Greenwave Technology Solutions, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2022. Greenwave has shifted from social-media operations to metal recycling following its October 2021 acquisition of Empire Services, which operates 11 recycling facilities in Virginia and North Carolina. Because Empire was not included in the comparable 2021 results, year-over-year comparisons are not on a like-for-like basis.
Key financial results
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $10.70 million | $20.63 million |
| Gross profit / gross margin | $4.07 million / 38.0% | $8.33 million / 40.4% |
| Operating loss / operating margin | $0.96 million / (9.0%) | $1.16 million / (5.6%) |
| Net loss | $14.14 million | $19.31 million |
| Interest expense | $13.17 million | $32.58 million |
| Operating cash flow | Not separately presented | $0.57 million provided |
| Investing cash flow | Not separately presented | $2.55 million used |
| Financing cash flow | Not separately presented | $0.06 million provided |
Q2 revenue increased from $79 in the prior-year quarter; six-month revenue increased from $1,606. These minimal 2021 amounts largely reflect that the acquired recycling business was not yet consolidated. The company attributed 2022 revenue to the Empire acquisition, metal-market conditions and use of its technology in Empire’s operations. Operating expenses were $5.03 million in Q2 and $9.49 million for six months, including payroll, rent, hauling and equipment maintenance, and depreciation and amortization.
The net loss contrasts with prior-year reported income for Q2 ($23.78 million net income available to common shareholders) and a prior-year six-month common-stockholder loss of $23.41 million. Comparisons were significantly affected by prior-year debt-settlement and derivative-related gains and losses, as well as 2022 interest and debt-discount expense. Six-month operating cash flow was positive despite the net loss, with reported cash flow reconciliation including substantial noncash interest/debt-discount and derivative adjustments. Cash declined by $1.92 million, from $2.96 million at year-end to $1.04 million at June 30, primarily reflecting $2.55 million of investing outflows.
Financial position and material changes
- At June 30, cash was $1.04 million; current assets were $1.70 million and current liabilities $49.52 million, producing a $47.82 million working-capital deficit. Accumulated deficit was $317.72 million and stockholders’ deficit was $12.90 million.
- Total liabilities were $51.45 million. Current convertible notes were $37.71 million, with $1.31 million of accrued interest; non-convertible notes, net of discounts, totaled about $0.92 million. Operating lease liabilities totaled $4.13 million.
- On July 22, 2022, after quarter-end, the company converted $37.71 million principal and accrued interest into 6,896,901 common shares in connection with its Nasdaq listing. The filing’s pro forma presentation shows current liabilities reduced to $10.49 million and stockholders’ equity increased to $26.12 million. The conversion materially improves reported capitalization but involves substantial share issuance.
- The Nasdaq listing also triggered warrant price protection: warrants covering 2,714,331 shares at $19.50 became warrants covering 7,030,825 shares at $7.52. The filing reported 10,237,317 common shares issued and outstanding as of August 8, 2022.
- Property and equipment, net, rose to $6.02 million from $2.91 million at year-end, including purchases of equipment. The company reported $24.33 million of net finite-lived intangible assets, primarily licenses.
Outlook, risks and unusual items
- Going concern and liquidity: The filing states that the cash balance, working-capital deficit and accumulated deficit raised substantial doubt about the company’s ability to continue as a going concern for one year from issuance. Management said the July debt conversion and anticipated operating cash flows were expected to support planned operations for that period, while warning that a downturn or delays could require additional capital. Additional financing could dilute shareholders or impose restrictive terms.
- Operations and outlook: Management expected a second shredder at Carrollton and a downstream processing system at Kelford to come online in September and October 2022, respectively. It stated these projects were expected to double processing capacity and improve margins. The filing does not provide formal numerical revenue or earnings guidance. Results remain exposed to recycled-metal prices, steel demand, supply, transport costs and execution of expansion plans.
- Concentration and related parties: One customer represented 55.8% of Q2 revenue and 58.8% of six-month revenue; sales are concentrated in Virginia and northeastern North Carolina. The company leases 12 scrap yards from an entity controlled by its CEO and paid that entity $1.18 million in rent during the first half. It also purchased $152,500 of equipment from an entity controlled by the CEO’s spouse. The CEO’s amended employment agreement provides for a $250,000 quarterly bonus.
- Controls and compliance: Management concluded disclosure controls were ineffective, citing inadequate segregation of duties and insufficient review of accounting and financial reporting. The company said these weaknesses could persist until qualified accounting personnel are hired and trained. Payroll tax filings were delinquent; accrued payroll tax liabilities, including penalties, were $3.92 million, and the actual amount could differ. Environmental remediation and penalties under the Virginia DEQ consent order were reported paid or completed by June 30. The company also disclosed COVID-19 uncertainty and potential adverse effects.
- Other debt and commitments: The senior secured convertible notes’ maturity had been extended to November 30, 2022 before their subsequent conversion. A Sheppard Mullin judgment was being paid under a resolution agreement, with monthly payments reported through July 2022. The company said it had made no unregistered equity sales during the quarter and reported no defaults upon senior securities.
Important facts for investors to verify
- Confirm completion and accounting treatment of the July 22 debt conversion, the shares issued, and the pro forma liability and equity figures.
- Review the dilution potential and final terms of the repriced warrants, and reconcile post-listing share counts with subsequent filings.
- Track cash generation, working-capital needs and capital spending, including whether the new shredder and processing system began operating on schedule and achieved expected capacity and margin gains.
- Assess the sustainability of revenue given the largest customer’s share, regional concentration and sensitivity to scrap-metal prices.
- Monitor payroll-tax filings and liabilities, remediation of material weaknesses in financial reporting controls, and CEO-related leases, purchases and compensation.