10-Q: CalEthos Pivots Data Center Strategy Amid Delays, Reports Growing Deficit

CalEthos, Inc. abandoned its Imperial County data center project due to regulatory delays, pivoting to a new Infrastructure-as-a-Service model while facing significant financial challenges and a going concern warning.

Summary

• CalEthos, Inc. has abandoned its initial large-scale data center campus development in Imperial County, California, due to prolonged regulatory delays, including additional environmental studies and community concerns.
• The company has pivoted its strategy, forming TerraVolt Infrastructure Inc., a wholly-owned subsidiary, to focus on an Infrastructure-as-a-Service (IaaS) Platform for sustainable, baseload, powered land and infrastructure solutions for data centers.
• The new focus is on properties in states allowing onsite power production utilizing natural gas fuel cells and turbines, with access to natural gas pipelines, and considering co-development of geothermal power plants.
• For the nine months ended September 30, 2025, the company reported a net loss of $5,744,000, an improvement from the $9,329,000 net loss in the prior year, primarily due to a large loss on extinguishment of debt in 2024.
• Total assets significantly decreased to $287,000 as of September 30, 2025, from $6,145,000 at December 31, 2024, largely due to expensing $4,581,000 in abandoned project costs related to the Imperial County site.
• The company's accumulated deficit grew to $37,614,000 as of September 30, 2025, from $31,870,000 at December 31, 2024.
• Working capital deficit worsened to $876,000 as of September 30, 2025, from $219,000 at December 31, 2024.
• Management has raised substantial doubt about the company's ability to continue as a going concern, citing a lack of recurring revenue and ongoing losses.
• The company issued $750,000 in notes payable to a related party (an entity for the benefit of director Sean Fontenot) during the nine months ended September 30, 2025, along with warrants to purchase 2,500,000 shares of common stock.
• Disclosure controls and procedures were deemed ineffective due to insufficient accounting and financial reporting personnel, leading to inadequate segregation of duties and review.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including a going concern warning, a growing accumulated deficit, and negative working capital. The abandonment of its primary project and the identified material weakness in internal controls are significant negative indicators, despite a strategic pivot. The reliance on related-party financing and the uncertainty of future capital raises further contribute to a highly negative outlook.

Positives

• Net loss for the nine months ended September 30, 2025, decreased to $5,744,000 from $9,329,000 in the prior year, though this was largely due to a non-recurring loss on extinguishment of debt in 2024.
• The company has formed a new subsidiary, TerraVolt Infrastructure Inc., and pivoted its business strategy to focus on an Infrastructure-as-a-Service (IaaS) Platform for data centers, potentially addressing industry demand for faster deployment.
• Cash used in investing activities decreased to $464,000 for the nine months ended September 30, 2025, from $1,085,000 in the prior year, reflecting a halt in capital-intensive development for the abandoned project.

Negatives

• The company has no revenues for the periods presented.
• Accumulated deficit increased to $37,614,000 as of September 30, 2025, from $31,870,000 at December 31, 2024.
• Total stockholders' equity shifted from a positive $4,317,000 at December 31, 2024, to a deficit of $2,443,000 at September 30, 2025.
• Working capital deficit significantly worsened to $876,000 as of September 30, 2025, from $219,000 at December 31, 2024.
• The primary data center development project in Imperial County, California, was abandoned, resulting in $4,581,000 in expensed abandoned project costs for the nine months ended September 30, 2025.
• Total liabilities increased to $2,730,000 as of September 30, 2025, from $1,828,000 at December 31, 2024.
• Notes payable to related parties increased substantially to $471,000 as of September 30, 2025, from $11,000 at December 31, 2024, indicating reliance on related-party financing.
• The company's disclosure controls and procedures were deemed ineffective due to insufficient personnel in accounting and financial reporting.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, accumulated deficit, and lack of recurring revenue.
• Inability to raise additional debt or equity financing in sufficient amounts and on acceptable terms to fund operations and growth targets.
• Challenges in locating and contracting suitable real estate with access to gas pipelines or other power sources, contracting for natural gas, and obtaining necessary power for data center development.
• Risk of delays in receiving required regulatory approvals for data center development and power plant construction in new locations, similar to past issues in Imperial County.
• Dependence on key individuals for successful development and operations.
• Competition with larger, better-capitalized companies in the data center and clean energy infrastructure industries.
• Risks associated with protecting intellectual property.
• Material weakness in internal control over financial reporting due to insufficient staffing, which could lead to material misstatements not being prevented or detected.
• The safe harbor for forward-looking statements may not apply to the company if it is considered an issuer of penny stock.

Future Outlook

The company intends to raise funds from investors by issuing common stock, preferred stock, and/or debt securities to pay outstanding indebtedness and fund its new business plan. It is currently in discussions with several potential funding sources. The new TerraVolt IaaS Platform aims to address time-to-power challenges for the data center industry by integrating grid and behind-the-meter power with construction-ready sites, focusing on states allowing natural gas fuel cells and turbines. Management estimates the first and second development phases of the new plan to be completed by December 31, 2025, the third by March 31, 2026, and the fourth and fifth by June 30, 2029.

