Azio Ai Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion of our financial condition and the results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report and the audited financial statements and notes thereto included in our 2025 Annual Report. This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note Regarding Forward-Looking Statements” above in this Quarterly Report.

Overview

We are a United States distributor of zero-emission commercial vehicles and heavy capacity drones engineered for logistics, infrastructure, and precision agriculture applications worldwide. Our systems enable a cleaner, safer, and more efficient future for critical industrial operations. We operate under four segments: electric vehicles, medical supplies, AI data infrastructure and drones.

For the three months ended June 30, 2026 and 2025, we generated sales revenue of $2,662,887 and $1,047,029 respectively, and our net loss for the three months ended June 30, 2026 and 2025 was $6,637,416 and $5,146,737, respectively. Included in our net loss for the three months ended June 30, 2026 is a loss on conversion and changes in fair value of convertible notes of $893,630. Included in our net loss for the three months ended June 30, 2025 is a loss on conversion and changes in fair value of convertible notes of $366,908.

For the six months ended June 30, 2026 and 2025, we generated sales revenue of $4,911,508 and $1,637,595 respectively, and our net loss for the six months ended June 30, 2026 and 2025 was $10,624,339 and $19,183,118, respectively. Included in our net loss for the six months ended June 30, 2026 is a loss on conversion and changes in fair value of convertible notes of $1,007,627. Included in our net loss for the six months ended June 30, 2025 is a loss on conversion and changes in fair value of convertible notes of $650,701 and a non-cash impairment charge of $10,103,048 for goodwill.

Merger with Azio AI Corporation ("Legacy Azio")

As disclosed in Note 1 - Organization and Operations to the consolidated financial statements included in this Quarterly Report, on July 2, 2026, the Company acquired Legacy Azio pursuant to the Amended and Restated Agreement and Plan of Merger, dated July 2, 2026 (the “Merger Agreement” and the transactions contemplated by the Merger Agreement, the “Azio Acquisition”), by and among the Company, Legacy Azio, EV-AZ Merger Sub, Inc., a wholly owned subsidiary of the Company (“First Merger Sub”), and Azio AI, LLC, a wholly owned subsidiary of the Company (“Second Merger Sub”). The Merger Agreement amended and restated in its entirety the prior merger agreement between the parties entered into and announced on May 19, 2026. Pursuant to the Merger Agreement, First Merger Sub merged with and into Legacy Azio, pursuant to which Legacy Azio was the surviving corporation and became a wholly owned subsidiary of the Company (the “First Merger”) and immediately following the effective time of the First Merger (the “First Effective Time”), Legacy Azio merged with and into Azio AI, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Second Merger Sub” and, together with the First Merger, the “Mergers”), pursuant to which Second Merger Sub was the surviving entity and became a wholly owned subsidiary of the Company.

At the closing of the Azio Acquisition, the Company issued to former Legacy Azio stockholders (i) 2,460,351 shares of the Company's common stock, representing no more than 19.9% of the Company's outstanding common stock immediately prior to the closing, net of 194,807 shares issuable upon conversion of $150,000 aggregate principal amount of Legacy Azio convertible notes assumed by the Company, and (ii) 973,450 shares of the Company's Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”). No fractional shares were issued. Any fractional interests were aggregated and any remaining fractional shares were rounded up to the nearest whole share. Each share of Series A Preferred Stock is convertible into 100 shares of common stock upon approval by the Company's stockholders of a proposal to permit such conversion under Nasdaq Listing Rule 5635.

The Azio Acquisition will allow the Company to enhance its AI infrastructure business segment to offer the following services:

• Artificial intelligence ("AI") datacenter deployment
• Enterprise GPU compute
• Digital power infrastructure
• Data center development and digital asset infrastructure

One Big, Beautiful Bill Act (the "Act")

The demand for our vehicles may be affected adversely by the Act due to significant reductions in electric vehicle credits made available to consumers. This may affect our future profitability.

