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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from ___________to ____________
Commission
File Number
(f/k/a MassRoots, Inc.)
(Exact name of business as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of May 12, 2022, there were shares of the registrant’s common stock issued and outstanding.
TABLE OF CONTENTS
| -i- |
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and our other filings with SEC.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable law.
| -ii- |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right of use assets, net - related party | ||||||||
| Operating lease right of use assets, net | ||||||||
| Licenses, net | ||||||||
| Customer list, net | ||||||||
| Intellectual property, net | ||||||||
| Goodwill | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and related expenses | ||||||||
| Contract liabilities | ||||||||
| Advances | ||||||||
| Non-convertible notes payable, current portion, net of unamortized debt discount of $ | ||||||||
| Derivative liabilities | ||||||||
| Convertible notes payable, net of unamortized debt discount of $ | ||||||||
| Due to related parties | ||||||||
| Operating lease obligations, current portion - related party | ||||||||
| Operating lease obligations, current portion | ||||||||
| Environmental remediation | ||||||||
| Total current liabilities | ||||||||
| Operating lease obligations, less current portion - related party | ||||||||
| Operating lease obligations, less current portion | ||||||||
| Non-convertible notes payable, net of unamortized debt discount of $ | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 9) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock - shares authorized: | ||||||||
| Preferred stock - Series Z, $ par value, $ | ||||||||
| Common stock, $ par value, and shares authorized; and shares issued and outstanding, respectively | ||||||||
| Common stock to be issued, and shares, respectively | ||||||||
| Additional paid in capital | ||||||||
| Discount on preferred stock | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| Advertising | ||||||||
| Payroll and related expense | ||||||||
| Rent, utilities and property maintenance ($ | ||||||||
| Hauling and equipment maintenance | ||||||||
| Depreciation and amortization expense | ||||||||
| Consulting, accounting and legal | ||||||||
| Other general and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Expense: | ||||||||
| Interest expense and amortization of debt discount | ( | ) | ( | ) | ||||
| Change in derivative liability for authorized shares shortfall | ( | ) | ||||||
| Change in fair value of derivative liabilities | ||||||||
| Gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares | ||||||||
| Gain (loss) on conversion of convertible notes | ( | ) | ||||||
| Total Other Expense | ( | ) | ( | ) | ||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes (Benefit) | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Deemed dividend resulting from amortization of preferred stock discount | ( | ) | ||||||
| Net Loss Available to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Common Share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Common Shares Outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
| Preferred Stock Series Z | Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock previously recorded as to be issued | - | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Elimination of derivative liabilities due to resolution of authorized share shortfall | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(Unaudited)
| Preferred Stock | Common Stock to | Additional | Discount on | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series X | Series Y | Series C | Common Stock | be Issued | Paid | Preferred | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Stock | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of convertible notes | - | - | - | $ | - | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series X preferred shares | - | - | - | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| BCF recongized upon issuance of Series X preferred shares | - | - | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Series Y preferred shares issued in exchange for convertible notes, accrued interest and warrants | - | - | - | - | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| BCF recongized upon issuance of Series Y preferred shares | - | - | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend resulting from amortization of preferred stock discount | - | - | - | - | - | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(FORMERLY MASSROOTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use assets, net - related party | ||||||||
| Amortization of right of use assets, net | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Change in derivative liability for authorized shares shortfall | ||||||||
| Interest and amortization of debt discount | ||||||||
| (Gain) loss on conversion of convertible notes payable | ||||||||
| Gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable and cancelation of common shares in exchange for Series Y and Series Z preferred shares and cash | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Payment of accrued rent due to related party | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Accrued payroll and related expenses | ||||||||
| Environmental remediation | ( | ) | ||||||
| Principal payments made on operating lease liabilities - related party | ( | ) | ||||||
| Principal payments made on operating lease liabilities | ( | ) | ||||||
| Net cash generated by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment - related party | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of Series X preferred shares | ||||||||
| Proceeds from issuance of non-convertible notes payable | ||||||||
| Repayment of a non-convertible note payable | ( | ) | ||||||
| Proceeds from advances | ||||||||
| Repayments of advances | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during period for interest | $ | $ | ||||||
| Cash paid during period for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Series Y preferred shares issued as settlement for convertible notes payable, accrued interest and warrants | $ | $ | ||||||
| Increase in right of use assets and operating lease liabilities | $ | $ | ||||||
| Issuance of common shares previously to be issued | $ | $ | ||||||
| Amortization of discount on preferred stock | $ | $ | ||||||
| Common shares issued upon conversion of convertible notes and accrued interest | $ | $ | ||||||
| Reclassification of derivative liability to additional paid in capital due to resolution of authorized share shortfall | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
GREENWAVE TECHNOLOGY SOLUTIONS, INC.
