Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 18
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Mine Safety Disclosures 19
Item 6. Reserved 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9A. Controls and Procedures 28
Item 9B. Other Information 29
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections 29
PART III
Item 10. Directors, Executive Officers and Corporate Governance 29
Item 11. Executive Compensation 33
Item 14. Principal Accountant Fees and Services 41
Item 15. Exhibits and Financial Statement Schedules 42
I
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements
in this Annual Report on Form 10-K (“Annual Report”) may be “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”).
Forward-looking
statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or
any other statements relating to our future activities or other future events or conditions. These statements are often, but not always,
made through the use of words or phrases such as “believe,” “will,” “may,” “could,” “continue,”
“should,” “contemplate,” “expect,” “anticipate,” “estimate,” “intend,”
“target,” “forecast,” “outlook,” “guidance,” “project,” “potential,”
“plan” and “would,” and similar expressions that convey uncertainty of future events or outcomes are intended
to identify forward-looking statements. These statements are based on current expectations, estimates and projections about our business
based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from
what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A.
Risk Factors” and elsewhere in this Annual Report on Form 10-K.
You
are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report
on Form 10-K. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly
update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise,
after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events, except as required by law.
You
should read this Annual Report with the understanding that our actual future results, levels of activity, performance, and events and
circumstances may be materially different from what we expect.
II
PART
I
On
October 19, 2021, we changed our corporate name from MassRoots, Inc. to Greenwave Technology Solutions, Inc. We will not distinguish
between our prior and current corporate name and will refer to our current corporate name throughout this Annual Report on Form 10-K.
As such, unless expressly indicated or the content indicates otherwise, as used in this Annual Report on Form 10-K, the terms “Registrant,”
“Company,” “Greenwave,” “we,” “us,” and “our” refers to Greenwave Technology
Solutions, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.
This
Annual Report contains additional trade names, trademarks, and service marks of other companies, which are the property of their respective
owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship
with, or endorsement or sponsorship of us by, these other companies.
ITEM
1. BUSINESS
Overview
We
were formed in April 26, 2013 as a technology platform developer under the name MassRoots, Inc. In October 2021, we changed our corporate
name from “MassRoots, Inc.” to “Greenwave Technology Solutions, Inc.” We sold all of our social media assets
on October 28, 2021 for cash consideration equal to $10,000 and has discontinued all operations related to its social media business.
On September 30, 2021, we closed our acquisition of Empire Services, Inc. (“Empire”), which operates 14 metal recycling facilities
in Virginia, North Carolina, and Ohio. The acquisition was effective October 1, 2021 upon the effectiveness of the Certificate of Merger
in Virginia.
Upon
the acquisition of Empire, we transitioned into the scrap metal industry which involves collecting, classifying and processing appliances,
construction material, end-of-life vehicles, boats, and industrial machinery. We process these items by crushing, shearing, shredding,
separating, and sorting, into smaller pieces and categorize these recycled ferrous, nonferrous, and mixed metal pieces based on density
and metal prior to sale. In cases of scrap cars, we remove the catalytic converters, aluminum wheels, and batteries for separate processing
and sale prior to shredding the vehicle. We have designed our systems to maximize the value of metals produced from this process.
We
operate an automotive shredder at our Kelford, North Carolina location and a second automotive shredder at our Carrollton, Virginia is
expected to come online in the second quarter of 2023. Our shredders are designed to produce a denser product and, in concert with advanced
separation equipment, more refined recycled ferrous metals, which are more valuable as they require less processing to produce recycled
steel products. In totality, this process reduces large metal objects like auto bodies into baseball-sized pieces of shredded recycled
metal.
The
shredded pieces are then placed on a conveyor belt under magnetized drums to separate the ferrous metal from the mixed nonferrous metal
and residue, producing consistent and high-quality ferrous scrap metal. The nonferrous metals and other materials then go through a number
of additional mechanical systems which separate the nonferrous metal from any residue. The remaining nonferrous metal is further processed
to sort the metal by type, grade, and quality prior to being sold as products, such as zorba (mainly aluminum), zurik (mainly stainless
steel), and shredded insulated wire (mainly copper and aluminum).
One
of our main corporate priorities is to open a facility with rail or deep-water port access to enable us to efficiently transport our
products to domestic steel mills and overseas foundries. Because this would greatly expand the number of potential buyers of our processed
scrap products, we believe opening a facility with port or rail access could result in an increase in both the revenue and profitability
of our existing operations.