Import Tariffs

Tariffs imposed by the Presidential administration may significantly affect demand for our vehicles or reduce our gross profits if we are unable to pass such tariffs to our customers. We are currently assessing the impact and will take appropriate action to minimize the impact of such tariffs on our electric vehicle strategy.

Nasdaq Deficiency Notice

On April 29, 2026, we received a notice (the “Notice”) from the Listing Qualifications Department of Nasdaq (the “Department”) notifying us that, because our stockholders’ equity was below $2,500,000 as reported on the 2025 Annual Report, we no longer meet the minimum shareholders’ equity requirement of $2,500,000 for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”). Pursuant to Nasdaq Listing Rule 5810(c)(2)(C), the Company had 45 calendar days, or until June 13, 2026, to submit to Nasdaq a plan to regain compliance. If the Company’s plan was accepted, Nasdaq could grant an extension of up to 180 calendar days from the date of the Notice, or until October 26, 2026, to evidence compliance with the Minimum Stockholders’ Equity Requirement.

The Company submitted the required compliance plan to Nasdaq before the June 13, 2026, and on June 18, 2026, the Company received notice from the Department that the Nasdaq staff had determined to grant the Company an extension to regain compliance with the Minimum Stockholders’ Equity Requirement until October 26, 2026 subject to the satisfaction of certain conditions set forth in the notice.

Going Concern and Management’s Plan

Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We sustained significant losses and negative cash flows from operations and are dependent on the overall improvement of our operating activities as well as debt and equity financing to fund operations. We incurred a net loss of $6,637,416 and $10,624,339 for the three and six months ended June 30, 2026, respectively. We incurred a net loss of $5,146,737 and $19,183,118 for the three and six months ended June 30, 2025, respectively. Cash used in operating activities was $8,731,663 and $5,385,357 for the six months ended June 30, 2026 and 2025, respectively. Accumulated deficit was $123,212,799 and $112,588,460 as of June 30, 2026 and December 31, 2025, respectively.

As a result of these conditions, substantial doubt exists about our ability to continue as a going concern within one year after the filing of this Quarterly Report. The unaudited condensed consolidated financial statements included elsewhere herein do not include any adjustments that might be necessary if we were unable to continue as a going concern.

As more fully described above under “Debenture Financing,” we closed the initial tranche of Debentures on March 6, 2026, resulting in net proceeds of $3,815,000, and closed the second tranche on May 7, 2026, resulting in net proceeds of $5,850,000.

Subsequent to June 30, 2026, we expanded our operations into the artificial intelligence and data center infrastructure sector through the Azio Acquisition. A significant portion of the capital raised to date and expenditures incurred in connection with these operations has been deployed toward infrastructure, equipment, site development and other expenditures intended to establish the foundation for commissioning and operating revenue-producing AI data center capacity.

Management's plans to address the conditions giving rise to substantial doubt include: (i) commissioning and placing into service income-producing data center capacity; (ii) generating revenue from hosting, infrastructure and equipment sales arrangements; (iii) obtaining project-level financing to fund additional data center development and expansion; (iv) raising additional capital through debt or equity financings, as appropriate; and (v) managing operating expenditures as the Company's AI infrastructure operations scale.

Future financing proposals, indications of interest and other preliminary commitments may be subject to due diligence, definitive documentation, satisfaction of closing conditions and other contingencies and, unless and until definitive agreements are executed and applicable conditions are satisfied, there can be no assurance that such financing will be consummated on acceptable terms or at all. There can also be no assurance as to the timing of commissioning additional data center capacity, the amount or timing of revenues generated from such capacity, the realization of anticipated benefits from the Azio Acquisition, or the Company's ability to achieve positive operating cash flows.

