Greenwave Technology Solutions, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2023, compared with Q1 2022. Greenwave operates metal recycling facilities, primarily in Virginia and North Carolina, following its 2021 acquisition of Empire Services. Common stock trades on Nasdaq as GWAV.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $9.04 million | $9.92 million |
| Gross profit / gross margin | $4.73 million / 52.3% | $4.26 million / 43.0% |
| Operating expenses | $6.66 million | $4.46 million |
| Operating loss | $1.94 million | $0.20 million |
| Net loss | $4.03 million | $5.18 million |
| Net loss per share | $0.36 | $1.55 |
| Cash flow from operations | $(0.20) million | $0.05 million provided |
| Cash at period end | $0.28 million | $1.79 million |
Revenue comprised $7.11 million of metal sales, $1.87 million of hauling services, $42,790 of rental income and $16,627 of miscellaneous revenue. The filing does not report EBITDA.
At March 31, 2023, current assets were $1.18 million and current liabilities were $22.51 million, yielding a $21.32 million working-capital deficit. Total liabilities were $32.49 million; factoring liabilities were $6.57 million and non-convertible notes were $12.50 million, including current and long-term portions. Property and equipment secured certain financing. Cash declined by $0.55 million during the quarter; investing cash outflow was $0.71 million and financing cash inflow was $0.37 million.
Changes versus the prior period
- Revenue fell 8.9%, which management primarily attributed to lower metal prices. Cost of revenue fell faster, increasing gross profit by $0.46 million and gross margin by about 9.3 percentage points; management cited margins on hauling and rental revenue.
- Operating expenses rose 49.3% (up $2.20 million), reflecting higher payroll, hauling and equipment maintenance, depreciation and amortization, rent, and other general and administrative costs. The operating loss consequently widened.
- Net loss improved by about $1.15 million, mainly because interest expense and debt-discount amortization were much lower than in Q1 2022. The prior-year comparison also included a $14.26 million gain from derivative-liability revaluation, while Q1 2023 had no such gain.
- Property and equipment increased to $17.75 million from $13.17 million at year-end 2022. Factoring and non-convertible note balances also increased from year-end.
Outlook, risks and unusual items
- Going concern and funding: Management disclosed substantial doubt about the company’s ability to continue as a going concern for one year from issuance, citing $276,085 in cash, the $21.32 million working-capital deficit and accumulated deficit of $366.29 million. Management believes operating cash generation may support planned operations and says additional debt or equity financing may be available, but neither is assured. Equity funding could dilute shareholders; debt could add restrictive covenants and debt-service costs.
- Expansion plans: The filing says a Cleveland, Ohio recycling facility was opening in April 2023. A second automotive shredder at Carrollton, Virginia was expected to come online in Q3 2023. Management also identified access to rail or a deep-water port as a strategic priority. No quantified financial guidance was provided.
- Market and concentration risks: Results depend on metal prices, steel demand, supply, transportation and processing costs, and weather. Two customers represented approximately 58% and 6% of Q1 revenue; three customers represented 24%, 15% and 9% of period-end receivables. Sales are concentrated in Virginia and northeastern North Carolina.
- Financing and related parties: The company relies on factoring for working capital, and management warns that reduced availability could materially harm its financial condition. The CEO was personally liable for several factoring advances. The company leased 13 scrap-yard facilities from an entity controlled by its CEO, recorded $672,557 of related-party rent expense in Q1, and owed that entity $847,474 in accrued rent at quarter-end.
- Other obligations and controls: Payroll tax filings are delinquent; payroll-tax liabilities, including penalties, were $3.91 million and could change with further interest or penalties. Management reported ineffective disclosure controls and a material weakness in internal control over financial reporting, including inadequate review and lack of segregation of duties. Remediation depends in part on additional financing or revenue. Environmental remediation under a Virginia consent order was reported completed, with no related accrual at quarter-end.
- Capital structure: The company issued 288,494 common shares upon conversion of 72 Series Z preferred shares during the quarter. It reported 9.76 million warrants outstanding and 1.01 million common shares issuable upon preferred-stock conversion; total potentially dilutive securities excluded from diluted loss per share were 10.86 million. Common shares outstanding were 11,250,813 as of May 12, 2023.
Important facts for investors to verify
- Whether operating cash flow improves and the company can meet near-term obligations despite minimal cash and the large working-capital deficit.
- The terms, effective costs, repayment schedules and availability of factoring and note financing, including collateral and any CEO personal guarantees.
- Whether the Cleveland facility opens as planned and the Carrollton shredder reaches operation in Q3 2023, and whether expansion produces profitable incremental sales.
- Customer concentration, metal-price sensitivity and the sustainability of improved gross margins as product prices and purchase costs change.
- The amount and timing of payroll-tax liabilities, and progress on remediating the disclosed control weakness.
- Potential dilution from preferred-stock conversions, warrants and future financing; also confirm the status of related-party rent accruals and arrangements.