liabilities were fully satisfied.
Rother
Investments’ Petition
On
October 28, 2020, Rother Investments, LLC (“Rother Investments”) filed a complaint in the District Court of 419th Judicial
District, Travis County, Texas against the Company, alleging the Company’s default under a certain promissory note (the “Rother
Investments Note”) in payment of the outstanding principal amount and interest under the Note, as described in the complaint. Rother
Investments seeks to collect the amount of $124,750 as of the date of the complaint with late fees continuing to accrue on a daily basis,
monetary relief of over $100,000 but not more than $200,000 pursuant to Tex. R. Civ. P. 47(c)(3), court’s costs and attorney’s
fees, pre-judgment and post-judgment interest, and such other relief as the court deems appropriate. On May 19, 2021, Rother Investments,
LLC received a default judgment against the Company in the amount of $144,950. On June 17, 2021, Greenwave filed a motion to set aside
default and motion for new trial asserting it was improperly served. On July 20, 2021, the court granted the Company’s motion finding
and ordered a new trial of the matter. On December 1, 2021, the Rother Investment Note and the complaint were settled for payment of
$100,000. The complaint was dismissed on December 3, 2021.
Power
Up Lending Group, Ltd. Complaint
As
disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on April 16, 2021, on October 11, 2019, Power Up Lending
Group, Ltd. (“Power Up”) filed a complaint against the Company and Isaac Dietrich, a former officer and director of the Company,
in the Supreme Court of the State of New York, County of Nassau. The complaint alleged, among other things, (i) the occurrence of events
of default in certain notes (the “Power Up Notes”) issued by the Company to Power Up, (ii) misrepresentations by the Company
including, but not limited to, with respect to the Company’s obligation to timely file its required reports with the SEC and (iii)
lost profits as a result of the Company’s failure to convert the Power Up Notes in accordance with the terms thereof.
On
April 30, 2021, the Company entered into a settlement agreement (the “Settlement”) with PowerUp by accepting an offer communicated
to the Company via electronic mail. In accordance with the terms of the Settlement, PowerUp, the judgment creditor of a judgment against
the Company and Isaac Dietrich, the Company’s former Chief Executive Officer and director, in the total amount of $350,551.10 entered
in the Office of the Clerk of the County of Nassau on February 23, 2021 (the “Judgement”), agreed to a settlement and filing
of a satisfaction of judgment in consideration of receipt of the sum of $150,000.00 (the “Settlement Amount”) on April 30,
2021. The Company accepted the aforementioned offer by remitting the Settlement Amount timely and in full. Accordingly, a satisfaction
of Judgment was filed by PowerUp with the Office of the Clerk of the County of Nassau on May 3, 2020.
Trawick’s
Complaint
As
previously reported by the Company in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 16, 2021,
on or about January 25, 2021, Travis Trawick (“Trawick”) filed a complaint (“Trawick’s Lawsuit”) against
the Company and Isaac Dietrich, the Company’s former Chief Information Officer and director, in the Circuit Court for the City
of Virginia Beach, Virginia (the “Court”), asserting the Company’s failure to remit payments under the certain promissory
note, as subsequently amended and modified, and ancillary documents thereto (collectively, the “Note”), and Mr. Dietrich’s
failure to fulfill its obligations, as the guarantor, under the Note.
On
May 4, 2021, Trawick requested that the Clerk of the Court filed for entry an order to dismiss Trawick’s Lawsuit with prejudice.
Iroquois
Master Fund
On
June 30, 2021, the Company received an e-mail containing a demand (the “Demand”) for arbitration (the “Arbitration”)
at American Arbitration Association in Denver, Colorado, by Iroquois Master Fund Ltd. (“Iroquois”) against the Company, Isaac
Dietrich, a former officer and director, and Danny Meeks, the Company’s director, and Empire Services, Inc. (“Empire”).
The Demand alleges breach of contract and various related state law claims against the defendants, and sought, inter alia, specific
performance of the subject warrant, damages in an amount not less than $12 million, equitable relief, and attorney’s fees for the
Company’s alleged failure to reserve more than 150 million shares of common stock that Iroquois is allegedly entitled to in connection
with the exercise of a certain warrant issued by the Company on July 21, 2017, and subsequently purchased by Iroquois from an unrelated
third party. As a result of a legal action commenced by Isaac Dietrich, Danny Meeks, and Empire (See – “Litigation”
below), Iroquois informed the American Arbitration Association (the arbitral body overseeing the Arbitration) that it would (i) dismiss
the Counterclaim Defendants from the Arbitration without prejudice, (ii) assert its claims against Isaac Dietrich, Danny Meeks, and Empire
the in the action commended by them, and (iii) proceed with the Arbitration with respect to the Company only.
Litigation
On
July 21, 2021, in response to the Demand, Isaac Dietrich, Danny Meeks, and Empire, filed a complaint (the “Complaint”) against
Iroquois in the United States District Court of the Southern District of New York alleging that the aforementioned plaintiffs were not
parties to the warrant the Demand based on, and as such, the Demand could not have brought against them. Declaratory relief and injunctive
relief were sought in the Complaint. On August 20, 2021, Iroquois submitted an answer with counterclaims stating that Iroquois informed
the American Arbitration Association (the arbitral body overseeing the Arbitration) that it would (i) dismiss the Counterclaim Defendants
from the Arbitration without prejudice, (ii) assert its claims against Isaac Dietrich, Danny Meeks, and Empire the in the action commended
by them, and (iii) proceed with the Arbitration with respect to the Company only. In its answer, Iroquois made allegations substantially
similar to the claims made in the Arbitration, asserted defenses, and requested an award in not less than $12 million against Demand,
Isaac Dietrich, Danny Meeks, and Empire, an entry of an award of a constructive trust against them, and costs and expenses, including
its reasonable attorneys’ fees, incurred in prosecuting said action and the Arbitration.
Settlement
On
September 30, 2021, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Iroquois; Dietrich;
Meeks; and Empire. Pursuant to the Settlement Agreement, in exchange for terminating any duties owed by the Company to Iroquois under
the Warrant, the Company agreed to pay, on its own behalf and on behalf of Dietrich, Meeks, and Empire, one million dollars ($1,000,000)
and issue shares of the Series Z Convertible Preferred Stock, par value $0.001 per share (the “Series Z”), sufficient in
number such that if they are converted into the Company’s common stock, par value $0.001 per share (“Common Stock”)
by Iroquois, such shares of Common Stock will be equal in number to 9.99% of the issued and outstanding shares of Common Stock at the
time of such conversion. Accordingly, on September 30, 2021, 250 Series Z Preferred Shares were issued to the investor (See Note 16
– Stockholders’ Equity). The payment of $1,000,000 was made to Iroquois on October 5, 2021 due to an administrative delay.
