Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. This Annual Report on Form 10-K contains the risks applicable to an investment
in our securities. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known or unknown
risks might cause you to lose all or part of your investment in the offered securities.
Risk
Factors Summary
Risks
Relating to Our Business and Industry
●
We operate in industries
that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on our operating results,
financial condition and cash flows.
●
Changing conditions in
global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions may adversely
affect our operating results, financial condition and cash flows.
●
Changes in the availability
or price of inputs such as raw materials and end-of-life vehicles could reduce our sales.
●
Significant decreases in
scrap metal prices may adversely impact our operating results.
●
Imbalances in supply and
demand conditions in the global steel industry may reduce demand for our products.
●
Impairment of long-lived
assets and equity investments may adversely affect our operating results.
●
Increases in the value
of the U.S. dollar relative to other currencies may reduce the demand for our products.
●
Equipment upgrades, equipment
failures and facility damage may lead to production curtailments or shutdowns.
●
We are subject to legal
proceedings and legal compliance risks that may adversely impact our financial condition, results of operations and liquidity.
●
Climate change may adversely
impact our facilities and our ongoing operations.
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●
Catastrophic events may
disrupt our business and impair our ability to provide our platform to clients and consumers, resulting in costs for remediation,
client and consumer dissatisfaction, and other business or financial losses.
●
We depend on a small number
of suppliers for the materials necessary to run our business. The loss of these suppliers, or their failure to supply us with these
materials, would materially and adversely affect our business.
●
We have substantial customer
concentration, with a limited number of customers accounting for a substantial portion of our 2024 and 2023 revenues.
●
We have a limited history
upon which an evaluation of our prospects and future performance can be made and have no history of profitable operations.
●
We are highly dependent
on the services of key executives, the loss of whom could materially harm our business and our strategic direction. If we lose key
management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience increases
in our compensation costs, our business may materially suffer.
●
We may need to obtain additional
financing to fund our operations.
●
Our independent registered
accounting firm has expressed concerns about our ability to continue as a going concern.
●
In the past we have experienced
material weaknesses in our internal control over financial reporting, which if continued, could impair our financial condition.
Risks
Relating to Government Laws and Regulations
●
Tax increases and changes
in tax rules may adversely affect our financial results.
●
We may not realize our
deferred tax assets in the future.
●
Environmental compliance
costs and potential environmental liabilities may have a material adverse effect on our financial condition and results of operations.
●
Governmental agencies may
refuse to grant or renew our licenses and permits, thus restricting our ability to operate.
●
Compliance with existing
and future climate change and greenhouse gas emission laws and regulations may adversely impact our operating results.
Risks
Relating to Intellectual Property
●
We may not be able to protect
our intellectual property rights throughout the world.
●
We may be involved in lawsuits
to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful and the outcome might
have an adverse effect on the success of our business.
●
We may be subject to claims
by third parties asserting that our employees or we have misappropriated their intellectual property or claiming ownership of what
we regard as our own intellectual property.
Risks
Related to our Common Stock
●
The market price of our
common stock may be volatile and adversely affected by several factors.
●
If our shares of common
stock become subject to the penny stock rules, it would become more difficult to trade our shares.
●
We are a “smaller
reporting company” within the meaning of the Securities Act, and if we decide to take advantage of certain exemptions from
various reporting requirements applicable to smaller reporting companies, our common stock could be less attractive to investors.
●
We do not anticipate paying
dividends on our common stock, and investors may lose the entire amount of their investment.
●
You could lose some or
all of your investment.
●
Our management controls
a large block of our common stock that will allow them to control us.
●
Because we can issue additional
shares of common stock, purchasers of our common stock may incur immediate dilution and experience further dilution.
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●
Provisions in our Second
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Delaware law might discourage, delay or prevent
a change in control of our Company or changes in our management and, therefore, depress the market price of our common stock.
●
If securities or industry
research analysts do not publish research or reports about our business, or if they issue unfavorable or misleading opinions regarding
common stock, the market price and trading volume of our common stock could decline.
●
Future sales and issuances
of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plans, could result in additional
dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
●
We have broad discretion
in the use of the net proceeds from our public offerings and may not use them effectively.
●
Our disclosure controls
and procedures may not prevent or detect all errors or acts of fraud.
●
If we are unable to satisfy
the applicable continued listing requirements of Nasdaq, our common stock could be delisted
Risks
Relating to Our Business and Industry
We
operate in industries that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on our
operating results, financial condition and cash flows.