Empire
is headquartered in Chesapeake, Virginia and employs 143 people as of March 21, 2023.
Background
We
were incorporated in the state of Delaware on April 26, 2013 as a technology platform. Our principal executive office is located at 4016
Raintree Rd, Ste 300, Chesapeake, VA 23321, and our telephone number is (757) 966-1432.
On
January 25, 2017, we consummated a reverse triangular merger (the “Whaxy Merger”) pursuant to which we acquired all of the
outstanding common stock of DDDigtal Inc. d.b.a. Whaxy (“DDDigtal”), a Colorado corporation. Upon closing of the Whaxy Merger,
each share of DDDigtal’s common stock was exchanged for such number of shares of our common stock (or a fraction thereof) based
on an exchange ratio equal to approximately 5.273-for-1, such that 1 share of our common stock was issued for every 5.273 shares of DDDigtal’s
common stock. At the closing of the Whaxy Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole
purpose of effectuating the Whaxy Merger, were converted into and exchanged for one share of common stock of DDDigtal, and all shares
of DDDigtal’s common stock that were outstanding immediately prior to the closing of the Whaxy Merger were automatically cancelled
and retired. Upon the closing of the Whaxy Merger, DDDigtal continued as our surviving wholly-owned subsidiary, and the merger subsidiary
ceased to exist.
On
July 13, 2017, we consummated a reverse triangular merger (the “Odava Merger”) pursuant to which we acquired all of the outstanding
common stock of Odava Inc. (“Odava”), a Delaware corporation. Upon closing of the Odava Merger, each share of Odava’s
common stock was exchanged for such number of shares of our common stock (or a fraction thereof), based on an exchange ratio equal to
approximately 4.069-for-1, such that 1 share of our common stock was issued for every 4.069 shares of Odava’s common stock. At
the closing of the Odava Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole purpose of effectuating
the Odava Merger, were converted into and exchanged for one share of common stock of Odava, and all shares of Odava’s common stock
that were outstanding immediately prior to the closing of the Odava Merger automatically cancelled and retired. Upon the closing of the
Odava Merger, Odava continued as our surviving wholly-owned subsidiary, and the merger subsidiary ceased to exist.
On
October 1, 2021, we consummated a reverse triangular merger (the “Empire Merger”) pursuant to which we acquired all of the
outstanding common stock of Empire Services, Inc. (“Empire”), a Virginia corporation. Upon closing of the Empire Merger,
all of the shares of Empire’s common stock was exchanged for 1,650,000 shares of our common stock. At the closing of the Empire
Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole purpose of effectuating the Empire Merger,
were converted into and exchanged for one share of common stock of Empire, and all shares of Empire’s common stock that were outstanding
immediately prior to the closing of the Empire Merger automatically cancelled and retired. Upon the closing of the Empire Merger, Empire
continued as our surviving wholly-owned subsidiary, and the merger subsidiary ceased to exist.
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.
Technology
In
May 2021, we launched our new website. For the first time, Empire’s customers can see the current prices for each type of scrap
metal. Our website is also integrated with Google’s Business Profiles, listing many of Empire’s locations on Google for the
first time. In late May 2021, the Empire launched a junk car buying platform, where people looking to sell their scrap cars can get a
quote within minutes, and integrated Google Ads, enabling Empire to micro-target their advertising based on location, age, income, and
other factors.
Additionally,
during 2021, the Company moved the operations of each of their yards to WeighPay, a cloud-based Enterprise Resource Planning “ERP”
system, which enables management to track sales, inventory, and operations at each facility in real time, while also establishing stronger
internal controls and systems. Additionally, in 2021, the Company moved Empire’s accounting systems over to a cloud-based QuickBooks
to facilitate collaboration and further growth.
The
technology systems and improvements Empire implemented have resulted in a significant increase in new customers, hundreds of quotes and
dozens of purchases of junk cars, and we believe a material increase in Empire’s revenues as a result of these improvements. These
systems have also streamlined Empire’s accounting and internal operations to enable any future acquisitions to be closed quickly
and efficiently. Lastly, through the data-driven decision processes that have been introduced, Empire’s strategy on future locations
and pricing is being informed by accurate and relevant data.
Now
that strong foundational systems are in place, management has begun to repurpose Greenwave’s technology platform that it developed
from 2013 to 2020 into a marketing and CRM platform for scrap metal yards. This system will enable each facility to:
● Send text and email updates and special deals to their customers;
● Implement a points-based rewards system;
● Receive quotes for junk cars in real-time;
● Leave and respond to reviews of scrap yards; and
● View analytics and conversion data.
