# Greenwave Technology Solutions, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Greenwave Technology Solutions, Inc.](/companies/gwav.md) (CIK 1589149)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 17:05 ET
- Period: 2023-09-30
- Accession: 0001493152-23-041269
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1589149/000149315223041269/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1589149/000149315223041269/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $8.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $26.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $5.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $15.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $2.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $11.0m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$13.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$17.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $3.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $6.7m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$16.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$22.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.75 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.47 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.75 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.47 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 13,220,232 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 11,900,762 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$2.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $1.4m | us-gaap:Cash |
| Current assets | at 2023-09-30 | $2.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $48.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $18.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $48.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $23.4m | us-gaap:LongTermDebt |
| Current portion of debt | at 2023-09-30 | $2.6m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$308.2k | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 25,512 characters.

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.

In December 2022, we began offering hauling services to corporate clients. We haul sand, dirt, asphalt, metal, and other materials in a fleet of approximately 50 trucks which we own, manage, and maintain.

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 fourth 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).

In July 2023, Greenwave commenced operation of a downstream processing system at its Kelford, NC location, enabling the Company to recover millimeter-minus pieces of metal from the Company’s automotive shred residue or, “fluff,” as it is known in the industry. As Greenwave continues to optimize the operation of its downstream processing system, and brings a copper extraction component online, the Company could be able to increase its recovery yields.

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 145 full-time employees as of November 7, 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. We also compete with regional hauling companies.

### 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.

We also provide hauling services to corporate clients, hauling sand, asphalt, metal and other materials to job sites.

### 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.

Prices for hauling services are primarily based on the current demand and range from $85 to $120 per hour.

### 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 September 30, 2023 and 2022

|  | For the three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $8,181,948 | $7,347,223 | $834,725 | 11.36% |
| Gross Profit | 2,930,947 | 2,484,889 | 466,058 | 17.95% |
| Operating Expenses | 16,416,504 | 5,779,051 | 10,637,453 | 184.07% |
| Loss from Operations | (13,485,557) | (3,294,162) | 10,191,395 | 309.38% |
| Other Expense | (3,006,463) | (5,283,373) | 2,276,910 | (43.10)% |
| Net Loss | $(23,153,172) | $(37,393,573) | $14,240,401 | (38.08)% |

30

### Revenues

For the three months ended September 30, 2023, we generated $8,181,948 in revenues, as compared to $7,347,223 during the same period in 2022, an increase of $834,725. This increase was primarily due to an increase in hauling revenue offset by a decline in metal prices. The $8,181,948 in revenue includes $35,660 in rental income, $5,495,255 in revenue generated from the sale of metal, and $2,651,033 generated from hauling services.

Our cost of revenues increased to $5,251,001 for the three months ended September 30, 2023 from $4,862,334 during the same period in 2022, an increase of $388,667, primarily due to the cost of hauling revenue.

Our gross profit was $2,930,947 during the three months ended September 30, 2023, an increase of $466,058 from $2,484,889 during the same period in 2022 primarily due to the addition of a new hauling business line, whose margins were higher than margins realized on metal in 2022. Gross margins were 36% and 34% during the three months ended September 30, 2023 and 2022, respectively

### Operating Expenses

For the three months ended September 30, 2023 and 2022, our operating expenses were $16,416,504 and $5,779,051 respectively, an increase of $10,637,453. There was a decrease in payroll and related expenses of $582,311 as payroll and related expenses were $1,473,131 for the three months ended September 30, 2023 as compared to $2,055,442 for the same period in 2022 which was primarily the result of the Company’s Chief Executive Officer waiving his quarterly bonus. Advertising expense increased by $385,338 to $395,000 for the three months ended September 30, 2023 as compared to $9,662 for the same period in 2022 as the Company began advertising its scrap yards and commenced an investor relations campaign. Depreciation of fixed assets, along with amortization of intangible assets, increased by $410,681 to $1,562,221 for the three months ended September 30, 2023 from $1,151,540 in 2022 as the Company continued to depreciate its fixed assets. There were hauling and equipment maintenance costs of $604,032 during the three months ended September 30, 2023, as compared to $926,761 in 2022, a decrease of $322,729, due to the Company bringing hauling service in-house. Consulting, accounting, and legal expenses increased to $939,345 during the three months ended September 30, 2023 from $31,215 during the same period in 2022, an increase of $908,130 as a result of the Company working on financing, which closed in the summer 2023. There was a decrease in rent expenses as a result of the Company purchasing equipment previously leased to the Company, decreasing $167,236 from $810,786 during the three months ended September 30, 2022 to $643,550 during the same period in 2023. Lastly, the Company incurred a common stock issued for services expense of $171,240 during the three months ended September 30, 2023, as compared to $0 in the same period in 2022, as the result of the Company paying certain consultants in equity. There was loss on asset of $9,850,850 during the three months ended September 30, 2022 as compared to none during the same period in 2023 reflecting the difference between the fair market value and cost basis of equipment.

