NOTE
2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of March 31, 2023, the Company had cash of $276,085 and a working
capital deficit (current liabilities in excess of current assets) of $21,320,881.
The accumulated deficit as of March 31, 2023 was $366,294,690.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the
issuance of the unaudited condensed consolidated financial statements.
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.
The
Company believes that the current cash on hand of $276,085 and
anticipated cash generated from operations could be sufficient to conduct planned operations for one year from the issuance of the
unaudited condensed consolidated financial statements. In addition, management believes they can raise additional capital, if
necessary, through both equity and debt financing.
If
the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing,
if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing
or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant
debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will be
impacted by market conditions and the price of the Company’s common stock.
Accordingly,
the accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business for one year from the date
the condensed consolidated financial statements are issued. The carrying amounts of assets and liabilities presented in the
unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The
unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable
to continue as a going concern.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the accounts of Greenwave Technology Solutions, Inc. and its wholly
owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Significant estimates include estimates used in the, fair values relating to derivative liabilities, payroll tax liabilities with interest and penalties, assumptions used in right-of-use and lease liability calculations, impairments of intangible assets
acquired in business combination, estimated useful life of long-lived assets and finite life tangible assets, and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Fair
Value of Financial Instruments
The
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 825-10, “Financial
Instruments” (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The estimated fair
value of certain financial instruments, including cash, accounts payable and accrued liabilities are carried at historical cost basis,
which approximates their fair value because of the short-term maturity of these instruments. All other significant financial assets,
financial liabilities and equity instruments of the Company are either recognized or disclosed in the condensed consolidated financial
statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit
risk.
The
Company follows ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
Cash
For
purposes of the condensed consolidated statements of cash flows, the Company considers highly liquid investments with an original maturity
of three months or less to be cash equivalents. As of March 31, 2023 and December 31, 2022, the Company had no cash equivalents. The
Company maintains its cash in banks insured by the Federal Deposit Insurance Corporation in accounts that at times may be in excess of
the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions.
As of March 31, 2023 and December 31, 2022, the uninsured balances amounted to $48,735 and $434,399, respectively.
Accounts
Receivable
Accounts
receivable represent amounts primarily due from customers on product and other sales. These accounts receivable, which are reduced by
an allowance for credit losses, are recorded at the invoiced amount and do not bear interest. The Company delivers shipments of scrap
metal to customers and typically receives payment within 45 days of delivery.
The
Company evaluates the collectability of its accounts receivable based on a combination of factors, including the aging of customer receivable
balances, the financial condition of the Company’s customers, historical collection rates, and economic trends. Management uses
this evaluation to estimate the amount of customer receivables that may not be collected in the future and records a provision for expected
credit losses. Accounts are written off when all efforts to collect have been exhausted. As of March 31, 2023 and December 31, 2022,
the accounts receivable balances amounted to $359,525 and $215,256, respectively.
Property
and Equipment, net
We
state property and equipment at cost or, if acquired through a business combination, fair value at the date of acquisition. We calculate
depreciation and amortization using the straight-line method over the estimated useful lives of the assets, except for our leasehold
improvements, which are depreciated over the shorter of their estimated useful lives or their related lease term. Upon the sale or retirement
of assets, the cost and related accumulated depreciation are removed from our accounts and the resulting gain or loss is credited or
charged to income. We expense costs for repairs and maintenance when incurred. Our property and equipment is pledged as collateral for
certain factoring advances and promissory notes, see Note 8 – Factoring Advances and Non-Convertible Notes.
Cost
of Revenue
The
Company’s cost of revenue consists primarily of the costs of purchasing metal from its suppliers.
Related
Party Transactions
Parties
are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members
of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. See
Note 16 – Related Party Transactions.
Leases
The
Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified
as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease
liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s
incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset
is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset
result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.
In
calculating the right of use asset and lease liability, the Company elected to combine lease and non-lease components. The Company excluded
short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent
expense on a straight-line basis over the lease term. See Note 11 – Leases.
Commitments
and Contingencies
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or operating results. See Note 12 – Commitments and
Contingencies.
Revenue
Recognition
The
Company recognizes revenue when services are realized or realizable and earned, less estimated future doubtful accounts.
The
Company’s revenues are accounted for under ASC Topic 606, “Revenue From Contracts With Customers” (“ASC 606”)
and generally do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales
prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s
contracts do not include multiple performance obligations or material variable consideration.
In
accordance with ASC 606, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company recognizes
revenue in accordance with that core principle by applying the following:
(i) |
Identify the contract(s) with a customer; |
|
|
(ii) |
Identify the performance obligation in the contract; |
|
|
(iii) |
Determine the transaction price; |
|
|
(iv) |
Allocate the transaction price to the performance
obligations in the contract; and |
|
|
(v) |
Recognize revenue when (or as) the Company satisfies
a performance obligation. |
The
Company primarily generates revenue by purchasing scrap metal from businesses and retail suppliers, processing it, and selling the ferrous
and non-ferrous metals to clients.
The
Company realizes revenue upon the fulfillment of its performance obligations to customers. As of March 31, 2023 and December 31, 2022,
the Company had a contract liability of $25,000 and $25,000, respectively, for contracts under which the customer had paid for and the
Company had not yet delivered.
Inventories
Although
we ship the ferrous and non-ferrous metals we purchase from suppliers multiple times per day, we do maintain inventories. We calculate
the value of the inventories we do carry, which consist of processed and unprocessed scrap metal (ferrous and nonferrous), used and salvaged
vehicles, and supplies, based on the net realizable value or the cost of the inventories, whichever is less. We calculate the value of
the inventory based on the first-in-first-out (FIFO) methodology. We calculate the value of finished products based on their net realizable
value as their cost basis is not readily available. The value of our inventories was $493,472 and $189,646, respectively, as of March
31, 2023 and December 31, 2022.
Advertising
The
Company charges the costs of advertising to expense as incurred. Advertising costs were $5,522 and $16,230 for the three months ended
March 31, 2023 and 2022, respectively.
Stock-Based
Compensation
Stock-based
compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For stock-based
awards to employees, non-employees and directors, the Company calculates the fair value of the award on the date of grant using the Black-Scholes
option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including
estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value
of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application
of management’s judgment.
Income
Taxes
The
Company follows ASC Subtopic 740-10, “Income Taxes” (“ASC 740-10”) for recording the provision for income taxes.
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled.
Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period.
If
available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized,
a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes
in different periods.
Convertible
Instruments
U.S.
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial
instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of
the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract,
(b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and
(c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception
to this rule is when the host instrument is deemed to be conventional, as that term is described under ASC 480, “Distinguishing
Liabilities From Equity.”
The
Company records, when necessary, deemed dividends for: (i) warrant price protection, based on the difference between the fair value of
the warrants immediately before and after the repricing (inclusive of any full ratchet provisions); (ii) the exchange of preferred shares
for convertible notes, based on the amount of the face value of the convertible notes in excess of the carrying value of the preferred
shares; (iii) the settlement of warrant provisions, based on the fair value of the common shares issued; and (iv) amortization of discount
on preferred stock resulting from recognition of a beneficial conversion feature.
Derivative
Financial Instruments
The
Company classifies as equity any contracts that: (i) require physical settlement or net-share settlement; or (ii) provide the Company
with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such
contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that: (i) require
net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s
control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to
determine whether a change in classification between assets and liabilities is required.
Environmental
Remediation Liability
The
operations of the Company, like those of other companies in its industry, are subject to various domestic and foreign environmental laws
and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the
Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon
the Company and the industry in the future. Management believes that the Company conducts its operations in compliance with applicable
environmental laws and regulations and has implemented various programs designed to protect the environment and promote continued compliance.
The
Company continuously assesses its potential liability for remediation-related activities and adjusts its environmental-related accruals
as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are
issued. As of March 31, 2023 and December 31, 2022, the Company had accruals reported on the balance sheet as current liabilities of
$0 and $0, respectively, as the Company had paid all civil penalties and completed all remediation activities required under the Virginia
DEQ Consent Order dated June 30, 2021. See Note 12—Commitments and Contingencies.
