Greenwave Technology Solutions, Inc. 10-Q

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. 27 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. 28 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. 29 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. 30 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.