Over
the past ten years, Greenwave has invested approximately $10 million developing these technologies which we believe we can re-purpose
for a fraction of the cost of development, give our metal recycling facilities and those who pay to use our platform a significant competitive
advantage, and grow our revenues and profits as a result.
There
are few companies developing technology solutions for the scrap metal industry and we believe that by focusing our experience and assets
on this highly-profitable but often overlooked industry, we can create significant value for our shareholders.
Competition
We
compete with several large, well-financed recyclers of scrap metal, steel mills which own their own scrap metal processing operations,
and with smaller metal recycling companies. Demand for metal products are sensitive to global economic conditions, the relative value
of the U.S. dollar, and availability of material alternatives, including recycled metal substitutes. Prices for recycled metal are also
influenced by tariffs, quotas, and other import restrictions, and by licensing and government requirements.
We
aim to create a competitive advantage through our ability to process significant volumes of metal products, our use of processing and
separation equipment, the number and location of our facilities, and the operating synergies we have been able to develop based on our
experience.
Recent
Developments
In
July 2022, the Company’s common stock began trading on the Nasdaq Capital Market (“Nasdaq”). Simultaneously with the listing of the Company’s
common stock on Nasdaq on July 22, 2022, the Company’s senior secured convertible notes in the principal amount of $37,714,966
together with accrued interest in the amount of $1,470,884 were converted into shares of common stock at a conversion price of $6.02
per share.
In
November 2022, we opened a metal recycling facility in Fairmont, NC.
In
January 2023, we leased a property in Chesapeake, VA.
In
April 2023, we are opening a metal recycling facility in Cleveland, Ohio.
Intellectual
Property
None.
Employees
and Human Capital Resources
Greenwave
has 143 full-time employees as of March 21, 2023.
We
view our diverse employee population and our culture as key to our success. Our company culture prioritizes learning, supports growth
and empowers us to reach new heights. We recruit employees with the skills and training relevant to succeed and thrive in their functional
responsibilities. We assess the likelihood that a particular candidate will contribute to the Company’s overall goals, and beyond
their specifically assigned tasks. Depending on the position, our recruitment reach can be local as well as national. We provide competitive
compensation and best in class benefits that are tailored specifically to the needs and requests of our employees. During 2021 and 2022,
we worked to manage through the effects of the COVID-19 pandemic and entered 2023 stronger than ever. As appropriate, others were provided
the option of working remotely or at our facilities with appropriate safeguards. We uphold our commitment to shareholders by working
hard and being thoughtful and deliberate in how we use resources.
Available
Information
We
file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the Securities
and Exchange Commission (SEC). Our filings with the SEC are available free of charge on the SEC’s website at www.sec.gov
and on our website under the “Investors” tab as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC.
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. This Annual Report on Form 10-K contains the risks applicable to an investment
in our securities. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known or unknown
risks might cause you to lose all or part of your investment in the offered securities.
Risk
Factors Summary
Risks
Relating to Our Business and Industry
● Climate change may adversely impact our facilities and our ongoing operations.
● We may need to obtain additional financing to fund our operations.
Risks
Relating to Government Laws and Regulations
● We may not realize our deferred tax assets in the future.
Risks
Relating to Intellectual Property
Risks
Related to our Common Stock
● You could lose some or all of your investment.
Risks
Relating to Our Business and Industry
The
coronavirus disease (COVID-19) pandemic has had, and may continue to have, an adverse effect on our business, results of operations,
financial condition and cash flows. Future epidemics or other public health emergencies could have similar effects.
Our
operations expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic
which spread to many other countries including the United States. In March 2020, the World Health Organization characterized COVID-19
as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak resulted in governments
around the world implementing stringent measures to help control the spread of the virus, followed by phased regulations and guidelines
for reopening communities and economies. In addition, governments and central banks in several parts of the world have enacted fiscal
and monetary stimulus measures to counteract the impacts of COVID-19.