Actual
costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the nature and
magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation
with respect to a particular site. Additionally, costs for environmental-related activities may not be reasonably estimable and therefore
would not be included in our current liabilities.
Management
believes these contingent environmental-related liabilities have been resolved.
Long-Lived
Assets
The
Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management
at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Intangible assets are stated
at cost and reviewed annually to examine any impairments, usually assuming an estimated useful life of five to ten years. When retired
or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference
less any amount realized from disposition, is reflected in earnings. The estimated useful lives of the Intellectual Property, Customer
List, and Licenses assumed in the Empire acquisition is 5 years, 10 years, and 10 years, respectively. See Note 7 – Amortization
of Intangible Assets.
Factoring
Agreements
We
have entered into factoring agreements with various financial institutions to receive cash for our future revenues. These transactions
are treated as a debt instrument and are accounted for as a liability because the Company makes weekly payments towards the balance and
fees. We utilize factoring arrangements as an integral part of our financing for working capital. Any change in the availability of these
factoring arrangements could have a material adverse effect on our financial condition. As of March 31, 2023 and December 31, 2022,
the Company owed $6,571,311 and $4,893,207, net debt discounts of $735,911 and $1,221,022, respectively for factoring advances.
See “Note 9 – Advances, Non-Convertible and PPP Notes Payable.”
Goodwill
Goodwill
is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually
at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of
reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment
evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying
the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value
of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value,
an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of the reporting
unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized
equal to that excess. The Company has adopted the provisions of Accounting Standards Update (“ASU”)_2017-04, “Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 requires goodwill
impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount
rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04
permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that,
under existing U.S. GAAP, would not be impaired or have a reduced carrying amount. Furthermore, ASU 2017-04 removes “the requirements
for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative
test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying
amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values
will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired.
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. We fully impaired our goodwill
as of December 31, 2022.
None
of the goodwill is deductible for income tax purposes.
Segment
Reporting
Operating
segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by
the Chief Financial Officer, or decision-making group, in deciding the method to allocate resources and assess performance. The Company
currently has one reportable segment for financial reporting purposes, which represents the Company’s core business.
Net
Earnings (Loss) Per Common Share
The
Company computes earnings (loss) per common share under ASC Subtopic 260-10, Earnings Per Share. Net loss per common share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share,
if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into
common stock using the “treasury stock” and/or “if converted” methods, as applicable.
The
computation of basic and diluted income (loss) per share, for the three months ended March 31, 2023 and 2022 excludes potentially dilutive
securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the
common stock during the period.
Potentially
dilutive securities are as follows:
SCHEDULE
OF POTENTIALLY DILUTIVE SECURITIES EXCLUDED FROM THE COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE
| |
March 31, 2023 | | |
March 31, 2022 | |
Common shares issuable upon conversion of convertible notes | |
| - | | |
| 2,563,929 | |
Options to purchase common shares | |
| 92,166 | | |
| 92,166 | |
Warrants to purchase common shares | |
| 9,756,876 | | |
| 2,752,941 | |
Common shares issuable upon conversion of preferred stock | |
| 1,013,500 | | |
| 824,197 | |
Total potentially dilutive shares | |
| 10,862,542 | | |
| 6,233,233 | |
On
February 17, 2022 the Company effectuated a 1-for-300 reverse stock split. Pursuant to GAAP, the Company retrospectively recasted and
restated the weighted-average common shares included within its condensed consolidated statements of operations for the three months
ended March 31, 2023 and 2022. The basic and diluted weighted-average common shares are retroactively converted to shares of the Company’s
common stock to conform to the recasted condensed consolidated statements of stockholders’ equity.
Recent
Accounting Pronouncements
In
October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers” (ASU 2021-08). which requires that an acquirer recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with ASC 606, as if it had originated the contracts. Prior to ASU 2021-08,
an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at
fair value on the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption
permitted. ASU 2021-08 is to be applied prospectively to business combinations occurring on or after the effective date of the amendment
(or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application).
The adoption of ASU 2021-08 did not have an impact on the Company’s condensed 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.
In June 2016,
the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses
(Topic 326) - Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold
for credit losses requiring, instead, that all financial assets (or group of financial assets) measured at amortized cost be presented
at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. The
ASU also applies to certain off-balance-sheet credit exposures such as unfunded commitments and non-derivative financial guarantees.
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) in order
to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses
is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amount. The income statement under this ASU will reflect the initial recognition
of current expected credit losses for newly recognized assets, as well as any increases or decreases of expected credit losses that have
occurred during the period. ASU 2016-13 retains many currently-existing disclosures related to the credit quality of an entity’s
assets and the related allowance for credit losses amended to reflect the change to an expected credit loss methodology, as well as enhanced
disclosures to provide information to users at a more disaggregated level. Upon adoption, ASU 2016-13 provides for a modified retrospective
transition by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is effective,
except for debt securities for which an other-than-temporary impairment has previously been recognized. For these debt securities, a
prospective transition is provided in order to maintain the same amortized cost prior to and subsequent to the effective date of the
ASU. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual
periods with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those annual periods.
The adoption of ASU 2021-08 did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.
NOTE
4 – CONCENTRATIONS OF RISK
Accounts
Receivable
The
Company has a concentration of credit risk with its accounts receivable balance. Three customers individually accounted for $87,854,
$54,335,
and $33,878,
or 24%, 15%,
and 9%,
respectively, of our accounts receivable at March 31, 2023. The Company has adopted (ASU) 2016-13 as of January 1, 2023 and not had a material impact on the Company’s
financial statements as of March 31, 2023.
Customer
Concentrations
The
Company has a concentration of customers. For the three months ended March 31, 2023, two customers individually accounted for $5,200,126
and $536,624, or approximately 58% and 6% of our revenues, respectively.
The
Company’s sales are concentrated in the Virginia and northeastern North Carolina markets.
NOTE
5 – INVENTORIES
Inventories
as of March 31, 2023 and December 31, 2022 consisted of the following:
SCHEDULE
OF INVENTORIES
| |
March 31, 2023 | | |
December 31, 2022 | |
Processed and unprocessed scrap metal | |
$ | 493,472 | | |
$ | 189,646 | |
Finished products | |
| - | | |
| - | |
Inventories | |
$ | 493,472 | | |
$ | 189,646 | |
NOTE
6 – PROPERTY AND EQUIPMENT
Property
and equipment as of March 31, 2023 and December 31, 2022 is summarized as follows:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
March 31, 2023 | | |
December 31, 2022 | |
Machinery and Equipment | |
$ | 17,517,175 | | |
$ | 12,995,494 | |
Furniture and Fixtures | |
| 6,128 | | |
| 6,128 | |
Land | |
| 980,129 | | |
| 980,129 | |
Buildings | |
| 724,170 | | |
| 724,170 | |
Vehicles | |
| 20,000 | | |
| 20,000 | |
Leaseholder Improvements | |
| 1,578,651 | | |
| 988,100 | |
Subtotal | |
| 20,826,253 | | |
| 15,714,021 | |
Property plant and equipment, gross | |
| 20,826,253 | | |
| 15,714,021 | |
Less accumulated depreciation | |
| (3,075,714 | ) | |
| (2,546,486 | ) |
Property and equipment, net | |
$ | 17,750,539 | | |
$ | 13,167,535 | |
Depreciation
expense for the three months ended March 31, 2023 and 2022 was $529,228 and $134,131, respectively.
NOTE
7 – AMORTIZATION OF INTANGIBLE ASSETS
All
of the Company’s current identified intangible assets were assumed upon consummation of the Empire acquisition on October 1, 2021.
