Hyperscale Data, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In this quarterly report on Form 10-Q (the “Quarterly Report”), the “Company,” “Hyperscale Data,” “we,” “us” and “our” refer to Hyperscale Data, Inc., a Delaware corporation. Through its wholly owned subsidiary Sentinum, Inc., Hyperscale Data owns and operates a data center at which it mines digital assets and offers colocation and hosting services for the emerging artificial intelligence (“AI”) ecosystems and other industries. Hyperscale Data’s other wholly owned subsidiary, Ault Capital Group, Inc. (“ACG”), is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies. Hyperscale Data currently expects the divestiture of ACG (the “Divestiture”) to occur in the first quarter of 2026, though there can be no assurance that the Divestiture will be completed during such quarter. Upon the occurrence of the Divestiture, the Company would be an owner and operator of data centers to support high-performance computing services, as well as a holder of digital assets. Until the Divestiture occurs, the Company will continue to provide, through ACG and its wholly and majority-owned subsidiaries and strategic investments, mission-critical products that support a diverse range of industries, including an AI software platform, social gaming platform, equipment rental services, defense/aerospace, industrial, automotive and hotel operations. In addition, ACG is actively engaged in extending private credit and structured finance through a licensed lending subsidiary. Recent Events and Developments On February 5, 2025, we entered into an exchange agreement with an institutional investor, pursuant to which we issued to the investor a convertible promissory note in the principal face amount of $1.9 million (the “February 2025 Convertible Note”), in exchange for the cancellation of an outstanding term note we issued to the investor in April 2024. That note had an outstanding principal amount and accrued but unpaid interest of $1.9 million. The February 2025 Convertible Note accrued interest at the rate of 15% per annum, unless an event of default (as defined in the February 2025 Convertible Note) occurs, at which time the February 2025 Convertible Note would accrue interest at 18% per annum. The February 2025 Convertible Note was to mature on May 5, 2025. The February 2025 Convertible Note was convertible into shares of Class A common stock at a fixed conversion price of $4.00 per share. In February 2025, we and an institutional investor (the “Investor”) entered into an amended and restated forbearance agreement pursuant to which the Investor agreed to forebear through the close of business on May 15, 2025, from exercising the rights and remedies it is entitled in consideration for our agreement to issue to the Investor an amended and restated convertible promissory note in the amount of $3.5 million (the “A&R Forbearance Note”), consisting of (i) the amount then due under the original forbearance agreement of $0.9 million, (ii) a forbearance extension fee of $0.3 million and (iii) a true-up amount of $2.3 million. Subject to the approval by the NYSE and our stockholders, the A&R Forbearance Note is convertible into shares of Class A common stock at a conversion price equal to $2.00, subject to adjustment. The A&R Forbearance Note accrues interest at the rate of 18% per annum with a maturity date of May 15, 2025. On June 3, 2025, we and the investor entered into an amendment to the A&R Forbearance Note, pursuant to which the maturity date of the A&R Forbearance Note was extended until June 30, 2025. On March 14, 2025, we entered into an exchange agreement with an institutional investor pursuant to which we issued to the investor a convertible promissory note in the principal face amount of $4.2 million in exchange for the cancellation of (i) a term note issued by us on May 16, 2024, with outstanding principal and accrued but unpaid interest of $0.7 million, (ii) a term note issued by us on May 20, 2024, with outstanding principal and accrued but unpaid interest of $1.5 million, and (iii) the February 2025 Convertible Note issued by us on February 5, 2025, with outstanding principal and accrued but unpaid interest of $2.0 million. The note accrues interest at the rate of 15% per annum, unless an event of default (as defined in the note) occurs, at which time the note would accrue interest at 18% per annum. The note will mature on June 30, 2025. The note is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) $0.40 per share (the “Floor Price”) and (ii) the lesser of 75% of the VWAP (as defined in the note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the note or (B) the date of conversion into shares of Class A common stock. On March 21, 2025, we entered into an exchange agreement with an institutional investor, pursuant to which we issued to the investor a convertible promissory note in the principal face amount of $4.9 million (the “Exchange Note”) in exchange for the cancellation of (i) a term note issued by us on January 14, 2025, with outstanding principal and accrued but unpaid interest of $2.6 million, (ii) a promissory note issued by us on March 7, 2025, with outstanding principal and accrued but unpaid interest of $0.5 million, (iii) a promissory note issued by us on March 12, 2025, with outstanding principal and accrued but unpaid interest of $1.5 million, and (iv) a promissory note issued by us on March 13, 2025, with outstanding principal and accrued but unpaid interest of $0.3 million. The Exchange Note accrues interest at the rate of 15% per annum, unless an event of default (as defined in the Exchange Note) occurs, at which time the note would accrue interest at 18% per annum. The Exchange Note will mature on December 31, 2025. The note is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) the Floor Price and (ii) the lesser of 75% of the VWAP (as defined in the Exchange Note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the Exchange Note or (B) the date of conversion into shares of Class A common stock, but not greater than $10.00 per share. 