We
are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with
federal guidelines and with state and local orders to date, we have continued to operate across our footprint. Notwithstanding our continued
operations, COVID-19 has negatively impacted and may have further negative impacts on our financial performance, operations, supply chain
and flows of raw materials, transportation and logistics networks and customers. Due in large part to the impacts of and response to
the spread of COVID-19, global economic conditions declined sharply during the second quarter of fiscal 2020, resulting in historic unemployment
levels, rapid changes in supply and demand in certain industry sectors, businesses switching to remote work or ceasing operations, and
consumers eliminating, restricting or redirecting spending. The economic downturn adversely affected demand for our products and contributed
to weaker supply and demand conditions affecting prices and volumes in the markets for our products, services and raw materials. During
fiscal 2020, in particular the second quarter, our operations, margins and results were adversely impacted by lower sales volumes of
recycled metals driven by severely constrained supplies of scrap metal including end-of-life vehicles, leading to lower processed volumes
at our recycling facilities. We also experienced significant decreases in selling prices for our recycled metal products, softer demand,
supply chain disruptions, reduced availability of shipping containers, and other logistics constraints. During 2021, metal prices recovered,
contributing to an increase in revenues, although supply chain disruptions persisted. During 2022, we experienced minimal impacts from
the COVID-19 pandemic.
The
COVID-19 pandemic could further negatively impact our business or results of operations through the temporary closure of our operating
locations or those of our customers or suppliers, disrupting scrap metal inflows to our recycling facilities, limiting our ability to
process scrap metal through our shredder, inhibiting the manufacture of steel products at our steel mill, and delaying or preventing
deliveries to our customers, among others. In addition, the ability of our employees and our suppliers’ and customers’ employees
to work may be significantly impacted by individuals contracting or being exposed to COVID-19, or as a result of prevention and control
measures, which may significantly hamper our production throughout the supply chain and constrict sales channels.
Because
the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, continually changing and difficult
to predict, the pandemic’s impacts on our operations and financial performance, as well as its impact on our ability to successfully
execute our business strategies and initiatives, are also uncertain and difficult to predict. Further, the ultimate impact of the COVID-19
pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited
to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including
restrictions on travel and transportation and workforce pressures); the impact of the pandemic and actions taken in response on global
and regional economies and on levels of economic activity; the availability of federal, state or local funding programs; general economic
uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the
pace of recovery when the COVID-19 pandemic subsides. While we expect the COVID-19 pandemic to continue to negatively impact our results
of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19
means the related financial impact cannot be reasonably estimated at this time.
We
operate in industries that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on our
operating results, financial condition and cash flows.
Demand
for most of our products is cyclical in nature and sensitive to general economic conditions. The timing and magnitude of the cycles in
the industries in which our products are used, including global steel manufacturing and nonresidential and infrastructure construction
in the U.S., are difficult to predict. The cyclical nature of our operations tends to reflect and be amplified by changes in economic
conditions, both domestically and internationally, and foreign currency exchange fluctuations. Economic downturns or a prolonged period
of slow growth in the U.S. and foreign markets or any of the industries in which we operate could have a material adverse effect on our
results of operations, financial condition and cash flows.
Changing
conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions may
adversely affect our operating results, financial condition and cash flows.
A
significant portion of the metal we process is sold to end customers located outside the U.S., including countries in Asia, the Mediterranean
region and North, Central and South America. Our ability to sell our products profitably, or at all, is subject to a number of risks
including adverse impacts of political, economic, military, terrorist or major pandemic events; labor and social issues; legal and regulatory
requirements or limitations imposed by foreign governments including quotas, tariffs or other protectionist trade barriers, sanctions,
adverse tax law changes, nationalization, currency restrictions, or import restrictions for certain types of products we export; and
disruptions or delays in shipments caused by customs compliance or other actions of government agencies. The occurrence of such events
and conditions may adversely affect our operating results, financial condition and cash flows.
For
example, in fiscal 2017, regulators in China began implementing the National Sword initiative involving inspections of Chinese industrial
enterprises, including recyclers, in order to identify rules violations with respect to discharge of pollutants or illegally transferred
scrap imports. Restrictions resulting from the National Sword initiative include a ban on certain imported recycled products, lower contamination
limits for permitted recycled materials, and more comprehensive pre- and post-shipment inspection requirements. Disruptions in pre-inspection
certifications and stringent inspection procedures at certain Chinese destination ports have limited access to these destinations and
resulted in the renegotiation or cancellation of certain nonferrous customer contracts in connection with the redirection of such shipments
to alternate destinations. Commencing July 1, 2019, China imposed further restrictions in the form of import license requirements and
quotas on certain scrap products, including certain nonferrous products we sell. Chinese import licenses and quotas are issued to Chinese
scrap consumers on a quarterly basis for the importation of scrap products. Since the implementation of this program, the size of import
quotas has been steadily reduced on a quarter-over-quarter basis. We have continued to sell our recycled metal products into China; however,
additional or modified license requirements and quotas, as well as additional product quality requirements, may be issued in the future.