(formerly MassRoots, Inc.)
Notes to Condensed Consolidated Financial Statements
March 31, 2022 (Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Overview
Greenwave Technology Solutions, Inc. (“Greenwave” or the “Company”) was incorporated in the State of Delaware on April 26, 2013 as a technology platform developer under the name MassRoots, Inc. The Company sold its social media assets in October 2021 and has discontinued all operations related to this business. On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 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 condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Our condensed consolidated financial statements include the accounts of Empire Services, Inc., Empire Staffing, LLC, Liverman Metal Recycling, Inc., our wholly owned subsidiaries. All intercompany transactions were eliminated during consolidation.
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly the Company’s results of operations for the three months ended March 31, 2022 and 2021, its cash flows for the three months ended March 31, 2022 and 2021, and its financial position as of March 31, 2022 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.
Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim unaudited condensed consolidated financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on April 14, 2022 (the “Annual Report”). The December 31, 2021 balance sheet is derived from those statements.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of March 31, 2022, the Company had cash of $
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 its outstanding debt notes are not converted to common stock, 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.
| 6 |
Accordingly, the accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for one year from the date the condensed consolidated financial statements are issued. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, leading to an economic downturn. It has also disrupted the normal operations of many businesses, including ours. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak of COVID-19 and its effects on our business including our financial condition, liquidity, or results of operations at this time. Management is actively monitoring the global situation and its impact on the Company’s financial condition, liquidity, operations, customers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak will have on its results of operations, financial condition, or liquidity for fiscal year 2022.
Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, liquidity, and capital resources, and those of the third parties on which the Company relies in fiscal year 2022.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Greenwave Technology Solutions, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include estimates used in the 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 condensed consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.
The Company follows ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
| 7 |
Cash
For
purposes of the condensed consolidated statements of cash flows, the Company considers highly liquid investments with an original maturity
of three months or less to be cash equivalents. As of March 31, 2022 and December 31, 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 $
Property and Equipment, net
We state property and equipment at cost or, if acquired through a business combination, fair value at the date of acquisition. We calculate depreciation and amortization using the straight-line method over the estimated useful lives of the assets, except for our leasehold improvements, which are depreciated over the shorter of their estimated useful lives or their related lease term. Upon the sale or retirement of assets, the cost and related accumulated depreciation are removed from our accounts and the resulting gain or loss is credited or charged to income. We expense costs for repairs and maintenance when incurred. Property and equipment includes assets recorded under operating leases, see “Note 15 —Leases.” Our property and equipment is pledged as collateral for our Senior Secured Debt, see “Note 10 – Convertible Note Payable.”
Cost of Revenue
The Company’s cost of revenue consists primarily of the costs of purchasing metal from its customers.
Related Party Transactions
Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. See Note 17 – Related Party Transactions.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.
In calculating the right of use asset and lease liability, the Company elected to combine lease and non-lease components. The Company excluded short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. See Note 15 – 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.
| 8 |
Commitments and Contingencies
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. See Note 9 – Commitments and Contingencies.
Revenue Recognition
The Company recognizes revenue when services are realized or realizable and earned, less estimated future doubtful accounts.
The Company’s revenues are accounted for under ASC Topic 606, “Revenue From Contracts With Customers” (“ASC 606”) and generally do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.
In accordance with ASC 606, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company recognizes revenue in accordance with that core principle by applying the following:
| (i) | Identify the contract(s) with a customer; |
| (ii) | Identify the performance obligation in the contract; |
| (iii) | Determine the transaction price; |
| (iv) | Allocate the transaction price to the performance obligations in the contract; and |
| (v) | Recognize revenue when (or as) the Company satisfies a performance obligation. |
The Company primarily generates revenue by purchasing scrap metal from businesses and retail customers, processing it, and selling the ferrous and non-ferrous metals to clients.
The
Company realizes revenue upon the fulfillment of its performance obligations to customers. As of March 31, 2022 and December 31, 2021,
the Company had a contract liability of $
Inventories
Although
we ship the ferrous and non-ferrous metals we purchase to customers multiple times per day, we do maintain inventories. We calculate
the value of the inventories we do carry, which consist of processed and unprocessed scrap metal (ferrous and nonferrous), used and salvaged
vehicles, and supplies, based on the net realizable value or the cost of the inventories, whichever is less. We calculate the value of
the inventory based on the first-in-first-out (FIFO) methodology. We calculate the value of finished products based on their net realizable
value as their cost basis is not readily available. The value of our inventories was $
| 9 |
Advertising
The
Company charges the costs of advertising to expense as incurred. Advertising costs were $
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.
