Greenwave Technology Solutions, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Greenwave had shifted from its former social-media business to scrap-metal recycling after acquiring Empire Services in October 2021. Empire operates 11 facilities in Virginia and North Carolina. The prior-year comparison largely reflects the pre-acquisition business and is not comparable.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $9.92 million | $1,527 |
| Gross profit / margin | $4.26 million / 43.0% | $1,230 |
| Operating expenses | $4.46 million | $302,978 |
| Operating loss | $197,695 | $301,748 |
| Net loss | $5.18 million | $26.06 million |
| Net loss available to common stockholders | $5.18 million | $47.19 million |
Revenue growth reflects the Empire acquisition, a strong recycled-metals market, and the application of Greenwave technology to Empire’s operations. Cost of revenue was $5.66 million. The reported net loss includes $19.41 million of interest expense and debt-discount amortization, partly offset by a $14.26 million noncash gain from the change in derivative fair value. Net loss in Q1 2021 included a $21.14 million deemed preferred-stock dividend in arriving at loss available to common stockholders.
At March 31, cash was $1.79 million, current assets $2.61 million, and current liabilities $34.86 million, yielding a $32.25 million working-capital deficit. Total liabilities were $36.24 million; stockholders’ equity was $1.24 million. Property and equipment purchases used $1.12 million of cash. The cash-flow statement reports $53,764 of cash generated by operating activities; MD&A instead states $248,764, so the filing gives inconsistent values. Cash decreased $1.17 million during the quarter.
Senior secured convertible notes had $37.71 million principal outstanding, bore 6% interest, and were due May 30, 2022, with a possible extension to November 30, 2022 subject to conditions. They were convertible at $15 per share and secured by substantially all assets. The balance sheet reports $25.21 million carrying value, net of debt discount. Accrued payroll-tax liabilities, including penalties, were $4.06 million; management notes the ultimate amount may change.
Material changes and notable items
- Q1 2022 operations included Empire for a full quarter; Q1 2021 did not. Operating costs rose with the larger workforce and business, including payroll, rent, hauling, equipment maintenance, and depreciation and amortization.
- A February 2022 1-for-300 reverse stock split resolved the authorized-share shortfall. The $29.76 million derivative balance was reclassified to additional paid-in capital; a further $14.26 million fair-value gain was recorded in earnings. These accounting items materially affect period comparisons.
- One customer accounted for approximately 62% of Q1 2022 revenue. Sales are concentrated in Virginia and northeastern North Carolina.
- Greenwave disclosed significant related-party relationships: it leases 12 scrap yards from an entity controlled by its CEO and paid that entity $477,140 in rent during the quarter; it also bought $152,500 of equipment from an entity controlled by the CEO’s spouse.
Outlook, risks and contingencies
Management stated it expects the senior notes to convert to common shares during 2022, but said additional capital may be needed if they do not convert. The filing identifies substantial doubt about the company’s ability to continue as a going concern for one year from issuance, citing the working-capital deficit and accumulated deficit of $303.59 million. Management believes operations could generate positive cash flow, but notes risks from debt conversion, a sharp downturn in recycled-metal markets, delays to growth plans, and the need and ability to raise capital.
Management’s stated growth priority is opening a facility with rail or deep-water-port access to expand potential buyers and potentially improve revenue and profitability; no quantified forecast or timeline is provided. Scrap-metal prices and supply depend on market demand, economic activity, and weather. The company also says COVID-19 impacts remain uncertain.
Disclosure controls and procedures were deemed ineffective at March 31, 2022 because of insufficient segregation of duties and review processes. Management identified a material weakness and said it expects to hire accounting personnel, while noting remediation may be delayed. The filing reports that environmental remediation and penalties under the Virginia DEQ consent order were fully paid by March 31, 2022. A prior Sheppard Mullin judgment is being repaid under a monthly settlement schedule through February 2023.
Investor verification priorities
- Confirm status, maturity, extension, conversion terms, collateral, and any subsequent repayment or refinancing of the $37.71 million senior notes.
- Resolve the operating-cash-flow discrepancy: $53,764 in the cash-flow statement versus $248,764 in MD&A.
- Assess near-term liquidity, payroll-tax liabilities, and the company’s going-concern funding plan.
- Review customer concentration, scrap-metal price exposure, and the terms and governance of CEO-related leases and purchases.
- Track remediation of the disclosed material weakness and verify the fully diluted share impact of convertible securities, warrants, and preferred stock.