Our other general and administrative expenses decreased to $777,135 for the three months ended September 30, 2023 from $793,645 for the same period in 2022, a decrease of $16,510, as a result of the Company’s cutting certain overhead expenses.

The increase of these expenditures resulted in our total operating expenses increasing to $16,416,504 during the three months ended September 30, 2023 compared to $5,779,051 during the three months ended September 30, 2022, an increase of $10,637,453.

### Loss from Operations

Our loss from operations increased by $10,191,395 to $13,485,557 during the three months ended September 30, 2023, from $3,294,162 during the same period in 2022.

### Other Expense

During the three months ended September 30, 2023, we incurred other expenses of $(3,006,463), as compared to $(5,283,373) for the same period in 2022, a decrease of $2,276,910. Interest expenses and amortization of debt discount increased to $(3,672,861) during the three months ended September 30, 2023 from $(688,570) during the three months ended September 30, 2022. There was a gain on termination of leases of $108,863 during the three months ended September 30, 2023, as compared to none during the same period in 2022. There was a warrant expense for liquidated damages settlement of $(7,408,681) during the three months ended September 30, 2022 as compared to none in the same period in 2023. Gain on the settlement of debt increased to $557,535 during the three months ended September 30, 2023 from $188,500 during the same period in 2022. There was a gain on the conversion of debt of $2,625,378 during the three months ended September 30, 2022 as compared to none during the same period in 2023.

### Net Loss Available to Common Stockholders

Our net loss available to common stockholders was $23,153,172 during the three months ended September 30, 2023 as compared to $37,393,573 during the same period in 2022, a decrease of $14,240,401, for the reasons discussed above.

### For the Nine Months Ended September 30, 2023 and 2022

|  | For the nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $26,641,644 | $27,972,612 | $(1,330,968) | (4.76)% |
| Gross Profit | 10,956,412 | 10,814,905 | 141,507 | 1.31% |
| Operating Expenses | 28,467,422 | 15,270,517 | 13,196,905 | 86.42% |
| Loss from Operations | (17,511,010) | (4,455,612) | (13,055,398) | 293.01% |
| Other Expense | (5,271,747) | (23,432,546) | 18,160,799 | (77.50)% |
| Net Loss | $(29,443,909) | $(56,704,196) | $27,260,287 | (48.07)% |

### Revenues

For the nine months ended September 30, 2023, we generated $26,641,644 in revenues, as compared to $27,972,612 during the same period in 2022, decrease of $1,330,968. This decrease was primarily due to a decline in metal prices. The $26,629,327 in revenue includes $120,040 in rental income, $19,730,898 in revenue generated from the sale of metal, $6,763,184 generated from hauling services, and $27,510 in miscellaneous revenue, including from the sale of gas from scrap cars.

Our cost of revenues decreased to $15,685,232 for the nine months ended September 30, 2023 from $17,157,707 during the same period in 2022, a decline of $1,472,475, primarily due to a decline in metal prices.

