DPW Holdings, Inc. (NYSE American: DPW), a diversified holding
company (“DPW” or the “Company”), reported financial
results for its third quarter and the nine-month period ended
September 30, 2019 on its Form 10‑Q with the Securities and
Exchange Commission today.
Highlights
- Revenue of $19.5 million for the nine months ended September
30, 2019
- Total assets of $47.4 million as of September 30, 2019
- Year-to-date gross profit up 7% from prior year period
- Q3 2019 sees a realization of a $1.1 million improvement in
interest expense
- Current liabilities reduced by $5.6 million or 18% from
year-end 2018, excluding the $741,433 operating lease liability
related to the new lease accounting rules implemented in 2019
Revenues
Our revenues decreased by $1,963,259, or 23.5%, to $6,381,663
for the three months ended September 30, 2019, from $8,344,922 for
the three months ended September 30, 2018. The decrease from the
three months ended September 30, 2018, was due to a decrease in
revenue from our restaurant operations, the manufacture of the
Multiplex Laser Surface Enhancement (“MLSE”) plasma-laser system
and from our cryptocurrency mining operations and, to a lesser
extent, a decrease in revenue from customized solutions for the
military markets caused by temporary shortages in components
required for the manufacture of these solutions.
Revenues, cryptocurrency mining
In January 2018, we formed Digital Farms, Inc. (“Digital
Farms”), a wholly owned subsidiary formerly known as Super Crypto
Mining, Inc. Digital Farms was established to operate our
cryptocurrency business, which is pursuing a variety of digital
currencies. We are mining the top three cryptocurrencies for our
own account, consisting of Bitcoin, Litecoin and Ethereum. Although
the market prices of digital currencies were significantly higher
during the three months ended September 30, 2019 compared to the
prior-year period, due to power cost considerations, we reduced the
number of active miners from 1,512 in the prior year period to 978
during the current quarter. These factors, coupled with a
significant increase in the difficulty factor, which increased as
market prices of digital currencies did and more computational
power was added to the network during the period, resulted in a
decrease in revenues of $282,993.
Revenues, related party
During the three months ended September 30, 2018, we recognized
$352,496 in revenues from our purchase order with MTIX Limited, a
company formed under the laws of England and Wales (“MTIX”). Due to
working capital constraints discussed below, we did not recognize
any revenues from MTIX during the three months ended September 30,
2019. MTIX was acquired by Avalanche International Corporation, a
related party, on August 22, 2017. In March 2017, the Company was
awarded a purchase order by MTIX to manufacture, install and
service the MLSE plasma-laser system. Over the next several years,
management believes that the MLSE purchase order will be a source
of revenue and generate significant cash flows. The lack of revenue
during the three months ended September 30, 2019, was due to an
emphasis on reducing the debt obligations incurred in May 2018 to
acquire Enertec Systems 2001 Ltd. (“Enertec”). Payments, and the
related manufacturing services, that otherwise would have gone to
subcontractors of the MLSE plasma-laser system have been delayed in
order to enable us to restructure and reduce our overall debt
obligations.
Gross Margins
Gross margins increased to 27.3% for the three months ended
September 30, 2019 compared to 24.3% for the three months ended
September 30, 2018. The Company’s gross margins have typically
ranged between 33% and 37%, with slight variations depending on the
overall composition of our revenue. Our gross margins during the
three months ended September 30, 2018, of 24.3%, were affected by
the negative margins on revenues of $307,172 at Digital Farms. The
negative gross margins at Digital Farms resulted from monthly
recurring fixed costs at our colocation facilities which
temporarily exceed the revenues from our mining operations.
Excluding the effects of Digital Farms, then our adjusted gross
margins for the three months ended September 30, 2018, would have
been 38.9%, slightly higher than our historical range prior to our
launch of Digital Farms. The increase is mainly attributable to
higher gross margins related to our restaurant operations.
The Company also reported that its order backlog was $70.7
million, including $46 million of related party backlog
(related-party backlog is delinquent in the production schedule).
Digital Power Corp. which includes Power-Plus Technical
Distributors, LLC and Digital Power, Ltd. (aka “Gresham Power”) had
an order backlog of $4.4M while Microphase posted an order backlog
of $7.5M as Enertec reduced its order backlog to $12.8M.
Impairment of Property and Equipment
Under the guidance of ASC 360, Impairment or Disposal of
Long-lived Assets, a long-lived asset or asset group (including
intangibles) will be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not
be recoverable. Based upon the significant decline in the price of
bitcoin during the nine months ended September 30, 2019 and the
decline in projected cash flows over the life of the cryptocurrency
machines, the Company performed an undiscounted cash flow test to
determine if the cryptocurrency machines were impaired. The
undiscounted cash flows were less than the carrying amount of the
Company’s cryptocurrency machines and therefore, the carrying
amount of the assets were compared to the fair value of the
cryptocurrency machines, and the Company determined that there were
impairment charges to be recorded on the cryptocurrency machines.
Impairment charges for the nine months ended September 30, 2019
totaled approximately $4,315,856.
Operating Loss
The Company recorded an operating loss of $7,970,036 for the
three months ended September 30, 2019, compared to an operating
loss of $4,187,845 for the three months ended September 30, 2018.
The increase in operating loss is mostly attributable to the
impairment of property and equipment coupled with an increase in
engineering and product development expense partially offset by
higher gross profit and lower selling and marketing expense and
general and administrative expenses expense.