Demand
for most of our products is cyclical in nature and sensitive to general economic conditions. The timing and magnitude of the cycles in
the industries in which our products are used, including global steel manufacturing and nonresidential and infrastructure construction
in the U.S., are difficult to predict. The cyclical nature of our operations tends to reflect and be amplified by changes in economic
conditions, both domestically and internationally, and foreign currency exchange fluctuations. Economic downturns or a prolonged period
of slow growth in the U.S. and foreign markets or any of the industries in which we operate could have a material adverse effect on our
results of operations, financial condition and cash flows.
Changing
conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions may
adversely affect our operating results, financial condition and cash flows.
A
significant portion of the metal we process is sold to end customers located outside the U.S., including countries in Asia, the Mediterranean
region and North, Central and South America. Our ability to sell our products profitably, or at all, is subject to a number of risks
including adverse impacts of political, economic, military, terrorist or major pandemic events; labor and social issues; legal and regulatory
requirements or limitations imposed by foreign governments including quotas, tariffs or other protectionist trade barriers, sanctions,
adverse tax law changes, nationalization, currency restrictions, or import restrictions for certain types of products we export; and
disruptions or delays in shipments caused by customs compliance or other actions of government agencies. The occurrence of such events
and conditions may adversely affect our operating results, financial condition and cash flows.
For
example, in fiscal 2017, regulators in China began implementing the National Sword Initiative involving inspections of Chinese industrial
enterprises, including recyclers, in order to identify rules violations with respect to discharge of pollutants or illegally transferred
scrap imports. Restrictions resulting from the National Sword Initiative include a ban on certain imported recycled products, lower contamination
limits for permitted recycled materials, and more comprehensive pre- and post-shipment inspection requirements. Disruptions in pre-inspection
certifications and stringent inspection procedures at certain Chinese destination ports have limited access to these destinations and
resulted in the renegotiation or cancellation of certain nonferrous customer contracts in connection with the redirection of such shipments
to alternate destinations. Commencing July 1, 2019, China imposed further restrictions in the form of import license requirements and
quotas on certain scrap products, including certain nonferrous products we sell. Chinese import licenses and quotas are issued to Chinese
scrap consumers on a quarterly basis for the importation of scrap products. Since the implementation of this program, the size of import
quotas has been steadily reduced on a quarter-over-quarter basis. We have continued to sell our recycled metal products into China; however,
additional or modified license requirements and quotas, as well as additional product quality requirements, may be issued in the future.
We believe that the potential impact on our recycling operations of the Chinese regulatory actions described above could include requirements
that would necessitate additional processing and packaging of certain nonferrous recycled scrap metal products, increased inspection
and certification activities with respect to exports to China, or a change in the use of our sales channels in the event of delays in
the issuance of licenses, restrictive quotas or an outright ban on certain or all of our recycled metals products by China. As regulatory
developments progress, we may need to make further investments in nonferrous processing equipment beyond existing planned investments
where economically justified, incur additional costs in order to comply with new inspection requirements, or seek alternative markets
for the impacted products, which may result in lower sales prices or higher costs and may adversely impact our business or results of
operations.
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In
March 2018, the U.S. imposed a 25% tariff on certain imported steel products and a 10% tariff on certain imported aluminum products under
Section 232 of the Trade Expansion Act of 1962. In March 2025, the U.S. raised tariffs on all imported steel and aluminum products to
25% without exception or exclusion. These new tariffs, along with other U.S. trade actions, have triggered retaliatory actions by certain
affected countries, and other foreign governments have initiated or are considering imposing trade measures on other U.S. goods. For
example, China has imposed a series of retaliatory tariffs on certain U.S. products, including a 25% tariff on all grades of U.S. scrap
and an additional 25% on U.S. aluminum scrap. These tariffs and other trade actions could result in a decrease in international steel
demand beyond that already experienced and further negatively impact demand for our products, which would adversely impact our business.
Given the uncertainty regarding the scope and duration of these trade actions by the U.S. or other countries, the impact of the trade
actions on our operations or results remains uncertain, but this impact could be material.
Changes
in the availability or price of inputs such as raw materials and end-of-life vehicles could reduce our sales.
