Filing summary
Entity identification: The supplied filing is Ault Alliance, Inc.’s Form 10-Q, not a filing identified as Hyperscale Data, Inc. The summary below reflects the filing provided.
Business context and reporting period
The unaudited filing covers the quarter and nine months ended September 30, 2023. Ault Alliance is a diversified holding company with operations that include consumer electronics, defense electronics, crane services, Bitcoin mining, lending and trading, and other investments. In September 2023, it committed to selling its AGREE hotel and real-estate assets and presented AGREE as discontinued operations.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $48.0 million in 2023; $44.3 million in 2022 | $119.9 million in 2023; $87.2 million in 2022 |
| Gross profit and margin | $9.7 million; about 20%, versus $18.8 million and about 43% | $28.8 million; about 24%, versus $44.0 million and about 50% |
| Operating loss | $21.9 million, versus $7.0 million | $102.4 million, versus $28.2 million |
| Net loss | $28.4 million, versus $8.0 million | $141.5 million, versus $62.9 million |
| Net loss available to common stockholders | $22.2 million, versus $7.5 million | $132.1 million, versus $62.0 million |
| Cash flows from operations | Nine-month total cash used was $2.2 million, versus $21.9 million provided in 2022. Continuing-operations cash provided was $1.5 million, versus $21.2 million. |
Quarterly revenue growth reflected crane operations acquired in December 2022 and increased Bitcoin-mining revenue; lending and trading revenue was negative $0.2 million. For the nine months, crane operations contributed $37.7 million, Bitcoin mining $23.3 million, and lending and trading $4.3 million. Reported gross margin fell substantially; management said mining costs and trading activity weighed on margins. Excluding those activities, management calculated adjusted gross margins of 31% versus 25% for the quarter and 32% versus 29% year to date.
At September 30, cash and cash equivalents were $8.7 million, with $1.9 million of restricted cash. Current assets were $169.3 million and current liabilities $214.4 million; management reported negative working capital of $45.1 million. Total assets were $378.5 million and total liabilities $257.2 million. Continuing-operations debt included $51.5 million of notes payable, net; $16.2 million of related-party notes; and $18.1 million of convertible notes, net. Discontinued operations separately included $67.1 million of notes payable.
Material changes versus comparable periods
- Nine-month revenue increased 38%, while gross profit declined and operating and net losses widened.
- Crane operations added substantial revenue following the Circle 8 acquisition. Bitcoin-mining revenue increased, but costs rose faster; management cited higher mining difficulty and, year to date, lower average Bitcoin prices.
- Lending and trading revenue fell from $32.2 million in the first nine months of 2022 to $4.3 million in 2023, and was negative in the third quarter. The filing attributes volatility partly to investment gains and losses, including losses on Alzamend.
- The company recorded $35.6 million of goodwill and intangible-asset impairments and $3.9 million of property-and-equipment impairment in the first nine months of 2023. The property impairment concerned ROI mining operations that had not commenced.
- Common shares outstanding rose from 1.27 million at December 31, 2022 to 12.38 million at September 30, 2023. The company also completed a 1-for-300 reverse split in May 2023.
Outlook, risks, contingencies, and unusual items
- Going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management expects existing cash, receivables, and marketable securities to be insufficient for one year from issuance and plans to seek additional equity or debt financing and sell securities or digital currencies. It cautions that financing may not be available on acceptable terms; failure to raise capital could force it to scale back or cease operations.
- Asset sales: The company planned to sell AGREE’s four Midwest hotels and other real estate, with proceeds intended to reduce debt and support its stated core businesses. The filing expected the AGREE sale to close within one year; no sale proceeds are reported for the period.
- Related-party financing and dilution: After quarter-end, Ault Alliance entered into a $17.5 million secured convertible note transaction with Ault & Company, a related party, bearing 10% interest and secured by substantially all company and subsidiary assets, subject to existing senior liens. The associated warrants cover 47.7 million shares. A separate proposed related-party preferred-stock and warrant financing of up to $50 million was subject to conditions, including approvals and the purchaser obtaining financing.
- Subsequent equity sales: From October 1 through November 17, the company sold 54.2 million common shares through its ATM program for $10.0 million gross proceeds. This followed $21.2 million gross proceeds from ATM common-stock sales during the first nine months.
- Listing compliance: NYSE American notified the company on November 13 that its shares had traded below the exchange’s $0.20 average-price standard. The company had until May 13, 2024 to demonstrate sustained price improvement or effect a reverse split; the notice did not immediately delist the shares.
- Controls and legal matters: Management concluded internal control over financial reporting was not effective because previously identified material weaknesses remained unremediated, including accounting-resource, segregation-of-duties, IT access/change-management, and revenue-control deficiencies. The company reported a $4.4 million litigation accrual and said other outstanding matters were not expected to have a material adverse effect, while noting outcomes are uncertain.
- Other unusual items: In June 2023, approximately 11.3 million Ault Disruptive shares were redeemed for about $120.0 million. In August, preferred-stock liabilities were exchanged for secured notes, resulting in a $1.5 million extinguishment loss. The company also distributed TurnOnGreen securities to stockholders.
Important facts for investors to verify
- Confirm the intended issuer: the filing provided is for Ault Alliance, Inc., despite the request naming Hyperscale Data, Inc.
- Track cash needs, working-capital deficit, debt maturities, related-party borrowing, and whether planned financing or asset sales close and provide usable cash.
- Assess dilution from ATM share sales, convertible securities, and warrants, including the substantial post-quarter share issuance.
- Monitor AGREE property-sale timing and proceeds, and whether the proceeds are sufficient to reduce debt as management intended.
- Review mining economics, trading-related volatility, impairment assumptions, and the status of ROI’s mining operations.
- Check progress on internal-control remediation and NYSE American price-compliance requirements.