Identified intangible assets consisted of the following at the dates indicated below:
SCHEDULE
OF INTANGIBLE ASSETS
| |
March 31, 2023 | | |
|
| |
Gross carrying amount | | |
Accumulated amortization | | |
Carrying value | | |
Estimated remaining useful life |
Intellectual Property | |
$ | 3,036,000 | | |
$ | (910,800 | ) | |
$ | 2,125,200 | | |
3.5 years |
Customer List | |
| 2,239,000 | | |
| (335,850 | ) | |
| 1,903,150 | | |
8.5 years |
Licenses | |
| 21,274,000 | | |
| (3,191,100 | ) | |
| 18,082,900 | | |
8.5 years |
Total intangible assets, net | |
$ | 26,549,000 | | |
$ | (4,437,740 | ) | |
$ | 22,111,250 | | |
|
| |
December 31, 2022 | | |
|
| |
Gross carrying amount | | |
Accumulated amortization | | |
Carrying value | | |
Remaining estimated useful life |
Intellectual Property | |
$ | 3,036,000 | | |
$ | (759,000 | ) | |
$ | 2,277,000 | | |
4 years |
Customer List | |
| 2,239,000 | | |
| (279,875 | ) | |
| 1,959,125 | | |
9 years |
Licenses | |
| 21,274,000 | | |
| (2,659,250 | ) | |
| 18,614,750 | | |
9 years |
Total finite-lived intangibles | |
| 26,549,000 | | |
| (3,698,125 | ) | |
| 22,850,875 | | |
|
Total intangible assets, net | |
$ | 26,549,000 | | |
$ | (3,698,125 | ) | |
$ | 22,850,875 | | |
|
Amortization
expense for intangible assets was $739,625 and $739,625 for the three months ended March 31, 2023 and 2022, respectively. Total estimated
amortization expense for our intangible assets for the years 2023 through 2027 is as follows:
SCHEDULE
OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS
Year ended December 31, | |
| |
2023 (remaining) | |
| 2,218,875 | |
2024 | |
| 2,958,500 | |
2025 | |
| 2,958,500 | |
2026 | |
| 2,806,700 | |
2027 | |
| 2,351,300 | |
Thereafter | |
| 8,817,375 | |
NOTE
8 – FACTORING ADVANCES AND NON-CONVERTIBLE NOTES PAYABLE
Factoring
Advances
On
December 8, 2022, the Company entered into a revenue factoring advance in the principal amount of $3,025,000 for a purchase price of
$2,500,000. The Company’s Chief Executive Officer
was personally liable for this factoring advance. The Company was required to make weekly payments
in the amount $60,020 through December 2023. The advance matured on December 15, 2023. There was amortization of debt discount of $492,540
during the three months ended March 31, 2023. The Company made cash repayments of $695,198 during the three months ended March
31, 2023 and the remaining $2,149,742 balance was repaid out of the proceeds of another advance. As
of March 31, 2023 and December 31, 2022, the revenue factoring advance had a balance of $0 and $2,352,000, net an unamortized debt discount
of $0 and $492,540, respectively.
On
December 8, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,815,000 for a purchase price of
$1,470,000. The Company’s Chief Executive Officer
was personally liable for this factoring advance. The Company was required to make weekly payments
in the amount $34,904 through December 2023. The advance matured on December 15, 2023. There was amortization of debt discount of $323,669
during the three months ended March 31, 2023. The Company made cash repayments of $408,136 during the three months ended March
31, 2023 and the remaining $1,302,152 balance was repaid out of the proceeds of another advance. As
of March 31, 2023 and December 31, 2022, the revenue factoring advance had a balance of $0 and $1,386,619 net an unamortized debt discount
of $0 and $323,670, respectively.
On
December 29, 2022, the Company entered into a revenue factoring advance in the principal amount of $1,474,000 for a purchase price of
$1,067,000. The Company’s Chief Executive Officer
is personally liable for this factoring advance. The Company is required to make weekly payments
in the amount $28,346 through January 2024. The advance matures on January 4, 2024. There was amortization of debt discount of $98,468
during the three months ended March 31, 2023. The Company made cash repayments of $340,154 during the three months ended March 31, 2023.
As of March 31, 2023 and December 31, 2022, the revenue factoring advance had a balance of $827,502 and $1,069,188 net an unamortized
debt discount of $306,344 and $404,812, respectively.
On
January 17, 2023, the Company entered into a revenue factoring advance in the principal amount of $770,000 for a purchase price of $550,000.
There was an origination fee of $50,000. The Company’s
Chief Executive Officer was personally liable for this factoring advance. The Company was required
to make weekly payments in the amount $24,062 through June 2023. The advance matured on June 17, 2023. There was amortization of debt
discount of $270,000 during the three months ended March 31, 2023. The Company made cash repayments of $192,500 during the three months
ended March 31, 2023 and the remaining balance of $548,625 was repaid out of the proceeds of another advance. There was a $28,875 gain
on settlement of the advance. As of March 31, 2023, the revenue factoring advance had a balance of $0.
On
January 17, 2023, the Company entered into a revenue factoring advance in the principal amount of $1,400,000
for a purchase price of $1,000,000.
There was an origination fee of $100,000. The
Company’s Chief Executive Officer was personally liable for this factoring advance. The
Company was required to make weekly
payments in the amount $43,750
through June 2023. The advance matured on June 17, 2023. There was amortization of debt discount of $500,000
during the three months ended March 31, 2023. The Company made cash repayments of $350,000
during the three months ended March 31, 2023 and the remaining balance of $1,003,870 was
repaid out of the proceeds of another advance. There was a $46,130
gain on settlement of the advance. As of March 31, 2023, the revenue factoring advance had a balance of $0.
On
March 29, 2023, the Company entered into a revenue factoring advance in the principal amount of $2,902,500 for a purchase price of $2,250,000.
There was an origination fee of $67,500. The proceeds of $2,182,500 were used to payoff other advances and there were no cash proceeds.
The Company’s Chief Executive Officer is personally
liable for this factoring advance. The Company is required to make weekly payments in the amount
$54,764 through April 2024. The advance matures on April 24, 2024. There was amortization of debt discount of $3,508 during the three
months ended March 31, 2023. As of March 31, 2023, the revenue factoring advance had a balance of $2,253,508 net an unamortized debt
discount of $648,992.
On
March 29, 2023, the Company entered into a revenue factoring advance in the principal amount of $4,386,000 for a purchase price of $3,400,000.
There was an origination fee of $102,000. There were cash proceeds of $476,109 and the remaining proceeds of $2,821,891 were used to
pay off other advances. The Company’s Chief Executive
Officer is personally liable for this factoring advance. The Company is required to make weekly
payments in the amount $82,755 through April 2024. The advance matures on April 24, 2024. There was amortization of debt discount of
$5,301 during the three months ended March 31, 2023. As of March 31, 2023, the revenue factoring advance had a balance of $3,405,301
net an unamortized debt discount of $980,699.
The
remaining advances are for Simple Agreements for Future Tokens, entered into with accredited investors issued pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and/or Regulation
D thereunder in 2018. As of December 31, 2022, the Company owed $85,000 for Simple Agreements for Future Tokens.
Non-Convertible
Notes Payable
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $459,250.88
judgement entered against the Company (See Note 12 – Commitments and Contingencies). Under the terms of the Resolution Agreement,
which the Company has classified as a non-convertible note, the Company was required to make a $25,000 initial payment by September 30,
2021 and is required to make $15,000 monthly payments from October 2021 to January 2023 with a final $10,000 payment due in February
2023. There was amortization of the debt discount of $3,182 during the three months ended March 31, 2023. During the three months ended
March 31, 2023, the Company made $40,000 in payments towards the Resolution Agreement. As of March 31, 2023 and December 31, 2022, the
Resolution Agreement had a balance of $0 and $38,284, net an unamortized debt discount of $0 and $3,182, respectively.
