Greenwave Technology Solutions, Inc. 10-K/A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion and other sections of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors.” You should also carefully read “Special Note Regarding Forward-Looking Statements”. Overview We were formed on April 26, 2013 as a technology platform developer under the name MassRoots, Inc. In October 2021, we changed our corporate name from “MassRoots, Inc.” to “Greenwave Technology Solutions, Inc.” 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 our social media business. On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 13 metal recycling facilities and 1 metal processing facility in Virginia, North Carolina, and Ohio. The acquisition was deemed effective October 1, 2021 on the effective date of the Certificate of Merger in Virginia. 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. 21 We operate an automotive shredder at our Kelford, North Carolina location and a second automotive shredder at our Carrollton, Virginia is expected to come online in the second quarter of 2023. Our shredders are designed to produce a denser product and, in concert with advanced separation equipment, more refined recycled ferrous metals, which are more valuable as they require less processing to produce recycled steel products. In totality, this process reduces large metal objects like auto bodies into baseball-sized pieces of shredded recycled metal. The shredded pieces are then placed on a conveyor belt under magnetized drums to separate the ferrous metal from the mixed nonferrous metal and residue, producing consistent and high-quality ferrous scrap metal. The nonferrous metals and other materials then go through a number of additional mechanical systems which separate the nonferrous metal from any residue. The remaining nonferrous metal is further processed to sort the metal by type, grade, and quality prior to being sold as products, such as zorba (mainly aluminum), zurik (mainly stainless steel), and shredded insulated wire (mainly copper and aluminum). One of our main corporate priorities is to open a facility with rail or deep-water port access to enable us to efficiently transport our products to domestic steel mills and overseas foundries. Because this would greatly expand the number of potential buyers of our processed scrap products, we believe opening a facility with port or rail access could result in an increase in both the revenue and profitability of our existing operations. Empire is headquartered in Chesapeake, Virginia and has 144 full-time employees as of March 14, 2023. Competitors We compete with other metal recycling facility operators, such as Schnitzer Steel Industries, and are focused on utilizing technology to create operating efficiencies and competitive advantages over our peers. Results of Operations For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 For the Fiscal Year ended 31-Dec-22 31-Dec-21 $ Change %Change Revenues $ 33,978,425 $ 8,098,036 $ 25,880,389 319.59 % Gross Profit 12,440,853 2,859,554 9,581,299 335.06 % Operating Expenses 23,323,775 5,787,118 17,536,657 303.03 % Loss from Operations (10,882,922 ) (2,927,564 ) (7,955,358 ) 271.74 % Other Income (Expense) (24,160,368 ) 1,295,143 (25,455,511 ) (1,965.46 )% Net Income (Loss) Applicable to Common Stockholders $ (63,859,328 ) $ 2,776,027 $ (66,635,355 ) (2,400.39 )% 22 Revenues For the year ended December 31, 2022, we generated $33,978,425 in revenues, as compared to $8,098,036 for the year ended December 31, 2021, an increase of $25,880,389. This increase was due to the consummation of our acquisition of Empire on October 1, 2021, a robust market for recycled metals, the repurposing and implementation of Greenwave’s technology into Empire’s existing operations, and the opening of additional metal recycling facilities. Cost of revenues Our cost of revenues increased to $21,537,572 for the year ended December 31, 2022 from $5,238,482 during the same period in 2021, an increase of $16,299,090, as a result of the Empire acquisition. Gross pro fit Our gross profit was $12,440,853 during the year ended December 31, 2022 from $2,859,554 during the same period in 2021, an increase of $9,581,299, due to the consummation of the Empire acquisition. Our gross margins increased to 37% during the year ended December 31, 2022 from 35% during the same period in 2021 due to the Company diversifying its customer base to get better prices on its products. Operating Expenses For the years ended December 31, 2022 and 2021, our operating expenses were $23,323,775 and $5,787,118, respectively, an increase of $17,536,657. This increase was mainly attributed to the effectiveness of our acquisition of Empire on October 1, 2021, which significantly expanded our operations, number of employees, and internal systems. There was an increase in payroll and related expenses of $5,449,322 as payroll and related expenses were $6,991,095 for 2022 as compared to $1,541,773 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 increased by $50,398 to $83,993 for 2022 as compared to $33,595 for 2021 as the Company focused its resources on its scrap metal operations. Depreciation and amortization of intangible assets increased by $3,172,623 to $4,061,404 for 2022 from $888,781 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 $3,378,452 in 2022, as