Our
businesses require certain materials that are sourced from third party suppliers. Industry supply conditions generally involve risks,
including the possibility of shortages of raw materials, increases in raw material and other input costs, and reduced control over delivery
schedules. We procure our scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have
no obligation to sell scrap metal to us. In periods of declining or lower scrap metal prices suppliers may elect to hold scrap metal
to wait for higher prices or intentionally slow their metal collection activities, tightening supply. If a substantial number of suppliers
cease selling scrap metal to us, we will be unable to recycle metal at desired levels, and our results of operations and financial condition
could be materially adversely affected. For instance, in the second quarter of fiscal 2020 a lower price environment for recycled metals
in combination with economic and other restrictions on suppliers relating to COVID-19 severely constricted the supply of scrap metal
including end-of-life vehicles, which resulted in significantly reduced processed volumes. A slowdown of industrial production in the
U.S. may also reduce the supply of industrial grades of metal to the metals recycling industry, resulting in less recyclable metal available
to process and market. Increased competition for domestic scrap metal, including as a result of overcapacity in the scrap recycling industry
in the U.S. and Canada, may also reduce the supply of scrap metal available to us. Failure to obtain a steady supply of scrap material
could both adversely impact our ability to meet sales commitments and reduce our operating margins. Failure to obtain an adequate supply
of end-of-life vehicles could adversely impact our ability to attract customers and charge admission fees and reduce our parts sales.
Failure to obtain raw materials and other inputs to steel production such as graphite electrodes, alloys and other required consumables,
could adversely impact our ability to make steel to the specifications of our customers.
Significant
decreases in scrap metal prices may adversely impact our operating results.
The
timing and magnitude of the cycles in the industries in which we operate are difficult to predict and are influenced by different economic
conditions in the domestic market, where we typically acquire our raw materials, and foreign markets, where we typically sell the majority
of our products. Purchase prices for scrap metal including end-of-life vehicles and selling prices for recycled scrap metal are subject
to market forces beyond our control. While we attempt to respond to changing recycled scrap metal selling prices through adjustments
to our metal purchase prices, our ability to do so is limited by competitive and other market factors. As a result, we may not be able
to reduce our metal purchase prices to fully offset a sharp reduction in recycled scrap metal sales prices, which may adversely impact
our operating income and cash flows. In addition, a rapid decrease in selling prices may compress our operating margins due to the impact
of average inventory cost accounting, which causes cost of goods sold recognized in the Consolidated Statements of Operations to decrease
at a slower rate than metal purchase prices.
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Imbalances
in supply and demand conditions in the global steel industry may reduce demand for our products.
Economic
expansions and contractions in global economies can result in supply and demand imbalances in the global steel industry that can significantly
affect the price of commodities used and sold by our business, as well as the price of and demand for finished steel products. In a number
of foreign countries, such as China, steel producers are generally government-owned and may therefore make production decisions based
on political or other factors that do not reflect free market conditions. In the past, overcapacity and excess steel production in these
foreign countries resulted in the export of aggressively priced semi-finished and finished steel products. This led to disruptions in
steel-making operations within other countries, negatively impacting demand for our recycled scrap metal. Existing or new trade laws
and regulations may cause or be inadequate to prevent disadvantageous trade practices, which could have a material adverse effect on
our financial condition and results of operations. Although trade regulations restrict or impose duties on the importation of certain
products, if foreign steel production significantly exceeds consumption in those countries, global demand for our recycled scrap metal
products could decline and imports of steel products into the U.S. could increase, resulting in lower volumes and selling prices for
our recycled metal products and finished steel products.
Impairment
of long-lived assets and equity investments may adversely affect our operating results.
Our
long-lived asset groups are subject to an impairment assessment when certain triggering events or circumstances indicate that their carrying
value may be impaired. If the carrying value exceeds our estimate of future undiscounted cash flows of the operations related to the
asset group, an impairment is recorded for the difference between the carrying amount and the fair value of the asset group. The results
of these tests for potential impairment may be adversely affected by unfavorable market conditions, our financial performance trends,
or an increase in interest rates, among other factors. If, as a result of the impairment test, we determine that the fair value of any
of our long-lived asset groups is less than its carrying amount, we may incur an impairment charge that could have a material adverse
effect on our financial condition and results of operations.
Increases
in the value of the U.S. dollar relative to other currencies may reduce the demand for our products.
A
significant portion of our recycled scrap metal revenues is generated from sales to foreign customers, which are denominated in U.S.
dollars, including customers located in Asia, the Mediterranean region and North, Central and South America. A strengthening U.S. dollar,
as experienced during recent years including fiscal 2020, makes our products more expensive for non-U.S. customers, which may negatively
impact export sales. A strengthening U.S. dollar also makes imported metal products less expensive, which may result in an increase in
imports of steel products into the U.S. As a result, our finished steel products, which are made in the U.S., may become more expensive
for our U.S. customers relative to imported steel products thereby reducing demand for our products.
Equipment
upgrades, equipment failures and facility damage may lead to production curtailments or shutdowns.
