Hyperscale Data, Inc. — filing identity and period
Important identity note: The supplied filing is Ault Alliance, Inc.’s Form 10-K for the fiscal year ended December 31, 2022, filed April 17, 2023. It is not identified in the filing as a Hyperscale Data, Inc. filing. The registrant was then known as BitNile Holdings, Inc.; it changed its name to Ault Alliance, Inc. on January 3, 2023. This is an annual report, not a standalone fourth-quarter report.
Ault Alliance is a diversified holding company with businesses spanning electronics and defense, Bitcoin mining, lending and securities trading, hotels, consumer karaoke products, crane services, and oil exploration. The filing reports eight segments for 2022.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $134.3 million | $52.4 million |
| Gross profit / gross margin | $56.0 million / 41.7% | $28.5 million / 54.5% |
| Operating loss | $140.2 million | $18.4 million |
| Net loss | $189.8 million | $23.0 million |
| Net loss available to common stockholders | $182.2 million; $0.74 per share | $23.3 million; $0.42 per share |
| Interest expense | $42.5 million | $1.9 million |
| Cash from (used in) operating activities | $26.5 million | $(61.7) million |
| Cash used in investing activities | $158.6 million | $333.5 million |
| Cash from financing activities | $124.1 million | $397.9 million |
Revenue increased 156%. Major 2022 sources included products ($61.6 million), lending and trading ($36.6 million), hotels ($16.7 million), Bitcoin mining ($16.7 million), and crane operations ($2.7 million). Acquisitions contributed materially to growth, including SMC, hotels, GIGA, AVLP, and Circle 8. Lending and trading revenue included investment-related realized and unrealized gains and is subject to market volatility.
Gross margin fell to 41.7% from 54.5%. Management said favorable lending and trading margins and negative Bitcoin-mining margins affected the 2022 result; excluding lending/trading and mining, adjusted gross margin was 29% versus 33% in 2021. Operating expenses rose to $196.1 million, including a $79.6 million impairment of Bitcoin mining equipment, $13.1 million of goodwill impairment, and higher selling and administrative costs. The company also recorded a $2.0 million impairment of a deposit with bankrupt hosting provider Compute North, $3.1 million of mined-cryptocurrency impairment, and $11.5 million of equity-security impairment.
Liquidity, debt, and capital
- At year-end, cash and cash equivalents were $10.5 million, plus $3.6 million of restricted cash. The separate $118.2 million SPAC trust balance is restricted for the SPAC’s business combination or shareholder redemptions and should not be treated as unrestricted operating cash.
- Current assets were $87.3 million and current liabilities were $107.3 million, a working-capital deficit of about $20.0 million. Total liabilities were $219.5 million.
- Notes payable, net of discounts, were $131.1 million, comprising $39.6 million current and $91.5 million long-term; convertible notes, net, were $12.8 million, including $1.3 million current. These balances exclude lease liabilities and other obligations. Contractual notes-payable maturities were $51.1 million in 2023, $13.8 million in 2024, $64.1 million in 2025, and $15.2 million in 2026.
- Management and the auditor stated that available cash was insufficient to fund planned operations for one year after issuance of the financial statements. The auditor’s report includes a going-concern paragraph citing a working-capital deficiency, losses, and need for additional funds; substantial doubt is raised about the company’s ability to continue as a going concern.
- Operating cash flow was positive largely because of cash generated from marketable-securities trading activity, including a $79.0 million cash contribution from marketable securities. Investing cash use included $108.4 million of capital expenditures, primarily for mining equipment. Financing included $172.3 million gross proceeds from common-stock sales and $60.7 million of note proceeds, partly offset by debt repayments and treasury-stock purchases.
- The 2022 common-stock ATM program sold about 285.4 million shares for $172.0 million gross proceeds during the year; the filing reports roughly 317.9 million shares sold for $177 million gross proceeds through March 13, 2023. Common shares outstanding rose from 84.3 million at year-end 2021 to 382.2 million at year-end 2022; 415.7 million were outstanding as of April 17, 2023.
Material changes, outlook, and risks
- Portfolio expansion and asset monetization: The company acquired or consolidated several businesses during 2022, including SMC, GIGA, AVLP, and Circle 8, and added four hotels to the prior-year comparison. It describes a strategy of supporting subsidiaries and pursuing sales, public offerings, or other monetization after meeting debt and working-capital needs.
- Bitcoin mining: Mining revenue rose to $16.7 million, but mining cost of revenue was $21.5 million and the company recorded a $79.6 million equipment impairment. The Michigan facility had 28 MW of power access; expansion and additional hosting were plans, not completed capacity. The company expected approximately 23,065 miners and 2.67 EH/s once deployments and power arrangements were in place. Bitcoin price, mining difficulty, power access, equipment supply, regulation, and the 2024 halving are significant uncertainties.
- Debt and covenant pressure: SMC was in default at year-end on a fixed-charge-coverage covenant under its Fifth Third credit agreement; it was negotiating a waiver and covenant revision, with no assurance of success. The company also disclosed defaults or waivers under certain secured notes and substantial near-term repayment requirements. A December 2022 secured note carried a 16% rate and required repayment from specified financing and securities-sale proceeds.
- Capital needs and dilution: Management expected to raise capital through equity or debt sales and/or marketable-security sales, but availability and terms were uncertain. Further financing could increase debt, impose collateral or covenants, and dilute shareholders. The filing also describes subsequent preferred-stock financing and a proposed reverse split process.
- Unusual spending and commitments: Proceeds from an $18.9 million term loan were used in part to buy a private aircraft for $15.8 million; the loans were secured by mining equipment, real estate interests, cash, and the aircraft, and carried guarantees. The company also disclosed a $14 million advertising sponsorship fee for 2023.
- Governance, controls, and legal matters: Disclosure controls and internal control over financial reporting were ineffective at year-end, with material weaknesses involving accounting resources and review, segregation of duties, IT user access and change management, and revenue controls. The company was cooperating with an ongoing non-public SEC inquiry and recorded a $1.0 million loss contingency; it also reported a $3.2 million accrual for litigation matters. The filing provides no assurance as to the inquiry’s outcome.
- Other key risks: The company’s evolving holding-company model, related-party transactions, concentrated senior-management dependence, volatile securities and Bitcoin exposure, acquisition integration, subsidiary leverage, foreign exchange, government-contract compliance, and potential delisting are material considerations. A Michigan data-center environmental remediation obligation was estimated at approximately $0.4 million, subject to uncertainty.
Most important facts for investors to verify
- Confirm the issuer’s identity: the supplied document is Ault Alliance, Inc.’s 2022 10-K, not a filing labeled Hyperscale Data, Inc.
- Review the audited financial statements and liquidity disclosures, including the going-concern warning, working-capital deficit, unrestricted cash, debt maturities, and post-year-end financing.
- Assess debt terms, collateral and guarantees, SMC’s covenant default and waiver negotiations, and the company’s ability to meet near-term obligations.
- Reconcile reported revenue growth with acquisitions and volatile lending/trading gains; evaluate recurring operating performance separately from investment gains and impairment charges.
- Verify the scale, deployment, power supply, economics, and impairment assumptions for Bitcoin mining, including whether planned hosting and capacity targets were achieved.
- Track share-count growth, ATM and preferred-stock issuance, conversion terms, reverse-split approval, and potential dilution from warrants and other securities.
- Follow the SEC inquiry, litigation contingencies, internal-control remediation, and the $14 million sponsorship commitment.