Greenwave Technology Solutions, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The interim financial statements are unaudited. Greenwave operates metal recycling facilities in Virginia, North Carolina, and Ohio and provides hauling services.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $8.18 million, up 11.4% from $7.35 million | $26.64 million, down 4.8% from $27.97 million |
| Gross profit / margin | $2.93 million / 36%, versus $2.48 million / 34% | $10.96 million / 41%, versus $10.81 million / 39% |
| Operating loss | $13.49 million, versus $3.29 million | $17.51 million, versus $4.46 million |
| Net loss | $16.49 million, versus $8.58 million | $22.78 million, versus $27.89 million |
| Net loss available to common stockholders | $23.15 million, versus $37.39 million | $29.44 million, versus $56.70 million |
Q3 revenue growth was attributed mainly to hauling; metal revenue was affected by lower metal prices. Nine-month revenue declined primarily with metal prices, while lower cost of revenue helped lift gross margin. Q3 operating expenses included a $9.85 million asset loss, as well as higher advertising, financing-related professional fees, and depreciation and amortization. Interest and debt-discount amortization were $3.67 million in Q3 and $6.73 million for nine months. Common-stockholder losses also reflect deemed dividends from warrant and debt repricing.
Cash flow: For the nine months, operating cash use was $2.59 million, investing cash use was $1.58 million, and financing cash provided was $4.79 million. Cash increased by $0.63 million to $1.45 million.
Liquidity and debt: At September 30, cash was $1.45 million, current assets $2.57 million, and current liabilities $18.78 million, producing a $16.21 million working-capital deficit. Total liabilities were $48.37 million against assets of $48.06 million; stockholders’ equity was negative $0.31 million. Reported debt included $10.88 million of senior secured convertible notes net of discounts, $8.82 million of non-convertible notes net of discounts, and a $17.22 million related-party note. The company also had $4.29 million of accrued payroll and payroll-tax liabilities.
Material changes and transactions
- Q3 revenue rose as hauling contributed more, while nine-month revenue fell year over year. Hauling produced $2.65 million of Q3 revenue and $6.76 million for the nine-month period, according to the filing.
- Property and equipment, net, increased to $24.47 million from $13.17 million at year-end 2022. The company began operating a downstream processing system at Kelford in July 2023.
- In July 2023, Greenwave issued senior secured convertible notes with an aggregate principal amount of $18 million. The notes mature in 2025, are secured by substantially all company assets, and carry an 18% default rate. Their conversion price was reduced from $1.50 to $1.02 in August. The filing reports $10.88 million of principal net of debt discount at September 30.
- The company issued a $17.22 million, 7% secured note to an entity controlled by its CEO for equipment. The equipment was recorded at its $7.37 million cost basis; the filing also reports a $9.85 million asset loss. The note is junior to the senior secured notes and requires interest-only payments while those senior notes remain outstanding.
- Common shares outstanding increased from 10.96 million at December 31, 2022 to 15.88 million at September 30, 2023; the cover page reports 16.56 million outstanding on November 14. The filing lists 41.89 million potentially dilutive shares excluded from diluted loss per share.
Outlook, risks, and unusual items
- Going concern: Management states that the cash balance and working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance. Management believes it can become cash-flow positive and may seek non-equity financing, but provides no quantified forecast or formal financial guidance. Additional financing is not assured and may cause dilution, impose restrictive terms, or require significant debt service.
- Operations: Management expected a second automotive shredder at Carrollton to come online in Q4 2023, and described further optimization and a copper-extraction component for the Kelford processing system. It also identified rail or port access as a corporate priority. These are forward-looking expectations, not reported results.
- Concentration and market exposure: One customer represented approximately 55% of Q3 revenue and another represented approximately 59% of nine-month revenue. Sales are concentrated in Virginia and northeastern North Carolina and depend on scrap-metal prices, steel demand, supply, and regional conditions.
- Related parties: The company leases facilities from entities controlled by its CEO and reported $1.26 million due to related parties. The CEO also personally guaranteed certain financing obligations. The equipment sale and related note warrant review.
- Other risks: Payroll-tax filings are delinquent, and the reported $4.29 million payroll-tax liability includes penalties and may change with additional interest or penalties. Management reported ineffective disclosure controls and a material weakness in financial reporting controls, including insufficient segregation of duties and review. Remediation depends partly on financing or increased revenue.
- Environmental and legal matters: The company says required remediation under a Virginia DEQ consent order was completed and related accruals were zero. It disclosed a prior arbitration award and settlement with former securities counsel, with scheduled payments reported as made.
Important facts for investors to verify
- Reconcile the $9.85 million asset loss and its period: the financial statements show it in Q3 and the first nine months of 2023, while portions of the MD&A describe it inconsistently.
- Confirm the senior-note principal, repayment schedule, conversion and default provisions, collateral, and potential share dilution; the filing gives both an original $18 million aggregate principal and a lower September 30 balance net of discounts.
- Assess near-term liquidity, the going-concern uncertainty, payroll-tax exposure, and the company’s ability to fund debt service without further financing.
- Evaluate the CEO-related equipment purchase, the $17.22 million related-party note, related-party leases, and the basis for recording the equipment and asset loss.
- Check customer concentration, operating progress at the shredding and downstream-processing facilities, and remediation of the disclosed material weakness in internal controls.