We believe that the potential impact on our recycling operations of the Chinese regulatory actions described above could include requirements
that would necessitate additional processing and packaging of certain nonferrous recycled scrap metal products, increased inspection
and certification activities with respect to exports to China, or a change in the use of our sales channels in the event of delays in
the issuance of licenses, restrictive quotas or an outright ban on certain or all of our recycled metals products by China. As regulatory
developments progress, we may need to make further investments in nonferrous processing equipment beyond existing planned investments
where economically justified, incur additional costs in order to comply with new inspection requirements, or seek alternative markets
for the impacted products, which may result in lower sales prices or higher costs and may adversely impact our business or results of
operations.
In
March 2018, the U.S. imposed a 25% tariff on certain imported steel products and a 10% tariff on certain imported aluminum products under
Section 232 of the Trade Expansion Act of 1962. These new tariffs, along with other U.S. trade actions, have triggered retaliatory actions
by certain affected countries, and other foreign governments have initiated or are considering imposing trade measures on other U.S.
goods. For example, China has imposed a series of retaliatory tariffs on certain U.S. products, including a 25 percent tariff on all
grades of U.S. scrap and an additional 25 percent tariff on U.S. aluminum scrap. These tariffs and other trade actions could result in
a decrease in international steel demand beyond that already experienced and further negatively impact demand for our products, which
would adversely impact our business. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. or other
countries, the impact of the trade actions on our operations or results remains uncertain, but this impact could be material.
Changes
in the availability or price of inputs such as raw materials and end-of-life vehicles could reduce our sales.
Our
businesses require certain materials that are sourced from third party suppliers. Industry supply conditions generally involve risks,
including the possibility of shortages of raw materials, increases in raw material and other input costs, and reduced control over delivery
schedules. We procure our scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have
no obligation to sell scrap metal to us. In periods of declining or lower scrap metal prices suppliers may elect to hold scrap metal
to wait for higher prices or intentionally slow their metal collection activities, tightening supply. If a substantial number of suppliers
cease selling scrap metal to us, we will be unable to recycle metal at desired levels, and our results of operations and financial condition
could be materially adversely affected. For instance, in the second quarter of fiscal 2020 a lower price environment for recycled metals
in combination with economic and other restrictions on suppliers relating to COVID-19 severely constricted the supply of scrap metal
including end-of-life vehicles, which resulted in significantly reduced processed volumes. A slowdown of industrial production in the
U.S. may also reduce the supply of industrial grades of metal to the metals recycling industry, resulting in less recyclable metal available
to process and market. Increased competition for domestic scrap metal, including as a result of overcapacity in the scrap recycling industry
in the U.S. and Canada, may also reduce the supply of scrap metal available to us. Failure to obtain a steady supply of scrap material
could both adversely impact our ability to meet sales commitments and reduce our operating margins. Failure to obtain an adequate supply
of end-of-life vehicles could adversely impact our ability to attract customers and charge admission fees and reduce our parts sales.
Failure to obtain raw materials and other inputs to steel production such as graphite electrodes, alloys and other required consumables,
could adversely impact our ability to make steel to the specifications of our customers.
Significant
decreases in scrap metal prices may adversely impact our operating results.
The
timing and magnitude of the cycles in the industries in which we operate are difficult to predict and are influenced by different economic
conditions in the domestic market, where we typically acquire our raw materials, and foreign markets, where we typically sell the majority
of our products. Purchase prices for scrap metal including end-of-life vehicles and selling prices for recycled scrap metal are subject
to market forces beyond our control. While we attempt to respond to changing recycled scrap metal selling prices through adjustments
to our metal purchase prices, our ability to do so is limited by competitive and other market factors. As a result, we may not be able
to reduce our metal purchase prices to fully offset a sharp reduction in recycled scrap metal sales prices, which may adversely impact
our operating income and cash flows. In addition, a rapid decrease in selling prices may compress our operating margins due to the impact
of average inventory cost accounting, which causes cost of goods sold recognized in the Consolidated Statements of Operations to decrease
at a slower rate than metal purchase prices.