On
April 11, 2022, the Company entered into a vehicle financing agreement with GM Financial for the purchase of a vehicle for use by the
Company’s Chief Executive Officer in the principal amount of $74,186. GM Financial financed $65,000 of the purchase price of the
vehicle and the Company was required to make a $10,000 down payment. There was a $2,400 rebate applied to the purchase price. The Company
is required to make 60 monthly payments of $1,236. During the three months ended March 31, 2023, the Company made $3,267 in payments
towards the financing agreement. There was amortization of debt discount of $442 during the three months ended March 31, 2023. As of
March 31, 2023 and December 31, 2022, the financing agreement had a balance of $57,288 and $60,114, net an unamortized debt discount
of $7,448 and $7,890, respectively.
On
April 21, 2022, the Company entered into a secured promissory note in the principal amount of $964,470 for the financing and installation
of a piece of equipment in the amount $750,000. The Company is required to make monthly payments in the amount $6,665 through October
2022 and monthly payments of $19,260 until October 2026. The note bears an interest rate of 10.6%, is secured by certain assets of the
Company, and matures on October 21, 2026. During the three months ended March 31, 2023, the Company made $56,115 in payments towards
the note. There was amortization of debt discount of $11,741 during the three months ended March 31, 2023. As of March 31, 2023 and December
31, 2022, the note had a balance of $693,411 and $732,550 net an unamortized debt discount of $168,288 and $180,030, respectively.
On
September 1, 2022, the Company entered into a Deed of Trust note for the purchase of land and buildings. The note has a principal amount
of $600,000, bears an interest rate of 6.5%, and matures on September 1, 2032. The Company is required to make monthly payments of $4,476
until September 1, 2032, when the remaining principal and accrued interest becomes due. The Company made principal and interest payments
of $4,214 and $9,214, respectively, during the three months ended March 31, 2023. As of March 31, 2023 and December 31, 2022, the note
had a principal balance of $591,740 and $595,954 and accrued interest of $3,161 and $3,184, respectively.
On
September 1, 2022, the Company entered into an additional Deed of Trust note for the purchase of land and buildings. The note has a principal
amount of $600,000, bears an interest rate of 6.5%, and matures on September 1, 2032. The Company is required to make monthly payments
of $4,476 until September 1, 2032, when the remaining principal and accrued interest becomes due. The Company made principal and interest
payments of $4,214 and $9,214, respectively, during the three months ended March 31, 2023. As of March 31, 2023 and December 31, 2022,
the note had a principal balance of $591,740 and $595,954 and accrued interest of $3,161 and $3,184, respectively.
On
September 14, 2022, the Company entered into a secured promissory note in the principal amount of $2,980,692 for a purchase price of
$2,505,000. The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount $82,797
through September 2025. The note bears an interest rate of 10.6%, is secured by certain assets of the Company, and matures on September
14, 2025. There was amortization of debt discount of $39,509 during the three months ended March 31, 2023. There were payments of $248,391
towards the note during the three months ended March 31, 2023. As of March 31, 2023 and December 31, 2022, the note had a balance of
$2,177,935 and $2,386,817 net an unamortized debt discount of $388,772 and $428,281, respectively.
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,539,630 for a purchase price of $1,078,502.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,410 through
March 2023 and then monthly payments in the amount of $20,950 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $18,048 during the three months
ended March 31, 2023. There were payments of $19,515 during the three months ended March 31, 2023. As of March 31, 2023 and December
31, 2022, the note had a balance of $1,083,652 and $1,085,120 net an unamortized debt discount of $436,462 and $454,510, respectively.
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,560,090 for a purchase price of $1,092,910.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,630 through
March 2023 and then monthly payments in the amount of $21,225 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $18,285 during the three months
ended March 31, 2023. There were payments of $21,260 during the three months ended March 31, 2023. As of March 31, 2023 and December
31, 2022, the note had a balance of $1,096,639 and $1,099,614 net an unamortized debt discount of $442,191 and $460,476, respectively.
On
November 28, 2022, the Company entered into a secured promissory note in the principal amount of $1,597,860 for a purchase price of $1,119,334.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,860 through
March 2023 and then monthly payments in the amount of $21,740 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 5, 2029. There was amortization of debt discount of $18,729 during the three months
ended March 31, 2023. There were payments of $21,720 during the three months ended March 31, 2023. As of March 31, 2023 and December
31, 2022, the note had a balance of $1,123,210 and $1,126,201 net an unamortized debt discount of $452,930 and $471,659, respectively.
On
December 15, 2022, the Company entered into a secured promissory note in the principal amount of $1,557,435 for a purchase price of $1,093,380.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,585 through
March 2023 and then monthly payments in the amount of $21,190 through March 2029. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 15, 2029. There was amortization of debt discount of $18,302 during the three
months ended March 31, 2023. There were payments of $21,170 during the three months ended March 31, 2023. As of March 31, 2023 and December
31, 2022, the note had a balance of $1,093,766 and $1,096,634 net an unamortized debt discount of $442,499 and $460,801, respectively.
On
January 10, 2023, the Company entered into a secured promissory note in the principal amount of $1,245,018 for a purchase price of $1,021,500.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $10,365 through
March 2023 and then monthly payments in the amount of $34,008 through March 2026. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on March 10, 2026. There was amortization of debt discount of $15,288 during the three
months ended March 31, 2023. There were payments of $10,365 during the three months ended March 31, 2023. As of March 31, 2023, the note
had a balance of $1,026,423 net an unamortized debt discount of $208,230.
On
January 12, 2023, the Company entered into a secured promissory note in the principal amount of $1,185,810 for a purchase price of $832,605.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $8,030 through
April 2023 and then monthly payments in the amount of $16,135 through April 2028. The note bears an interest rate of 10.6%, is secured
by certain assets of the Company, and matures on April 12, 2028. There was amortization of debt discount of $14,187 during the three
months ended March 31, 2023. There were payments of $8,030 during the three months ended March 31, 2023. As of March 31, 2023, the note
had a balance of $838,763 net an unamortized debt discount of $339,017.
On
February 23, 2023, the Company entered into a secured promissory note in the principal amount of $822,040
for a purchase price of $628,353.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $6,370
through June 2023 and then monthly payments in
the amount of $16,595
through June 2027. The note bears an interest
rate of 10.6%,
is secured by certain assets of the Company, and matures on June 23, 2027. There was amortization of debt discount of $4,043
during the three months ended March 31, 2023.
As of March 31, 2023, the note had a balance of $632,396
net an unamortized debt discount of $189,644.
On
February 24, 2023, the Company entered into a secured promissory note in the principal amount of $1,186,580
for a purchase price of $832,605.
The note is secured by certain assets of the Company. The Company is required to make monthly payments in the amount of $9,185
through June 2023 and then monthly payments in the amount of $23,955
through June 2027. The note bears an interest rate of 10.6%,
is secured by certain assets of the Company, and matures on June 24, 2027. There was amortization of debt discount of $6,189
during the three months ended March 31, 2023. As of March 31, 2023, the note had a balance of $913,189
net an unamortized debt discount of $273,391.
On
March 1, 2023, the Company entered into a secured promissory note in the principal amount of $635,000. The note is secured by certain
assets of the Company. The Company is required to make a payment in the amount of $63,500 on March 15, 2023 and then commencing on April
15, 2023, monthly payments in the amount of $14,138 through March 2027. The note bears an interest rate of 8.5%, is secured by certain
assets of the Company, and matures on March 15, 2027. There were payments of $61,282 and $2,218 to principal and interest, respectively,
during the three months ended March 31, 2023. As of March 31, 2023, the note had a balance of $573,718 and accrued interest of $2,138.
The
following table details the current and long-term principal due under non-convertible notes as of March 31, 2023.