Our
business operations and recycling and manufacturing processes depend on critical pieces of equipment, including information technology
equipment, shredders, nonferrous sorting technology, furnaces and a rolling mill, which may be out of service occasionally for scheduled
upgrades or maintenance or as a result of unanticipated failures. Our facilities are subject to equipment failures and the risk of catastrophic
loss due to unanticipated events such as fires, earthquakes, accidents or violent weather conditions. Interruptions in our processing
and production capabilities and shutdowns resulting from unanticipated events could have a material adverse effect on our financial condition,
results of operations and cash flows.
We
are subject to legal proceedings and legal compliance risks that may adversely impact our financial condition, results of operations
and liquidity.
We
spend substantial resources ensuring that we comply with domestic and foreign regulations, contractual obligations and other legal standards.
Notwithstanding this, we are subject to a variety of legal proceedings and compliance risks in respect of various matters, including
regulatory, safety, environmental, employment, transportation, intellectual property, contractual, import/export, international trade
and governmental matters that arise in the course of our business and in our industry. An outcome in an unusual or significant legal
proceeding or compliance investigation in excess of insurance recoveries could adversely affect our financial condition and results of
operations. For information regarding our current significant legal proceedings and contingencies, see “Legal Proceedings”
in Part I, Item 3 and “Contingencies – Other” within Note 11 – Commitments and Contingencies in the notes to
the financial statements.
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Climate
change may adversely impact our facilities and our ongoing operations.
The
potential physical impacts of climate change on our operations are highly uncertain and depend upon the unique geographic and environmental
factors present, for example rising sea levels at deep water port facilities, changing storm patterns and intensities, and changing temperature
levels. As many of our recycling facilities are located near deep water ports, rising sea levels may disrupt our ability to receive scrap
metal, process the scrap metal through our shredders and ship products to our customers. Extreme weather events and conditions, such
as hurricanes, thunderstorms, tornadoes, wildfires and snow or ice storms, may increase our costs or cause damage to our facilities,
and any damage resulting from extreme weather may not be fully insured. Increased frequency and duration of adverse weather events and
conditions may also inhibit construction activity utilizing our products, scrap metal inflows to our recycling facilities, and retail
admissions and parts sales at our auto parts stores. Potential adverse impacts from climate change, including rising temperatures and
extreme weather events and conditions, may create health and safety issues for employees operating at our facilities and may lead to
an inability to maintain standard operating hours.
Catastrophic
events may disrupt our business and impair our ability to provide our platform to clients and consumers, resulting in costs for remediation,
client and consumer dissatisfaction, and other business or financial losses.
Our
operations depend, in part, on our ability to protect our facilities against damage or interruption from natural disasters, power or
telecommunications failures, criminal acts and similar events. Despite precautions taken at our facilities, the occurrence of a natural
disaster, an act of terrorism, vandalism or sabotage, spikes in usage volume or other unanticipated problems at a facility could result
in lengthy interruptions in the availability of our platform. Even with current and planned disaster recovery arrangements, our business
could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses
that we may incur. These factors in turn could further reduce revenue, subject us to liability and lead to decreased usage of our platform
and decrease sales of our advertising placements, any of which could harm our business.
We
depend on a small number of suppliers for the materials necessary to run our business. The loss of these suppliers, or their failure
to supply us with these materials, would materially and adversely affect our business.
We
depend on the availability of key materials for our business from a small number of third-party suppliers. Because there are a limited
number of suppliers for these materials, we may need to engage alternate suppliers to prevent a possible disruption. We do not have any
control over the availability of materials. If we or our manufacturers are unable to purchase these materials on acceptable terms, at
sufficient quality levels, or in adequate quantities, if at all, the successful operation of our business would be delayed or there would
be a shortage in supply, which would impair our ability to generate revenues from our business.
We
have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our 2024 and 2023
revenues.
We
currently derive a significant portion of our revenues from three large corporate customers. The Company has a concentration of customers.
For the fiscal year ended December 31, 2024, two large customers individually accounted for $18,654,928 and $1,683,325, or approximately
55.99% and 5.05% of our revenues, respectively. For the fiscal year ended December 31, 2023, two large customers individually accounted
for $20,716,044 and $2,001,847, or approximately 58.08% and 5.61% of our revenues, respectively.
There
are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible
for us to predict the future level of demand for our services that will be generated by this customer or the future demand for the products
and services of this customer in the end-user marketplace. In addition, revenues from larger customers, especially our largest customer
may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions
or other facts, some of which may be outside of our control. Further, some of our contracts with larger customers permit them to terminate
our relationship at any time (subject to notice and certain other provisions). If any of these customers experience declining or delayed
sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services which
could have an adverse effect on our margins and financial position and could negatively affect our revenues and results of operations
and/or trading price of our common stock. If our largest customer terminates our services, such termination would negatively affect our
revenues and results of operations and/or trading price of our common stock.