For
instance, in fiscal 2020, weaker market conditions for recycled metals, including as a result of the sharp decline in global economic
conditions during the third quarter of fiscal 2020 in large part due to the impacts of the COVID-19 pandemic, and structural changes
to the market for certain recycled nonferrous products primarily from Chinese import restrictions and tariffs, resulted in periods of
sharply declining commodity prices and lower average net selling prices for our ferrous and nonferrous recycled metal products compared
to fiscal 2019. As a result, operating margins in fiscal 2020 compressed as the decline in average net selling prices for our recycled
metal products outpaced the reduction in purchase costs for raw materials. In fiscal 2021, prices for our ferrous and non-ferrous metals
increased significantly, resulting in an increase in revenue and purchasing costs for raw materials. In fiscal 2022, prices for our ferrous
and non-ferrous metals declined during the second half of the year, but remained historically strong, resulting in a decrease in revenue
and purchasing costs for raw materials.
Imbalances
in supply and demand conditions in the global steel industry may reduce demand for our products.
Economic
expansions and contractions in global economies can result in supply and demand imbalances in the global steel industry that can significantly
affect the price of commodities used and sold by our business, as well as the price of and demand for finished steel products. In a number
of foreign countries, such as China, steel producers are generally government-owned and may therefore make production decisions based
on political or other factors that do not reflect free market conditions. In the past, overcapacity and excess steel production in these
foreign countries resulted in the export of aggressively priced semi-finished and finished steel products. This led to disruptions in
steel-making operations within other countries, negatively impacting demand for our recycled scrap metal. Existing or new trade laws
and regulations may cause or be inadequate to prevent disadvantageous trade practices, which could have a material adverse effect on
our financial condition and results of operations. Although trade regulations restrict or impose duties on the importation of certain
products, if foreign steel production significantly exceeds consumption in those countries, global demand for our recycled scrap metal
products could decline and imports of steel products into the U.S. could increase, resulting in lower volumes and selling prices for
our recycled metal products and finished steel products.
Impairment
of long-lived assets and equity investments may adversely affect our operating results.
Our
long-lived asset groups are subject to an impairment assessment when certain triggering events or circumstances indicate that their carrying
value may be impaired. If the carrying value exceeds our estimate of future undiscounted cash flows of the operations related to the
asset group, an impairment is recorded for the difference between the carrying amount and the fair value of the asset group. The results
of these tests for potential impairment may be adversely affected by unfavorable market conditions, our financial performance trends,
or an increase in interest rates, among other factors. If, as a result of the impairment test, we determine that the fair value of any
of our long-lived asset groups is less than its carrying amount, we may incur an impairment charge that could have a material adverse
effect on our financial condition and results of operations.
We
may be unable to renew facility leases, thus restricting our ability to operate.
We
lease a significant portion of our facilities. The cost to renew such leases may increase significantly, and we may not be able to renew
such leases on commercially reasonable terms or at all. Failure to renew these leases or find suitable alternative locations for our
facilities may impact our ability to continue operations within certain geographic areas, which could have a material adverse effect
on our financial condition, results of operations and cash flows.
Increases
in the value of the U.S. dollar relative to other currencies may reduce the demand for our products.
A
significant portion of our recycled scrap metal revenues is generated from sales to foreign customers, which are denominated in U.S.
dollars, including customers located in Asia, the Mediterranean region and North, Central and South America. A strengthening U.S. dollar,
as experienced during recent years including fiscal 2020, makes our products more expensive for non-U.S. customers, which may negatively
impact export sales. A strengthening U.S. dollar also makes imported metal products less expensive, which may result in an increase in
imports of steel products into the U.S. As a result, our finished steel products, which are made in the U.S., may become more expensive
for our U.S. customers relative to imported steel products thereby reducing demand for our products.
Equipment
upgrades, equipment failures and facility damage may lead to production curtailments or shutdowns.
Our
business operations and recycling and manufacturing processes depend on critical pieces of equipment, including information technology
equipment, shredders, nonferrous sorting technology, furnaces and a rolling mill, which may be out of service occasionally for scheduled
upgrades or maintenance or as a result of unanticipated failures. Our facilities are subject to equipment failures and the risk of catastrophic
loss due to unanticipated events such as fires, earthquakes, accidents or violent weather conditions. Interruptions in our processing
and production capabilities and shutdowns resulting from unanticipated events could have a material adverse effect on our financial condition,
results of operations and cash flows.
We
are subject to legal proceedings and legal compliance risks that may adversely impact our financial condition, results of operations
and liquidity.
We
spend substantial resources ensuring that we comply with domestic and foreign regulations, contractual obligations and other legal standards.