Our gross profit was $10,956,412 during the nine months ended September 30, 2023, an increase of $141,507 from $10,814,905 during the same period in 2022 primarily due to the decrease in revenue. Gross margins were 41% and 39% during the nine months ended September 30, 2023 and 2022, respectively

### Operating Expenses

For the nine months ended September 30, 2023 and 2022, our operating expenses were $28,467,422 and $15,270,517 respectively, an increase of $13,196,905. There was a decrease in payroll and related expenses of $15,213 as payroll and related expenses were $4,921,669 for the nine months ended September 30, 2023 as compared to $4,936,882 for the same period in 2022 which was primarily the result of the Company expanding its workforce, offset by the Company’s Chief Executive Officer waiving his bonuses. Advertising expense increased by $340,888 to $410,851 for the nine months ended September 30, 2023 as compared to $69,963 for the same period in 2022 as the Company began to advertise its facilities and commenced an investor relations campaign. Depreciation of fixed assets, along with amortization of intangible assets, increased by $1,214,895 to $4,181,802 for the nine months ended September 30, 2023 from $2,966,907 in 2022 as a result of the Company acquiring more fixed assets. There were hauling and equipment maintenance costs of $2,424,165 during the nine months ended September 30, 2023, as compared to $2,760,755 in 2022, a decrease of $336,590, due to the Company bringing hauling service in-house. Consulting, accounting, and legal expenses increased to $1,414,592 during the nine months ended September 30, 2023 from $552,527 during the same period in 2022, an increase of $862,065 as a result of the Company incurring costs for financings in the summer of 2023. There was an increase in rent expenses as a result of the Company adding additional facilities, increasing $127,328 from $2,573,449 during the nine months ended September 30, 2022 to $2,700,777 during the same period in 2023. Lastly, the Company incurred a common stock issued for services expense of $171,240 during the nine months ended September 30, 2023, as compared to $0 in the same period in 2022, as the result of the Company paying certain consultants in equity. There was loss on asset of $9,850,850 during the nine months ended September 30, 2022 as compared to none during the same period in 2023 reflecting the difference between the fair market value and cost basis of equipment.

Our other general and administrative expenses increased to $2,391,476 for the nine months ended September 30, 2023 from $1,410,034 for the same period in 2022, an increase of $981,442, as a result of the Company’s operations expanding.

The increase of these expenditures resulted in our total operating expenses increasing to $28,467,422 during the nine months ended September 30, 2023 compared to $15,270,517 during the nine months ended September 30, 2022, an increase of $13,196,905.

### Loss from Operations

Our loss from operations increased by $17,511,010 to $13,055,398 during the nine months ended September 30, 2023, from $4,455,612 during the same period in 2022.

### Other Expense

During the nine months ended September 30, 2023, we incurred other expenses of $(5,271,747), as compared to $(23,432,546) for the same period in 2022, a decrease of $18,160,799. Interest expenses and amortization of debt discount decreased to $(6,730,071) during the nine months ended September 30, 2023 from $(33,265,639) during the nine months ended September 30, 2022. There was a gain on tax credit of $717,064 during the nine months ended September 30, 2023, as compared to none during the same period in 2022. There was no change in the fair value of derivative liabilities during the nine months ended September 30, 2023, as compared to a gain of $14,264,476 during the nine months ended September 30, 2022. There was a gain on settlement of non-convertible notes and advances of $632,540 and $351,920 for the nine months ended September 30, 2023 and 2022, respectively. There was a gain on termination of leases of $108,863 during the nine months ended September 30, 2023, as compared to none during the same period in 2022. There was a warrant expense for liquidated damages settlement of $(7,408,681) during the nine months ended September 30, 2022 as compared to none in the same period in 2023. There was a gain on the conversion of debt of $2,625,378 during the nine months ended September 30, 2022 as compared to none during the same period in 2023.

### Net Loss Available to Common Stockholders

Our net loss available to common stockholders was $29,443,909 during the nine months ended September 30, 2023 as compared to $56,704,196 during the same period in 2022, a change of $27,260,287, for the reasons discussed above.