1 On March 31, 2025, we entered into a securities purchase agreement with an institutional investor pursuant to which we agreed to sell up to 50,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) for a total purchase price of up to $50.0 million. The securities purchase agreement provides that the transaction shall be conducted through 49 separate tranche closings, provided, however, that the investor has the ability, exercisable in its sole discretion, to purchase any number of shares of Series B Preferred Stock prior to the dates of the tranche closings provided for in the securities purchase agreement. The initial tranche closing, which is expected to close promptly after the investor has converted out of the Exchange Note, will consist of the sale and issuance to the investor of 2,000 shares of Series B Preferred Stock for an aggregate of $2.0 million. Pursuant to the securities purchase agreement, provided certain closing conditions have been met, the investor shall purchase up to 4,800 shares of Series B Preferred Stock on a monthly basis, with the investor being required to purchase 1,000 shares per month. Each share of Series B Preferred Stock has a stated value of $1,000.00 and is convertible into shares of Class A common stock at a at a conversion price equal to the greater of (i) $0.40 (the “Floor Price”) and (ii) 75% of our lowest VWAP during the five trading days immediately preceding conversion, subject to a maximum price of $10.00 per share, as adjusted for certain corporate actions. Notwithstanding the foregoing, in no event shall the Series B Preferred Stock be convertible at less than the Floor Price. The holders of Series B Preferred Stock are entitled to cumulative cash dividends at an annual rate of 15%, or $150.00 per share, based on the stated value per share. Dividends shall accrue for as long as any shares of Series B Preferred Stock remain issued and outstanding and are payable monthly in arrears. For the first two years, we may elect to pay the dividend amount in additional shares of Series B Preferred Stock rather than cash. The holders of the Series B Preferred Stock are entitled to vote with the Class A common stock as a single class on an as-converted basis. On April 1, 2025, we issued to an institutional investor a convertible promissory note in the principal face amount of $1.7 million in consideration for an advance we received of $1.5 million. The note accrues interest at the rate of 15% per annum. The note will mature on September 30, 2025. The note is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) the Floor Price and (ii) the lesser of 75% of the VWAP (as defined in the note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the note or (B) the date of conversion into shares of Class A common stock. On April 8, 2025, we issued to an accredited investor a convertible promissory note in the principal face amount of $110,000 in consideration for $100,000. The note accrues interest at the rate of 15% per annum, unless an event of default (as defined in the note) occurs, at which time the note would accrue interest at 18% per annum. The note will mature on September 30, 2025. The note is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) $0.45 and (ii) the lesser of (A) 75% of the VWAP (as defined in the note) of the Class A common stock during the five trading days immediately prior to the date of issuance of the note or (B) 75% of the lowest VWAP of the Class A common stock during the five trading days immediately prior to the date of conversion into shares of Class A common stock. On April 15, 2025, we issued to two accredited investors convertible promissory notes in the aggregate principal face amount of $5 million in aggregate gross consideration of $4 million in cash paid by the investors, prior to placement agent fees and expenses of approximately $460,000. The notes were issued with an original issue discount of twenty percent (20%), or $1 million. The notes do not accrue interest unless an event of default (as defined in the notes) occurs, at which time the notes would accrue interest at 20% per annum. The notes will mature on September 30, 2025. The notes are convertible into shares of Class A common stock at a conversion price equal to the greater of (i) $0.40 and (ii) 80% of the lowest closing price of the Class A common stock during the five trading days immediately prior to the date of conversion into shares of Class A common stock. On May 13, 2025, we entered into an OID only term note agreement with an institutional investor with a principal amount of $1.4 million and an OID of $0.1 million. The maturity date of the promissory note is May 27, 2025. Mr. Ault entered into a personal guaranty agreement for the benefit of the investor. 