NOTE
13 – LEASES
Property
Leases (Operating Leases)
The
Company leases its facilities and certain automobiles under operating leases which expire on various dates through 2025. The Company
determines if an arrangement is a lease at inception and whether it is a finance or operating leases. Right of Use (“ROU”)
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation
to make lease payments from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease
based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining
the present value of lease payments. The ROU asset also includes any fixed lease payments, including in-substance fixed lease payments
and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease term
is determined at lease commencement and includes any non-cancellable period for which the Company has the right to use the underlying
asset, together with any options to extend that the Company is reasonably certain to exercise.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $3,492,531 in ROU assets and $3,650,358 in lease liabilities
for the leasing of scrap metal yards from an entity controlled by the Company’s Chief Executive Officer. Under the terms of the
leases, Empire was required to pay an aggregate of $145,821 per month from January to March 2022. On April 1, 2022, the Company entered
into amendments to the leases for its Kelford and Carrolton yards, increasing the monthly rent payments by an aggregate of $50,000 per
month for use of an automotive shredder and downstream processing system, respectively, being installed on those properties. The Company
is required to pay $199,821 per month in rent for these facilities from April to December 2022 and increasing by 3% on January 1st of
every year thereafter. On September 1, 2022, the Company terminated the lease for its Portsmouth yard on account of the Company purchasing
the land underlying the lease, reducing the lease payment by $11,200 per month. The leases expire on January 1, 2024 and the Company
has two options to extend the leases by 5 years per option. In the event the Company does not exercise the options, the leases will continue
on a month-to-month basis. The Company cannot sublease any of the properties under the lease agreements.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $30,699 in ROU assets and $31,061 in lease liabilities
for an office lease. Under the terms of the lease, Empire is required to pay $1,150 per month and increasing by 3% on April 1st of every
year beginning on April 1, 2022. The lease expires on March 31, 2024 and Empire was required to make a security deposit of $1,150. The
Company does not have an option to extend the lease. The Company cannot sublease the office under the lease agreements.
On
October 11, 2021, Empire entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing
of the Company’s Virginia Beach metal recycling location. Under the terms of the leases, Empire is required to pay $9,677 for the
prorated first month and $15,000 per month for the facilities beginning November 1, 2021 and increasing by 3% on January 1st of every
year thereafter. The leases expire on January 1, 2024 and the Company has two options to extend the leases by 5 years per option. In
the event the Company does not exercise the options, the leases will continue on a month-to-month basis. The Company cannot sublease
any of the properties under the lease agreements.
On
January 24, 2022, the Company entered into leasing agreements for 3,521 square feet of office space commencing upon the completion of
tenant improvements which was expected to be on April 1, 2022 but shall be no later than May 1, 2022 (“Commencement Date”).
Under the terms of the leases, the Company is required to pay $3,668 for the first twelve months of the lease and increasing by approximately
3% every 12 months thereafter until the expiration of the lease. The lease is for a period of five years from the Commencement Date and
the Company was required to make a security deposit of $3,668. The Company does not have an option to extend the lease. The Company cannot
sublease any of the office space under the lease agreement.
Effective
February 1, 2022, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of
Greenwave for the leasing of the Company’s Fairmont metal scrap yard located at 406 Sandy Street, Fairmont, NC 28340. Under the
terms of the lease, the Company is required to pay $8,000 per month for the facility beginning February 1, 2022 and increasing by 3%
on January 1, 2023. The lease expires on January 1, 2024 and the Company has two options to extend the lease by 5 years per option. The
Company also has the option to extend the term of the lease for an additional year for the next 5 years upon the same terms and conditions.
In the event the Company does not exercise the options, the lease will continue on a month-to-month basis. The Company cannot sublease
the property under the lease agreement.
Effective
October 13, 2022, the Company entered into an office space/land lease agreement for the leasing of 900 Broad Street, Suite C, Portsmouth,
VA 23707. Under the terms of the lease, the Company is required to pay $4,300 per month for the facility beginning November 1, 2022
and increasing by 3% on January 1, 2023. The lease expires on December 31, 2027 and the Company has two options to extend the lease by
5 years per option. The Company also has the option to extend the term of the lease for an additional year for the next 5 years upon
the same terms and conditions. In the event the Company does not exercise the options, the lease will continue a month-to-month basis.
The Company cannot sublease the property under the lease agreement.
Automobile
Leases (Operating Leases)
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $26,804 in ROU assets and $18,661 in lease liabilities
for an automobile lease. Under the terms of the lease, Empire is required to pay $750 per month until the lease expires on February 18,
2025 and the Company does not have an option to renew or extend. The Company is responsible for any damage to the automobile under the
terms of the lease.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $34,261 in ROU assets and $27,757 in lease liabilities
for an automobile lease. Under the terms of the lease, Empire is required to pay $650 per month until the lease expires on February 15,
2026 and the Company does not have an option to renew or extend. The Company is responsible for any damage to the automobile under the
terms of the lease.
On April 1, 2021, Empire
entered into a lease agreement for the leasing of certain equipment. Under the terms of the lease, Empire is required to pay $2,700 per
month thereafter for a period of 24 months. The lease expires on March 31, 2023 and the Company does not have an option to renew or extend.
The Company is responsible to any damage to the equipment under the terms of the lease.
On
December 23, 2021, Empire entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, Empire was required
to pay $18,000 for the first month and $1,000 per month thereafter for 60 months. The lease expires on December 23, 2025 and the Company
does not have an option to renew or extend. The Company is responsible to any damage to the automobile under the terms of the lease.
On
July 1, 2022, Empire entered into a lease agreement for the leasing of certain equipment. Under the terms of the lease, Empire was required
to pay $2,930 per month thereafter for a period of 24 months. The lease expires on July 31, 2024 and the Company does not have an option
to renew or extend. The Company is responsible to any damage to the equipment under the terms of the lease.