Management Comments

• Expect to incur additional losses and cash outflows in the foreseeable future in connection with operating activities.
• Will need to raise debt or equity financing in the future to continue operations and achieve growth targets.
• There can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all.
• Cash balances and cash flow from operations will not be sufficient to fund operations and growth for the next twelve months from the issuance date of these financial statements.
• If unable to raise additional funding from investors or through other avenues, may not be able to continue as a going concern.
• Currently focused on identifying properties in states where onsite power production utilizing natural gas fuel cells and turbines is allowed, and where access to natural gas pipeline and capacity for delivery can be acquired within a reasonable timeframe.
• Still considering the use of geothermal power, but no longer considering the development of the well field, only the co-development and ownership of the power plants as the off-taker and user of the power produced.
• Believe TerraVolt's IaaS Platform will address many time-to-power challenges for the data center industry.
• Currently have only limited capital with which to pay anticipated expenses.
• The material weakness related to internal control over financial reporting that was identified at September 30, 2025, was that we did not have sufficient personnel staffing in our accounting and financial reporting department.

Industry Context

The data center industry is experiencing exponential growth in electricity consumption, projected to consume as much as 10% of all U.S. electricity within the next five years. This demand is driven by AI, cloud computing, and high-performance computing. Grid-served power is becoming less predictable in cost and availability, pushing the industry to seek alternative, sustainable, and reliable power solutions that accelerate deployment timelines. TerraVolt's IaaS Platform aims to capitalize on this trend by offering turnkey solutions for hyperscalers, colocation providers, and data center developers seeking faster capacity deployment. The shift from geothermal well field development to co-development/ownership of power plants and a focus on natural gas fuel cells/turbines reflects an adaptation to market realities and regulatory environments.

Comparison to Industry Standards

• The company's new strategy to provide an 'Infrastructure-as-a-Service (IaaS) Platform' for data centers with integrated power solutions aligns with a growing industry trend where hyperscalers and colocation providers seek faster deployment and more predictable power sources beyond traditional grid-served options.
• The stated industry consumption of 4% of U.S. electricity by data centers, projected to reach 10% in five years, highlights a significant market opportunity that CalEthos aims to address, but its current financial state and lack of established projects make direct comparison difficult.
• The company's pivot to natural gas fuel cells/turbines and co-development of power plants is a response to the 'time-to-power' challenges, which is a recognized bottleneck in the rapidly expanding data center market.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to any material legal proceedings, nor is it aware of any pending or threatened litigation that would have a material adverse effect on its business, operating results, cash flows, or financial condition.

Related Party Transactions

• In April 2025, the company issued a $250,000 note payable to an entity formed for the benefit of Sean Fontenot, a director, and his family (Lender), with a 10% interest rate and an initial maturity of August 31, 2025, later extended to January 31, 2026.
• In connection with the April 2025 note, the company issued the Lender a warrant to purchase 500,000 shares of common stock at $0.49 per share.
• In July 2025, the company issued a $500,000 note payable to the same Lender, with a 10% interest rate and a maturity date of January 31, 2026.
• The July 2025 transaction also extended the April 2025 Note's maturity date to January 31, 2026.
• The company issued the Lender a warrant to purchase 2,000,000 shares of common stock at $0.50 per share, allocated equally to the modification of the April 2025 warrants and the July 2025 Note warrants.
• Total notes payable to related parties, net, increased from $11,000 at December 31, 2024, to $471,000 at September 30, 2025.

Stakeholder Impact

• Shareholders face significant dilution risk from future equity raises; existing equity holders have seen a shift from positive equity to a deficit; share price likely to be negatively impacted by going concern warning, project abandonment, and financial distress.
• Employees have experienced changes in stock option milestones due to the strategic shift and termination of several key personnel (Chief Strategy and Development Officer, consultants), indicating instability.
• Creditors face repayment risk given the going concern warning and limited capital, with increased notes payable and convertible debentures maturing in 2026.
• Potential customers and partners for the new TerraVolt IaaS platform may be deterred by the company's financial instability and lack of secured land/power sources.
• Regulatory authorities may scrutinize the identified material weakness in internal controls.

Next Steps

• Identify properties in states allowing onsite power production utilizing natural gas fuel cells and turbines, with access to natural gas pipelines and capacity for delivery within a reasonable timeframe.
• Evaluate new locations with favorable energy resources and supportive local, county, and state officials for timely power plant construction, behind-the-meter power delivery, and large-scale data center developments.
• Secure financing to lease or acquire land for the new data center infrastructure platform.
• Continue to evaluate the probability of achieving new performance-based milestones for stock options at each reporting date.
• Address the material weakness in internal control over financial reporting by monitoring and evaluating effectiveness and implementing enhancements as funds allow.
• Complete the first and second development phases of the new business plan by December 31, 2025.
• Complete the third development phase by March 31, 2026.
• Complete the fourth and fifth development phases by June 30, 2029.

Key Dates

Recommendation

The company faces severe financial challenges, including a going concern warning, a substantial accumulated deficit, and negative working capital. The abandonment of its primary data center project, resulting in significant write-offs, highlights operational execution risks. While a strategic pivot has been announced, it is in very early stages with no secured land or financing, making its success highly uncertain. The identified material weakness in internal controls further raises concerns about financial reporting reliability. The reliance on related-party financing and the explicit need for substantial future capital, with no assurance of availability, indicate a high risk of further dilution or even failure. Given these factors, the stock carries extreme risk and is not suitable for investment.

Keywords

Data Center Infrastructure, TerraVolt Infrastructure, Infrastructure-as-a-Service (IaaS), Clean Energy, Geothermal Power, Natural Gas Fuel Cells, Turbines, SEC Filing, 10-Q, Going Concern, Capital Raise, Regulatory Approvals, Imperial County, Abandoned Project, Stock Options, Convertible Debentures, Related Party Transactions, Internal Controls