2 On June 6, 2025, we entered into a settlement agreement (the “Agreement”) with our defense affiliate Gresham Worldwide, Inc. (“GIGA”) and GIGA’s senior secured lenders pursuant in its Chapter 11 bankruptcy proceedings. While the Agreement is subject to court approval, GIGA is expected to emerge from bankruptcy as a subsidiary of the Company on or before October 1, 2025. On June 9, 2025, Sentinum entered into a Hosting Services Agreement (the “Agreement”) with a data center hosting company (the “Service Provider”). Under the Agreement, the Service Provider will provide Sentinum with operations and asset management services and access to approximately 20 megawatts of energy capacity and other critical infrastructure to be used for Sentinum’s Bitcoin mining operations. The Agreement has an initial term of one year with automatic one-year renewals unless either Sentinum or the Service Provider elects to terminate the Agreement 90 days prior to the end of the current term. Sentinum anticipates deploying approximately 6,800 S19j miners (the “Miners”) at the Service Provider’s data center. Sentinum will pay the Service Provider a non-refundable fee of $10 per Miner for the setup, installation and configuration of the Miners (the “Initial Setup Fee”) as well as an initial deposit of $800,000 (the “Initial Deposit” and together with the Initial Setup Fee, the “Initial Fees”). The Initial Fees shall be paid out of Bitcoin rewards and Bitcoin transaction fee awards (the “Earned BTC”) that would otherwise be due to Customer until such time as 100% of the Initial Fees have been paid. Thereafter, Sentinum is entitled to 70% of the Earned BTC and the Service Provider is entitled to 30%. The Agreement provides that, during periods of high demand on the utility grid, the Service Provider has the option to curtail the electrical load to the facility and redirect the electrical load to the utility grid. Upon any curtailment, the net profits from such energy sales shall be equally split between Sentinum and the Service Provider. On July 31, 2025, we entered into a securities purchase agreement (the “July 2025 SPA”) with Ault & Company, Inc. (“Ault & Company”), pursuant to which we agreed to sell, in one or more closings, to Ault & Company up to 100,000 shares of Series H convertible preferred stock (“Series H Preferred Stock”) for a total purchase price of up to $100.0 million. The July 2025 SPA provides that the financing may be conducted through one or more closings. As of the date of this filing, no shares of Series H Preferred Stock have been sold, nor has the Certificate of Designations been filed with the State of Delaware, the jurisdiction where we are incorporated. Each share of Series H Preferred Stock has a stated value of $1,000.00 and is convertible into shares of class A common stock at a conversion price equal to the greater of (i) $0.10 per share and (ii) the lesser of (A) $0.79645 or (B) 105% of the volume weighted average price of the class A common stock during the five trading days immediately prior to the date of conversion. The conversion price is subject to adjustment in the event of an issuance of Class A common stock at a price per share lower than the conversion price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The holders of Series H Preferred Stock are entitled to cumulative cash dividends at an annual rate of 9.5%, or $95.00 per share, based on the stated value per share. Dividends shall accrue for 10 years from the date of issuance of such shares of Series H Preferred Stock and are payable monthly in arrears. For the first two years, we may elect to pay the dividend amount in shares of Class A common stock rather than cash. The holders of the Series H Preferred Stock are entitled to vote with the Class A common stock as a single class on an as-converted basis. Presentation of GIGA as Discontinued Operations On August 14, 2024, GIGA filed a petition for reorganization under Chapter 11 of the bankruptcy laws. The filing placed GIGA under the control of the bankruptcy court, which oversees its reorganization and restructuring process. We assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate GIGA and its subsidiaries effective on the petition date. We recognized a gain on deconsolidation of GIGA of $2.0 million included in net gain (loss) from discontinued operations. In connection with the Chapter 11 reorganization process , we concluded that the operations of GIGA met the criteria for discontinued operations as this strategic shift that will have a significant effect on our operations and financial results. As a result, we have presented the results of operations, cash flows and financial position of GIGA as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented. Change in Plan of Sales of AGREE Hotel Properties On April 30, 2024, we had a change in plan of sale for our four hotels owned and operated by Ault Global Real Estate Equities, Inc. (“AGREE”). As a result, as of April 30, 2024, the assets no longer met the held for sale criteria and were required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the determination not to sell. 3 For presentation purposes, the assets and liabilities previously held for sale as of December 31, 2023, were reclassified in the December 31, 2023 balance sheet in the accompanying financial statements back to their original asset and liability groups at their previous carrying values. In connection with this change in plan of sale, we recorded a loss on impairment of property and equipment related to the real estate assets of AGREE of $8.0 million during the year ended December 31, 2024. Deconsolidation of Avalanche International Corp. (“AVLP”) On March 28, 2025, AVLP, a majority-owned subsidiary of ours, filed a voluntary petition for liquidation under Chapter 7 of the U.S. Bankruptcy Code. As a result of the filing, AVLP became subject to the control of the bankruptcy court, and we no longer maintained a controlling financial interest. Accordingly, we deconsolidated AVLP effective as of the petition date. In connection with the deconsolidation, we recognized a gain of $10.0 million, which is included in the condensed consolidated statement of operations for the six months ended June 30, 2025. We evaluated the criteria for discontinued operations and determined that the operations of AVLP did not meet the requirements for such classification. Deconsolidation of Eco Pack Technologies Limited (“Eco Pack”) On April 16, 2025, Eco Pack, a majority-owned subsidiary of ours, filed a voluntary liquidation under the insolvency regulations in the UK. As a result of the filing, we no longer maintained a controlling financial interest. Accordingly, we deconsolidated Eco Pack effective as of the filing date. In connection with the deconsolidation, we recognized a loss of $0.4 million, which is included in the condensed consolidated statement of operations for the six months ended June 30, 2025. We evaluated the criteria for discontinued operations and determined that the operations of Eco Pack did not meet the requirements for such classification. General As a holding company, our business objective is to increase stockholder value through developing and growing our subsidiaries. Under the strategy we have adopted, 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 stockholders. 