Hyperscale Data, Inc. quarterly report, Q1 FY2024

Business context and reporting period

The supplied filing is Ault Alliance, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2024—not a filing identified as Hyperscale Data, Inc. Ault Alliance is a diversified holding company with businesses including Bitcoin mining and hosting, crane operations, defense electronics, lending and trading, and other investments. The company reports seven segments.

AGREE hotel and real-estate operations were presented as discontinued operations and held for sale at quarter-end. On April 30, 2024, the company changed its plan for the four hotels; they no longer met held-for-sale criteria and were to be reclassified as held and used.

Financial and operating performance

Revenue rose 55%. Digital-asset mining revenue increased to $11.4 million from $7.3 million, crane revenue was $12.9 million versus $12.6 million, and lending and trading revenue was $9.1 million versus a negative $4.9 million. The 2024 lending-and-trading result included an $8.9 million unrealized gain on White River shares. The company also recorded a $17.9 million noncash gain related to conversion of White River securities and a $1.4 million gain on extinguishment of debt. These items materially contributed to reported earnings.

Management reported adjusted gross margins, excluding lending-and-trading margins, of 29% versus 25%. Reported margins were affected by the positive lending-and-trading contribution in 2024 and negative contribution in 2023. Operating expenses fell to $19.1 million from $32.3 million, including lower selling and marketing and general and administrative costs; the latter also reflected reduced stock compensation and SMC’s deconsolidation.

Cash used in investing activities was $1.7 million, chiefly capital expenditures and discontinued-operation spending. Financing activities provided $13.0 million, supported in part by $14.6 million of gross common-stock ATM proceeds. Continuing-operation cash and restricted cash totaled $14.9 million at quarter-end, including $5.5 million restricted cash; the company separately reported $9.4 million cash and cash equivalents.

Liquidity, debt and capital structure

At March 31, 2024, total assets were $299.8 million and total liabilities were $234.0 million. Current assets were $144.8 million against current liabilities of $198.2 million; management disclosed negative working capital of $53.5 million. Notes payable, net, were $29.7 million and convertible notes payable, net, were $20.6 million. The balance sheet also included a $38.9 million guarantee liability and $71.4 million of current liabilities of discontinued operations.

Management stated that cash, receivables and marketable securities on hand were not expected to fund anticipated operations for one year from issuance of the financial statements. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management expects to seek capital through equity or debt issuance and asset sales, but says availability and acceptable terms cannot be assured. Failure to raise sufficient capital could require scaling back or ceasing operations.

The company sold 25.6 million Class A shares for $14.6 million gross proceeds during the quarter; shares outstanding rose from 4.5 million at year-end to 30.1 million at March 31. It also issued $2.0 million of Series C preferred stock to related party Ault & Company. A one-for-25 reverse stock split became effective January 16, 2024. Preferred dividends were $1.3 million for the quarter.

Material changes, outlook and risks

• Mining revenue increased 56%, which management attributed primarily to a 134% increase in average Bitcoin price, partly offset by a 94% increase in average mining difficulty. The Bitcoin halving occurred April 19, 2024, reducing the block subsidy from 6.25 to 3.125 Bitcoin; the filing provides no quantified forecast of its effect.
• SMC was deconsolidated in November 2023 after a change in ownership and voting rights. The company recognized a $0.7 million share of SMC losses in Q1 2024.
• About 20% of Q1 2024 consolidated revenue came from one North American mining-pool customer. Two Energy customers represented 14% and 11% of accounts receivable.
• Several obligations were past due or in default. A $2.1 million ROI note was in default as of May 1, 2024; a separate GIGA convertible note was reported in default at March 31, and $0.9 million of other notes payable was also in default at quarter-end. A $1.7 million term note issued after quarter-end was not paid at its May 17 maturity; the company said it was seeking a waiver or amendment. The filing also describes an April 29 extension of that note’s due date to June 15, so the status and timing should be confirmed.
• Ault Alliance has a guarantee obligation related to Ault & Company borrowings. On May 15, 2024, the related agreement was amended to extend the restricted-cash deadline to July 22 and raise the minimum specified balance from $7.0 million to $7.4 million.
• Disclosure controls and internal control over financial reporting were not effective at quarter-end. Management cited unresolved material weaknesses involving accounting resources, segregation of duties, system access and change management, and revenue/digital-asset controls. Remediation is ongoing; management had not concluded the weaknesses were remediated.
• The filing reports ordinary-course litigation and a $2.4 million accrued loss contingency at March 31. Management said it did not expect other outstanding matters, based on current knowledge, to have a material adverse effect, while noting litigation outcomes are uncertain.
• No specific financial guidance or quantified full-year outlook is provided. The filing cautions that quarterly results are not necessarily indicative of full-year results.

Most important facts for investors to verify

• Confirm the intended issuer: this source filing is for Ault Alliance, Inc., not Hyperscale Data, Inc.
• Assess the going-concern warning, negative working capital, cash burn, restricted-cash requirements, and the company’s ability to secure financing or sell assets.
• Verify current status, amounts, and terms of past-due and defaulted notes, including the post-quarter $1.7 million note and ROI and GIGA obligations.
• Separate recurring operating performance from volatile or noncash investment gains, particularly the White River-related gains and the $8.9 million unrealized securities gain.
• Evaluate dilution from common-stock issuance, preferred financing, warrants and potential conversions, and confirm the effect of the reverse split on share comparisons.
• Track the hotel plan change and any resulting reclassification, valuation effects, or sale proceeds; monitor remediation and testing of the disclosed material weaknesses.