Greenwave Technology Solutions, Inc. 10-K

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. 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). Empire is headquartered in Chesapeake, Virginia and has 131 full-time employees as of April 15, 2024. 20 Competitors We compete with other metal recycling facility operators, such as Radius Recycling (f/k/a 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, 2023 Compared to the Year Ended December 31, 2022 For the Fiscal Year ended 31-Dec-23 31-Dec-22 $ Change %Change Revenues $ 35,667,982 $ 33,978,425 $ 1,689,557 4.97 % Gross Profit 14,483,403 12,440,853 2,042,550 16.42 % Operating Expenses 33,998,165 23,323,774 10,674,391 45.77 % Loss from Operations (19,514,762 ) (10,882,92 1) (8,631,841 ) 79.32 % Other Income (Expense) (7,421,228 ) (24,160,368 ) 16,739,140 (69.28 )% Net Income (Loss) Available to Common Stockholders $ (33,597,142 ) $ (63,859,328 ) $ 30,262,186 (47.39 )% Revenues For the year ended December 31, 2023, we generated $35,667,982 in revenues, as compared to $33,978,425 for the year ended December 31, 2022, an increase of $1,689,557. This increase was driven by hauling revenues growing to $10,156,938 for the year ended December 31, 2023 from $338,687 for the year ended December 31, 2022, an increase of $9,818,251 attributable to an increase in the number of clients as well as an increase in the number of trucks operated by the Company. Metal revenues decreased from $33,386,586 for the year ended December 31, 2022 to $25,350,883 for the year ended December 31, 2023, a decrease of $8,035,703 due to a decline in commodity prices. There was other revenue, compromised rental income for the Portsmouth Blvd property, of $132,640 and other income for $27,522 for the year ended December 31, 2023, as compared to $48,813 and $204,339 for the same period in 2022, a decline of $92,990. Cost of revenues Our cost of revenues decreased to $21,184,579 for the year ended December 31, 2023 from $21,537,572 during the same period in 2022, a decline of $352,993 due to lower metal prices, offset by an increase in hauling costs. Hauling costs increased to $4,996,871 for the year ended December 31, 2023 from $77,437 during the same period in 2022, an increase of $4,919,434, due to an increased truck fleet. Metal costs declined from $20,936,102 during the year ended December 31, 2022 to $16,154,529 during the same period in 2022, a decrease of $4,781,573 due to a decline in commodity prices. There was cost of revenue of $33,179 for the year ended December 31, 2023, comprised mostly of sand, compared to $524,033 during the same period in 2022, a decrease of $490,854. Gross pro fit Our gross profit was $14,483,403 during the year ended December 31, 2023 as compared to $12,440,853 during the same period in 2022, an increase of $2,042,550, due to healthier margins in both hauling and scrap metal. Our gross margins increased to 41% during the year ended December 31, 2023 from 37% during the same period in 2022 due to more an emphasis on operational efficiency. Gross profit on hauling grew from $261,250 during the year ended December 31, 2022, a margin of 77.14% to $5,160,067 during the same period in 2023, a margin of 50.80%, an increase of $4,898,817. Gross profit on metal fell to $9,196,354 during the year ended December 31, 2023, or 36.28%, from $12,450,484 during the same period in 2022, or 37.29%, a decline of $3,254,130 21 Operating Expenses For the years ended December 31, 2023 and 2022, our operating expenses were $33,998,165 and $23,323,774, respectively, an increase of $10,674,391. This increase was mainly attributed to the increase in our hauling fleet, which significantly expanded our operations, number of employees, and internal systems, along with a one-time loss on asset charge. There was a decrease in payroll and related expenses of $356,295 as payroll and related expenses were $6,634,800 for 2023 as compared to $6,991,095 for the same period in 2022, which was the result of the Company’s Chief Executive Officer waiving his quarterly bonuses. Advertising expense increased by $330,201 to $414,194 for 2023 as compared to $83,993 for 2022 as the Company focused its resources on its scrap metal operations. Depreciation and amortization of intangible assets increased by $1,753,476 to $5,814,880 for 2023 from $4,061,404 in 2022 as a result of the Company acquiring additional fixed assets. There were hauling and equipment maintenance costs of $2,898,202 in 2023, as compared to $3,378,452 in 2022, a decrease of $480,250, due to the Company recognizing more of these expenses as cost of revenue. Consulting, accounting, and