Notwithstanding this, we are subject to a variety of legal proceedings and compliance risks in respect of various matters, including
regulatory, safety, environmental, employment, transportation, intellectual property, contractual, import/export, international trade
and governmental matters that arise in the course of our business and in our industry. An outcome in an unusual or significant legal
proceeding or compliance investigation in excess of insurance recoveries could adversely affect our financial condition and results of
operations. For information regarding our current significant legal proceedings and contingencies, see “Legal Proceedings”
in Part I, Item 3 and “Contingencies – Other” within Note 12 – Commitments and Contingencies in the notes to the financial
statements.
Climate
change may adversely impact our facilities and our ongoing operations.
The
potential physical impacts of climate change on our operations are highly uncertain and depend upon the unique geographic and environmental
factors present, for example rising sea levels at deep water port facilities, changing storm patterns and intensities, and changing temperature
levels. As many of our recycling facilities are located near deep water ports, rising sea levels may disrupt our ability to receive scrap
metal, process the scrap metal through our shredders and ship products to our customers. Extreme weather events and conditions, such
as hurricanes, thunderstorms, tornadoes, wildfires and snow or ice storms, may increase our costs or cause damage to our facilities,
and any damage resulting from extreme weather may not be fully insured. Increased frequency and duration of adverse weather events and
conditions may also inhibit construction activity utilizing our products, scrap metal inflows to our recycling facilities, and retail
admissions and parts sales at our auto parts stores. Potential adverse impacts from climate change, including rising temperatures and
extreme weather events and conditions, may create health and safety issues for employees operating at our facilities and may lead to
an inability to maintain standard operating hours.
Catastrophic
events may disrupt our business and impair our ability to provide our platform to clients and consumers, resulting in costs for remediation,
client and consumer dissatisfaction, and other business or financial losses.
Our
operations depend, in part, on our ability to protect our facilities against damage or interruption from natural disasters, power or
telecommunications failures, criminal acts and similar events. Despite precautions taken at our facilities, the occurrence of a natural
disaster, an act of terrorism, vandalism or sabotage, spikes in usage volume or other unanticipated problems at a facility could result
in lengthy interruptions in the availability of our platform. Even with current and planned disaster recovery arrangements, our business
could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses
that we may incur. These factors in turn could further reduce revenue, subject us to liability and lead to decreased usage of our platform
and decrease sales of our advertising placements, any of which could harm our business.
We
depend on a small number of suppliers for the materials necessary to run our business. The loss of these suppliers, or their failure
to supply us with these materials, would materially and adversely affect our business.
We
depend on the availability of key materials for our business from a small number of third-party suppliers. Because there are a limited
number of suppliers for these materials, we may need to engage alternate suppliers to prevent a possible disruption. We do not have any
control over the availability of materials. If we or our manufacturers are unable to purchase these materials on acceptable terms, at
sufficient quality levels, or in adequate quantities, if at all, the successful operation of our business would be delayed or there would
be a shortage in supply, which would impair our ability to generate revenues from our business.
We
have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our 2022 and 2021
revenues.
We
currently derive a significant portion of our revenues from three large corporate customers. For the fiscal year ended December 31,
2022, three certain large customers individually accounted for $17,962,176, $5,332,834, and $4,301,328, or approximately 53%, 16%,
and 13% of our revenues, respectively. For the fiscal year ended December 31, 2021, one customer accounted for $6,682,019, or
approximately 83% of our revenue.
There
are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible
for us to predict the future level of demand for our services that will be generated by this customer or the future demand for the products
and services of this customer in the end-user marketplace. In addition, revenues from larger customers, especially our largest customer
may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions
or other facts, some of which may be outside of our control. Further, some of our contracts with larger customers permit them to terminate
our relationship at any time (subject to notice and certain other provisions). If any of these customers experience declining or delayed
sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services which
could have an adverse effect on our margins and financial position and could negatively affect our revenues and results of operations
and/or trading price of our common stock. If our largest customer terminates our services, such termination would negatively affect our
revenues and results of operations and/or trading price of our common stock.
We
have a limited history upon which an evaluation of our prospects and future performance can be made and have no history of profitable
operations.
We
were incorporated in April 2013 and have a limited operating history and our business is subject to all of the risks inherent in the
establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with development and expansion of a new business enterprise. We may sustain
losses in the future as we implement our business plan. There can be no assurance that we will operate profitably.
We
are highly dependent on the services of key executives, the loss of whom could materially harm our business and our strategic direction.