SCHEDULE
OF CURRENT AND LONG TERM PRINCIPAL DUE UNDER NONCONVERTIBLE NOTE
| |
Principal
(Current) | | |
Principal
(Long Term) | |
GM Financial (Issued April 11, 2022) | |
$ | 18,546 | | |
$ | 46,190 | |
Non-Convertible Note (Issued March 8, 2019) | |
| 5,000 | | |
| - | |
Deed of Trust Note (Issued September 1, 2022) | |
| 53,712 | | |
| 538,028 | |
Deed of Trust Note (Issued September 1, 2022) | |
| 53,712 | | |
| 538,028 | |
Equipment Finance Note (Issued April 21, 2022) | |
| 231,120 | | |
| 630,580 | |
Equipment Finance Note (Issued September 14, 2022) | |
| 993,564 | | |
| 1,573,143 | |
Equipment Finance Note (Issued November 28, 2022) | |
| 230,320 | | |
| 1,289,795 | |
Equipment Finance Note (Issued November 28, 2022) | |
| 254,700 | | |
| 1,284,130 | |
Equipment Finance Note (Issued November 28, 2022) | |
| 260,880 | | |
| 1,315,260 | |
Equipment Finance Note (Issued December 15, 2022) | |
| 254,280 | | |
| 1,281,985 | |
Equipment Finance Note (Issued January 10, 2023) | |
| 384,453 | | |
| 850,200 | |
Equipment Finance Note (Issued January 12, 2023) | |
| 177,410 | | |
| 1,000,370 | |
Equipment Finance Note (Issued February 24, 2023) | |
| 228,380 | | |
| 958,200 | |
Equipment Finance Note (Issued February 23, 2023) | |
| 170,695 | | |
| 651,345 | |
Equipment Finance Note (Issued March 1, 2023) | |
| 169,652 | | |
| 404,066 | |
Debt Discount | |
| (735,912 | ) | |
| (2,612,962 | ) |
Total Principal of Non-Convertible Notes | |
$ | 2,750,512 | | |
$ | 9,748,358 | |
Total
principal payments due on non-convertible notes for 2023 through 2027 and thereafter is as follows:
SCHEDULE OF PRINCIPAL PAYMENTS DUE ON NON-CONVERTIBLE NOTES
Year ended March 31, | |
| |
2023 | |
$ | 2,842,361
| |
2024 | |
| 3,626,172 | |
2025 | |
| 3,460,578 | |
2026 | |
| 2,322,024 | |
2027 | |
| 1,820,936 | |
Thereafter | |
| 1,775,673 | |
NOTE
9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As
of March 31, 2023 and December 31, 2022, the Company owed accounts payable and accrued expenses of $6,018,847 and $5,035,330, respectively.
These are primarily comprised of payments to vendors, accrued interest on debt, and accrued legal bills.
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| |
March 31, 2023 | | |
December 31, 2022 | |
Accounts Payable | |
$ | 2,220,337 | | |
$ | 1,548,847 | |
Credit Cards | |
| 365,926 | | |
| 206,669 | |
Accrued Interest | |
| 1,802,417 | | |
| 1,708,965 | |
Accrued Expenses | |
| 1,630,167 | | |
| 1,570,849 | |
Total Accounts Payable and Accrued Expenses | |
$ | 6,018,847 | | |
$ | 5,035,330 | |
NOTE
10 – ACCRUED PAYROLL AND RELATED EXPENSES
The
Company is delinquent in filing its payroll taxes, primarily related to stock compensation awards in 2016 and 2017, but also
including payroll for 2018, 2019, 2020, and 2021. Additionally, there is accrued payroll for the last three days of the year ended
December 31, 2022 and ten days of the quarter ended March 31, 2023. As of March 31, 2023 and December 31, 2022, the Company owed
payroll tax liabilities, including penalties, of $3,909,762
and $3,946,411,
respectively, to federal and state taxing authorities. The actual liability may be higher or lower due to interest or penalties
assessed by federal and state taxing authorities.
NOTE
11 – LEASES
Property
Leases (Operating Leases)
The
Company leases its facilities and certain automobiles under operating leases which expire on various dates through 2025. The Company
determines if an arrangement is a lease at inception and whether it is a finance or operating leases. Right of Use (“ROU”)
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation
to make lease payments from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease
based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining
the present value of lease payments. The ROU asset also includes any fixed lease payments, including in-substance fixed lease payments
and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease term
is determined at lease commencement and includes any non-cancellable period for which the Company has the right to use the underlying
asset, together with any options to extend that the Company is reasonably certain to exercise.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $3,492,531 in ROU assets and $3,650,358 in lease liabilities
for the leasing of scrap metal yards from an entity controlled by the Company’s Chief Executive Officer. Under the terms of the
leases, Empire was required to pay an aggregate of $145,821 per month from January to March 2022. On April 1, 2022, the Company entered
into amendments to the leases for its Kelford and Carrolton yards, increasing the monthly rent payments by an aggregate of $50,000 per
month for use of an automotive shredder and downstream processing system, respectively, being installed on those properties. The Company
is required to pay $199,821 per month in rent for these facilities from April to December 2022 and increasing by 3% on January 1st of
every year thereafter. On September 1, 2022, the Company terminated the lease for its Portsmouth yard on account of the Company purchasing
the land underlying the lease, reducing the lease payment by $11,200 per month. The leases expire on January 1, 2024 and the Company
has two options to extend the leases by 5 years per option. In the event the Company does not exercise the options, the leases will continue
on a month-to-month basis. The Company cannot sublease any of the properties under the lease agreements.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $30,699 in ROU assets and $31,061 in lease liabilities
for an office lease. Under the terms of the lease, Empire is required to pay $1,150 per month and increasing by 3% on April 1st of every
year beginning on April 1, 2022. The lease expires on March 31, 2024 and Empire was required to make a security deposit of $1,150. The
Company does not have an option to extend the lease. The Company cannot sublease the office under the lease agreements.
On
October 11, 2021, Empire entered into leasing agreements with a company owned by the Chief Executive Officer of Empire for the leasing
of the Company’s Virginia Beach metal recycling location. Under the terms of the leases, Empire is required to pay $9,677 for the
prorated first month and $15,000 per month for the facilities beginning November 1, 2021 and increasing by 3% on January 1st of every
year thereafter. The leases expire on January 1, 2024 and the Company has two options to extend the leases by 5 years per option. In
the event the Company does not exercise the options, the leases will continue on a month-to-month basis. The Company cannot sublease
any of the properties under the lease agreements.
On
January 24, 2022, the Company entered into leasing agreements for 3,521 square feet of office space commencing upon the completion of
tenant improvements which was expected to be on April 1, 2022 but shall be no later than May 1, 2022 (“Commencement Date”).
Under the terms of the leases, the Company is required to pay $3,668 for the first twelve months of the lease and increasing by approximately
3% every 12 months thereafter until the expiration of the lease. The lease is for a period of five years from the Commencement Date and
the Company was required to make a security deposit of $3,668. The Company does not have an option to extend the lease. The Company cannot
sublease any of the office space under the lease agreement.
Effective
February 1, 2022, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of
Greenwave for the leasing of the Company’s Fairmont metal scrap yard located at 406 Sandy Street, Fairmont, NC 28340. Under the
terms of the lease, the Company is required to pay $8,000 per month for the facility beginning February 1, 2022 and increasing by 3%
on January 1, 2023. The lease expires on January 1, 2024 and the Company has two options to extend the lease by 5 years per option. The
Company also has the option to extend the term of the lease for an additional year for the next 5 years upon the same terms and conditions.
In the event the Company does not exercise the options, the lease will continue on a month-to-month basis. The Company cannot sublease
the property under the lease agreement.
Effective October 13, 2022, the Company
entered into an office space/land lease agreement for the leasing of 900 Broad Street, Suite C, Portsmouth, VA 23707. Under the terms
of the lease, the Company is required to pay $4,300 per month for the facility beginning November 1, 2022 and increasing by 3% on
January 1, 2023. The lease expires on December 31, 2027 and the Company has two options to extend the lease by 5 years
per option. The Company also has the option to extend the term of the lease for an additional year for the next 5 years upon
the same terms and conditions. In the event the Company does not exercise the options, the lease will continue a month-to-month basis.
The Company cannot sublease the property under the lease agreement.