legal expenses increased to $1,713,613 during the year ended December 31, 2023 from $897,981 during the same period in 2022, an increase of $815,632 due to the Company conducting capital raises. There was a loss on asset of $10,048,308 during the year ended December 31, 2023 as compared to $0 during the same period in 2022, an increase of $10,048,308. There was a decrease in rent expenses as a result of new leases and termination of existing leases, declining $362,032 from $3,464,516 during the year ended December 31, 2022 to $3,102,484 during the same period in 2023. There was common stock issued for services of $171,239 during the year ended December 31, 2023 as compared to $0 during the same period in 2022, an increase of $171,239. There were impairments of goodwill of $0 during the year ended December 31, 2023, as compared to $2,499,753 during the same period in 2022, a decrease of $2,499,753. Our other general and administrative expenses increased to $3,200,445 for the year ended December 31, 2023 from $1,946,580 for the year ended December 31, 2022, an increase of $1,253,865, as a result of the Company’s operations expanding. The increase of these expenditures resulted in our total operating expenses increasing to $33,998,165 during the year ended December 31, 2023 compared to $23,323,774 during the year ended December 31, 2022, an increase of $10,674,391. Loss from Operations Our loss from operations increased $8,631,841 to $19,514,762 during the year ended December 31, 2023, from $10,882,921 during the year ended December 31, 2022. Other Income (Expense) During the year ended December 31, 2023, we incurred other expenses of $7,421,228, as compared to $24,160,368 for the year ended December 31, 2022, a decrease of $16,739,140. There was a 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 of $632,540 and $516,920 for the years ended December 31, 2023 and 2022, respectively. We did not realize any gain or loss on the conversion of convertible Notes during the year ended December 31, 2023 while we realized a $2,625,378 gain on the conversion of convertible notes during in the same period in 2022. In addition, interest expense increased to $(8,897,267) during fiscal year 2023 as compared to $(34,079,230) during fiscal year 2022. We did not have a warrant expense for a liquidated damages settlement during the year ended December 31, 2023, while we incurred an expense of $7,408,681 for the same during the year ended December 31, 2022. There was neither a gain nor loss in the fair value of derivative liabilities during the year ended December 31, 2023, as compared to a gain of $14,264,476 during the same period in 2022. There was other gain of $17,572 during the year ended December 31, 2023, as compared to other loss of $(79,231) during the year ended December 31, 2022. There was gain on lease termination of $108,863 during the year ended December 31, 2023 as compared to $0 during the same period in 2022. Lastly, there was a gain on tax credit of $717,064 during the year ended December 31, 2023 as compared to $0 during the same period in 2022. 22 Net Loss available to common stockholders Our net loss available to shareholders decreased by $30,262,186 to $33,597,142 during the year ended December 31, 2023, from $63,859,328 during the year ended December 31, 2022. Liquidity and Capital Resources Net cash used in operating activities for the years ended December 31, 2023 and 2022 was $1,833,310 and $2,609,173, respectively. Cash flows used in operations in 2023 were impacted by depreciation of $2,856,380, amortization of intangible assets of $2,958,500, loss on asset – related party of $9,850,850, loss on assets of $197,458 amortization of right of use assets net of $392,050, amortization of right of use assets-related party net of $1,250,218, interest and amortization of debt discount of $8,897,267, a gain on the settlement of notes payable and factoring advances of $632,540, an increase in due to a related party of $1,824,318, an increase in accounts receivable of $431,155, stock compensation of $171,239, a decrease in inventories of $10,782, a decrease in prepaid expenses of $200,590, an decrease in security deposit of $25,000, gain on deferred revenue of $25,000, gain on lease termination of $108,863 an increase in accounts payable of $856,151 an decrease in payroll wages payable of $614,271, and a decrease in lease liability of $1,619,790. Cash flows used in operations in 2022 were impacted by depreciation of $875,809, amortization of intangible assets of $2,958,500, amortization of right of use assets of $227,185, amortization of right of use assets (related-party) of $2,390,991, 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 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 payroll wages payable of $1,702,145, an decrease in accounts payable of $1,738,665, a decrease in lease liability of $65,030, a decrease in lease liability (related-party) of $2,369,038, gain on settlement of convertible and non-convertible notes payable and accrued interest for cash for $2,625,378, and a decrease in environmental remediation liabilities of $22,207. Net cash used by investing activities was $1,678,176 and $5,936,027 for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, there was cash used in the purchase of equipment of $1,760,945 and cash received for the advance of asset of $82,769. For the year ended December 31, 2022, there was cash used in the purchase of equipment of $5,936,027. Net cash provided by financing activities for the year ended December 31, 2023 and 2022 was $4,235,841 and $6,408,711, respectively. During the year ended December 31, 2023, there were proceeds from non-convertible notes of $1,000,000, proceeds from convertible notes of $13,118,750, proceeds from the sale of common stock of $2,841,181, proceeds from warrant exercises of $15,511 proceeds from bridge financing of $825,000, proceeds from bank overdrafts of $118,763, and proceeds of $3,746,109 from factoring advances, offset by repayments of $4,858,587 towards non-convertible notes and repayments of $12,570,886 towards factoring advances. 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 $2,381,099 towards factoring advances. Capital Resources As of December 31, 2023, we had cash on hand of $1,546,159. 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, 2023, the Company received proceeds of $825,000, $3,746,109, $13,118,750, $2,841,181 and $1,000,000 from the issuance of bridge notes, factoring advances, convertible notes, sale of common stock, and non-convertible notes, respectively. 23 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. Going Concern and Management’s Liquidity Plans As of December 31, 2023, the Company had cash of $1,546,159 and a working capital deficit (current liabilities in excess of current assets) of $(20,579,715). During the year ended December 31, 2023, the net cash used in operating activities was $(1,833,310). The accumulated deficit as of December 31, 2023 was $(395,866,157). These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the consolidated financial statements. During the year ended December 31, 2023, the Company received proceeds of $825,000, $1,000,000, $13,118,750, $2,841,181, and $3,746,109 from the issuance of bridge notes, non-convertible notes, convertible notes, sale of common stock, and factoring advances, respectively. Until the Company’s consummation of the Empire acquisition, the Company had experienced net losses and negative cash flows from operations. The Company believes it could generate positive cashflows from operations going forward but in the event the market for recycled metals experiences a sharp downturn or if it experiences delays in its growth plans, the Company may need to raise additional capital. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategy. Accordingly, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for one year from the date the consolidated financial statements are issued. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Recent Accounting Pronouncements On January 1, 2020, The Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to Off-Balance Sheet (“OBS”) credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments and leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write down on available for sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The adoption of this update did not have a material impact on the Company’s consolidated financial statements and related disclosures. There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 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. 24 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. None of the goodwill is deductible for income tax purposes. During the fiscal years ended December 31, 2023 and 2022, the Company recorded $0 and $2,499,753 in impairment expense related to goodwill, respectively. As of December 31, 2023 and 2022, the carrying value of goodwill was $0 and $0, 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, 2023 and 2022, the Company recorded $0 and $2,499,753 in impairment expense related to intangibles and goodwill and $2,958,500 and $2,958,500 in amortization of intangible assets, respectively. 25 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.