compared to $513,928 in 2021, an increase of $2,864,524, due to the Company’s transportation and logistics costs increasing due to the Empire acquisition. Consulting, accounting, and legal expenses increased to $897,891 during the year ended December 31, 2022 from $395,901 during the same period in 2021, an increase of $502,080 due to the fees associated with the Company’s listing on Nasdaq. There was an increase in rent expenses as a result of the Empire acquisition, increasing $2,859,036 from $605,480 during the year ended December 31, 2021 to $3,464,516 during the same period in 2022. There were impairments of goodwill of $2,499,753 during the year ended December 31, 2022, as compared to $0 during the same period in 2021, an increase of $2,499,753. Our other general and administrative expenses increased to $1,946,580 for the year ended December 31, 2022 from $1,789,698 for the year ended December 31, 2021, an increase of $156,882, 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 $23,323,775 during the year ended December 31, 2022 compared to $5,787,118 during the year ended December 31, 2021, an increase of $17,536,657. Loss from Operations Our loss from operations increased $7,955,358 to $10,882,922 during the year ended December 31, 2022, from $2,927,564 during the year ended December 31, 2021. 23 Other Income (Expense) During the year ended December 31, 2022, we incurred other expenses of $24,160,368, as compared to other income of $1,295,143 for the year ended December 31, 2021, a decrease of $25,455,511. This decrease is partially due to a gain of the forgiveness of debt of $0 and $739,710 for the years ended December 31, 2022 and 2021, respectively. There was a gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable of $516,920 and $182,160,381 for the years ended December 31, 2022 and 2021, respectively. Our change in fair value of derivative liability for authorized share deficiency decreased to $0 in fiscal year 2022 from $(171,343,164) during fiscal year 2021. We realized a $2,625,378 gain on the conversion of convertible debentures during fiscal year 2022 as compared to a $(880) loss in fiscal year 2021. In addition, interest expense increased to $(34,079,230) during fiscal year 2022 as compared to $(10,561,789) during fiscal year 2021. There was also a warrant expense for a liquidated damages settlement of $7,408,681 during the year ended December 31, 2022 as compared to $0 during the same period in 2021. Lastly, the there was a gain in the fair value of derivative liabilities of $14,264,476 during fiscal year 2022, as compared to a gain of $300,885 during the prior year. Net (Loss) Income available to common stockholders Our net (loss) income available to shareholders decreased by $66,635,355 to $(63,859,328) during the year ended December 31, 2022, from $2,776,027 in net income during the year ended December 31, 2021. Liquidity and Capital Resources Net cash used in operating activities for the years ended December 31, 2022 and 2021 was $2,609,173 and $2,487,213, respectively. Cash flows used in operations in 2022 were impacted by depreciation of $875,809, amortization of intangible assets of $2,958,500, impairments on property and equipment of $227,186, amortization of right of use assets of $64,095, amortization of right of use assets (related-party) of $2,137,750, impairments on goodwill of $2,499,753, a gain in the fair value of derivative liabilities of $14,264,476, interest and amortization of debt discount of $32,340,565, a gain on the conversion of notes payable of $2,625,378, a gain on the settlement of notes payable and factoring advances of $516,920, a warrant expense for liquidated damages settlement of $7,408,681, an increase in rent due to a related party of $194,916, an increase in accounts receivable of $215,256, a decrease in inventories of $191,356, a decrease in prepaid expenses of $12,838, an increase in security deposits of $3,306, an increase in accounts payable of $1,703,299, an decrease in payroll wages payable of $1,738,665, a decrease in lease liability of $65,030, a decrease in lease liability (related-party) of $1,843,614, and a decrease in environmental remediation liabilities of $22,207. Cash flows used in operations in 2021 were impacted by a loss on derivative liabilities for the authorized share shortfall of $171,343,164, amortization of right of use assets (related-party) of $373,640, amortization of right of use assets of $22,436, impairments of equipment of $388,877, depreciation and amortization of $888,781, loss on conversions of convertible notes payable of $880, expenses of $158,371 paid by a non-convertible noteholder of the Company, decrease of prepaid expenses of $97,132, increases of accounts payable and accrued expenses of $609,683, an increase in contract liability of $25,000, a decrease in operating lease liabilities of $30,544, a decrease in operating lease liabilities (related-party) of $382,815, largely offset by a gain on the settlement of convertible notes and accrued interest of $182,160,381, a gain on forgiveness of debt of $739,710, share-based compensation of $166,855, interest and amortization of debt discount of $10,198,924, change in the value of derivative liabilities of $300,855, increases in inventories of $381,002, increase of security deposits of $2,437, decreases of accrued payroll of $137,415, decrease in environmental remediation liabilities of $48,810, and a net loss of $1,632,421. Net cash used by investing activities was $5,936,027 and $77,666 for the years ended December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, there was cash used in the purchase of equipment of $5,936,027. For the year ended December 31, 2021, there was cash used in the purchase of equipment of $218,693 and cash acquired in the acquisition of the business of $141,027. 