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 condensed consolidated statement of operations from the date of acquisition. Acquisition-related costs are expensed as incurred. See “Note 4— Acquisition of Empire.”
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.”
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When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption using the effective interest method.
Beneficial Conversion Features and Deemed Dividends
The Company records a beneficial conversion feature for preferred stock when, on the date of issuance, the conversion rate is less than the Company’s stock price. The Company also records, when necessary, a contingent beneficial conversion resulting from price protection of the conversion price of preferred stock, based on the change in the intrinsic value of the conversion options embedded in such preferred stock.
The Company records, when necessary, deemed dividends for: (i) warrant price protection, based on the difference between the fair value of the warrants immediately before and after the repricing (inclusive of any full ratchet provisions); (ii) the exchange of preferred shares for convertible notes, based on the amount of the face value of the convertible notes in excess of the carrying value of the preferred shares; (iii) the settlement of warrant provisions, based on the fair value of the common shares issued; and (iv) amortization of discount on preferred stock resulting from recognition of a beneficial conversion feature.
Derivative Financial Instruments
The Company classifies as equity any contracts that: (i) require physical settlement or net-share settlement; or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that: (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company’s freestanding derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and the sale of common shares, and of embedded conversion options within convertible notes. The Company evaluated these derivatives to assess their proper classification in the balance sheet as of March 31, 2022 and December 31, 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. Upon elimination of derivative liabilities an authorized share shortfall, the Company reclassifies the carrying value of the derivative liabilities at the date of the resolution of the authorized share shortfall to additional paid in capital.
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.
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The
Company continuously assesses its potential liability for remediation-related activities and adjusts its environmental-related accruals
as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are
issued. As of March 31, 2022 and December 31, 2021, the Company had accruals reported on the balance sheet as current liabilities
of $ and $
Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site. Additionally, costs for environmental-related activities may not be reasonably estimable and therefore would not be included in our current liabilities.
Management believes these contingent environmental-related liabilities have been resolved.
Long-Lived Assets
The
Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management
at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Intangible assets are stated
at cost and reviewed annually to examine any impairments, usually assuming an estimated useful life of to
Indefinite Lived Intangibles
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.
Goodwill
Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. The Company has adopted the provisions of Accounting Standards Update (“ASU”)_2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that, under existing U.S. GAAP, would not be impaired or have a reduced carrying amount. Furthermore, ASU 2017-04 removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired.
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We test our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. As of March 31, 2022, no such circumstances had occurred. 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.
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.
The Company computes earnings (loss) per common share under ASC Subtopic 260-10, Earnings Per Share. Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable.
The computation of basic and diluted income (loss) per share, for the three months ended March 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 are as follows:
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| Common shares issuable upon conversion of convertible notes | ||||||||
| Options to purchase common shares | ||||||||
| Warrants to purchase common shares | ||||||||
| Common shares issuable upon conversion of preferred stock | ||||||||
| Total potentially dilutive shares | ||||||||
On
February 28, 2022 the Company completed
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Reclassifications
Certain reclassifications have been made to the prior years’ data to conform to the current year presentation. These reclassifications had no effect on reported income (losses).
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 on January 1, 2022 which did not have a material impact on the Company’s financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (ASU 2021-08). which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, as if it had originated the contracts. Prior to ASU 2021-08, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. ASU 2021-08 is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). We are still assessing this standard’s impact on our consolidated financial statements.
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.
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NOTE 4 – ACQUISITION OF EMPIRE
On September 30, 2021, the Company entered into an agreement and plan of merger (the “Merger Agreement”) to acquire Empire Services, Inc. “Empire”, a Virginia Corporation (the “Empire Acquisition”). The Empire Acquisition became effective on October 1, 2021 upon the filings of the certificate or articles of merger with the Delaware Secretary of State and 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)
The Merger Agreement contained 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.