ROU
assets and liabilities consist of the following:
SCHEDULE
OF ASSETS AND LIABILITIES
| |
December
31, 2022 | | |
December
31, 2021 | |
ROU
assets – related party | |
$ | 2,419,338 | | |
$ | 3,479,895 | |
ROU
assets | |
| 590,608 | | |
| 140,628 | |
Total
ROU assets | |
| 3,009,946 | | |
| 3,620,523 | |
| |
| | | |
| | |
Current
portion of lease liabilities – related party | |
$ | 2,742,140 | | |
$ | 1,427,618 | |
Current
portion of lease liabilities | |
| 232,236 | | |
| 288,108 | |
Long
term lease liabilities – related party, net of current portion | |
| - | | |
| 1,987,752 | |
Long
term lease liabilities, net of current portion | |
| 116,262 | | |
| 43,020 | |
Total
lease liabilities | |
$ | 3,090,638 | | |
$ | 3,746,498 | |
Aggregate
minimum future commitments under non-cancelable operating leases and other obligations at December 31, 2022 were as follows:
SCHEDULE
OF NON CANCELABLE OPERATING LEASES AND OTHER OBLIGATIONS
Year
ended December 31, | |
| |
2023 | |
$ | 2,974,377 | |
2024 | |
| 170,731 | |
2025 | |
| 140,295 | |
2026 | |
| 134,476 | |
2027 | |
| 42,430 | |
Total
Minimum Lease Payments | |
$ | 3,462,309 | |
Less:
Imputed Interest | |
$ | (371,670 | ) |
Present
Value of Lease Payments | |
$ | 3,090,639 | |
Less:
Current Portion | |
$ | (2,974,377 | ) |
Long
Term Portion | |
$ | 116,262 | |
The
Company leases its facilities, automobiles, and offices under operating leases which expire on various dates through 2024. Rent expense
related to these leases is recognized based on the payment amount charged under the lease. Rent expense for the years ended December
31, 2022 and 2021 was $2,619,300 and $497,177, respectively. At December 31, 2022, the leases had a weighted average remaining lease
term of 1.1 years and a weighted average discount rate of 10%.
NOTE
14 – CONVERTIBLE NOTES PAYABLE
On
November 29, 2021, the Company entered into a securities purchase agreement with certain institutional investors (“Investors”).
Pursuant to the securities purchase agreement, the Company sold, and the Investors purchased, approximately $37,714,966, which consisted
of approximately $27,585,450 in cash and $4,762,838 of existing debt of the Company which was exchanged for the notes and warrants issued
in this offering principal amount of senior secured convertible notes and 2,514,331 warrants valued at $36,516,852. The senior notes
were issued with an original issue discount of 6%, bear interest at the rate of 6% per annum, and mature after 6 months, on May 30, 2022.
The senior notes are convertible into shares of the Company’s common stock, par value $0.001 per share at a conversion price per
share of $15.00, subject to adjustment under certain circumstances described in the senior notes. To secure its obligations thereunder
and under the securities purchase agreement, the Company has granted a security interest over substantially all of its assets to the
collateral agent for the benefit of the Investors, pursuant to a pledge and security agreement. Upon the listing of the common stock
on a national exchange and certain other conditions being met, the senior notes issued in this offering will automatically convert into
common stock at the conversion price set forth in the senior notes. The Company paid $2,200,000 and a warrant to purchase 200,000 shares
of common stock valued at $2,904,697 as commission for the offering.
The
maturity date of the senior notes was extended by the Company on May 27, 2022 from May 30, 2022 to November 30, 2022, which was accounted
for as a debt modification. The maturity date of the senior notes may be extended by the holders under other circumstances specified
therein. If the Company is unable to extend the senior notes or elects not to do so, the Company will be required to repay the senior
notes through equity issuances, additional borrowings, cash flows from operations and/or other sources of liquidity. The warrants are
exercisable for five (5) years to purchase an aggregate of 2,514,331 shares of common stock at an exercise price per share of $19.50,
subject to adjustment under certain circumstances described in the warrants.
Upon
the issuance of certain convertible notes, the Company determined that the features associated with the embedded conversion option embedded
in the notes, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number
of shares would be available to settle all potential future conversion transactions. Upon the consummation of a 1:300 reverse split on
February 17, 2022, the Company determined it had a sufficient number of authorized and unissued shares to cover all potential future
conversion transactions and the derivative liabilities were eliminated.
On
July 22, 2022, simultaneously with the listing of the Company’s common stock on Nasdaq, the Company issued 6,896,903 shares of
common stock for the conversion of its senior secured convertible notes in the principal amount of $37,714,966 together with accrued
interest in the amount of $1,470,884. The Company realized a gain on conversion of $2,625,378.
On
September 12, 2022, in exchange for the waiver of liquidated damages in the amount of $2,726,022 due under the Registration Rights Agreement
dated November 29, 2021, by and among the Company and certain of its convertible note and warrant holders party thereto, the Company
reduced the exercise price of warrants to purchase 6,512,773 shares of common stock from $7.52 per share to $5.50 per share, in addition
to issuing additional warrants to purchase 2,726,022 shares of common stock at $5.50 per share. The Company realized a deemed dividend
of $462,556 as result of the repricing of certain warrants. The Company recorded an expense of $7,408,681 for the issuance of new warrants
for the waiver of liquidated damages.
The
maturity dates of the convertible notes outstanding at December 31, 2022 are:
SCHEDULE
OF MATURITY DATES OF CONVERTIBLE NOTES
Maturity
Date | |
| Principal Balance
Due | |
November
30, 2022 | |
$ | - | |
Total
Principal Outstanding | |
$ | - | |
During
the year ended December 31, 2022, there was amortization of debt discount of $31,255,497. As of December 31, 2022 and 2021, the remaining
carrying value of the convertible notes was $0 and $6,459,469, net of unamortized debt discount of $0 and $31,255,497, respectively.
As of December 31, 2022 and 2021, accrued interest payable of $0 and $192,191, respectively, was outstanding on the notes.
NOTE
15 – DERIVATIVE LIABILITIES AND FAIR VALUE MEASUREMENTS
As
of December 31, 2021 the Company did not have sufficient authorized but unissued shares to satisfy the conversion or exercise of its
convertible notes, warrants, preferred shares, and options. As such, the Company recorded a derivative liability for these instruments.
Upon the consummation of a 1:300 reverse stock split on February 17, 2022, the Company rectified this authorized share shortfall and
reclassified the carrying value of its derivative liabilities as of that date to additional paid in capital.
During
the year ended December 31, 2021, upon issuance of convertible debt and warrants, the Company estimated the fair value of the embedded
derivatives using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility
of 110.59% to 138.73%, (3) risk-free interest rate of 0.07% to 1.14%, and (4) expected life of 0.50 to 5.0 years.
On
December 31, 2021, the Company estimated the fair value of the embedded derivatives of $44,024,242 using the Black-Scholes Pricing Model
based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 136.12%, (3) risk-free interest rate of 0.19%
to 1.15%, and (4) expected life of 0.41 to 5.0 years.
On
February 17, 2022, the Company estimated the fair value of the embedded derivatives of $29,759,766 using the Black-Scholes Pricing Model
based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 155.45%, (3) risk-free interest rate of 0.06%
to 1.85%, and (4) expected life of 0.28 to 4.79 years.
The
Company adopted the provisions of ASC 825-10. ASC 825-10 defines fair value as the price that would be received from selling an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal
or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the
asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. ASC 825-10 establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
● |
Level
1 – Quoted prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs
are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the
assets or liabilities. |
|
|
● |
Level
3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
All
items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair
value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed
and is determined based on the lowest level input that is significant to the fair value measurement.
