CalEthos, Inc. SEC 10-Q Report

CalEthos, Inc., a company focused on developing clean-energy-powered data centers, has released its Form 10-Q report for the nine months ended September 30, 2024. The report highlights significant financial losses, ongoing strategic initiatives in data center development, and various operational and financial challenges.

Financial Highlights

Revenues: $0. The company reported no revenues for the nine months ended September 30, 2024, and 2023.

Net Loss: $(9.329) million. The net loss for the nine months ended September 30, 2024, increased significantly compared to the same period in 2023, primarily due to higher operating expenses and financing costs.

Net Loss Per Share - Basic and Diluted: $(0.37). The net loss per share increased due to the higher net loss and an increase in the weighted average common shares outstanding.

Business Highlights

Data Center Development: CalEthos, Inc. is in the early stages of implementing its plan for constructing and operating clean-energy-powered data centers. The company has completed Phase I and entered Phase II of its data center development plans, focusing on providing wholesale colocation services to enterprise IT and hyperscale customers.

Site Selection and Development: In July 2024, CalEthos terminated its option agreement to acquire an 80-acre parcel in Imperial County, California, opting instead for a larger 315-acre parcel. This new site offers strategic advantages such as better connectivity options, proximity to geothermal power plants, and lower flood risk.

Phase I Completion: By December 2023, CalEthos completed Phase I, which included site assessments, feasibility studies, and engineering plans. The company engaged several firms for power and connectivity assessments and project benchmarking.

Phase II Initiatives: Phase II involves hiring additional staff and consultants to develop environmental, health, safety, and cybersecurity procedures. The company is also preparing RFPs and contract packages for engineering/design firms and general contractors.

Customer Engagement: CalEthos is in discussions with several large companies interested in leasing its planned data center capacity. The company aims to secure a letter of intent with a customer by the end of Q1 2025.

Future Outlook: CalEthos anticipates starting the design process in collaboration with a customer in Q1 2025, with plans and permit packages expected by the end of Q2 2025. Construction is projected to begin by the end of Q2 or the beginning of Q3 2025.

Strategic Initiatives

Strategic Focus: CalEthos, Inc. is focused on developing a clean-energy-powered data center campus in Imperial County, California. The company has entered Phase II of its development plan, which includes hiring additional staff and consultants to complete environmental, health, and safety procedures, and developing data center operating procedures.

Capital Management: The company issued a promissory note of $1,000,000 and convertible debentures totaling $460,000 to fund its operations. It also issued warrants as part of these financing activities. The company has a working capital deficit of $741,000 as of September 30, 2024, and is actively seeking additional financing through equity or debt to support its business plan. During the third quarter of 2024, CalEthos issued $360,000 in 10% convertible debentures to four accredited investors, which are convertible into common stock at $2.00 per share.

Future Outlook: CalEthos anticipates incurring significant expenses to implement its business plan and requires substantial financing to complete the data center development. The company is in discussions with potential funding sources and expects to secure a letter of intent with a customer by the end of the first quarter of 2025. The company plans to start the design process for the data center in collaboration with a customer in the first quarter of 2025, with construction expected to begin by mid-2025.

Challenges and Risks

Operational and Financial Risks: The company is in the early stages of developing clean-energy-powered data centers, which involves significant operational and financial risks. The shift from an 80-acre to a 315-acre site in Imperial County, California, while offering strategic advantages, also introduces new challenges related to site acquisition and development. The company anticipates incurring substantial expenses and requires significant financing to complete its development plans. Failure to secure necessary capital could delay or terminate these plans, impacting the company's ability to meet its business objectives.

Dependency on External Financing: The company has not generated revenues and is reliant on raising funds through equity or debt securities to finance its operations. This dependency on external financing poses a risk, especially if market conditions are unfavorable or if the company is unable to secure financing on acceptable terms.

Operational Risks: The company faces operational risks related to the hiring of staff and consultants to complete various phases of its development plan, including environmental, health, safety, and cybersecurity procedures.

Market Risks: As a smaller reporting company, CalEthos is not required to provide detailed quantitative and qualitative disclosures about market risk. However, the company's reliance on clean energy sources and the potential volatility in energy markets could pose market risks, particularly if there are changes in energy regulations or supply disruptions.

Strategic Relationships: The company's ability to establish long-term strategic relationships with potential customers is crucial, and any failure to do so could impact its competitive position and financial performance.

Future Outlook: The company's future outlook is contingent upon its ability to secure financing, manage operational risks, and successfully implement its business plan. The management's strategy includes raising funds through the issuance of common stock, preferred stock, and/or debt securities, and engaging with potential customers to secure long-term leases for its data center capacity.

SEC Filing: CalEthos, Inc. [ GEDC ] - 10-Q - Nov. 19, 2024