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We
have a limited history upon which an evaluation of our prospects and future performance can be made and have no history of profitable
operations.
We
were incorporated in April 2013 and have a limited operating history and our business is subject to all of the risks inherent in the
establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with development and expansion of a new business enterprise. We may sustain
losses in the future as we implement our business plan. There can be no assurance that we will operate profitably.
We
are highly dependent on the services of key executives, the loss of whom could materially harm our business and our strategic direction.
If we lose key management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience
increases in our compensation costs, our business may materially suffer.
We
are highly dependent on our management team, specifically our Chief Executive Officer and Acting Chief Financial Officer, Danny Meeks. While we have an employment
agreement with Danny Meeks, such employment agreement permits Mr. Meeks to terminate such agreement upon notice. If we lose key
employees, our business may suffer. Furthermore, our future success will also depend in part on the continued service of our key
management personnel and our ability to identify, hire, and retain additional personnel. We carry “key-man” life
insurance on the life of our executive officer. We experience intense competition for qualified personnel and may be unable to
attract and retain the personnel necessary for the development of our business. Because of this competition, our compensation costs
may increase significantly.
We
may need to obtain additional financing to fund our operations.
We
may need additional capital in the future to continue to execute our business plan. Therefore, we may be dependent upon additional capital
in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise additional
capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange
enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot
obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity
financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations,
covenants and financial ratios that may restrict our ability to operate and grow our business.
Our
independent registered accounting firm has expressed concerns about our ability to continue as a going concern.
The
report of our independent registered accounting firm expresses concern about our ability to continue as a going concern based on our
historical losses from operations and the potential need for additional financing to fund our operations. It is not possible at this
time for us to predict with assurance the potential success of our business. If we cannot continue as a viable entity, we may be unable
to continue our operations and you may lose some or all of your investment in our securities.
In
the past we have experienced material weaknesses in our internal control over financial reporting, which if continued, could impair our
financial condition.
As
reported in Item 9A of this Annual Report on Form 10-K, our management concluded that our internal control over financial reporting was
not effective as of December 31, 2024 and 2023 due to material weaknesses regarding our controls and procedures. The Company did not
have sufficient segregation of duties to support its internal control over financial reporting. Due to our small size and limited resources,
segregation of all conflicting duties has not always been possible and may not be economically feasible in the near term; however, we
do expect to hire additional accounting personnel in the near future. We have and do endeavor to take appropriate and reasonable steps
to make improvements to remediate these deficiencies. If we have continued material weaknesses in our internal financial reporting, our
financial condition could be impaired or we may have to restate our financials, which could cause us to expend additional funds that
would have a material impact on our ability to generate profits and on the success of our business.
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Risks
Relating to Government Laws and Regulations
Tax
increases and changes in tax rules may adversely affect our financial results.
As
a company conducting business on a global basis with physical operations throughout North America, we are exposed, both directly and
indirectly, to the effects of changes in U.S., state, local and foreign tax rules. Taxes for financial reporting purposes and cash tax
liabilities in the future may be adversely affected by changes in such tax rules. In many cases, such changes put us at a competitive
disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs through to our customers.
We
may not realize our deferred tax assets in the future.
The
assessment of recoverability of our deferred tax assets is based on an evaluation of existing positive and negative evidence as to whether
it is more-likely-than-not that they will be realized. If negative evidence outweighs positive evidence, a valuation allowance is required.
Impairment of deferred tax assets may result from significant negative industry or economic trends, a decrease in earnings performance
and projections of future taxable income, adverse changes in laws or regulations, and a variety of other factors. Impairment of deferred
tax assets could have a material adverse impact on our results of operations and financial condition and could result in not realizing
the deferred tax assets. Deferred tax assets may require further valuation allowances if it is not more-likely-than-not that the deferred
tax assets will be realized.
Environmental
compliance costs and potential environmental liabilities may have a material adverse effect on our financial condition and results of
operations.
Compliance
with environmental laws and regulations is a significant factor in our business. We are subject to local, state and federal environmental
laws and regulations in the U.S. and other countries relating to, among other matters:
●
Waste disposal;
●
Air emissions;
●
Waste water and storm water
management, treatment and discharge;
●
The use and treatment of
groundwater;
●
Soil and groundwater contamination
and remediation;
●
Climate change;
●
Generation, discharge,
storage, handling and disposal of hazardous materials and secondary materials; and
●
Employee health and safety.