The
Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the Company
believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair
value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are
that of volatility and market price of the underlying common stock of the Company.
As
of December 31, 2022, the Company did not have any derivative instruments that were designated as hedges.
Items
recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following
items as of December 31, 2022 and 2021:
SCHEDULE
OF FAIR VALUE ON A RECURRING BASIS IN THE ACCOMPANYING FINANCIAL STATEMENTS
| |
December
31, 2022 | | |
Quoted
Prices in
Active Markets
for Identical
Assets (Level
1) | | |
Significant Other Observable Inputs (Level
2) | | |
Significant
Unobservable Inputs (Level
3) | |
Derivative
liability | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
December
31, 2021 | | |
Quoted
Prices in
Active Markets
for Identical Assets (Level
1) | | |
Significant Other Observable Inputs (Level
2) | | |
Significant Unobservable Inputs (Level
3) | |
Derivative
liability | |
$ | 44,024,242 | | |
$ | - | | |
$ | - | | |
$ | 44,024,242 | |
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the two years ended
December 31, 2022:
SCHEDULE
OF CHANGES IN FAIR VALUE OF THE COMPANY’S LEVEL 3 FINANCIAL LIABILITIES
Balance,
December 31, 2020 | |
$ | 25,475,514 | |
Transfers
in due to issuance of convertible notes and warrants with embedded conversion and reset provisions | |
| 33,448,287 | |
Transfers
out due to conversions of convertible notes and accrued interest into common shares | |
| (118,778 | ) |
Transfers
out due to exchanges of convertible notes, accrued interest and warrants into Series Y Preferred Shares | |
| (4,834,911 | ) |
Transfers
out due to cash payments made pursuant to settlement agreements | |
| (180,988,150 | ) |
Derivative
liability due to authorized shares shortfall | |
| 171,343,164 | |
Mark
to market to December 31, 2021 | |
| (300,885 | ) |
Balance,
December 31, 2021 | |
$ | 44,024,242 | |
Transfers
out due to elimination of authorized share shortfall (reclassified to additional paid in capital) | |
| (29,759,766 | ) |
Mark
to market to February 17, 2022 | |
| (14,264,476 | ) |
Balance,
December 31, 2022 | |
$ | - | |
| |
| | |
Gain
on change in derivative liabilities for the year ended December 31, 2022 | |
$ | 14,264,476 | |
Fluctuations
in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As
the stock price increases/(decreases) for each of the related derivative instruments, the value to the holder of the instrument generally
increases/(decreases), therefore increasing/(decreasing) the liability on the Company’s balance sheet. Decreases in the conversion
price of the Company’s convertible notes are another driver for the changes in the derivative valuations during each reporting
period. As the conversion price decreases for each of the related derivative instruments, the value to the holder of the instrument (especially
those with full ratchet price protection) generally increases, therefore increasing the liability on the Company’s balance sheet.
Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the
Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s
expected volatility. Increases in expected volatility would generally result in higher fair value measurements. A 10% change in pricing
inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.
In
July 2022, convertible debt in the principal amount of $37,714,966 was converted into shares of common stock.
NOTE
16 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of blank check preferred stock, par value $0.001 per share.
Series
C
On
July 16, 2019, the Company authorized the issuance of 1,000 Series C Preferred Stock, par value $0.001 per share. The 1,000 Series C
preferred shares are convertible into 3,334 shares of common stock upon the Company listing on a national exchange and other conditions.
The Certificate of Designation for the Series C Preferred Stock was filed on July 19, 2019.
As
of December 31, 2022 and 2021, there were 0 and 0 shares of Series C Preferred Stock outstanding, respectively.
On
December 16, 2021, the Company’s former Chief Executive Officer forfeited his 1,000 shares of Series C Preferred Stock for no consideration.
A
Certificate of Elimination of the Series C convertible preferred stock was filed on December 16, 2021.
Series
X
On
November 23, 2020, the Company authorized the issuance of 100 shares of Series X Preferred Stock, par value $0.0001 per share. The Series
X Preferred Stock has a $20,000 stated value and is convertible into shares of common stock at $0.60 per share, subjected to certain
adjustments. In the event the Company issues or sells any securities with an effective price or exercise or conversion price less than
the Conversion Price, the Conversion Price shall be reduced to the sale price or exercise or conversion price of the securities issued
or sold. The Certificate of Designation for the Series X Preferred Stock was filed on November 23, 2020.
From
November 25 to December 23, 2020, the Company issued an aggregate of 16.05 shares of Series X Preferred Stock for aggregate proceeds
of $321,000. Upon each issuance of Series X shares, the conversion price was less than the Company’s stock price. Accordingly,
during the year ended December 31, 2020, the Company recognized an aggregate beneficial conversion feature of $454,200 upon issuance
of the Series X preferred shares with a $454,200 increase in Discount on preferred stock and a corresponding increase in additional paid-in
capital. The preferred stock discount was amortized over 120 days commencing November 25, 2020 (the date of the initial issuance of the
Series X preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote to increase the Company’s
authorized shares. Amortization of the preferred stock discount of $46,448 was recognized as a deemed dividend for the year ended December
31, 2020. As of December 31, 2020, unamortized debt discount on Series X Preferred Stock was $407,752.
From
February 16 to March 10, 2021, the Company issued an aggregate of 10.00 shares of Series X Preferred Stock for aggregate proceeds of
$200,000. Upon each issuance of Series X shares, the conversion price was less than the Company’s stock price. Accordingly, during
the year ended December 31, 2021, the Company recognized an aggregate beneficial conversion feature of $2,852,500 upon issuance of the
Series X preferred shares with a $2,852,500 increase in Discount on preferred stock and a corresponding increase in additional paid-in
capital. The preferred stock discount was amortized over 120 days commencing November 25, 2020 (the date of the initial issuance of the
Series X preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote to increase the Company’s
authorized shares. Amortization of the preferred stock discount of $3,260,252 was recognized as a deemed dividend for the year ended
December 31, 2021. As of December 31, 2021, unamortized debt discount on Series X Preferred Stock was $0.
On
November 30, 2021 26.05 shares of the Series X Preferred Stock were redeemed for $501,463, resulting in a negative deemed dividend of
$3,326,237.
A
Certificate of Elimination of the Series X convertible preferred stock was filed on December 10, 2021.
As
of December 31, 2022 and 2021, there were 0 and 0 shares, respectively, of Series X Preferred Stock outstanding.
Series
Y
On
December 30, 2020, the Company authorized the issuance of 1,000 shares of Series Y Preferred Stock, par value $0.001 per share. The Series
Y Preferred Stock has a $20,000 stated value and is convertible into shares of common stock at $0.60 per share, subjected to certain
adjustments. In the event the Company issues or sells any securities with an effective price or exercise or conversion price less than
the Conversion Price, the Conversion Price shall be reduced to the sale price or exercise or conversion price of the securities issued
or sold. The Certificate of Designation for the Series Y Preferred Stock was filed on December 30, 2020.