Effective
January 1, 2023, the Company entered into an office space/land lease agreement with an entity owned by the Chief Executive Officer of
Greenwave for the leasing of the Company’s Chesapeake facility located at 101 Freeman Ave, Chesapeake, VA 23324. Under the terms
of the lease, the Company is required to pay $9,000 per month for the facility beginning January 1, 2023 and increasing by 3% on January
1, 2024. The lease expires on January 1, 2025 and the Company has two options to extend the lease by 5 years per option. The Company
also has the option to extend the term of the lease for an additional year for the next 5 years upon the same terms and conditions. In
the event the Company does not exercise the options, the lease will continue on a month-to-month basis. The Company cannot sublease the
property under the lease agreement.
Automobile
Leases (Operating Leases)
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $26,804 in ROU assets and $18,661 in lease liabilities
for an automobile lease. Under the terms of the lease, Empire is required to pay $750 per month until the lease expires on February 18,
2025 and the Company does not have an option to renew or extend. The Company is responsible for any damage to the automobile under the
terms of the lease.
Upon
effectiveness of the acquisition of Empire on October 1, 2021, the Company assumed $34,261 in ROU assets and $27,757 in lease liabilities
for an automobile lease. Under the terms of the lease, Empire is required to pay $650 per month until the lease expires on February 15,
2026 and the Company does not have an option to renew or extend. The Company is responsible for any damage to the automobile under the
terms of the lease.
On
December 23, 2021, Empire entered into a lease agreement for the leasing of an automobile. Under the terms of the lease, Empire was required
to pay $18,000 for the first month and $1,000 per month thereafter for 60 months. The lease expires on December 23, 2025 and the Company
does not have an option to renew or extend. The Company is responsible to any damage to the automobile under the terms of the lease.
On
July 1, 2022, Empire entered into a lease agreement for the leasing of certain equipment. Under the terms of the lease, Empire was required
to pay $2,930 per month thereafter for a period of 24 months. The lease expires on July 31, 2024 and the Company does not have an option
to renew or extend. The Company is responsible to any damage to the equipment under the terms of the lease.
ROU
assets and liabilities consist of the following:
SCHEDULE
OF ASSETS AND LIABILITIES
| |
March 31, 2023 | | |
December 31, 2022 | |
ROU assets – related party | |
$ | 2,016,400 | | |
$ | 2,419,338 | |
ROU assets | |
| 547,382 | | |
| 590,608 | |
Total ROU assets | |
| 2,563,782 | | |
| 3,009,946 | |
| |
| | | |
| | |
Current portion of lease liabilities – related party | |
$ | 2,195,813 | | |
$ | 2,742,140 | |
Current portion of lease liabilities | |
| 186,344 | | |
| 232,236 | |
Long term lease liabilities – related party, net of current portion | |
| 192,240 | | |
| - | |
Long term lease liabilities, net of current portion | |
| 46,094 | | |
| 116,262 | |
Total lease liabilities | |
$ | 2,620,491 | | |
$ | 3,090,638 | |
Aggregate
minimum future commitments under non-cancelable operating leases and other obligations at March 31, 2023 were as follows:
SCHEDULE
OF NON CANCELABLE OPERATING LEASES AND OTHER OBLIGATIONS
Year ended December 31, | |
| |
2023 (remaining) | |
$ | 2,305,955 | |
2024 | |
| 281,971 | |
2025 | |
| 140,295 | |
2026 | |
| 134,476 | |
2027 | |
| 98,430 | |
Total Minimum Lease Payments | |
$ | 2,961,127 | |
Less: Imputed Interest | |
$ | 340,636 | |
Present Value of Lease Payments | |
$ | 2,620,491 | |
Less: Current Portion | |
$ | (2,282,157 | ) |
Long Term Portion | |
$ | 238,334 | |
The
Company leases its facilities, automobiles, and offices under operating leases which expire on various dates through 2027. Rent expense
related to these leases is recognized based on the payment amount charged under the lease. Rent expense for the three months ended March
31, 2023 and 2022 was $747,778 and
$515,223,
respectively. As of March 31, 2023, the leases had a weighted average remaining lease term of 1.35
year and a weighted average discount rate of
10%.
NOTE
12 – COMMITMENTS AND CONTINGENCES
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or operating results.
Sheppard
Mullin’s Demand for Arbitration
On
December 1, 2020, Sheppard, Mullin, Richter & Hampton LLP (“Sheppard Mullin”), the Company’s former securities
counsel, filed a demand for arbitration at JAMS in New York, New York against the Company, alleging the Company’s breach of an
engagement agreement dated January 4, 2018, and a failure of the Company to pay $487,390.73 of outstanding legal fees to Sheppard Mullin.
Sheppard Mullin was awarded $459,251 in unpaid legal fees, disbursements and interest on June 25, 2021. A judgement confirming the arbitration
award was entered on September 8, 2021 in the Federal District Court located in Denver, Colorado.
On
September 23, 2021, the Company entered into a Resolution Agreement with Sheppard, Mullin, Richter & Hampton concerning the $459,250.88
judgement entered against the Company. Under the terms of the Resolution Agreement, the Company was required to make a $25,000 initial
payment by September 30, 2021 and is required to make $15,000 monthly payments from October 2021 to January 2023 with a final $10,000
payment due in February 2023. The Company has made the October 2021 through February 2023 monthly payments.
NOTE
13 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of blank check preferred stock, par value $0.001 per share.
Series
Z
On
September 30, 2021, the Company authorized the issuance of 500 shares of Series Z Preferred Stock, par value $0.001 per share. The Series
Z Preferred Stock has a $20,000 stated value per share and all 500 Series Z preferred shares, in aggregate, are convertible into 19.98%
of the issued and outstanding common shares of the Company (post conversion). The conversion rate is applicable on a pro rata basis to
each share of Series Z Preferred Stock upon conversion. This anti-dilutive conversion feature is in effect until such time an S-1 Registration
Statement is declared effective by the SEC in conjunction with a NASDAQ listing. The Company credited additional paid in capital $7,237,572
for a deemed dividend for the trigger of a price protection provision in the Series Z Preferred Stock upon uplisting to NASDAQ.
As
of March 31, 2023 and December 31, 2022, there were 250 and 322 shares of Series Z Preferred Stock issued and outstanding.
On
January 23, 2023, 72 shares of Series Z Preferred Stock were converted into 288,494 shares of common stock.
Common
Stock
The
Company is authorized to issue 1,200,000,000 shares of common stock, par value $0.001 per share.
During
the three months ended March 31, 2023, the Company issued 288,494 shares of common stock for the conversion of 72 shares of Series Z
Preferred Stock.
As
of March 31, 2023 and December 31, 2022, there were 11,250,813 and 10,962,319 shares, respectively, of common stock issued and outstanding.
NOTE
14 – WARRANTS
A
summary of the warrant activity for the three months ended March 31, 2023 is as follows:
SCHEDULE
OF WARRANT ACTIVITY
| |
Shares | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding at December 31, 2022 | |
| 9,757,710 | | |
$ | 5.61 | | |
| 5.14 | | |
$ | 635 | |
Granted | |
| - | | |
| | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | | |
| | |
Canceled/Exchanged | |
| (834 | ) | |
$ | 0.12 | | |
| | | |
| | |
Outstanding at March 31, 2023 | |
| 9,756,876 | | |
$ | 5.61 | | |
| 3.89 | | |
$ | - | |
Exercisable at March 31, 2023 | |
| 9,756,876 | | |
$ | 5.61 | | |
| 3.89 | | |
$ | - | |
SCHEDULE
OF WARRANT EXERCISABLE
Exercise Price | | |
Warrants Outstanding | | |
Weighted Avg. Remaining Life | | |
Warrants Exercisable | |
$ | 5.50 | | |
| 9,238,816 | | |
| 3.90 | | |
| 9,238,816 | |
| 7.52 | | |
| 518,060 | | |
| 3.67 | | |
| 518,060 | |
| | | |
| 9,756,876 | | |
| 3.89 | | |
| 9,756,876 | |
The
aggregate intrinsic value of outstanding stock warrants was $0 based on warrants with an exercise price less than the Company’s
stock price of $0.99 as of March 31, 2023 which would have been received by the warrant holders had those holders exercised the warrants
as of that date.