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:
| Assets acquired: | ||||
| Cash | $ | |||
| Deposits | ||||
| Notes receivable – related party | ||||
| Property and equipment, net | ||||
| Right of use and other assets | ||||
| Licenses | ||||
| Intellectual Property | ||||
| Customer Base | ||||
| Goodwill | ||||
| Total assets acquired at fair value | ||||
| Liabilities assumed: | ||||
| Accounts payable | ||||
| Advances and environmental remediation liabilities | ||||
| Note payable | ||||
| Other liabilities | ||||
| Total liabilities assumed | ||||
| Net assets acquired | ||||
| Purchase consideration paid: | ||||
| Common stock | ||||
| Promissory Note | ||||
| Promissory Note | ||||
| Total purchase consideration paid | $ |
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 condensed consolidated results of operations have been prepared as if the acquisition of Empire had occurred as of the beginning of the following period:
| Three Months Ended March 31, 2021 | ||||
| Net Revenues | $ | |||
| Net Income (Loss) Available to Common Shareholders | $ | ( | ) | |
| Net Basic Earnings (Loss) per Share | $ | ( | ) | |
| Net Diluted Earnings (Loss) per Share | $ | ( | ) | |
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 period presented and is not intended to be a projection of future results.
| 15 |
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2022 and December 31, 2021 is summarized as follows:
March 31, 2022 | December 31, 2021 | |||||||
| Equipment | $ | $ | ||||||
| Subtotal | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2022 and 2021 was $
NOTE 6 – ADVANCES, NON-CONVERTIBLE NOTES PAYABLE
During
the three months ended March 31, 2022 and 2021, the Company received aggregate proceeds from non-interest bearing advances of $
Non-Convertible Notes Payable
During
the three months ended March 31, 2022 and 2021, the Company received proceeds from the issuance of non-convertible notes of $
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter Hampton concerning the $
On
January 24, 2022, the Company settled a non-convertible note in the principal amount of $
The following table details the current and long-term principal due under non-convertible notes as of March 31, 2022.
| Principal (Current) | ||||
| Non-Convertible Note | $ | |||
| Sheppard Mullin Resolution Agreement | ||||
| Debt Discount | ( | ) | ||
| Total Principal of Non-Convertible Notes, net | $ | |||
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NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As
of March 31, 2022 and December 31, 2021, the Company owed accounts payable and accrued expenses of $
March 31, 2022 | December 31, 2021 | |||||||
| Accounts Payable | $ | $ | ||||||
| Credit Cards | ||||||||
| Accrued Interest | ||||||||
| Accrued Expenses | ||||||||
| Total Accounts Payable and Accrued Expenses | $ | $ | ||||||
NOTE 8 – ACCRUED PAYROLL AND RELATED EXPENSES
The
Company is delinquent in filing its payroll taxes, primarily related to stock compensation awards in 2016 and 2017, but also including
payroll for 2018, 2019, 2020, and 2021. As of March 31, 2022 and December 31, 2021, the Company owed payroll tax liabilities, including
penalties, of $
NOTE 9 – COMMITMENTS AND CONTINGENCES
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Sheppard Mullin’s Demand for Arbitration
On
December 1, 2020, Sheppard, Mullin, Richter Hampton LLP (“Sheppard Mullin”), the Company’s former securities
counsel, filed a demand for arbitration at JAMS in New York, New York against the Company, alleging the Company’s breach of an
engagement agreement dated January 4, 2018, and a failure of the Company to pay $
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter Hampton concerning the $
| 17 |
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 $
Upon
effectiveness of the Company’s acquisition of Empire on October 1, 2021, the Company incurred $
NOTE 10 – CONVERTIBLE NOTES PAYABLE
On
November 29, 2021, the Company entered into a securities purchase agreement with certain institutional investors (“Investors”)
as purchasers. Pursuant to the securities purchase agreement, the Company sold, and the Investors purchased, approximately $
The
maturity date of the senior notes may be extended by the Company prior to the initial maturity date to November 30, 2022 if no equity
conditions failure is occurring. The maturity date of the senior notes also 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 (
Upon the issuance of certain convertible notes, the Company determined that the features associated with the embedded conversion option embedded in the notes, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
The maturity dates of the convertible notes outstanding at March 31, 2022:
| Maturity Date | Principal Balance Due | |||
| May 30, 2022 | $ | |||
| Total Principal Outstanding | $ | |||
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As
of March 31, 2022 and December 31, 2021, the remaining carrying value of the convertible notes was $
NOTE 11 – 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
On
December 31, 2021, the Company estimated the fair value of the embedded derivatives of $
On
February 17, 2022, the Company estimated the fair value of the embedded derivatives of $
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.