### Liquidity and Capital Resources

Net cash used in operating activities for the nine months ended September 30, 2023 was $2,587,000 as compared to $2,067,257 for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, the cash flows used in operating activities were driven by a net loss of $22,782,757, amortization of right of use assets, net -related party of $1,404,791, amortization of right of use assets of $184,757, loss on asset of $9,850,850, depreciation and amortization of $4,181,802, accrual of due to related parties of $1,018,349 increase of prepaid expenses of $388,972, an increase of accounts payable and accrued expenses of $607,900 a decrease in operating lease liabilities of 1,572,248, a gain on the settlement of non-convertible notes and accrued interest of $632,540, interest and amortization of debt discount of $6,730,214, an increase in accounts receivable of $277,871, increase in inventories of $42,945, increase in security deposit of $25,000, and accrued payroll and related expenses of $224,204.During the nine months ended September 30, 2022, cash flows used in operating activities were driven by a net loss of $27,888,158, amortization of right of use assets (related-party) of $1,590,136, amortization of right of use assets of $304,349, depreciation and amortization of $2,790,714, payment of accrued rent to a related party of $107,884, increase of prepaid expenses of $38,635, decrease of security deposit of $994, increase of accounts payable and accrued expenses of $922,318, a change in operating lease liabilities of $304,349, largely offset by a gain on the settlement of non-convertible notes and accrued interest of $351,920, interest and amortization of debt discount of $33,265,639, change in the value of derivative liabilities of $14,264,476, increase in accounts receivable of $672,664, increases in inventories of $336,677, and a decrease in environmental remediation liabilities of $22,207.

Net cash used in investing activities was $1,577,768 and $3,684,307 for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, there was cash used in the purchase of equipment of $1,660,537 and cash received for advance of asset of $82,769. For the nine months ended September 30, 2022, there was cash used in the purchase of equipment of $3,684,307, of which $172,500 was paid to a related-party.

Net cash generated by financing activities was $4,792,304 during the nine months ended September 30, 2023, as compared to cash provided by financing activities of $4,362,042 during the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company received $3,746,109 from the issuance of factoring advances, $1,000,000 from the issuance of non-convertible notes, $13,118,750 from the sale of convertible notes, $825,000 from bridge financing, $205,719 from bank overdrafts, $2,841,181 from the sale of common stock, and $8,240 from the cash exercise of warrants, while utilizing $4,381,809 in the repayment of non-convertible notes and utilizing $12,570,886 for the repayment of factoring advances. During the nine months ended September 30, 2022, the Company utilized $1,788,458 and $12,000 towards payments on non-convertible notes and advances, respectively, while receiving $6,162,500 in proceeds from non-convertible notes

#### Capital Resources

As of September 30, 2023, we had cash on hand of $1,449,340. 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 September 30, 2023, the Company had cash of $1,449,340 and a working capital deficit (current liabilities in excess of current assets) of $16,206,953. The accumulated deficit as of September 30, 2023 was $391,213,316. 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 has sufficient capital to become cashflow positive from operating activities. 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.

## Controls and procedures

As filed, 7,098 characters.

### Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Exchange Act, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) and Interim Chief Financial Officer (“CFO”) of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon such evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of September 30, 2023 were not effective (at a reasonable assurance level) due to identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.

To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the U.S. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Our principal executive officer and principal financial officer do not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

### Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (issued in 2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Based upon the assessments, management has concluded that as of September 30, 2023, there was a material weakness in our internal control over financial reporting due to the fact that we did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion.

We plan to take steps to enhance and improve the design of our internal control over financial reporting. To remediate our material weaknesses, we plan to appoint additional qualified personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters; however, such remediation efforts are largely dependent upon our securing additional financing or generating significant revenue to cover the costs of implementing the changes required.

Until we remediate our material weakness in internal control over financial reporting such weaknesses could result in material misstatements in our financial statements not being prevented or detected.

### Inherent Limitations on Effectiveness of Controls and Procedures

The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s CEO and CFO has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of September 30, 2023, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report.

### Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, the Company began hiring additional accounting personnel to enhance its segregation of duties and establishment of procedures in an effort to ensure appropriate levels of review of accounting and financial reporting matters.

## Risk factors

As filed, 275 characters.

As a “smaller reporting company,” we are not required to provide the information required by this Item 1A. Please see the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 31, 2023 as amended on April 13, 2023.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-041269. Last ingested by Listed: Nov 5, 2026, 11:26 ET. No prices; not investment advice.