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 in secondary market transactions, or a combination thereof, as well as other opportunities to maximize stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations and working capital needs. From time to time, we engage in discussions with other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary or partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our stockholders’ best interests, we will seek to sell all or a portion of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner companies public through rights offerings and directed share subscription programs. We will continue to consider these (or similar) initiatives and the sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our stockholders. In recent years, we have provided capital and relevant expertise to fuel the growth of businesses in AI software platform, social gaming platform, equipment rental services, defense, industrial and hotel operations. We have provided capital to subsidiaries as well as partner companies in which we have an equity interest or may be actively involved, influencing development through board representation and management support. We are a Delaware corporation with our corporate office located at 11411 Southern Highlands Pkwy, Suite 190, Las Vegas, NV 89141. Our phone number is 949-444-5464 and our website address is https://hyperscaledata.com/ . 4 Results of Operations Results of Operations for the Three Months Ended June 30, 2025 and 2024 The following table summarizes the results of our operations for the three months ended June 30, 2025 and 2024. For the Three Months Ended June 30, 2025 2024 Revenue, crane operations $ 11,582,000 $ 11,700,000 Revenue, crypto assets mining 4,684,000 8,490,000 Revenue, hotel and real estate operations 5,622,000 5,389,000 Revenue, lending and trading activities 1,826,000 (9,763,000 ) Revenue, other 2,142,000 1,976,000 Total revenue 25,856,000 17,792,000 Cost of revenue, crane operations 8,141,000 8,032,000 Cost of revenue, crypto assets mining 7,074,000 9,039,000 Cost of revenue, hotel and real estate operations 3,285,000 3,318,000 Cost of revenue, lending and trading activities - - Cost of revenue, other 1,229,000 1,191,000 Total cost of revenue 19,729,000 21,580,000 Gross profit (loss) 6,127,000 (3,788,000 ) Operating expenses Research and development 112,000 102,000 Selling and marketing 6,277,000 3,725,000 General and administrative 9,865,000 11,360,000 Impairment of property and equipment - 7,955,000 Total operating expenses 16,254,000 23,142,000 Loss from operations (10,127,000 ) (26,930,000 ) Other income (expense): Interest and other income 1,081,000 720,000 Interest expense (7,664,000 ) (5,319,000 ) Loss on extinguishment of debt - (663,000 ) Loss from investment in unconsolidated entity - (1,291,000 ) Impairment of equity securities - (6,266,000 ) Gain on deconsolidation of subsidiary (359,000 ) - Loss on the sale of fixed assets (398,000 ) (36,000 ) Total other expense, net (7,340,000 ) (12,855,000 ) Loss before income taxes (17,467,000 ) (39,785,000 ) Income tax benefit 129,000 4,000 Net loss from continuing operations (17,338,000 ) (39,781,000 ) Net income from discontinued operations - 340,000 Net loss (17,338,000 ) (39,441,000 ) Net (income) loss attributable to non-controlling interest (1,713,000 ) 5,514,000 Net loss attributable to Hyperscale Data (19,051,000 ) (33,927,000 ) Preferred dividends (2,215,000 ) (1,308,000 ) Net loss available to common stockholders $ (21,266,000 ) $ (35,235,000 ) Comprehensive loss Net loss available to common stockholders $ (21,266,000 ) $ (35,235,000 ) Other comprehensive loss Foreign currency translation adjustment - (188,000 ) Other comprehensive loss - (188,000 ) Total comprehensive loss $ (21,266,000 ) $ (35,423,000 ) 5 Revenues Revenues by business category for the three months ended June 30, 2025 and 2024 were as follows: For the Three Months Ended June 30, Increase 2025 2024 (Decrease) % Sentinum Revenue, crypto assets mining $ 4,684,000 $ 8,490,000 $ (3,806,000 ) -45 % Revenue, commercial real estate leases 245,000 255,000 (10,000 ) -4 % Energy Revenue, crane operations 11,582,000 11,700,000 (118,000 ) -1 % Other - 29,000 (29,000 ) -100 % AGREE 5,377,000 5,134,000 243,000 5 % TurnOnGreen 1,692,000 1,236,000 456,000 37 % Fintech Revenue, lending and trading activities 1,826,000 (9,763,000 ) 11,589,000 n/m Other 450,000 711,000 (261,000 ) - Total revenue $ 25,856,000 $ 17,792,000 $ 8,064,000 45 % n/m - not meaningful Sentinum Revenues from Sentinum’s crypto assets mining operations decreased $3.8 million to $4.7 million for the three months ended June 30, 2025, compared to $8.5 million for the three months ended June 30, 2024. The decrease was due primarily to a $1.7 million decline in revenue from mined crypto assets at Sentinum owned and operated facilities coupled with a $2.2 million decline in revenue from Sentinum crypto mining equipment hosted at third-party facilities. The $1.7 million decrease in revenue from mined crypto assets at Sentinum owned and operated facilities was due to the April 2024 Bitcoin halving event that occurred on the Bitcoin network and a 45% increase in the average Bitcoin mining difficulty level, partially offset by a 