Interest Expense
Interest expense was $2,954,843 for the three months ended
September 30, 2019 compared to $4,072,539 for the three months
ended September 30, 2018. The decrease in interest expense for the
three months ended September 30, 2019 is primarily related to a
reduction of amortization of debt discount resulting from original
issue discount from the issuance of warrants in conjunction with
the sale of debt instruments. During the three months ended
September 30, 2019 and 2018, as a result of these issuances,
non-cash interest expense of $1,357,845 and $3,033,864,
respectively, was recorded from the amortization of debt discount
and debt financing costs.
Geographic Segment Reporting
We conducted operations in several geographical markets during
three-month period-ended September 30, 2019 and 2018. Other than as
shown, no foreign country or region contributed materially to
revenues or long-lived assets for these periods:
For the three-month periods ended September 30:
2019
2018
Revenues:
North America
$
4,040,664
$
5,166,899
Middle East
1,869,647
2,156,106
Europe
253,747
693,725
Other
217,605
328,192
Total revenues
$
6,381,663
$
8,344,922
During the three months ended September 30, 2019 and 2018, our
reported net loss included non-cash charges of $6,390,242 and
$4,709,663, respectively. A summary of these non-cash charges is as
follows:
2019
2018
Interest expense – debt discount
$
1,357,845
$
3,033,864
Stock-based compensation
361,779
1,352,640
Depreciation and amortization
947,830
917,152
Impairment of property and equipment
4,315,856
—
Amortization of right-of-use assets
199,260
—
Accretion of original issue discount on
notes receivable – related party
(607,356
)
(593,993
)
Accretion of original issue discount on
notes receivable
(19,132
)
—
Change in fair value of warrant
liability
(165,840
)
—
Non-cash items included in net loss
$
6,390,242
$
4,709,663
DPW’s CEO and Chairman, Milton “Todd” Ault, III said, “The first
nine months of 2019 have been challenging as we reduced our
short-term debt, which adversely impacted our working capital. We
have successfully reduced our short-term liabilities by $5.6
million, resulting in lower interest expense. Interest expense for
the quarter was $1.1 million lower than the corresponding period of
the prior year and the Company has achieved an increase in gross
profit for the first nine months of 2019 compared to the first nine
months of 2018. We are very pleased with our progress as we strive
to improve our capital structure, cashflow and overall performance.
There are three important indicators that stockholders and
investors should pay attention to; first, the dramatic reduction of
outstanding debt; second, the improvement in gross margins and
third, lower debt service costs.”
Ault continued, “I would like to restate our mission and discuss
our strategy. We are a growth company seeking to increase our
revenues and bottom line through acquisitions. We continually
assess acquisition opportunities. We have provided capital and
relevant expertise to fuel the expansion of businesses in
defense/aerospace, industrial, telecommunications, medical,
crypto-mining, textiles and a select portfolio of commercial
hospitality properties. We have launched an online fintech portal,
MonthlyInterest.com, that facilitates investments that pay monthly
interest. We believe MonthlyInterest.com will provide investors the
opportunity to invest directly into companies and technology that
will have a global impact, bypassing traditional banking and
lending institutions. As a holding company, our business strategy
is designed to increase shareholder value. Accordingly, we are
focused on managing and financially supporting our existing
subsidiaries and partner companies, with the goal of pursuing
monetization opportunities and maximizing the value returned to
shareholders. We have, are and will consider initiatives including,
among others: public offerings, the sale of individual partner
companies, the sale of certain or all partner company interests
through a variety of transactions, or a combination thereof, as
well as other opportunities to maximize shareholder value. We
anticipate returning value to shareholders after satisfying our
debt obligations and working capital needs.”
The Company will provide an investor update presentation,
discussing key strategic initiatives on December 19, 2019 at 2:00
p.m. Pacific Standard Time. Webcast and dial-in information will be
announced prior to the date of the presentation.
For more information on DPW Holdings and its subsidiaries, the
Company recommends that stockholder, investors and any other
interested parties read the Company’s public filings and press
releases available under the Investor Relations section at or
available at www.sec.gov.
About DPW Holdings, Inc.
DPW Holdings, Inc. is a diversified holding company pursuing
growth by acquiring undervalued businesses and disruptive
technologies that provide a global impact. Through its wholly as
well as majority owned subsidiaries and strategic investments, the
Company provides mission-critical products that support a diverse
range of industries, including defense/aerospace, industrial,
telecommunications, medical, crypto-mining, and textiles. In
addition, the Company owns a select portfolio of commercial
hospitality properties and extends credit to select entrepreneurial
businesses through a licensed lending subsidiary. The Company’s
headquarters are located at 201 Shipyard Way, Suite E, Newport
Beach, CA 92663; www.DPWHoldings.com.
Forward-Looking Statements
This press release contains “forward looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements generally include
statements that are predictive in nature and depend upon or refer
to future events or conditions, and include words such as
“believes,” “plans,” “anticipates,” “projects,” “estimates,”
“expects,” “intends,” “strategy,” “future,” “opportunity,” “may,”
“will,” “should,” “could,” “potential,” or similar expressions.
Statements that are not historical facts are forward-looking
statements. Forward-looking statements are based on current beliefs
and assumptions that are subject to risks and uncertainties.
Forward-looking statements speak only as of the date they are made,
and the Company undertakes no obligation to update any of them
publicly in light of new information or future events. Actual
results could differ materially from those contained in any
forward-looking statement as a result of various factors. More
information, including potential risk factors, that could affect
the Company’s business and financial results are included in the
Company’s filings with the SEC including, but not limited to, the
Company’s Forms 10-K and 10-Q. All filings are available at
www.sec.gov and on the Company’s website at
www.DPWHoldings.com.
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