Greenwave Technology Solutions(GWAV) - 2022 Q4 - Annual Report

PART I Business Greenwave Technology Solutions, Inc. transitioned to a scrap metal recycling operator, managing 14 facilities and integrating technology for efficiency - The company changed its name to Greenwave Technology Solutions, Inc. in October 2021 and fully transitioned into the scrap metal industry by acquiring Empire Services, Inc., which operates 14 metal recycling facilities[20] - The core business involves collecting, processing (crushing, shearing, shredding), and sorting ferrous and nonferrous metals from various sources, including end-of-life vehicles and industrial materials[21] - A key strategic goal is to open a facility with rail or deep-water port access to improve logistics and expand the customer base to domestic steel mills and overseas foundries[24] - The company has implemented technology to enhance operations, including a cloud-based ERP system (WeighPay) for real-time tracking and a junk car buying platform to increase scrap vehicle acquisition[38][39] - Recent developments include listing on the Nasdaq in July 2022, opening a new facility in Fairmont, NC in November 2022, and planning another in Cleveland, OH for April 2023[45][46][48] Risk Factors The company faces significant risks from industry cyclicality, commodity price volatility, customer concentration, and internal control weaknesses - The business is cyclical and highly sensitive to general economic conditions, global market changes (including tariffs and sanctions), and fluctuations in scrap metal prices, which can adversely affect operating results[67][69][74] Customer Concentration Risk (FY 2022 & 2021) | Year | Number of Major Customers | Percentage of Revenue | | :--- | :--- | :--- | | 2022 | Three | 53%, 16%, and 13% respectively | | 2021 | One | 83% | - The company's independent registered accounting firm has expressed concerns about its ability to continue as a going concern, citing historical losses and the potential need for additional financing[93] - Management identified material weaknesses in internal controls over financial reporting as of December 31, 2022, specifically a lack of sufficient segregation of duties[95][96] - The company is highly dependent on its CEO, Danny Meeks. The loss of his services could materially harm the business[90][91] - As of March 29, 2023, company management beneficially owns approximately 39.35% of the outstanding common stock, giving them significant control over stockholder matters[118] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[135] Properties The company primarily leases its scrap yard facilities from a CEO-owned entity, with some properties owned outright - A significant portion of the company's scrap yards are leased from DWM Properties, LLC, which is owned by the company's Chairman and CEO[136][137][138] - Most of the related-party leases for scrap yards expire on January 1, 2024, but include two five-year extension options at the company's election[136][141][145] - The company owns the property for its scrap yard in Portsmouth, VA, as well as several other properties in Suffolk and Portsmouth, VA[148] Legal Proceedings The company resolved a legal dispute with former securities counsel, settling an arbitration award through a payment plan - Former securities counsel, Sheppard Mullin, filed for arbitration for unpaid legal fees of $487,391 and was awarded $459,251[150] - The company entered into a Resolution Agreement in September 2021 to pay the judgment via an initial payment and subsequent monthly installments through February 2023, with all required payments made[151] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[154] PART II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock uplisted to Nasdaq in July 2022, has 131 stockholders, and does not anticipate paying dividends - The company's common stock began trading on the Nasdaq Capital Market under the symbol "GWAV" on July 22, 2022[157] Common Stock Price Range (High/Low) | Period | High ($) | Low ($) | | :--- | :--- | :--- | | 2023 Q1 | 1.54 | 0.78 | | 2022 | | | | Q1 | 14.40 | 3.20 | | Q2 | 8.25 | 3.92 | | Q3 | 8.05 | 1.59 | | Q4 | 1.80 | 0.78 | | 2021 | | | | Q1 | 17.10 | 1.83 | | Q2 | 26.37 | 5.25 | | Q3 | 17.49 | 8.40 | | Q4 | 19.20 | 11.40 | - As of March 29, 2023, there were 131 stockholders of record[159] - The company has never declared or paid dividends and does not plan to in the foreseeable future[160] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, revenues surged to $34.0 million due to an acquisition, but a net loss of $(63.9) million resulted from increased operating and interest expenses, straining liquidity Results of Operations In fiscal year 2022, revenues increased significantly to $34.0 million, but a substantial rise in operating and other expenses led to a net loss of $(63.9) million Comparison of Operations (2022 vs. 2021) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $33,978,425 | $8,098,036 | $25,880,389 | 319.59% | | Gross Profit | $12,440,853 | $2,859,554 | $9,581,299 | 335.06% | | Loss from Operations | $(10,882,922) | $(2,927,564) | $(7,955,358) | 271.74% | | Other Income (Expense) | $(24,160,368) | $1,295,143 | $(25,455,511) | (1,965.46)% | | Net (Loss) Income to