We
are also required to obtain environmental permits from governmental authorities for certain operations. Violation of or failure to obtain
permits or comply with these laws or regulations could result in our business being fined or otherwise sanctioned by regulators or becoming
subject to litigation by private parties. Future environmental compliance costs, including capital expenditures for environmental projects,
may increase because of new laws and regulations, changing interpretations and stricter enforcement of current laws and regulations by
regulatory authorities, expanding emissions, groundwater and other testing requirements and new information on emission or contaminant
levels, uncertainty regarding adequate pollution control levels, the future costs of pollution control technology and issues related
to climate change. We have seen an increased focus by federal, state and local regulators on metals recycling and auto dismantling facilities
and new or expanding regulatory requirements.
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Our
operations use, handle and generate hazardous substances. In addition, previous operations by others at facilities that we currently
or formerly owned, operated or otherwise used may have caused contamination from hazardous substances. As a result, we are exposed to
possible claims, including government fines and penalties, costs for investigation and clean-up activities, claims for natural resources
damages and claims by third parties for personal injury and property damage, under environmental laws and regulations, especially for
the remediation of waterways and soil or groundwater contamination. These laws can impose liability for the cleanup of hazardous substances
even if the owner or operator was neither aware of nor responsible for the release of the hazardous substances. We have, in the past,
been found not to be in compliance with certain of these laws and regulations, and have incurred liabilities, expenditures, fines and
penalties associated with such violations. Environmental compliance costs and potential environmental liabilities could have a material
adverse effect on our financial condition, results of operations and cash flows. See “Contingencies – Environmental”
in Note 11 – Commitments and Contingencies in the Notes to the Consolidated Financial Statements.
Governmental
agencies may refuse to grant or renew our licenses and permits, thus restricting our ability to operate.
We
conduct certain of our operations subject to licenses, permits and approvals from state and local governments. Governmental agencies
often resist the establishment of certain types of facilities in their communities, including auto parts facilities. Changes in zoning
and increased residential and mixed-use development near our facilities are reducing the buffer zones and creating land use conflicts
with heavy industrial uses such as ours. This could result in increased complaints, increased inspections and enforcement including fines
and penalties, operating restrictions, the need for additional capital expenditures and increased opposition to maintaining or renewing
required approvals, licenses and permits. In addition, from time to time, both the U.S. and foreign governments impose regulations and
restrictions on trade in the markets in which we operate. In some countries, governments require us to apply for certificates or registration
before allowing shipment of recycled metal to customers in those countries. There can be no assurance that future approvals, licenses
and permits will be granted or that we will be able to maintain and renew the approvals, licenses and permits we currently hold. Failure
to obtain these approvals could cause us to limit or discontinue operations in these locations or prevent us from developing or acquiring
new facilities, which could have a material adverse effect on our financial condition and results of operations.
Compliance
with existing and future climate change and greenhouse gas emission laws and regulations may adversely impact our operating results.
Future
legislation or increased regulation regarding climate change and greenhouse gas “GHG” emissions could impose significant
costs on our business and our customers and suppliers, including increased energy, capital equipment, emissions controls, environmental
monitoring and reporting and other costs in order to comply with laws and regulations concerning and limitations imposed on climate change
and GHG emissions. The potential costs of allowances, taxes, fees, offsets or credits that may be part of “cap and trade”
programs or similar future legislative or regulatory measures are still uncertain and the future of these programs or measures is unknown.
Future climate change and GHG laws or regulations could negatively impact our ability (and that of our customers and suppliers) to compete
with companies situated in areas not subject to such requirements. Until the timing, scope and extent of any future laws or regulations
becomes known, we cannot predict the effect on our financial condition, operating performance or ability to compete. Furthermore, even
without such laws or regulations, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies
in the metals recycling and steel manufacturing industries could harm our reputation and reduce customer demand for our products. See
“Business – Environmental Matters” in Part I, Item 1 of this Annual Report for further detail.
Risks
Relating to Intellectual Property
We
may not be able to protect our intellectual property rights throughout the world.
The
success of our business depends on our continued ability to use our existing tradename in order to increase our brand awareness. The
unauthorized use or other misappropriation of any our brand names could diminish the value of our business which would have a material
adverse effect on our financial condition and results of operation.
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We
may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful
and the outcome might have an adverse effect on the success of our business.
Competitors
may infringe our trademarks or other intellectual property. Moreover, it may be difficult or impossible to obtain evidence of infringement
by a competitor. To counter infringement or unauthorized use, we may be required to file infringement claims on an individual basis,
which can be expensive and time-consuming and divert the time and attention of our management. There can be no assurance that we will
have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they
are concluded.
We
may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or claiming
ownership of what we regard as our own intellectual property.