50% increase in the average Bitcoin price for the three months ended June 30, 2025, compared to the corresponding period in 2024. No revenue was generated from third-party hosted mining operations in 2025. Energy Energy revenues from Circle 8’s crane operations declined slightly by $0.1 million, or 1%, for the three months ended June 30, 2025, compared to the same period in 2024. The modest decrease reflects a slowdown in demand from oil and gas customers, as many exploration projects were delayed or scaled back amid continued market uncertainty. Key contributing factors included fluctuations in crude oil prices, softer global demand, trade-related concerns, and higher borrowing costs, all of which impacted the pace of new project starts and the need for crane services. AGREE Revenues from AGREE’s hotel operations increased by $0.2 million, or 5%, for the three months ended June 30, 2025, compared to the same period in 2024. The modest increase reflects stable occupancy levels and consistent average daily rates, indicating steady performance in our hotel operations year-over-year. Fintech Revenues from our lending and trading activities increased $11.6 million to approximately $1.8 million for the three months ended June 30, 2025, compared to negative $9.8 million the same period in 2024. Revenues from our lending and trading activities were $1.8 million for the three months ended June 30, 2025, primarily due to a $1.4 million realized gain from the sale of an investment in other equity securities and $0.3 million in fee income during the three months ended June 30, 2025. Revenues from our lending and trading activities were negative $9.8 million for the three months ended June 30, 2024, primarily due to a $9.4 million unrealized loss on 2.5 million shares of White River Energy Corp. (“White River”) common stock and a $0.5 million unrealized loss from our investment in Alzamend included in revenue from lending and trading activities. 6 Revenues from our trading activities for the three months ended June 30, 2025 included net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings. TurnOnGreen TurnOnGreen’s revenues increased by $0.5 million, to $1.7 million for the three months ended June 30, 2025, compared to $1.2 million in the corresponding period in 2024. This rise was primarily due to higher sales from a single customer in the defense industry during the three months ended June 30, 2025. Other Other revenues decreased by $0.3 million, to $0.5 million for the three months ended June 30, 2025, compared to $0.7 million in the corresponding period in 2024. This decline was primarily due to lower corporate aircraft charter revenue from third parties. Gross Margins Gross margins improved to 24% for the three months ended June 30, 2025, compared to negative 21% for the same period in 2024. The improvement was primarily driven by the strong performance of our lending and trading activities, which positively impacted gross margins in the current period, in contrast to their negative contribution in the prior-year period. In both periods, gross margins were adversely affected by low or negative contributions from our crypto asset mining operations. Excluding the impact of lending and trading activities and crypto asset mining, adjusted gross margins were 35% and 34% for the three months ended June 30, 2025 and 2024, respectively. Research and Development Research and development expenses remained consistent at $0.1 million for both the three months ended June 30, 2025 and 2024. Selling and Marketing Selling and marketing expenses were $6.3 million for the three months ended June 30, 2025, compared to $3.7 million for the three months ended June 30, 2024, an increase of $2.6 million, or 69%. The increase was primarily the result of a $2.6 million increase in sales and marketing expenses at RiskOn International, Inc. (“ROI”) from higher advertising and promotion costs. General and Administrative General and administrative expenses were $9.9 million for the three months ended June 30, 2025, compared to $11.4 million for the same period in 2024, representing a decrease of $1.5 million, or 13%. The decrease was primarily driven by the deconsolidation of AVLP and Eco Pack, the completion and wind-down of Ault Disruptive Technologies Corporation (“Ault Disruptive”) following the full redemption of its public shares, and a reduction in stock-based compensation expense. Impairment of Property and Equipment On April 30, 2024, we had a change in plan of sale for our four hotels owned and operated by AGREE. As a result, as of April 30, 2024, the assets no longer met the held for sale criteria and were required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the determination not to sell. In connection with this change in plan of sale, we recorded a loss on impairment of property and equipment related to the real estate assets of AGREE of $8.0 million during the three months ended June 30, 2024. The fair values of property and equipment related to the real estate assets of AGREE were based on a discounted cash flow income approach for the hotel properties and a comparable sales market approach for the vacant land assets. Other Expense, Net Other expense, net was $7.3 million for the three months ended June 30, 2025, compared to other expense, net of $12.9 million for the three months ended June 30, 2024. Interest and other income totaled $1.1 million and $0.7 million for the three months ended June 30, 2025 and 2024, respectively. 7 Interest expense totaled $7.6 million for the three months ended June 30, 2025, compared to $5.3 million for the same period in 2024. The increase was primarily driven by higher amortization of debt discount associated with new convertible notes issued during the second quarter of 2025. These notes included embedded derivative features and incurred transaction-related costs, which contributed to the higher non-cash interest expense recognized during the period. Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at were $6.3 million for the three months ended June 30, 2024. No such impairments were recognized during the three months ended June 30, 2025. Income Tax Provision Our effective tax rate from continuing operations was a benefit of 0.7% for the three months ended June 30, 2025, compared to 0.0% for the same period in 2024. We recorded an income tax benefit of $0.1 million and $4,000 for the three months ended June 30, 2025 and 2024, respectively. Results of Operations for the Six Months Ended June 30, 2025 and 2024 The following table summarizes the results of our operations for the six months ended June 30, 2025 and 2024. For the Six Months Ended June 30, 2025 2024 Revenue, crane operations $ 25,351,000 $ 24,618,000 Revenue, crypto assets mining 9,882,000 19,937,000 Revenue, hotel and real estate operations 9,287,000 8,697,000 Revenue, lending and trading activities 1,798,000 (664,000 ) Revenue, other 4,559,000 3,569,000 Total revenue 50,877,000 56,157,000 Cost of revenue, crane operations 16,388,000 15,747,000 Cost of revenue, crypto assets mining 14,105,000 17,583,000 Cost of revenue, hotel and real estate operations 6,129,000 6,135,000 Cost of revenue, lending and trading activities - - Cost of revenue, other 2,845,000 2,292,000 Total cost of revenue 39,467,000 41,757,000 Gross profit 11,410,000 14,400,000 Operating expenses Research and development 241,000 213,000 Selling and marketing 8,611,000 7,773,000 General and administrative 19,069,000 21,732,000 Impairment of property and equipment - 7,955,000 Total operating expenses 27,921,000 37,673,000 Loss from operations (16,511,000 ) (23,273,000 ) Other income (expense): Interest and other income 1,321,000 1,243,000 Interest expense (11,503,000 ) (10,950,000 ) Gain on conversion of investment in equity securities to marketable equity securities - 17,900,000 (Loss) gain on extinguishment of debt (4,569,000 ) 742,000 Loss from investment in unconsolidated entity - (1,958,000 ) Impairment of equity securities - (6,266,000 ) Gain on deconsolidation of subsidiary 9,690,000 - Provision for loan losses, related party - (3,068,000 ) (Loss) gain on the sale of fixed assets (559,000 ) 32,000 Total other expense, net (5,620,000 ) (2,325,000 ) Loss before income taxes (22,131,000 ) (25,598,000 ) Income tax benefit 70,000 5,000 Net loss from continuing operations (22,061,000 ) (25,593,000 ) Net loss from discontinued operations - (2,996,000 ) Net loss (22,061,000 ) (28,589,000 ) Net income attributable to non-controlling interest (1,195,000 ) (1,621,000 ) Net loss attributable to Hyperscale Data (23,256,000 ) (30,210,000 ) Preferred dividends (4,181,000 ) (2,568,000 ) Net loss available to common stockholders $ (27,437,000 ) $ (32,778,000 ) Comprehensive loss Net loss available to common stockholders $ (27,437,000 ) $ (32,778,000 ) Other comprehensive (loss) income Foreign currency translation adjustment 6,000 (125,000 ) Other comprehensive income (loss) 6,000 (125,000 ) Total comprehensive loss $ (27,431,000 ) $ (32,903,000 ) 8 Revenues Revenues by business category for the six months ended June 30, 2025 and 2024 were as follows: For the Six Months Ended June 30, Increase 2025 2024 (Decrease) % Sentinum Revenue, crypto assets mining $ 9,882,000 $ 19,937,000 $ (10,055,000 ) -50 % Revenue, commercial real estate leases 761,000 557,000 204,000 37 % Energy Revenue, crane operations 25,351,000 24,618,000 733,000 3 % Other 29,000 68,000 (39,000 ) -57 % AGREE 8,526,000 8,140,000 386,000 5 % TurnOnGreen 3,284,000 2,461,000 823,000 33 % Fintech Revenue, lending and trading activities 1,798,000 (664,000 ) 2,462,000 n/m Other 1,246,000 1,040,000 206,000 20 % Total revenue $ 50,877,000 $ 56,157,000 $ (5,280,000 ) -9 % n/m - not meaningful Sentinum Revenues from Sentinum’s crypto assets mining operations decreased $10.1 million to $9.9 million for the six months ended June 30, 2025, compared to $19.9 million for the six months ended June 30, 2024. The decrease was due primarily to a $5.3 million decline in revenue from mined crypto assets at Sentinum owned and operated facilities coupled with a $4.7 million decline in revenue from Sentinum crypto mining equipment hosted at third-party facilities. The $5.3 million decrease in revenue from mined crypto assets at Sentinum owned and operated facilities was due to the April 2024 Bitcoin halving event that occurred on the Bitcoin network and a 42% increase in the average Bitcoin mining difficulty level, partially offset by a 61% increase in the average Bitcoin price for the six months ended June 30, 2025, compared to the corresponding period in 2024. No revenue was generated from third-party hosted mining operations in 2025. Energy Energy revenues from Circle 8’s crane operations grew by $0.7 million, or 3%, for the six months ended June 30, 2025, compared to the same period in 2024. The increase was driven by a strong start to the year, as oil and gas companies launched new projects amid renewed optimism following the presidential inauguration. However, this early momentum slowed in the second quarter as broader economic pressures and uncertainty in commodity markets dampened demand for crane services. 