24 Net cash provided by financing activities for the year ended December 31, 2022 and 2021 was $6,408,711 and $5,521,687, respectively. During the year ended December 31, 2022, there were proceeds from non-convertible notes of $2,725,000 and proceeds of $6,518,310 from factoring advances, offset by repayments of $220,000 towards non-convertible notes, repayments of $221,500 towards notes, repayments of advances of $12,000 and $2,381,310 towards factoring advances. During the year ended December 31, 2021, there were cash proceeds of $200,000 from the sale of Series X Preferred Stock, proceeds of $27,585,450 from the sale of convertible notes payable, proceeds of $1,465,053 from the sale of non-convertible notes payable, proceeds of $70,452 from advances, proceeds of $122,865 from related-parties, offset by repayments of $2,503,300 of convertible notes payable, repayments of $5,629,455 to non-convertible notes payable, repayments of advances of $4,165,973, payments of $26,000 to settle warrants and stock, redemptions of Series X Preferred Shares of $501,463, and redemptions of Series Y Preferred Shares of $11,095,942. Capital Resources As of December 31, 2022, we had cash on hand of $821,804. 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. Fundraising During the year ended December 31, 2022, the Company received proceeds of $6,518,310 and $2,725,000 from the issuance of factoring advances and non-convertible notes, respectively. Required Capital over the Next Fiscal Year We may need additional capital in the future to continue to execute our business plan. Therefore, we may be dependent upon additional capital in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise additional capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations, covenants and financial ratios that may restrict our ability to operate and grow our business. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The adoption of this update did not have a material impact on the Company’s consolidated financial statements and related disclosures. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company is currently evaluating the adoption of ASU 2020-06 on its consolidated financial statements and related disclosures. 25 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. Critical Accounting Policies Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including 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. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Goodwill: Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied fair value, then an impairment loss is recognized equal to that excess. The Company has adopted the provisions of ASU 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that, under existing GAAP, would not be impaired or have a reduced carrying amount. Furthermore, the ASU removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired. We test our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31. 26 None of the goodwill is deductible for income tax purposes. During the fiscal years ended December 31, 2022 and 2021, the Company recorded $2,499,753 and $0 in impairment expense related to goodwill, respectively. As of December 31, 2022 and 2021, the carrying value of goodwill was $0 and $2,499,753, respectively. Intangible: Intangible assets with finite useful lives consist of tradenames, licenses and customer relationships and are amortized on a straight-line basis over their estimated useful lives, which range from three to ten years. The estimated useful lives associated with finite-lived intangible assets are consistent with the estimated lives of the associated products and may be modified when circumstances warrant. Such assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. During the fiscal years ended December 31, 2022 and 2021, the Company recorded $2,499,753 and $0 in impairment expense related to intangibles and goodwill and $2,958,500 and $739,625 in amortization of intangible assets, respectively. Income Taxes: The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse. The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Greenwave has also experienced impacts of inflation to its operations, mainly the significant increases in the prices of recycled metal, which in turn, has resulted in increases to the Company’s revenue and profit margin. The Company has also experienced increases to its wages and salaries, hauling, and towing expenses caused by inflation, but is taking steps to minimize impacts to the Company’s financial position. Greenwave does not experience material changes to its business due to seasonality. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required by this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements required to be included in this Annual Report appear as indexed in the appendix to this Annual Report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 27