Some
of our employees may have executed non-disclosure and non-competition agreements in connection with their previous employment. Although
we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject
to claims that we or these employees have used or disclosed confidential information or intellectual property, including trade secrets
or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.
We
may also face claims that our use of technology licensed or otherwise obtained from a third party infringes the rights of others, under
such case we may not be allowed to continue using such technology and selling our inventories containing such technology. In such cases,
we may seek indemnification from our licensors/suppliers under our contracts with them. However, indemnification may be unavailable or
insufficient to cover our costs and losses, depending on our use of the technology, whether we choose to retain control over conduct
of the litigation, and other factors. In addition, we may have to find substitute to keep using similar technology to our products, which
may be time-consuming and costly, if not impossible, upon such period our sales or manufacture of certain products may be negatively
influenced.
Risks
Relating to Ownership of our Common Stock
The
market price of our common stock may be volatile and adversely affected by several factors.
The
market price of our common stock could fluctuate significantly in response to various factors and events, including, but not limited
to: our ability to execute our business plan; operating results below expectations; our issuance of additional securities, including
debt or equity or a combination thereof, necessary to fund our operating expenses; announcements of technological innovations or new
products by us or our competitors; and period-to-period fluctuations in our financial results.
In
addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of
our common stock.
If
our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.
The
SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized
for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. If we do not obtain a listing on a national securities exchange and if the
price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer,
before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing
specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise
exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for
the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written
agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure
requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders
may have difficulty selling their shares.
16
We
are a “smaller reporting company” within the meaning of Rule 12b-2 of the Exchange Act, and if we decide to take advantage
of certain exemptions from various reporting requirements applicable to smaller reporting companies, our common stock could be less attractive
to investors.
We
qualify as a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned
subsidiary of a parent company that is not a “smaller reporting company,” and have either: (i) a public float of less than
$250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float
or (B) a public float of less than $700 million. As a “smaller reporting company,” we are entitled to rely on certain reduced
disclosure requirements, such as an exemption from providing executive compensation information in our periodic reports and proxy statements.
We are also exempt from the auditor attestation requirements provided in Section 404(b) of the Sarbanes-Oxley Act. These exemptions and
reduced disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our
results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may
rely on these exemptions. If some investors find our common stock or warrants less attractive as a result, there may be a less active
trading market for our common stock and our stock prices may be more volatile.
We
do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment.
Cash
dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable
future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent
a sale of their shares of common stock. If we do not pay dividends, our common stock may be less valuable because a return on your investment
will only occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell
their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
You
could lose some or all of your investment.
An
investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of
an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment
in the Company will fully reflect its underlying value. You could lose some or all of your investment.
Our
management controls a large block of our common stock that will allow them to control us.
As
of April 2, 2025, members of our management team beneficially own approximately 4.24% of our outstanding common stock. Further, there
are 450,000 shares of Series A-1 Convertible Preferred Voting Stock owned by an entity controlled by the Company’s Chairman and
Chief Executive Officer which are, in the aggregate, convertible into and have voting weight equal to 45% of the number of common shares
outstanding.
As
a result, management may have the ability to control substantially all matters submitted to our stockholders for approval including:
●
Election and removal of
our directors;
●
Amendment of our Second
Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws; and
●
Adoption of measures that
could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.
17
In
addition, management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to
obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock
price. Any additional investors will own a minority percentage of our common stock and will have minority voting rights.
Because
we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and experience further dilution.
We
are authorized to issue up to 1,200,000,000 shares of common stock, of which 57,169,509 shares of common stock are issued and outstanding
as of March 28, 2025. Further, there are 450,000 shares of Series A-1 Convertible Preferred Voting Stock owned by an entity controlled
by the Company’s Chairman and Chief Executive Officer which are, in the aggregate, convertible into and have voting weight equal
to 45% of the number of common shares outstanding. Our Board of Directors has the authority to cause us to issue additional shares of
common stock without consent of any of stockholders. Consequently, our stockholders may experience further dilution in their ownership
of our stock in the future, which could have an adverse effect on the trading market for our common stock.
Provisions
in our Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Delaware law might discourage, delay
or prevent a change in control of our Company or changes in our management and, therefore, depress the market price of our common stock.
Our
Second Amended and Restated Certificate of Incorporation provides that all Internal Corporate Claims must be brought solely and exclusively
in the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware,
or, if such other court does not have jurisdiction, the United States District Court for the District of Delaware). The exclusive forum
provision may limit a stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes based upon
Internal Corporate Claims, which may discourage lawsuits against us or our current or former directors or officers and/or stockholders
in such capacity. In addition, if a court were to find this exclusive forum provision to be inapplicable or unenforceable in an action,
we may incur costs associated with resolving the dispute in other jurisdictions, which could have a material adverse effect on our business
and operations.