9 AGREE Revenues from AGREE’s hotel operations increased by $0.4 million, or 5%, for the six months ended June 30, 2025, compared to the same period in 2024. The modest increase reflects stable occupancy levels and consistent average daily rates, indicating steady performance in our hotel operations year-over-year. Fintech Revenues from our lending and trading activities decreased $2.5 million to approximately $1.8 million for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to a $1.4 million realized gain from the sale of an investment in other equity securities and $0.3 million in fee income during the six months ended June 30, 2025. Revenues from our lending and trading activities were negative $0.7 million for the three months ended June 30, 2024, primarily due to a $0.4 million unrealized loss from our investment in Alzamend included in revenue from lending and trading activities. Revenues from our trading activities for the six months ended June 30, 2025 included net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings. TurnOnGreen TurnOnGreen’s revenues increased by $0.8 million, to $3.3 million for the six months ended June 30, 2025, compared to $2.5 million in the corresponding period in 2024. This rise was primarily due to higher sales from a single customer in the defense industry during the six months ended June 30, 2025. Other Other revenues increased by $0.2 million, to $1.2 million for the six months ended June 30, 2025, compared to $1.0 million in the corresponding period in 2024. This rise was primarily due to higher corporate aircraft charter revenue from third parties. Gross Margins Gross margins decreased to 22% for the six months ended June 30, 2025, compared to 26% for the same period in 2024. The decline was primarily driven by unfavorable margins from our crypto asset mining operations, partially offset by favorable contributions from our lending and trading activities. Gross margins of 22% for the six months ended June 30, 2025 reflected a similar mix of negative mining performance and positive trading results. Excluding the impact of lending and trading activities and crypto asset mining, adjusted gross margins for the six months ended June 30, 2025 and 2024 would have been 35% and 34%, respectively. Research and Development Research and development expenses remained consistent at $0.2 million for both the six months ended June 30, 2025 and 2024. Selling and Marketing Selling and marketing expenses were $8.6 million for the six months ended June 30, 2025, compared to $7.8 million for the six months ended June 30, 2024, an increase of $0.8 million, or 11%. The increase was primarily the result of a $1.0 million increase in sales and marketing expenses at ROI from higher advertising and promotion costs. General and Administrative General and administrative expenses were $19.1 million for the six months ended June 30, 2025, compared to $21.7 million for the six months ended June 30, 2024, a decrease of $2.7 million. The decrease was primarily driven by the deconsolidation of AVLP and Eco Pack, the completion and wind-down of Ault Disruptive following the full redemption of its public shares, and a reduction in stock-based compensation expense. 10 Impairment of Property and Equipment On April 30, 2024, we had a change in plan of sale for our four hotels owned and operated by AGREE. As a result, as of April 30, 2024, the assets no longer met the held for sale criteria and were required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the determination not to sell. In connection with this change in plan of sale, we recorded a loss on impairment of property and equipment related to the real estate assets of AGREE of $8.0 million during the six months ended June 30, 2024. The fair values of property and equipment related to the real estate assets of AGREE were based on a discounted cash flow income approach for the hotel properties and a comparable sales market approach for the vacant land assets. Other Expense, Net Other expense, net was $5.6 million for the six months ended June 30, 2025, compared to other expense, net of $2.3 million for the six months ended June 30, 2024. Interest and other income totaled $1.3 million and $1.2 million for the six months ended June 30, 2025 and 2024, respectively. Interest expense was $11.5 million for the six months ended June 30, 2025, a slight increase from $11.0 million for the same period in 2024. For the six months ended June 30, 2024, we recognized a noncash gain of $17.9 million related to the conversion of White River common stock by ROI into marketable equity securities. During the period, ROI transferred 6.7 million shares of White River common stock with a fair value of $19.2 million at the date of transfer. In connection with these transfers, ROI converted a portion of its White River Series A convertible preferred stock into common stock. No such gains were recognized during the six months ended June 30, 2025. During the six months ended June 30, 2025, we recognized a total net loss on extinguishment of convertible notes of $4.6 million. This amount includes: · A gain of $0.3 million resulting from the conversion of $0.7 million of convertible notes into 0.2 million shares of Class A common stock, which had a fair value of $0.4 million at the time of conversion; · A loss of $2.6 million was recognized in connection with the February 25, 2025 issuance of an amended and restated forbearance agreement with an institutional investor. As part of this agreement, we issued an amended and restated convertible promissory note (the “A&R Forbearance Note”) with a principal amount of $3.5 million. The A&R Forbearance Note was determined to be substantially different from the original note due to significant modifications, including an increased principal balance and the addition of a conversion feature. Accordingly, the original note was derecognized, and extinguishment accounting was applied. The $2.6 million loss reflects the excess of the value of the A&R Forbearance Note over the net carrying amount of the original note; · A loss of $1.0 million related to a convertible promissory note issued on March 14, 2025. Although the principal amount of the new note equaled the aggregate principal and accrued interest of the notes exchanged, the fair value of the new note, including the embedded derivative liability, exceeded the carrying amount of the original notes. As a result, a loss