If we lose key management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience
increases in our compensation costs, our business may materially suffer.
We
are highly dependent on our management team, specifically our Chief Executive Officer, Danny Meeks. While we have an employment agreement
with Danny Meeks, such employment agreement permits Mr. Meeks to terminate such agreement upon notice. If we lose key employees, our
business may suffer. Furthermore, our future success will also depend in part on the continued service of our key management personnel
and our ability to identify, hire, and retain additional personnel. We carry “key-man” life insurance on the life of our
executive officer. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary
for the development of our business. Because of this competition, our compensation costs may increase significantly.
We
may need to obtain additional financing to fund our operations.
We
may need additional capital in the future to continue to execute our business plan. Therefore, we may be dependent upon additional capital
in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise additional
capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange
enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot
obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity
financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations,
covenants and financial ratios that may restrict our ability to operate and grow our business.
Our
independent registered accounting firm has expressed concerns about our ability to continue as a going concern.
The
report of our independent registered accounting firm expresses concern about our ability to continue as a going concern based on our
historical losses from operations and the potential need for additional financing to fund our operations. It is not possible at this
time for us to predict with assurance the potential success of our business. If we cannot continue as a viable entity, we may be unable
to continue our operations and you may lose some or all of your investment in our securities.
In
the past we have experienced material weaknesses in our internal control over financial reporting, which if continued, could impair our
financial condition.
As
reported in Item 9A of this Annual Report on Form 10-K, our management concluded that our internal control over financial reporting was
not effective as of December 31, 2022 and 2021 due to material weaknesses regarding our controls and procedures. The Company did not
have sufficient segregation of duties to support its internal control over financial reporting. Due to our small size and limited resources,
segregation of all conflicting duties has not always been possible and may not be economically feasible in the near term; however, we
do expect to hire additional accounting personnel in the near future. We have and do endeavor to take appropriate and reasonable steps
to make improvements to remediate these deficiencies. If we have continued material weaknesses in our internal financial reporting, our
financial condition could be impaired or we may have to restate our financials, which could cause us to expend additional funds that
would have a material impact on our ability to generate profits and on the success of our business.
Risks
Relating to Government Laws and Regulations
Tax
increases and changes in tax rules may adversely affect our financial results.
As
a company conducting business on a global basis with physical operations throughout North America, we are exposed, both directly and
indirectly, to the effects of changes in U.S., state, local and foreign tax rules. Taxes for financial reporting purposes and cash tax
liabilities in the future may be adversely affected by changes in such tax rules. In many cases, such changes put us at a competitive
disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs through to our customers.
We
may not realize our deferred tax assets in the future.
The
assessment of recoverability of our deferred tax assets is based on an evaluation of existing positive and negative evidence as to whether
it is more-likely-than-not that they will be realized. If negative evidence outweighs positive evidence, a valuation allowance is required.
Impairment of deferred tax assets may result from significant negative industry or economic trends, a decrease in earnings performance
and projections of future taxable income, adverse changes in laws or regulations, and a variety of other factors. Impairment of deferred
tax assets could have a material adverse impact on our results of operations and financial condition and could result in not realizing
the deferred tax assets. Deferred tax assets may require further valuation allowances if it is not more-likely-than-not that the deferred
tax assets will be realized.
Environmental
compliance costs and potential environmental liabilities may have a material adverse effect on our financial condition and results of
operations.
Compliance
with environmental laws and regulations is a significant factor in our business. We are subject to local, state and federal environmental
laws and regulations in the U.S. and other countries relating to, among other matters:
● Waste disposal;
● Air emissions;
● Waste water and storm water management, treatment and discharge;
● The use and treatment of groundwater;
● Soil and groundwater contamination and remediation;
● Climate change;
● Employee health and safety.
We
are also required to obtain environmental permits from governmental authorities for certain operations. Violation of or failure to obtain
permits or comply with these laws or regulations could result in our business being fined or otherwise sanctioned by regulators or becoming
subject to litigation by private parties. Future environmental compliance costs, including capital expenditures for environmental projects,
may increase because of new laws and regulations, changing interpretations and stricter enforcement of current laws and regulations by
regulatory authorities, expanding emissions, groundwater and other testing requirements and new information on emission or contaminant
levels, uncertainty regarding adequate pollution control levels, the future costs of pollution control technology and issues related
to climate change. We have seen an increased focus by federal, state and local regulators on metals recycling and auto dismantling facilities