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As of March 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 condensed consolidated financial statements consisted of the following items as of March 31, 2022 and December 31, 2021:
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 | $ | $ | $ | $ | ||||||||||||
March 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 | $ | $ | $ | $ | ||||||||||||
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2022:
| Balance, December 31, 2021 | $ | |||
| Transfers out due to elimination of the authorized share shortfall (reclassified to additional paid in capital) | ( | ) | ||
| Mark to market to February 17, 2022 | ( | ) | ||
| Balance, March 31, 2022 | $ | |||
| Gain on change in derivative liabilities for the three months ended March 31, 2022 | $ |
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.
| 20 |
NOTE 12 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue shares of blank check preferred stock, par value $ per share.
Series Z
On
September 30, 2021, the Company authorized the issuance of shares of Series Z Preferred Stock, par value $ per share. The Series
Z Preferred Stock has a $ stated value per share and all 500 Series Z preferred shares, in aggregate, are convertible into
As of March 31, 2022 and December 31, 2021, there were shares of Series Z Preferred Stock issued and outstanding.
Common Stock
The Company is authorized to issue shares of common stock, par value $ per share.
During the three months ended March 31, 2022, the Company issued shares of the Company’s common stock previously recorded as to be issued as of December 31, 2021.
As of March 31, 2022 and December 31, 2021, there were and shares, respectively, of common stock issued and outstanding.
NOTE 13 – WARRANTS
A summary of the warrant activity for the three months ended March 31, 2022 is as follows:
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Canceled/Exchanged | ||||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
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| Exercise Price | Warrants Outstanding | Weighted Avg. Remaining Life | Warrants Exercisable | ||||||||||
| $ | |||||||||||||
| – | |||||||||||||
The
aggregate intrinsic value of outstanding stock warrants was $
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” and together with the 2014 Plan, 2015 Plan, 2016 Plan, the “Prior Plans”), and our 2021 Equity Incentive Plan in September 2021 (“2021 Plan” , and together with the Prior Plans, the “Plans”). The Prior Plans are identical, except for the number of shares reserved for issuance under each. As of March 31, 2022, the Company had granted an aggregate of securities under the Plans since inception, with shares available for future issuances. The Company made no grants under the pPans during the three months ended March 31, 2022.
The Plans provide for the grant of incentive stock options to our employees and our subsidiaries’ employees, and for the grant of stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. The Prior Plans also provide that the grant of performance stock awards may be paid out in cash as determined by the committee administering the Prior Plans.
Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option pricing model with a volatility figure derived from historical data. The Company accounts for the expected life of options based on the contractual life of the options.
There were no options issued during the three months ended March 31, 2022. There was no options activity during the year ended December 31, 2021.
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| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeiture/Cancelled | ||||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
| Exercise Price | Number of Options | Remaining Life In Years | Number of Options Exercisable | |||||||||
| $- | ||||||||||||
| - | ||||||||||||
| - | ||||||||||||
| - | ||||||||||||
| - | ||||||||||||
The aggregate intrinsic value of outstanding stock options was $, based on options with an exercise price less than the Company’s stock price of $ as of March 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 vested during the three months ended March 31, 2022 and 2021 was $and $, respectively. Unrecognized compensation expense of $ as of March 31, 2022 will be expensed in future periods.
NOTE 15 – 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.
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Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
On
October 11, 2021, Empire entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing
of the Company’s Virginia Beach metal recycling location.
Automobile Leases (Operating Leases)
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $
On
December 23, 2021, Empire entered into a lease agreement for the leasing of an automobile.
On
January 24, 2022,
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.
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ROU assets and liabilities consist of the following:
March 31, 2022 | December 31, 2021 | |||||||
| ROU assets | $ | $ | ||||||
| Current portion of lease liabilities | $ | $ | ||||||
| Long term lease liabilities, net of current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
Aggregate minimum future commitments under non-cancelable operating leases and other obligations at December 31, 2021 were as follows:
| Year ended December 31, | ||||
| 2022 (remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | - | |||
| Total Minimum Lease Payments | $ | |||
| Less: Imputed Interest | $ | ( | ) | |
| Present Value of Lease Payments | $ | |||
| Less: Current Portion | $ | ( | ) | |
| Long Term Portion | $ | |||
The
Company leases its facilities, automobiles, and offices under operating leases which expire on various dates through 2024. Rent expense
related to these leases is recognized based on the payment amount charged under the lease. Rent expense for the three months ended March
31, 2022 and 2021 was $
NOTE 16 – CONCENTRATIONS OF REVENUE
The
Company has a concentration of customers. For the three months ended March 31, 2022, one customer accounted for $
The Company’s sales are concentrated in the Virginia and northeastern North Carolina markets.