on extinguishment of $1.0 million was recognized; and · A loss of $1.3 million related to a convertible promissory note issued on March 21, 2025. Although the principal of the new note matched the principal and accrued interest of the exchanged notes, the combined fair value of the new note and its embedded derivative exceeded the carrying amount of the original instruments. Accordingly, a $1.3 million loss on extinguishment was recognized. During the six months ended June 30, 2024, ROI converted $2.3 million of ROI senior secured convertible notes that had a fair value of $0.9 million at the time of conversion and recognized a $1.4 million gain on extinguishment of debt. During the three months ended June 30, 2024, holders of our convertible notes converted $2.0 million of convertible notes that had a fair value of $2.7 million at the time of conversion and recognized a $0.7 million loss on extinguishment of debt. Loss from investment in unconsolidated entity was $1.3 million for the six months ended June 30, 2024, representing our share of losses from our equity method investment in Algorhythm Holdings, Inc. 11 On March 28, 2025, AVLP, formerly a majority-owned subsidiary of ours, filed a voluntary petition for liquidation under Chapter 7 of the U.S. Bankruptcy Code. As a result of the filing, AVLP became subject to the control of the bankruptcy court, and we no longer maintained a controlling financial interest. Accordingly, we deconsolidated AVLP effective as of the petition date. In connection with the deconsolidation, we recognized a gain of $10.0 million, which is included in the condensed consolidated statement of operations for the six months ended June 30, 2025. On April 16, 2025, Eco Pack, formerly a majority-owned subsidiary of ours, filed a voluntary liquidation under the insolvency regulations in the UK. As a result of the filing, we no longer maintained a controlling financial interest. Accordingly, we deconsolidated Eco Pack effective as of the filing date. In connection with the deconsolidation, we recognized a loss of $0.4 million, which is included in the condensed consolidated statement of operations for the six months ended June 30, 2025. During the six months ended June 30, 2024, we recorded a $3.1 million loan loss reserve related to the promissory note from Ault & Company due to uncertainties surrounding collection. The reserve was recorded within provision for loan losses – related party. Income Tax Provision Our effective tax rate from continuing operations was a benefit of 0.3% for the six months ended June 30, 2025, compared to 0.0% for the same period in 2024. We recorded an income tax benefit of $0.1 million and $5,000 for the six months ended June 30, 2025 and 2024, respectively. Liquidity and Capital Resources As of June 30, 2025, we had cash and cash equivalents of $5.9 million, excluding restricted cash of $21.3 million, compared to $4.5 million in cash and cash equivalents and $20.5 million in restricted cash as of December 31, 2024. The increase in cash and cash equivalents was primarily driven by cash inflows from financing activities, including the sale of preferred stock and proceeds from notes payable and convertible notes. These inflows were partially offset by cash used in operating activities, debt repayments and purchases of property and equipment. Net cash used in operating activities totaled $7.1 million for the six months ended June 30, 2025, compared to $13.9 million for the six months ended June 30, 2024. Cash used in operating activities for the six months ended June 30, 2025 included $9.9 million proceeds from the sale of crypto assets from our Sentinum crypto assets mining operations, offset by operating losses and changes in working capital. Net cash used in operating activities for the six months ended June 30, 2024 included $3.8 million cash used in operating activities from discontinued operations. Net cash used in investing activities was $2.3 million for the six months ended June 30, 2025, compared to net cash used in investing activities of $3.8 million for the six months ended June 30, 2024. Net cash used investing activities for the six months ended June 30, 2025 included capital expenditures of $3.3 million partially offset by proceeds from collections on notes receivable, related party of $1.9 million. Net cash used in investing activities for the six months ended June 30, 2024 included $1.6 million cash provided by investing activities from discontinued operations. Net cash provided by financing activities was $11.6 million for the six months ended June 30, 2025, compared to $18.8 million for the six months ended June 30, 2024, and primarily reflects the following transactions: • $29.1 million gross proceeds from notes payable, offset by $30.2 million payments on notes payable; • $7.9 million gross proceeds from sales of Series B preferred stock; • $5.0 million gross proceeds from convertible notes payable, offset by $0.3 million payments on convertible notes payable; • $3.5 million gross proceeds from sales of Series D preferred stock; 12 • $4.2 million payments of preferred dividends; and • $0.9 million gross proceeds from sales of Series G preferred stock, related party. Net cash provided by financing activities for the six months ended June 30, 2024 included $1.3 million cash provided by financing activities from discontinued operations. Financing Transactions Subsequent to June 30, 2025 Sales of Series B Convertible Preferred Stock From July 1, 2025 through August 14, 2025, we sold a total of 10,955 shares of our Series B convertible preferred stock for cash totaling $11.0 million. Critical Accounting Estimates There have been no material changes to our critical accounting estimates previously disclosed in the 2024 Annual Report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable for a smaller reporting company.