Greenwave Technology Solutions, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. Greenwave operates metal-recycling facilities in Virginia and North Carolina and a hauling business. The filing describes 13 recycling facilities and approximately 50 hauling trucks.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $9.42 million | $10.70 million | $18.46 million | $20.63 million |
| Gross profit | $3.30 million | $4.07 million | $8.03 million | $8.33 million |
| Operating expenses | $5.39 million | $5.03 million | $12.05 million | $9.49 million |
| Operating loss | $(2.09) million | $(0.96) million | $(4.03) million | $(1.16) million |
| Net loss | $(2.27) million | $(14.14) million | $(6.29) million | $(19.31) million |
| Cash from operating activities | Not separately presented | Not separately presented | $1.23 million | $0.57 million |
- Q2 revenue declined 12.0%; management attributed the decrease primarily to lower metal prices. Q2 gross profit fell 18.9%, while operating expenses rose 7.2%.
- For the first half, revenue fell 10.5%; operating expenses increased 27.0%, and operating loss widened substantially. Net loss was lower than in 2022 largely because the prior-year period included much larger interest/debt-discount expense and a derivative-liability gain. Q2 2023 also included a $717,064 tax-credit gain.
- Gross margin calculated from the reported statements was approximately 35.0% versus 38.0% for Q2, and 43.5% versus 40.4% for the first half. The MD&A instead describes first-half gross margins as 35% and 38%; that disclosure does not reconcile with the reported revenue and gross profit.
- At June 30, cash was $374,951. Current assets of $1.33 million compared with current liabilities of $23.69 million, a $22.36 million working-capital deficit. Total liabilities were $33.32 million; factoring and non-convertible notes totaled approximately $18.84 million net of debt discounts.
- First-half investing cash outflow was $826,422 and financing cash outflow was $854,564. Operating cash generation included noncash depreciation/amortization and increases in amounts due to related parties, accounts payable, and accrued payroll.
Business developments, outlook, and risks
- Hauling generated $2.24 million of Q2 revenue and $4.11 million for the first half. Management said the new hauling business line had lower margins than metal recycling.
- A downstream processing system began operating in July 2023. Management said it was on track to generate several hundred thousand dollars of additional high-margin revenue per month from recovered metal; this is forward-looking and not a reported result for the period. A second automotive shredder was expected to come online in Q3 2023.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing low cash, the working-capital deficit, and accumulated deficit of $368.56 million. Management said it believed operations were generating positive cash flow and might not require further capital, but acknowledged financing, dilution, debt-service, and restrictive-covenant risks.
- After quarter-end, the company completed a financing that closed August 1, described as approximately $15 million in senior secured convertible notes and warrants, including about $13.97 million in cash and $1.03 million of exchanged existing debt. The notes mature in 24 months, have a $1.50 conversion price, and require $1 million monthly payments beginning after the specified initial period; warrants cover 4,420,460 shares at $0.01. The notes are secured by substantially all assets. The company also reported retiring outstanding merchant cash advances and paying $2 million toward equipment debt in early August.
- On July 31, the company agreed to buy assets from an entity wholly owned by its CEO in exchange for a secured promissory note with $17.22 million principal. This is a significant related-party transaction to review alongside existing CEO-controlled facility leases and $1.93 million owed to a CEO-controlled entity at June 30.
- Customer concentration is material: one customer accounted for approximately 64% of Q2 revenue and two customers for approximately 61% and 6% of first-half revenue. Metal pricing and demand, regional concentration, and the availability and cost of factoring are additional exposures.
- The company reported delinquent payroll-tax filings and $4.46 million of payroll-tax liabilities, including penalties; the final amount may change with additional interest or penalties. Management also reported ineffective disclosure controls and a material weakness in financial-reporting controls, including inadequate review and lack of segregation of duties.
- No formal financial guidance is provided. Management’s outlook relies in part on downstream-system performance and continued access to financing. Forward-looking statements are subject to risks and may differ materially from actual results.
Important facts for investors to verify
- Whether post-quarter financing proceeds, repayment terms, collateral, conversion provisions, and warrant issuance match the final transaction documents and support liquidity needs.
- Whether the downstream system achieves the projected recovery yields and monthly high-margin revenue, and whether the second shredder opened as planned.
- The cause of the discrepancy between MD&A first-half gross-margin commentary and margins calculated from the financial statements.
- The status and potential cost of delinquent payroll taxes, related-party balances and leases, and the CEO-affiliated asset purchase note.
- Progress remediating the material weakness, and the extent of potential dilution from the financing, warrants, preferred-stock conversion, and other share issuances.