If
securities or industry research analysts do not publish research or reports about our business, or if they issue an unfavorable or misleading
opinion regarding our common stock, the market price and trading volume of our common stock could decline.
The
trading market for our common stock will rely in part on the research and reports that securities or industry research analysts, over
whom we have no control, publish about us and our business. If any of the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model, our intellectual property or our stock performance, our stock price would likely decline. If one or
more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
Future
sales and issuances of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plans, could
result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We
expect that significant additional capital may be needed in the future to continue our planned operations, including expanded research
and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible
securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell
common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales
may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior
to the holders of our common stock.
18
We
have broad discretion in the use of the net proceeds from our public offerings and may not use them effectively.
Our
management has broad discretion in the application of the net proceeds from our public offerings, and you will be relying on the judgment
of our management regarding the application of these proceeds. Our management might not apply the net proceeds from our public offerings
in ways that ultimately increase the value of your investment. If we do not invest or apply the net proceeds from our public offerings
in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably
assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management
and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that
any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people
or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements
due to error or fraud may occur and not be detected.
If
we are unable to satisfy the applicable continued listing requirements of Nasdaq, our common stock could be delisted.
On
September 13, 2024, the Company received the Notice from Nasdaq notifying the Company that it was not in compliance with the Minimum
Bid Price Requirement, as the closing bid price of the Company’s common stock had been below $1.00 per share for 30 consecutive
business days. The Notice indicated that the Company has 180 calendar days, or until March 12, 2025, to regain compliance with the Minimum
Bid Price Requirement.
On
March 13, 2025, Nasdaq notified the Company that although the Company has not regained compliance with the Minimum Bid Price Requirement,
the Company is eligible to receive an additional 180 calendar day period or until September 8, 2025, to regain compliance with the Minimum
Bid Price Requirement, pursuant to Nasdaq Listing Rule 5810(a)(3)(A). If, at any time during this additional compliance period, the closing
bid price of the Company’s common stock is at least $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will
provide written confirmation of compliance, and this matter will be closed. If compliance cannot be demonstrated by September 8, 2025,
Nasdaq will provide written notification that the Company’s securities will be delisted. At that time, the Company may appeal Nasdaq’s
determination to a Nasdaq Hearings Panel.
The
Company is currently monitoring the closing bid price of its common stock and will consider available options, including a reverse stock
split, if appropriate, to regain compliance with the Minimum Bid Price Requirement by September 8, 2025. There can be no assurance that
the Company will be able to regain compliance with the Minimum Bid Price Requirement, even if it maintains compliance with other listing
requirements of the Nasdaq Capital Market. Although we anticipate complying with Nasdaq’s Listing Rules going forward, there can
be no assurance that we will be able to meet continued listing requirements in the future. In determining whether to afford a company
a cure period prior to commencing suspension or delisting procedures, Nasdaq analyzes all relevant facts including any past deficiencies,
and thus our prior deficiencies could be used as a factor by Nasdaq in any future decision to delist our securities from trading on its
exchange.
If
our common stock is delisted, it could reduce the price of our common stock and the levels of liquidity available to our stockholders.
In addition, the delisting of our common stock could materially adversely affect our access to the capital markets and any limitation
on liquidity or reduction in the price of our common stock could materially adversely affect our ability to raise capital. Delisting
from Nasdaq could also result in other negative consequences, including the potential loss of confidence by suppliers, customers and
employees, the loss of institutional investor interest and fewer business development opportunities.
19
Due
to the recent implementation of the Reverse Stock Split, the liquidity of our common stock may be adversely effected.
We
conducted a one-for-one hundred fifty (1:150) reverse stock split of our common stock that we effectuated with an effective time of 11:59
p.m. Eastern Time on May 31, 2024 (the “Reverse Stock Split”). Our common stock began trading on Nasdaq on a split-adjusted
basis beginning at the open of the market on June 3, 2024. The liquidity of the shares of our common stock may be affected adversely
by any reverse stock split given the reduced number of shares of our common stock that are outstanding following the Reverse Stock Split,
especially if the market price of our common stock does not increase as a result of the Reverse Stock Split. Following the Reverse Stock
Split, the resulting market price of our common stock may not attract new investors and may not satisfy the investing requirements of
those investors. Although we believe that a higher market price of our common stock may help generate greater or broader investor interest,
there can be no assurance that the Reverse Stock Split resulted in a share price that will attract new investors, including institutional
investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of
those investors. As a result, the trading liquidity of our common stock may not necessarily improve.