NOTE 17 – RELATED PARTY TRANSACTIONS
As
of March 31, 2022, the Company leases 12 scrap yard facilities by an entity controlled by the Company’s Chief Executive Officer.
During the three months ended March 31, 2022, the Company paid rents of $
During
the three months ended March 31, 2022, the Company purchased equipment for $
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NOTE 18 – 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:
| March 31, 2022 | ||||||||||||||
Gross carrying amount | Accumulated amortization | Carrying value | Estimated remaining useful life | |||||||||||
| Intellectual Property | $ | $ | ( | ) | $ | |||||||||
| Customer List | ( | ) | ||||||||||||
| Licenses | ( | ) | ||||||||||||
| Total finite-lived intangibles | ( | ) | ||||||||||||
| Total intangible assets, net | $ | $ | ( | ) | $ | |||||||||
Amortization
expense for intangible assets was $
| Year ended December 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
NOTE 19 – INCOME TAX PROVISIONS
Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is computed on the basis of several factors where applicable. These include the variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, developments in tax controversies, changes in our stock price, changes in our deferred tax assets and liabilities and their underlying valuation, changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. In addition, we record valuation allowances against deferred tax assets when there is uncertainty about our ability to generate future income in relevant jurisdictions.
Our
income tax provision for the three months ended March 31, 2022 was $0. At December 31, 2021, the Company has available for income tax
purposes approximately $
NOTE 20 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date but before the unaudited condensed consolidated financial statements are issued.
On April 18, 2022, the Company appointed Howard Jordan as Chief Financial Officer.
On April 18, 2022, the Company appointed Cheryl Lanthorn and John Wood to its Board of Directors, along with its audit, compensation, and nomination and corporate governance committees.
On April 19, 2022, the Company appointed J. Bryan Plumlee to its Board of Directors, along with its audit, compensation, and nomination and corporate governance committees.
On April 26, 2022, The Company issued shares of common stock recorded as to be issued at March 31, 2022.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes contained in Part I, Item 1 of this Quarterly Report. Please also refer to the note about forward-looking information for information on such statements contained in this Quarterly Report immediately preceding Part I, Item 1.
Overview
We were formed 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 discontinued all operations related to the Company’s social media 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.
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 industrial shredder at our Kelford, North Carolina location. Our shredder is 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 Suffolk, Virginia and employs 89 people as of May 12, 2022.
COVID-19
We are continuing to proactively monitor and assess the COVID-19 global pandemic. The full impact of the COVID-19 pandemic is inherently uncertain. The COVID-19 pandemic has caused us to modify our business practices (including but not limited to curtailing physical contact with customers). We continue to monitor developments of the COVID-19 pandemic and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, patients, and business partners. We have implemented appropriate safety measures, following guidance from the Center for Disease Control and the Occupational Safety and Health Administration. The extent of the impact of the COVID-19 pandemic on our future liquidity and operational performance will depend on certain developments.
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 customers, including large corporations, industrial manufacturers, retail customers, and government organizations.
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Pricing and Customers
Prices for our ferrous and nonferrous products are based on prevailing market rates and are subject to market cycles, worldwide steel demand, government regulations and policy, and supply of products that can be processed into recycled steel. Our main buyer, Sims Metal Management (“Sims”), adjusts the prices they pay for scrap metal products based on market rates usually on a monthly or bi-weekly basis. We are paid for the scrap metal we deliver to Sims on the same business day that we deliver the metal.
Based on any price changes from Sims or our other buyers, we in turn adjust the price for unprocessed scrap we pay customers in order to manage the impact on our operating income and cash flows.
The spread we 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 suppliers are located in the Hampton Roads and northeastern North Carolina markets.
Our supply of scrap metal is influenced by overall health of economic activity in the United States, changes in prices for recycled metal, and, to a lesser extent, seasonal factors such as severe weather conditions, which may prohibit or inhibit scrap metal collection.
For the Three Months Ended March 31, 2022 and 2021
| For the three months ended | ||||||||||||||||
March 31, 2022 | March 31, 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | 9,921,238 | $ | 1,527 | $ | 9,919,711 | 649,621 | % | ||||||||
| Gross Profit | 4,264,258 | 1,230 | 4,263,028 | 346,588 | % | |||||||||||
| Operating Expenses | 4,461,953 | 302,978 | 4,158,975 | 1,373 | % | |||||||||||
| Loss from Operations | (197,695 | ) | (301,748 | ) | (104,053 | ) | (34.48 | )% | ||||||||
| Other Expense | (4,977,781 | ) | (25,753,349 | ) | 20,775,568 | (80.67 | )% | |||||||||
| Net Loss Available to Common Stockholders | $ | (5,175,475 | ) | $ | (47,193,938 | ) | $ | 42,018,463 | (89.03 | )% | ||||||
Revenues
For the three months ended March 31, 2022, we generated $9,921,238 in revenues, as compared to $1,527 during the same period in 2021, an increase of $9,919,711. This increase was due to the consummation of our acquisition of Empire, a robust market for recycled metals, and the repurposing and implementation of Greenwave’s technology into Empire’s existing operations.