NOTE
15 – STOCK OPTIONS
Our
stockholders approved our 2014 Equity Incentive Plan in June 2014 (the “2014 Plan”), our 2015 Equity Incentive Plan in December
2015 (the “2015 Plan”), our 2016 Equity Incentive Plan in October 2016 (“2016 Plan”), our 2017 Equity Incentive
Plan in December 2016 (“2017 Plan”), our 2018 Equity Incentive Plan in June 2018 (the “2018 Plan”), our 2021
Equity Incentive Plan in September 2021 (the “2021 Plan” and together with the 2014 Plan, 2015 Plan, 2016 Plan, 2018 Plan,
the “Prior Plans”), and our 2022 Equity Incentive Plan in November 2022 (“2022 Plan” , and together with the
Prior Plans, the “Plans”). The Plans are identical, except for the number of shares reserved for issuance under each. As
of March 31, 2023, the Company had granted an aggregate of 214,367 securities under the Plans since inception, with 567,300 shares available
for future issuances. The Company made no grants under the plans during the three months ended March 31, 2023.
The
Plans provide for the grant of incentive stock options to our employees and our subsidiaries’ employees, and for the grant of stock
options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees,
including officers, consultants and directors. The Prior Plans also provide that the grant of performance stock awards may be paid out
in cash as determined by the committee administering the Prior Plans.
Option
valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using
the Black-Scholes option pricing model with a volatility figure derived from historical data. The Company accounts for the expected life
of options based on the contractual life of the options.
There
were no options issued during the three months ended March 31, 2023.
A
summary of the stock option activity for the three months ended March 31, 2023 as follows:
SCHEDULE
OF STOCK OPTION ACTIVITY
| |
Shares | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding at December 31, 2022 | |
| 92,166 | | |
$ | 148.11 | | |
| 4.49 | | |
$ | - | |
Granted | |
| - | | |
| | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | | |
| | |
Forfeiture/Cancelled | |
| - | | |
| | | |
| | | |
| | |
Outstanding at March 31, 2023 | |
| 92,166 | | |
$ | 148.11 | | |
| 4.24 | | |
$ | - | |
Exercisable at March 31, 2023 | |
| 92,166 | | |
$ | 148.11 | | |
| 4.24 | | |
$ | - | |
SCHEDULE
OF STOCK OUTSTANDING AND EXERCISABLE
Exercise Price | | |
Number of
Options | | |
Remaining Life
In Years | | |
Number of Options
Exercisable | |
$ | 23.00-75.00 | | |
| 44,368 | | |
| 5.01 | | |
| 44,368 | |
| 75.01-150.00 | | |
| 6,476 | | |
| 4.01 | | |
| 6,476 | |
| 150.01-225.00 | | |
| 6,079 | | |
| 3.43 | | |
| 6,079 | |
| 225.01-300.00 | | |
| 33,133 | | |
| 3.45 | | |
| 33,133 | |
| 300.01-321.00 | | |
| 2,110 | | |
| 3.35 | | |
| 2,110 | |
| | | |
| 92,166 | | |
| | | |
| 92,166 | |
The
aggregate intrinsic value of outstanding stock options was $0, based on options with an exercise price less than the Company’s
stock price of $0.99 as of March 31, 2023, which would have been received by the option holders had those option holders exercised their
options as of that date.
The
fair value of all options that vested during the three months ended March 31, 2023 and 2022 was $0 and $0, respectively. Unrecognized
compensation expense of $0 as of March 31, 2023 will be expensed in future periods.
NOTE
16 – RELATED PARTY TRANSACTIONS
On
January 1, 2023, the Company entered into a lease agreement for the Company’s Chesapeake location with an entity controlled by
the Company’s Chief Executive Officer. Under the terms of the lease agreement, the Company pays $9,000 per month in rent, increasing
3% on January 1st of each year. The lease expires on January 1, 2025 and the Company has two options to extend the lease by a term of
five years per option.
As
of March 31, 2023, the Company leases 13 scrap yard facilities by an entity controlled by the Company’s Chief Executive
Officer, including the lease for the Chesapeake location described above. During the three months ended March 31, 2023, the Company
had a rent expense of $672,557
to an entity controlled by the Company’s Chief Executive Officer. As of March 31, 2023 and December 31, 2022, the Company owed
$847,474
and 317,781, respectively, in accrued rent to an entity controlled by the Company’s Chief Executive Officer. See Note 11
– Leases.
NOTE
17 – SUBSEQUENT EVENTS
The
Company evaluates events that have occurred after the balance sheet date but before the unaudited condensed consolidated financial statements
are issued.
In April 2023, we are opening a metal
recycling facility in Cleveland, Ohio.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes
contained in Part I, Item 1 of this Quarterly Report. Please also refer to the note about forward-looking information for information
on such statements contained in this Quarterly Report immediately preceding Part I, Item 1.
Overview
We
were formed 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.” 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 third 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 143 full-time employees as of May 9, 2023.
Competitors
We
compete with other metal recycling facility operators, such as Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) and are focused on utilizing
technology to create operating efficiencies and competitive advantages over our peers.
Products
and Services
Our
main product is selling ferrous metal, which is used in the recycling and production of finished steel. It is categorized into heavy
melting steel, plate and structural, and shredded scrap, with various grades of each of those categorized based on the content, size
and consistency of the metal. All of these attributes affect the metal’s value.
We
also process nonferrous metals such as aluminum, copper, stainless steel, nickel, brass, titanium, lead, alloys and mixed metal products.
Additionally, we sell the catalytic converters recovered from end-of-life vehicles to processors which extract the nonferrous precious
metals such as platinum, palladium and rhodium.
We
provide metal recycling services to a wide range of suppliers, including large corporations, industrial manufacturers, retail customers,
and government organizations.
Pricing
and Customers
Prices
for our ferrous and nonferrous products are based on prevailing market rates and are subject to market cycles, worldwide steel demand,
government regulations and policy, and supply of products that can be processed into recycled steel. Our main buyers adjust the prices
they pay for scrap metal products based on market rates usually on a monthly or bi-weekly basis. We are usually paid for the scrap metal
we deliver to customers within 14 days of delivery.
Based
on any price changes from our customers or our other buyers, we in turn adjust the price for unprocessed scrap we pay suppliers in order
to manage the impact on our operating income and cashflows.
The
spread we are able to realize between the sales prices and the cost of purchasing scrap metal is determined by a number of factors, including
transportation and processing costs. Historically, we have experienced sustained periods of stable or rising metal selling prices, which
allow us to manage or increase our operating income. When selling prices decline, we adjust the prices we pay customers to minimize the
impact to our operating income.
Sources
of Unprocessed Metal
Our
main sources of unprocessed metal we purchase are end-of-life vehicles, old equipment, appliances and other consumer goods, and scrap
metal from construction or manufacturing operations. We acquire this unprocessed metal from a wide base of suppliers including large
corporations, industrial manufacturers, retail customers, and government organizations who unload their metal at our facilities or we
pick it up and transport it from the supplier’s location. Currently, our operations and main suppliers are located in the Hampton
Roads and northeastern North Carolina markets. In the second quarter of 2023, we are expanding our operations by opening a metal recycling
facility in Cleveland, Ohio.
Our
supply of scrap metal is influenced by overall health of economic activity in the United States, changes in prices for recycled metal,
and, to a lesser extent, seasonal factors such as severe weather conditions, which may prohibit or inhibit scrap metal collection.