From
December 23 to December 30, 2020, the Company issued 654.781794 shares of Series Y Preferred Stock, having a stated value of $13,095,636,
in exchange for convertible notes payable of $5,775,767 (net of debt discount of $133,608), accrued interest of $3,625,237, and 14,765,624,721
warrants. The exchanges resulted in a reduction of derivative liabilities related to the convertible notes and accrued interest of $92,934,419,
a reduction of derivative liabilities related to the warrants of $72,892,563, and a net gain on settlement of $162,132,350. Included
in the foregoing amounts is 3.20716 shares of Series Y Preferred Stock, having a stated value of $64,143, issued to the Company’s
Chief Financial Officer, in exchange for convertible notes of $3,172 (net of debt discount of $60,971), resulting in a loss on settlement
of $60,971. Upon each issuance of Series Y shares, the conversion price was less than the Company’s stock price. Accordingly, during
the year ended December 31, 2020, the Company recognized an aggregate beneficial conversion feature of $21,594,115 upon issuance of the
Series Y preferred shares with a $21,594,115 increase in Discount on preferred stock and a corresponding increase in additional paid-in
capital. The preferred stock discount was amortized over 120 days commencing December 23, 2020 (the date of the initial issuance of the
Series Y preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote to increase the Company’s
authorized shares. Amortization of the preferred stock discount of $1,028,091 was recognized as a deemed dividend for the year ended
December 31, 2020. As of December 31, 2020, unamortized debt discount on Series Y Preferred Stock was $20,566,024.
From
January 7 to March 23, 2021, the Company issued 4.82388 shares of Series Y Preferred Stock, having a stated value of $96,478, in exchange
for convertible notes payable of $38,500, accrued interest of $77,205, and 437,500 warrants. The exchanges resulted in a reduction of
derivative liabilities related to the convertible notes and accrued interest of $2,502,223, a reduction of derivative liabilities related
to the warrants of $1,396,283, and a net gain on settlement of $3,917,734. On May 1, the Company issued 60.91 shares of Series Y Preferred
Stock, having a stated value of $1,218,200, in exchange for a convertible note payable of $33,000 and accrued interest of $1,185,200.
The exchange resulted in a reduction of derivative liabilities related to the convertible notes and accrued interest of $936,405, and
a net gain on settlement of $936,405. Upon each issuance of Series Y shares, the conversion price was less than the Company’s stock
price. Accordingly, during the year ended December 31, 2021, the Company recognized an aggregate beneficial conversion feature of $10,972,647
upon issuance of the Series Y preferred shares with a $10,972,647 increase in Discount on preferred stock and a corresponding increase
in additional paid-in capital. The preferred stock discount was amortized over 120 days commencing December 23, 2020 (the date of the
initial issuance of the Series Y preferred shares), which is the maximum amount of time the Company had to conduct a stockholder vote
to increase the Company’s authorized shares. Amortization of the preferred stock discount of $31,538,671 was recognized as a deemed
dividend for the year ended December 31, 2021. As of December 31, 2021, unamortized debt discount on Series Y Preferred Stock was $0.
On
November 30, 2021, the Series Y Preferred Stock were redeemed for $11,095,941, resulting in a negative deemed dividend of $35,881,134.
A
Certificate of Elimination of the Series Y convertible preferred stock was filed on December 10, 2021.
As
of December 31, 2022 and 2021, there were 0 and 0 shares of Series Y Preferred Stock outstanding, respectively.
Series
Z
On
September 30, 2021, the Company authorized the issuance of 500 shares of Series Z Preferred Stock, par value $0.001 per share. The Series
Z Preferred Stock has a $20,000 stated value per share and all 500 Series Z preferred shares, in aggregate, are convertible into 19.98%
of the issued and outstanding common shares of the Company (post conversion). The conversion rate is applicable on a pro rata basis to
each share of Series Z Preferred Stock upon conversion. This anti-dilutive conversion feature is in effect until such time an S-1 Registration
Statement is declared effective by the SEC in conjunction with a NASDAQ listing.
On
September 30, 2021, the Company entered into a Series Z Preferred Stock Issuance Agreement with the Company’s Chief Executive Officer
whereby the Company entered into a non–convertible note payable agreement for $1,000,000 in exchange for: (i) a $1,000,000 cash
payment directly paid to the warrant holder; and (ii) the issuance of 250 Series Z Preferred Shares having a fair value of $6,530,867.
The note bears interest of 8% per annum and is due within three days of the Company’s next closing of equity financing of $3,000,000
or more. The proceeds received were allocated to the debt and equity on a relative fair value basis. Accordingly, debt discount of $867,213
was recognized with a corresponding increase in additional paid-in capital. Since the due date is contingent upon a future event, the
entire debt discount was amortized to interest expense immediately.
On
September 30, 2021, an investor owning warrants to purchase 520,834 common shares at $0.12 per share entered into an agreement to cancel
the aforementioned warrants in exchange for: (i) a cash payment of $1,000,000 received directly from the Chief Executive Officer; and
(ii) 250 Series Z Preferred Shares having a fair value of $6,530,867. The settlement resulted in a reduction in the derivative liability
of $5,750,067, an increase in non-convertible notes payable of $1,000,000, an increase in additional paid-in capital of $6,530,867 and
a loss on settlement of debt of $1,780,800.
The
Series Z Preferred Shares are not convertible into shares of common stock until there is sufficient authorized but unissued shares of
common stock to satisfy the conversions, thus a derivative liability was not recorded for the shares of common stock underlying the Series
Z Preferred Shares.
On
September 9, 2022, 117 shares of Series Z Preferred Stock were converted into 475,000 shares of common stock.
On
November 16, 2022, 61 shares of Series Z Preferred Stock were converted into 250,000 shares of common stock.
As
of December 31, 2022 and December 31, 2021, there were 322 and 500 shares of Series Z Preferred Stock issued and outstanding.
Common
Stock
The
Company is authorized to issue 1,200,000,000 shares of common stock, par value $0.001 per share.
During
the year ended December 31, 2021, the Company issued 14,828 shares of its common stock, having a fair value of $133,002, upon the conversion
of convertible notes with a principal amount of $13,345, which resulted in the reduction of $118,778 of derivative liabilities and a
loss on conversion of $880.
During
the year ended December 31, 2021, the Company issued 3,355 shares of the Company’s common stock previously recorded as to be issued
as of December 31, 2020.