Our cost of revenues increased to $5,656,980 for the three months ended March 31, 2022 from $297 during the same period in 2021, an increase of $5,656,683, as a result of the Empire acquisition.
Our gross profit was $4,264,258 during the three months ended March 31, 2022, an increase of $4,263,028 from $1,230 during the same period in 2021 due to the consummation of the Empire acquisition.
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Operating Expenses
For the three months ended March 31, 2022 and 2021, our operating expenses were $4,461,953 and $302,978, respectively, an increase of $4,158,975. This increase was mainly attributed to the closing of our acquisition of Empire, which significantly expanded our operations, number of employees, and internal systems. There was an increase in payroll and related expenses of $1,210,267 as payroll and related expenses were $1,289,800 for the three months ended March 31, 2022 as compared to $79,533 for the same period in 2021, which was the result of an increase in our labor force primarily due to the closing of the Empire acquisition. Advertising expense decreased by $2,323 to $16,230 for the three months ended March 31, 2022 as compared to $18,553 for the same period in 2021 as the Company focused its resources on its scrap metal operations. Depreciation and amortization of intangible assets increased by $873,756 to $873,756 for the three months ended March 31, 2022 from $0 in 2021 as a result of the Company acquiring fixed assets and intangible assets in the Empire acquisition. There were hauling and equipment maintenance costs of $800,438 during the three months ended March 31, 2022, as compared to $0 in 2021, an increase of $800,438, due to the Company’s transportation and logistics costs increasing due to the Empire acquisition. Consulting, accounting, and legal expenses increased to $365,952 during the three months ended March 31, 2022 from $104,620 during the same period in 2021, an increase of $261,332. There was an increase in rent expenses as a result of the Empire acquisition, increasing $871,893 from $3,510 during the three months ended March 31, 2021 to $875,403 during the same period in 2022.
Our other general and administrative expenses increased to $240,374 for the three months ended March 31, 2022 from $96,762 for the same period in 2021, an increase of $143,612, as a result of the Company’s operations expanding from the Empire acquisition.
The increase of these expenditures resulted in our total operating expenses increasing to $4,461,953 during the three months ended March 31, 2022 compared to $302,978 during the three months ended March 31, 2021, an increase of $4,158,975.
Loss from Operations
Our loss from operations decreased by $104,053 to $197,695 during the three months ended March 31, 2022, from $301,478 during the three months ended March 31, 2021 for the reasons discussed above.
Other Expense
During the three months ended March 31, 2022, we incurred other expenses of $4,977,781, as compared to $(25,753,349) for the three months ended March 31, 2021, an increase of $20,755,568. There was a gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable of $163,420 and $3,917,734 for the three months ended March 31, 2022 and 2021, respectively. We did not incur a gain or loss on the elimination of the derivative liability for authorized share deficiency during the three months ended March 31, 2022, whereas we incurred expenses of $(29,453,448) for the derivative liability for authorized share shortfall during the three months ended March 31, 2021. There were no gains or losses on the conversion of convertible notes during the three months ended March 31, 2022, as compared to $880 loss on the conversion of convertible debentures during the three months ended March 31, 2021. In addition, interest expense increased to $(19,405,677) during the three months ended March 31, 2022 as compared to $(570,148) during the three months ended March 31, 2021. Lastly, there were gains in the fair value of derivative liabilities of $14,264,476 and $353,393 during the three months ended March 31, 2022 and 2021, respectively.
Net Loss Available to Common Stockholders
Our net loss available to shareholders decreased by $42,018,463 to $5,175,475 during the three months ended March 31, 2022, from a $47,193,938 loss during the three months ended March 31, 2021 for the reasons discussed above.