For
the Three Months Ended March 31, 2023 and 2022
| |
For the three months ended March 31, | |
| |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Revenue | |
$ | 9,043,422 | | |
$ | 9,921,238 | | |
$ | (877,816 | ) | |
| (8.85 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross Profit | |
| 4,726,611 | | |
| 4,264,258 | | |
| 462,353 | | |
| 10.84 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| 6,661,787 | | |
| 4,461,953 | | |
| 2,199,834 | | |
| 49.30 | % |
| |
| | | |
| | | |
| | | |
| | |
Loss from Operations | |
| (1,935,176 | ) | |
| (197,695 | ) | |
| (1,737,481 | ) | |
| 878.87 | % |
| |
| | | |
| | | |
| | | |
| | |
Other Expense | |
| (2,090,499 | ) | |
| (4,977,781 | ) | |
| 2,887,282 | | |
| (58.00 | )% |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (4,025,675 | ) | |
$ | (5,175,476 | ) | |
$ | 1,149,801 | | |
| (22.22 | )% |
Revenues
For
the three months ended March 31, 2023, we generated $9,043,422 in revenues, as compared to $9,921,238 during the same period in 2022,
decrease of $877,816. This decrease was primarily due to a decline in metal prices. The $9,043,422 in revenue includes $42,790 in rental income, $7,111,025 in revenue generated from the sale of metal,
$1,872,979 generated from hauling services, and $16,627 in miscellaneous revenue, including from the sale of gas from scrap cars.
Our
cost of revenues decreased to $4,316,811 for the three months ended March 31, 2023 from $5,656,980 during the same period in 2022, a
decline of $1,340,169, primarily due to a decline in metal prices.
Our
gross profit was $4,726,611 during the three months ended March 31, 2023, an increase of $462,353 from $4,264,258 during the same period
in 2022 primarily due to the margins on the Company’s hauling and rental
revenue.
Operating
Expenses
For
the three months ended March 31, 2023 and 2022, our operating expenses were $6,661,787 and $4,461,953 respectively, an increase of $2,199,834.
There was an increase in payroll and related expenses of $661,459 as payroll and related expenses were $1,951,259 for the three months
ended March 31, 2023 as compared to $1,289,800 for the same period in 2022 which was the result of an increase in our labor force. Advertising
expense decreased by $10,708 to $5,522 for the three months ended March 31, 2023 as compared to $16,230 for the same period in 2022 as
the Company focused on operations. Depreciation of fixed assets, along with amortization of intangible assets, increased by $395,097
to $1,268,853 for the three months ended March 31, 2023 from $873,756 in 2022 as a result of the Company acquiring more fixed assets
during fiscal year 2022. There were hauling and equipment maintenance costs of $1,250,717 during the three months ended March 31, 2023,
as compared to $800,438 in 2022, an increase of $450,279, due to the Company expanding its fleet of trucks. Consulting,
accounting, and legal expenses decreased to $273,073 during the three months ended March 31, 2023 from $365,952 during the same period
in 2022, a decrease of $92,879 as a result of the Company not having significant offerings or corporate activity in 2023. There was
an increase in rent expenses as a result of the Company adding additional facilities, increasing $148,306 from $875,403 during the three
months ended March 31, 2022 to $1,023,709 during the same period in 2023.
Our
other general and administrative expenses increased to $888,654 for the three months ended March 31, 2023 from $240,374 for the same
period in 2022, an increase of $648,280, as a result of the Company’s operations expanding.
The
increase of these expenditures resulted in our total operating expenses increasing to $6,661,787 during the three months ended March
31, 2023 compared to $4,461,953 during the three months ended March 31, 2022, an increase of $2,199,834.
Loss
from Operations
Our
loss from operations increased by $1,737,481 to $1,935,176 during the three months ended March 31, 2023, from $197,695 during the three
months ended March 31, 2022 for the reasons discussed above.
Other
Expense
During
the three months ended March 31, 2023, we incurred other expenses of $(2,090,499), as compared to $(4,977,781) for the same period in
2022, a decrease of $2,887,282. There was a gain on settlement of non-convertible notes and advances of $75,005 and $163,420 for the three
months ended March 31, 2023 and 2022, respectively. Interest expenses and amortization of debt discount decreased to $(2,165,504) during
the three months ended March 31, 2023 from $(19,405,677) during the three months ended March 31, 2022. There was no change in the fair
value of derivative liabilities during the three months ended March 31, 2023, as compared to a gain of $14,264,476 during the three months
ended March 31, 2022.
Net
Loss
Our
net loss was $4,025,675 during the three months ended March 31, 2023 as compared to $5,175,475 during the same
period in 2022, a change of $1,149,800, for the reasons discussed above.
Liquidity
and Capital Resources
Net cash used in
operating activities for the three months ended March 31, 2023 was $203,965 as compared to $53,764 provided by operating activities
for the three months ended March 31, 2022. For the three months ended March 31, 2023, the cash flows used in operating activities
were driven by a net loss of $4,025,675, amortization of right of use assets (related-party) of $602,404, amortization of right of
use assets of $43,226, depreciation and amortization of $1,268,853, accrual of due to related parties of $529,693 increase
of prepaid expenses of $42,262, an increase of accounts payable and accrued expenses of $812,188, a decrease in operating lease
liabilities of $95,160, a decrease in operating lease liabilities (related-party) of $574,454, a gain on the
settlement of non-convertible notes and accrued interest of $75,005 interest and amortization of debt discount of $1,861,971, an
increase in accounts receivable of $144,269, increases in inventories of $303,826, increase in security deposit of $25,000, and a
decrease in accrued payroll of $36,649. For the three months ended March 31, 2022, the cash flows generated by operating activities
were driven by a net loss of $5,175,475, amortization of right of use assets (related-party) of $411,349, amortization of right of
use assets of $10,490, depreciation and amortization of $873,756, payment of accrued rent to a related party of $122,865, increase
of prepaid expenses of $90,522, decreases of accounts payable and accrued expenses of $89,697, a decrease in operating lease
liabilities of $4,776, a decrease in operating lease liabilities (related-party) of $421,526, largely offset by a gain on the
settlement of convertible notes and accrued interest of $163,420, interest and amortization of debt discount of $19,405,676, change
in the value of derivative liabilities of $14,264,476, increases in inventories of $348,073, increase of accrued payroll of $55,530,
and a decrease in environmental remediation liabilities of $22,207.
Net cash used in investing
activities was $712,335 and $1,121,793 for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March
31, 2023, there was cash used in the purchase of equipment of $712,335. For the three months ended March 31, 2022, there was cash used
in the purchase of equipment of $1,121,793, of which $152,500 was paid to a related-party.
Net cash provided by
financing activities was $370,581 during the three months ended March 31, 2023, as compared to cash used in financing activities of
$100,000 during the three months ended March 31, 2022. During the three months ended March 31, 2023, the Company received $1,876,109
from the issuance of factoring advances and $1,000,000 from the issuance of non-convertible notes, while utilizing $519,543 in the repayment of non-convertible notes and utilizing $1,985,985 for
the repayment of factoring advances. During the three months ended March 31, 2022, the Company utilized $100,000 to settle a
non-convertible debt note.
Capital
Resources
As
of March 31, 2023, we had cash on hand of $276,085. We currently have no external sources of liquidity such as arrangements with credit
institutions that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access
to capital.
Required
Capital over the Next Fiscal Year
As
of March 31, 2023, the Company had cash of $276,085 and a working capital deficit (current liabilities in excess of current assets) of
$21,320,881. The accumulated deficit as of March 31, 2023 was $366,294,690. 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.
The
Company believes it could generate positive cashflows from operating activities going forward and may not need to raise any additional
capital to continue operations. Should the Company choose to raise capital, it believes it can do so through non-equity based instruments
such as non-convertible notes, lines of credit, and cash advances.
If
the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing,
if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing
or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant
debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will be
impacted by market conditions and the price of the Company’s common stock. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Contractual
Obligations
Our
contractual obligations are included in our notes to the condensed consolidated financial statements included in Part I, Item I of this
Quarterly Report on Form 10-Q. To the extent that funds generated from our operations, together with our existing capital resources,
are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings. No assurance
can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.
Critical
Accounting Policies and Estimates
For
a discussion of our accounting policies and related items, please see the notes to the condensed consolidated financial statements, included
in Part I, Item 1 of this Quarterly Report on Form 10-Q.