During
the year ended December 31, 2021, an investor owning 4,950 shares of the Company’s common stock and warrants to purchase 3,238,542
common shares at $0.12 per share entered into an agreement to cancel the aforementioned common shares and warrants in exchange for a
cash payment of $11,000 by the Company. Accordingly, the cancelation agreement resulted in a reduction in common stock of $5 for the
par value of the common shares, a reduction in additional paid-in capital of $10,995, and a reduction in the derivative liability of
$74,134,327 and a gain on settlement of $74,134,327.
During
the year ended December 31, 2021, the Company awarded an aggregate of 7,252 fully-vested shares of common stock, having a fair value
of $166,855, to the Chief Executive Officer for services rendered.
During
the year ended December 31, 2021, the Company issued 1,650,000 shares of common stock, having a fair value of $18,414,000 for the acquisition
of Empire Services, Inc.
During
the year ended December 31, 2021, the Company retired 3,012,746 shares to be issued for no consideration, returning the $3,013 for the
par value of the common shares to additional paid in capital.
During
the year ended December 31, 2022, the Company issued 8,500 shares of the Company’s common stock previously recorded as to be issued
as of December 31, 2021.
During
the year ended December 31, 2022, the Company issued 6,896,903 shares of the Company’s common stock for the conversion of convertible
debt in the principal amount of $37,714,966, together with accrued interest in the amount
of $1,470,884. The Company recorded $2,625,378 gain on conversion and credited $36,553,575 to additional
paid in capital for this conversion.
During
the year ended December 31, 2022, the Company issued 725,000 shares of common stock for the conversion of 178 shares of Series Z Preferred
Stock. The Company credited additional paid in capital $725 for the par value of the common shares issued in this conversion.
As
of December 31, 2022 and 2021, there were 10,962,319 and 3,331,916 shares, respectively, of common stock issued and outstanding.
Additional
Paid in Capital
During
the year ended December 31, 2022, the Company credited additional paid in capital $21,115,910 for a deemed dividend for the trigger of
certain price protection provisions in certain warrants upon uplisting to Nasdaq and issuance of additional warrants upon uplisting. See Note 17 – Warrants.
During
the year ended December 31, 2022, the Company credited additional paid in capital $7,237,572 for a deemed dividend for the trigger of
certain price protection provisions in its Series Z Preferred Stock upon uplisting to Nasdaq.
During
the year ended December 31, 2022, the Company credited additional paid in capital $7,408,681 for the fair value of warrants issued for
the waiver of certain liquidated damages. See Note 17 – Warrants.
During
the year ended December 31, 2022, the Company credited additional paid in capital $462,556 for a deemed dividend for the voluntary repricing
of certain warrants for the waiver of certain liquidated damages. See Note 17 – Warrants.
NOTE
17 – WARRANTS
During
the year ended December 31, 2021, the Company issued 4.82388 shares of Series Y preferred stock, having a stated value of $96,478, in
exchange for convertible notes payable of $38,500, accrued interest of $77,205, and 437,500 warrants. The exchanges resulted in a reduction
of derivative liabilities related to the convertible notes and accrued interest of $2,502,223, a reduction of derivative liabilities
related to the warrants of $1,396,283, and a net gain on settlement of $3,917,734.
During
the year ended December 31, 2021, an investor owning 4,950 shares of the Company’s common stock and warrants to purchase 3,238,542
common shares at $0.12 per share entered into an agreement to cancel the aforementioned common shares and warrants in exchange for a
cash payment of $11,000 by the Company. The cancelation agreement resulted in a reduction in common stock of $1,485 for the par value
of the common shares, a reduction in additional paid-in capital of $9,515, and a reduction in the derivative liability of $74,134,327
and a gain on settlement of debt of $74,134,327.
During
the year ended December 31, 2021, an investor owning warrants to purchase 4,166,667 common shares at $0.12 per share entered into an
agreement to cancel the aforementioned common shares and warrants in exchange for a cash payment of $15,000 by the Company. Accordingly,
the cancelation agreement resulted in a reduction in the derivative liability of $95,380,286 and a gain on settlement of $95,365,286.
During
the year ended December 31, 2021, an investor owning warrants to purchase 520,834 common shares at $0.12 per share entered into an agreement
to cancel the aforementioned in exchange for: (i) a cash payment of $1,000,000 received directly from the Chief Executive Officer; and
(ii) 250 Series Z Preferred Shares having a fair value of $6,530,868. The settlement resulted in a reduction in the derivative liability
of $5,750,067, offset by a reduction in cash of $1,000,000, an increase in additional paid-in capital of $6,530,867 and a loss on settlement
of debt of $1,780,800.
During
the year ended December 31, 2021, the Company issued warrants to purchase 2,514,351 shares of common stock in a placement of senior secured
debt and warrants.
During
the year ended December 31, 2021, the Company issued warrants to purchase 200,000 shares of common stock as commission for an offering.
On
July 22, 2022, simultaneously with the listing of the Company’s common stock on Nasdaq, the price protection provision in certain
warrants were triggered, resulting in the purchase price per share of warrants to purchase 2,714,351
shares of common stock being reduced from $19.50 per
share to $7.52 per share, in addition to the issuance of additional warrants to purchase
4,316,474 shares of common stock at $7.52 per
share. The Company realized a deemed dividend of $21,115,910 as result of the repricing
of certain warrants and the issuance of additional warrants. The price protection provision in the warrants expired as a result of the
Nasdaq listing.
On
September 12, 2022, in exchange for the waiver of certain liquidated damages due under the Registration Rights Agreement dated November
29, 2022, by and among the Company and certain of its convertible note and warrant holders party thereto, the Company reduced the exercise
price of warrants to purchase 6,572,773 shares of common stock from $7.52 per share to $5.50 per share, in addition to issuing additional
warrants to purchase 2,726,022 shares of common stock at $5.50 per share. The Company realized a deemed dividend of $462,556 as result
of the repricing of certain warrants and a warrant expense for liquidated damages waiver for $7,408,681 for the issuance of new warrants.