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Liquidity and Capital Resources
Net cash generated by operating activities for the three months ended March 31, 2022 was $248,764 as compared to $225,541 used in operating activities for the three months ended March 31, 2021. The cash flows generated by operating activities were driven by a net loss of $5,175,475, amortization of right of use assets (related-party) of $411,349, amortization of right of use assets of $10,490, depreciation and amortization of $873,756, payment of accrued rent to a related party of $122,865, increase of prepaid expenses of $90,522, decreases of accounts payable and accrued expenses of $89,697, a decrease in operating lease liabilities of $4,776, a decrease in operating lease liabilities (related-party) of $421,526, largely offset by a gain on the settlement of convertible notes and accrued interest of $163,420, interest and amortization of debt discount of $19,405,677, change in the value of derivative liabilities of $14,264,476, increases in inventories of $348,073, increase of accrued payroll of $55,530, and a decrease in environmental remediation liabilities of $22,207. Cash flows used in operations for the three months ended March 31, 2021 were impacted primarily from the net loss of $26,055,097, partially offset by non-cash items including derivative liability for authorized share deficiency of $29,453,448, gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable of $3,917,734, interest and amortization of debt discount of $570,148, change in fair value of derivative liabilities of $353,393, gain on conversion of convertible notes payable of $880, as well as an increase in accrued payroll and related expenses of $59,362, a decrease in prepaid expenses of $50,000 and a decrease in accounts payable and accrued expenses of $33,155.
Net cash used in investing activities was $1,121,793 and $0 for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022, there was cash used in the purchase of equipment of $1,121,793, of which $152,500 was paid to a related-party.
Net cash used in financing activities for the three months ended March 31, 2022 was $100,000, as compared to cash generated by financing activities of $224,260 during the three months ended March 31, 2021. During the quarter ended March 31, 2022, the Company utilized $100,000 to settle a non-convertible debt note. During the three months ended March 31, 2021, there were cash proceeds of $200,000 from the sale of Series X Preferred Stock, proceeds of $24,647 from the sale of non-convertible notes payable, proceeds of $2,998 from advances, and repayments of advances of $3,385.
Capital Resources
As of March 31, 2022, we had cash on hand of $1,790,264. We currently have no external sources of liquidity such as arrangements with credit institutions that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
Required Capital over the Next Fiscal Year
The Company is party to senior secured convertible debt in the principal amount of $37,714,966 which matures on May 30, 2022 with an automatic extension until November 30, 2022 for a 6% conversion premium. This senior secured debt is currently convertible into common shares at $15.00 per share and will automatically convert into shares of common stock should Greenwave’s shares of common stock be listed on a national exchange. Greenwave expects this debt will be converted into shares of common stock during fiscal year 2022; however, if the debt is not converted, the Company may have to raise additional capital to fulfill its obligations under these notes.
Contractual Obligations
Our contractual obligations are included in our notes to the condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q. To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.
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Critical Accounting Policies and Estimates
For a discussion of our accounting policies and related items, please see the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a “smaller reporting company” we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon such evaluation, the Company’s CEO (the principal executive officer) and CFO (the principal financial officer) concluded that the Company’s disclosure controls and procedures as of March 31, 2022 were not effective.
Due to identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report. Specifically, the Company’s controls and procedures were ineffective because the Company did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in the Company’s closing process not identifying all required adjustments and disclosures in a timely fashion. The Company expects that it will need to hire accounting personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters. The Company may experience delays in doing so and any such additional employees would require time and training to learn the Company’s business and operating processes and procedures. For the near-term future, until such personnel are in place, this will continue to constitute a material weakness in the Company’s disclosure controls and procedures that could result in material misstatements in the Company’s financial statements not being prevented or detected.
To address the material weaknesses, the Company performed additional analysis and other procedures in an effort to ensure its financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States. Accordingly, management believes that the financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.
The Company’s principal executive officer and principal financial officer do not expect that the Company’s disclosure controls and procedures or its internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
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Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during its most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in Note 9 to the Company’s Condensed Consolidated Financial Statements, the Company is engaged in certain legal matters and there have been no material developments since December 31, 2021 with respect to our legal proceedings, except as described in Note 9. The disclosures set forth in Note 9 relating to certain legal matters are incorporated herein by reference.
ITEM 1A. RISK FACTORS
As a “smaller reporting company,” we are not required to provide the information required by this Item 1A. Please see the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on April 14, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
(b) Exhibit Index
| * | Filed or furnished herewith. |
| + | Attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the U.S. Securities and Exchange Commission. |
| ** | Agreement with management or compensatory plan or arrangement |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GREENWAVE TECHNOLOGY SOLUTIONS, INC. | ||
| Date: May 16, 2022 | By: | /s/ Danny Meeks |
Danny Meeks, Chief Executive Officer (Principal Executive Officer) | ||
| Date: May 16, 2022 | By: | /s/ Howard Jordan |
Howard Jordan, Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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