Common Stockholders | $(63,859,328) | $2,776,027 | $(66,635,355) | (2,400.39)% | - The significant increase in revenue was primarily due to the full-year impact of the Empire acquisition, which closed on October 1, 2021[173] - Operating expenses increased by $17.5 million, driven by higher payroll ($5.4 million increase), rent ($2.9 million increase), hauling costs ($2.9 million increase), depreciation & amortization ($3.2 million increase), and a goodwill impairment of $2.5 million[176] - Other expenses increased significantly, mainly due to a rise in interest expense to $34.1 million in 2022 from $10.6 million in 2021, and a new warrant expense of $7.4 million[179] Liquidity and Capital Resources As of December 31, 2022, the company had $0.8 million in cash, relying on financing activities like factoring advances and non-convertible notes to fund operations Summary of Cash Flows (2022 vs. 2021) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(2,609,173) | $(2,487,213) | | Net Cash Used in Investing Activities | $(5,936,027) | $(77,666) | | Net Cash Provided by Financing Activities | $6,408,711 | $5,521,687 | - The company's cash position decreased to $821,804 as of December 31, 2022[185] - Financing activities in 2022 were driven by proceeds of $6.5 million from factoring advances and $2.7 million from non-convertible notes[184][186] - The company may need to raise additional capital in the future and currently has no committed arrangements for it[187] Critical Accounting Policies Critical accounting policies involve significant management judgment, particularly in goodwill impairment, derivative liabilities, and deferred tax assets - Key accounting policies requiring significant management estimates include goodwill, intangible assets, derivative liabilities, and deferred tax assets[192][193] - Goodwill is tested for impairment annually on December 31, and in 2022, the company recorded a full goodwill impairment expense of $2,499,753, writing the asset down to $0[194][197] - Intangible assets with finite lives, including tradenames, licenses, and customer relationships, are amortized on a straight-line basis over their useful lives ranging from three to ten years[198] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," Greenwave Technology Solutions, Inc. is not required to provide this information - The company is exempt from this disclosure requirement as it qualifies as a "smaller reporting company"[203] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and supplementary data, which are included in the report starting on page F-1 - The consolidated financial statements are indexed and begin on page F-1 of the report[204] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[205] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2022, due to a material weakness in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2022[206] - A material weakness was identified in internal control over financial reporting due to a lack of segregation of duties and an inadequate process for reviewing accounting matters[206][210] - Remediation plans include appointing additional qualified personnel to improve review levels, though this is dependent on securing financing or generating sufficient revenue[211] Other Information The company reports no other information under this item - None[219] PART III Directors, Executive Officers and Corporate Governance The company's leadership includes CEO Danny Meeks and CFO Ashley Sickles, with a four-member Board of Directors and four standing committees Executive Officers and Directors | Name | Age | Position | | :--- | :--- | :--- | | Danny Meeks | 49 | Chief Executive Officer, Chairman of the Board | | Ashley Sickles | 35 | Chief Financial Officer | | Cheryl Lanthorn | 51 | Director | | J. Bryan Plumlee | 55 | Director | | John Wood | 48 | Director | - The Board of Directors has determined that its three non-employee directors (Cheryl Lanthorn, J. Bryan Plumlee, and John Wood) meet the independence standards of the Nasdaq Stock Market[237] - The Board has four standing committees: Audit, Compensation, Nominating and Corporate Governance, and a Sustainability Committee formed in September 2022[235][243] Executive Compensation In FY2022, CEO Danny Meeks received $1.95 million in total compensation, while non-employee directors received $40,000 in cash fees Summary Compensation Table (2022) | Name and Principal Position | Salary ($) | Bonus ($) | Total ($) | | :--- | :--- | :--- | :--- | | Danny Meeks, CEO | 500,000 | 1,450,000 | 1,950,000 | | Ashley Sickles, CFO | 41,250 | — | 41,250 | | Howard Jordan, Former CFO | 84,346 | — | 84,635 | - CEO Danny Meeks' employment agreement provides for a $500,000 annual base salary and eligibility for annual bonuses[258] - Mr. Meeks is entitled to receive either 833,333 shares of common stock or $50,000 in cash for every $1 million in annual revenue generated by Empire Services, Inc. over $20 million, until October 1, 2026[259] - As of December 31, 2022, there were no outstanding equity awards held by the named executive officers[257] - The company's non-employee directors received a total of $40,000 in cash fees for their service in 2022[264] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 29, 2023, CEO Danny