A
summary of the warrant activity for the years ended December 31, 2022 and 2021 is as follows:
SCHEDULE
OF WARRANT ACTIVITY
| |
Shares | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding
at December 31, 2020 | |
| 8,403,603 | | |
$ | 0.327 | | |
| 2.04 | | |
$ | 14,804,944 | |
Granted | |
| 2,714,351 | | |
$ | 19.50 | | |
| | | |
| | |
Exercised | |
| - | | |
| - | | |
| | | |
| | |
Expired/Canceled/Exchanged | |
| (8,365,013 | ) | |
$ | 0.15 | | |
| | | |
| | |
Outstanding
at December 31, 2021 | |
| 2,752,941 | | |
$ | 19.77 | | |
| 4.86 | | |
$ | 11,650 | |
Granted | |
| 7,042,525 | | |
$ | 5.50 | | |
| | | |
| | |
Exercised | |
| - | | |
| - | | |
| | | |
| | |
Expired/Canceled/Exchanged | |
| (37,756 | ) | |
$ | 40.00 | | |
| | | |
| | |
Outstanding
at December 31, 2022 | |
| 9,757,710 | | |
$ | 5.61 | | |
| 4.14 | | |
$ | 635 | |
Exercisable
at December 31, 2022 | |
| 9,757,710 | | |
$ | 5.61 | | |
| 4.14 | | |
$ | 635 | |
SCHEDULE
OF STOCK OUTSTANDING AND EXERCISABLE
Exercise
Price | | |
Warrants Outstanding | | |
Weighted
Avg. Remaining
Life | | |
Warrants Exercisable | |
$ | 0.12 | | |
| 834 | | |
| 0.08 | | |
| 834 | |
| 5.50-7.5282 | | |
| 9,756,876 | | |
| 4.14 | | |
| 9,756,876 | |
| | | |
| 9,757,710 | | |
| 4.14 | | |
| 9,757,710 | |
The
aggregate intrinsic value of outstanding stock warrants was $635, based on warrants with an exercise price less than the Company’s
stock price of $0.88 as of December 31, 2022 which would have been received by the warrant holders had those holders exercised the warrants
as of that date.
NOTE
18 – STOCK OPTIONS
Our
stockholders approved our 2014 Equity Incentive Plan in June 2014 (the “2014 Plan”), our 2015 Equity Incentive Plan in December
2015 (the “2015 Plan”), our 2016 Equity Incentive Plan in October 2016 (“2016 Plan”), our 2017 Equity Incentive
Plan in December 2016 (“2017 Plan”), our 2018 Equity Incentive Plan in June 2018 (the “2018 Plan”), our 2021
Equity Incentive Plan in September 2021 (the “2021 Plan” and together with the 2014 Plan, 2015 Plan, 2016 Plan, 2018 Plan,
the “Prior Plans”), and our 2022 Equity Incentive Plan in November 2022 (“2022 Plan” , and together with the
Prior Plans, the “Plans”). The Plans are identical, except for the number of shares reserved for issuance under each. As
of December 31, 2022, the Company had granted an aggregate of 214,367 securities under the Plans since inception, with 567,300 shares
available for future issuances. The Company made no grants under the plans during the years ended December 31, 2022 and 2021.
The
Plans provide for the grant of incentive stock options to our employees and our subsidiaries’ employees, and for the grant of stock
options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees,
including officers, consultants and directors. The Plans also provide that the grant of performance stock awards may be paid out in cash
as determined by the committee administering the 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 years ended December 31, 2022 and 2021.
A
summary of the stock option activity for the years ended December 31, 2022 and 2021 is as follows:
SCHEDULE
OF STOCK OPTION ACTIVITY
| |
Shares | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding
at December 31, 2020 | |
| 92,166 | | |
$ | 148.11 | | |
| 6.49 | | |
$ | - | |
Granted | |
| - | | |
| | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | | |
| | |
Forfeiture/Cancelled | |
| - | | |
| | | |
| | | |
| | |
Outstanding
at December 31, 2021 | |
| 92,166 | | |
$ | 148.11 | | |
| 5.49 | | |
$ | - | |
Granted | |
| - | | |
| | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | | |
| | |
Forfeiture/Cancelled | |
| - | | |
| | | |
| | | |
| | |
Outstanding
at December 31, 2022 | |
| 92,166 | | |
$ | 148.11 | | |
| 4.49 | | |
$ | - | |
Exercisable
at December 31, 2022 | |
| 92,166 | | |
$ | 148.11 | | |
| 4.49 | | |
$ | - | |
SCHEDULE
OF STOCK OUTSTANDING AND EXERCISABLE
Exercise
Price | | |
Number
of Options | | |
Remaining
Life In
Years | | |
Number
of Options Exercisable | |
$ | 23.00-75.00 | | |
| 44,368 | | |
| 5.26 | | |
| 44,368 | |
| 75.01-150.00 | | |
| 6,476 | | |
| 4.26 | | |
| 6,476 | |
| 150.01-225.00 | | |
| 6,079 | | |
| 3.68 | | |
| 6,079 | |
| 225.01-300.00 | | |
| 33,133 | | |
| 3.70 | | |
| 33,133 | |
| 300.01-600.00 | | |
| 2,110 | | |
| 3.60 | | |
| 2,110 | |
| | | |
| 92,166 | | |
| | | |
| 92,166 | |
The
aggregate intrinsic value of outstanding stock options was $0, based on options with an exercise price less than the Company’s
stock price of $0.88 as of December 31, 2022, which would have been received by the option holders had those option holders exercised
their options as of that date.
The
fair value of all options that were vested as of the year ended December 31, 2022 and 2021 was $0 and $0, respectively. Unrecognized
compensation expense of $0 as of December 31, 2022 will be expensed in future periods
NOTE
19 – INCOME TAXES
The
Tax Cuts and Jobs Acts (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax
rate from 35% to 21%. ASC 740, “Income Taxes,” requires that effects of changes in tax rates to be recognized in the period
enacted. Recognizing the late enactment of the Act and complexity of accurately accounting for its impact, the Securities and Exchange
Commission in Staff Accounting Bulletin 118 provides guidance that allows registrants to provide a reasonable estimate of the Act in
their financial statements and adjust the reported impact in a measurement period not to exceed one year.
At
December 31, 2022, the Company has available for income tax purposes of approximately $126,130,172 in
federal $69,144,542 in
Colorado state, and $43,622,328
in Virginia state net operating loss (NOL) carry forward which
begin expiring in the year 2033, that may be used
to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the
benefits will not be realized. Due to possible significant changes in the Company’s ownership, the future use of its existing
net operating losses may be limited. All or portion of the remaining valuation allowance may be reduced in future years based on an
assessment of earnings sufficient to fully utilize these potential tax benefits. During the year ended December 31, 2021, the
Company has increased the valuation allowance from $21,515,047 to
$32,743,435.
The
Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain
tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken
in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination
by tax authorities.
Tax
position that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest
amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating
to open income tax returns that were considered to be uncertain.
Sections
382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), provide for annual limitations on the utilization
of net operating loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382 of the Code.
In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly, by 5-percent
shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest percentage of the shares
of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the preceding three years. In the
event such ownership change occurs, the annual limitation may result in the expiration of the net operating losses prior to full utilization.
The
Company is required to file income tax returns in the U.S. Federal jurisdiction and in California and Colorado. The Company is no longer
subject to income tax examinations by tax authorities for tax years ending before December 31, 2015.
The
Company’s deferred taxes as of December 31, 2022 and 2021 consist of the following:
SCHEDULE
OF DEFERRED TAX ASSETS
| |
2022 | | |
2021 | |
Deferred
Tax Assets/(Liability) Detail | |
| | | |
| | |
Stock
Compensation | |
$ | 52,313 | | |
$ | 52,313 | |
Amortization | |
| 156,072 | | |
| 156,072 | |
Depreciation | |
| 1,180 | | |
| 1,180 | |
Interest | |
| 1,213,854 | | |
| 1,213,854 | |
Change
in Fair Market Value of Derivative Liabilities | |
| 14,264,476 | | |
| 279,582 | |
NOL
Deferred Tax Asset | |
| 17,055,540 | | |
| 19,812,046 | |
Valuation
allowance | |
| (32,743,435 | ) | |
| (21,515,047 | ) |
Total
gross deferred tax assets | |
| - | | |
| - | |
The
Company follows ASC 740-10 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon
the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable
when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the
changes in the asset or liability during each period.
If
available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized,
a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes
in different periods.
SCHEDULE
OF EFFECTIVE RECONCILIATION INCOME TAX
| |
2022 | | |
2021 | |
Expected
tax at statutory rates | |
| 21.00 | % | |
| 21.00 | % |
Nondeductible
Expenses | |
| (11.72 | )% | |
| (11.72 | )% |
State
Income Tax, Net of Federal benefit | |
| 1.51 | % | |
| 1.51 | % |
Current
Year Change in Valuation Allowance | |
| (5.83 | )% | |
| (5.83 | )% |
Prior
Deferred True-Ups | |
| (5.03 | )% | |
| (5.03 | )% |
NOTE
20– RELATED PARTY TRANSACTIONS
Agreements
with Danny Meeks and Affiliates of Danny Meeks
As
of December 31, 2022, the Company leases 12 scrap yard facilities by an entity controlled by the Company’s Chief Executive Officer.
On April 1, 2022, the Company entered into amendments to the leases for its Kelford and Carrolton yards, increasing the monthly rent
payments by an aggregate of $50,000 per month for use of an automotive shredder and downstream processing system, respectively, being
installed on those properties, increasing by 3% on January 1st of every year for the duration of the leases. On September 1, 2022, the
Company terminated the lease for its Portsmouth yard on account of the Company purchasing the land underlying the lease, reducing the
lease payment by $11,200 per month.
During
the twelve months ended December 31, 2022, the Company paid rents of $2,483,217 to an entity controlled by the Company’s Chief
Executive Officer. Additionally, during the twelve months ended December 31, 2022, the Company paid $122,866 in accrued rents owed to
an entity controlled by the Company’s Chief Executive Officer at December 31, 2021. As of December 31, 2022, the Company owed $317,781
in accrued rent to an entity controlled by the Company’s Chief Executive Officer.
During
the year ended December 31, 2022, the Company purchased equipment for $152,500 from an entity controlled by the spouse of the Chief Executive
Officer. During the year ended December 31, 2022, the Company purchased equipment for $20,000 from an entity controlled by the Chief
Executive Officer.
During
the year ended December 31, 2021, the Company’s Chief Executive Officer was reimbursed $224,660 for expenses made on behalf the
Company. Further, during the year ended December 31, 2022 and 2021, the Company’s Chief Executive Officer advanced $0 and $24,647
to the Company and was repaid $0 and $59,103, respectively.
On
September 30, 2021, the Company authorized the issuance of 500 shares of Series Z Preferred Stock, par value $0.001 per share. The Series
Z Preferred Stock has a $20,000 stated value per share and all 500 Series Z preferred shares, in aggregate, are convertible into 19.98%
of the issued and outstanding common shares of the Company (post conversion). The conversion rate is applicable on a pro rata basis to
each share of Series Z Preferred Stock upon conversion. This anti-dilutive conversion feature is in effect until such time an S-1 Registration
Statement is declared effective by the SEC in conjunction with a NASDAQ listing. On September 30, 2021, the Company entered into a Series
Z Preferred Stock Issuance Agreement with the Company’s Chief Executive Officer whereby the Company entered into a non–convertible
note payable agreement for $1,000,000 in exchange for: (i) a $1,000,000 cash payment directly paid to the warrant holder; and (ii) the
issuance of 250 Series Z Preferred Shares having a fair value of $6,530,867. The note bears interest of 8% per annum and is due within
three days of the Company’s next closing of equity financing of $3,000,000 or more. The proceeds received were allocated to the
debt and equity on a relative fair value basis. Accordingly, debt discount of $867,213 was recognized with a corresponding increase in
additional paid-in capital. Since the due date is contingent upon a future event, the entire debt discount was amortized to interest
expense immediately.
We
lease our scrap yard located at 22097 Brewers Neck Blvd., Carrollton, VA 23314, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $55,850 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 1576 Millpond Rd., Elizabeth City, NC 27909, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two one year options to extend at the
Company’s election.
We
lease our scrap yard located at 130 Courtland Rd., Emporia, VA 23847, from DWM Properties, LLC, which is owned by our Chairman and
Chief Executive Officer, for $11,200
per month. The
lease expires on January
1, 2024, with two five year options to extend at the Company’s election.
We
lease our scrap yard located at 623 Highway 903 N., Greenville, NC 27834, from DWM Properties, LLC, which is owned by our Chairman and
Chief Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 8952 Richmond Rd., Toano, VA 23168, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $11,200 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 945 NC 11N, Kelford, NC 27805, from DWM Properties, LLC, which is owned by our Chairman and Chief Executive
Officer, for $39,293 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s election.
We
lease our scrap yard located at 1100 E Princess Anne Rd, Norfolk, VA 23504, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $16,391 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 277 Suburban Drive, Suffolk, VA 23434, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $15,450 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 9922 Hwy 17 S., Vanceboro, NC 28586, from DWM Properties, LLC, which is owned by our Chairman and Chief
Executive Officer, for $8,742 per month. The lease expires on January 1, 2024, with two five year options to extend at the Company’s
election.
We
lease our scrap yard located at 1040 Oceana Blvd, Virginia Beach, VA 23454, from DWM Properties, LLC, which is owned by our Chairman
and Chief Executive Officer, for $15,407 per month. The lease expires on January 1, 2024, with two five year options to extend at the
Company’s election.
We
lease our scrap yard located at 406 Sandy Street, Fairmont, NC 28340, from DWM Properties,
LLC, which is owned by our Chairman and Chief Executive Officer, for $8,000 per month. The lease expires on January 1, 2024, with two
five year options to extend at the Company’s election.
NOTE
21– SUBSEQUENT EVENTS
On
January 13, 2023, a shareholder converted 72 shares of Series Z preferred stock into 288,494 shares of common stock.
On
January 20, 2023, the Company’s CEO waived his right, title, and interest to each of the four quarterly bonuses of $250,000 each
due under his employment agreement in 2023.
In January 2023, we leased a property in Chesapeake,
VA.
In April 2023, we are opening a metal recycling facility
in Cleveland, Ohio.