Meeks and the executive group beneficially owned approximately 33.61% of the common stock Beneficial Ownership (as of March 29, 2023) | Name | Common Stock Beneficially Owned | Percentage of Common Stock | | :--- | :--- | :--- | | Danny Meeks (CEO) | 4,398,163 | 33.61% | | All directors and named executive officers as a group (5 people) | 4,426,909 | 33.61% | | Arena Investors, LP | 972,708 | 8.65% | - CEO Danny Meeks' beneficial ownership includes 2,562,203 shares of common stock, 822,466 shares underlying warrants, and 1,013,494 shares underlying Series Z Preferred Stock[284] Certain Relationships and Related Transactions, and Director Independence The company engages in significant related-party transactions, primarily leasing facilities and purchasing equipment from entities controlled by CEO Danny Meeks - The company leases 12 scrap yard facilities from an entity controlled by CEO Danny Meeks[286] - During the twelve months ended December 31, 2022, the company paid rents of $2,483,217 to the CEO's entity, with $317,781 in accrued rent owed at year-end[287] - In 2022, the company purchased equipment for $152,500 from an entity controlled by the CEO's spouse and for $20,000 from an entity controlled by the CEO[288] - In September 2021, the CEO received 250 shares of Series Z Preferred Stock in connection with a $1,000,000 non-convertible note payable agreement[290] Principal Accountant Fees and Services RBSM LLP served as the independent auditor, with total fees of $310,000 in 2022 and $264,208 in 2021, primarily for audit services Accountant Fees (RBSM LLP) | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $310,000 | $129,000 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | Other Fees | $0 | $135,208 | | Total | $310,000 | $264,208 | - The "Other Fees" in 2021 were related to the audit and review of Empire Services, Inc.'s financial statements prior to its acquisition by the company[307] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and various exhibits filed as part of the Annual Report - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[310][313] Financial Statements and Notes Report of Independent Registered Public Accounting Firm The auditor's report includes a going concern warning and identifies goodwill impairment as a critical audit matter due to significant management judgment - The auditor's report contains a going concern paragraph, raising substantial doubt about the company's ability to continue operations due to its accumulated deficit and expected future losses[324] - The impairment of intangibles and goodwill was identified as a Critical Audit Matter, reflecting the complexity and subjective judgment required in management's fair value estimates[328][329] Consolidated Financial Statements For FY2022, total assets reached $41.5 million and stockholders' equity improved to $15.3 million, despite a net loss of $(35.0) million and a net loss available to common stockholders of $(63.9) million Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,239,544 | $3,339,295 | | Total Assets | $41,468,173 | $38,177,570 | | Total Current Liabilities | $19,012,924 | $59,470,149 | | Total Liabilities | $26,130,608 | $61,525,632 | | Total Stockholders' Equity (Deficit) | $15,337,565 | $(23,348,062) | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $33,978,425 | $8,098,036 | | Gross Profit | $12,440,853 | $2,859,554 | | Loss From Operations | $(10,882,992) | $(2,927,564) | | Net Loss | $(35,043,290) | $(1,632,421) | | Net (Loss) Income Available to Common Stockholders | $(63,859,328) | $2,776,027 | Notes to Consolidated Financial Statements The notes detail the going concern warning, Empire acquisition, goodwill impairment, debt financing, and significant debt conversion and warrant repricing events - Going Concern (Note 2): The company's financial statements were prepared on a going concern basis, but conditions such as a working capital deficit of $(17.8) million and an accumulated deficit of $(362.3) million raise substantial doubt about its ability to continue[346] - Acquisition of Empire (Note 4): The acquisition was accounted for as a business combination, with total purchase consideration of $23.1 million, consisting of common stock and promissory notes, resulting in $2.5 million of goodwill and $26.5 million of identifiable intangible assets[404] - Goodwill Impairment (Note 3): The company recorded a full impairment charge of $2,499,753 for goodwill during the fiscal year ended December 31, 2022, reducing the carrying value to zero[386][389] - Debt and Financing (Note 9): The company utilizes factoring advances and non-convertible notes for financing, owing $4.9 million for factoring advances and having $8.8 million in non-convertible notes payable as of December 31, 2022[390][455] - Debt Conversion (Note 14): On July 22, 2022, senior secured convertible notes with a principal of $37.7 million and accrued interest of $1.5 million were automatically converted into 6,896,903 shares of common stock upon the Nasdaq listing[492] - Warrant Repricing (Note 17): The Nasdaq listing triggered price protection provisions, resulting in the repricing of warrants and the issuance of 4.3 million additional warrants, which led to a deemed dividend of $21.1 million[546]