Accordingly, while management believes that its strategic assets, commercial pipeline, financing alternatives and planned commencement and expansion of revenue-generating AI data center operations provide a basis for its plans to improve liquidity and operating results, these plans are not considered probable of being fully implemented within the applicable assessment period to the extent necessary to alleviate the substantial doubt regarding the Company's ability to continue as a going concern.

Components of Results of Operations

Sales

Sales are recognized in accordance with ASC 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report. Under the vehicles segment, sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Under the medical supplies segment, revenue is initially recognized to the extent of incurred labor costs while the profit margin is recognized when the medical supplies are delivered to the third-party customer.

Cost of Sales

Cost of sales for our electric vehicles segment includes those costs related to the development, manufacture, and distribution of our electric vehicles. Specifically, we include in cost of sales for our electric vehicles segment each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our electric vehicles; and other associated costs. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage. Cost of sales included in our medical supplies activities include direct labor. The main materials of our medical supplies segment are supplied by the customer and are not included as cost of sales.

General and Administrative Expenses

Selling, general and administrative expenses include all corporate and administrative functions that support our Company, including personnel-related expense and stock-based compensation costs; costs related to investor relations activities; including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales.

Consulting and Research and Development Costs

These expenses are related to our consulting and research and development activity.

Other (Expense)Income, Net

Other (expense)/income include non-operating income and expenses, including interest income and expense, realized gain/(loss) on conversion of convertible notes and unrealized gain (loss) of financial instruments at fair value.

Provision for Income Taxes

We account for income taxes in accordance with ASC 740 which requires the recognition of deferred income tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made in 2026.

Results of Operations

The following discussion compares our results of operations for the three and six months ended June 30, 2026 to the corresponding periods ended June 30, 2025:

Sales

Sales for the three months ended June 30, 2026 and 2025 were $2,662,887 and $1,047,029, respectively. Sales for the three months ended June 30, 2026 of our electric vehicle segment was $0. All sales for the three months ended June 30, 2026 consisted of margin and services associated with the delivery of medical supplies to a related party. Sales for the three months ended June 30, 2025 of our electric vehicle segment were ($25,237) as certain credit memos were issued for operational purposes. Sales of our medical supplies segment consisted of margin and services associated with the delivery of medical supplies totaling $1,072,266 to a related party.

Sales for the six months ended June 30, 2026 and 2025 were $4,911,508 and $1,637,595, respectively. All sales for the six months ended June 30, 2026 consisted of margin and services associated with the delivery of medical supplies to a related party. Sales for the six months ended June 30, 2025 of our electric vehicle segment were $348,063 and consisted primarily of two logistics cargo vans and two cab and chassis trucks. Sales of our medical supplies segment consisted of margin and services associated with the delivery of medical supplies totaling $1,289,532 to a related party.

Cost of Sales

Cost of sales for the three months ended June 30, 2026 and 2025 were $2,591,558 and $2,504,746, respectively. Cost of sales of our electric vehicles segment was $0 and $1,523,713 for the three months ended June 30, 2026 and 2025, respectively. Cost of sales of our medical supplies segment was $2,591,558 and $981,033 for the three months ended June 30, 2026 and 2025, respectively. Cost of sales for our electric vehicles segment was related to the sales of the trucks and a van and additional inventory write-downs while cost of sales for our medical supplies segment was based on a cost-plus pricing structure to a related party.

General and Administrative ("G&A") Expenses

G&A expenses were $5,796,429 and $2,751,788 for the three months ended June 30, 2026 and 2025, respectively. The increase in G&A costs were primarily due to higher payroll and benefit costs due to additional employees and certain payroll increases, higher rent as we needed additional space for our operations, higher legal fees incurred due to increased compliance activities, higher stock compensation due to additional issuances of options that vested in the second quarter of 2026, higher commissions due to second debenture issued in May 2026, partially offset by lower bad debts as all receivables from our electric vehicles segment were written-off at December 31, 2025, lower contract labor, lower licenses, lower utilities as we reduced activity in our Arkansas location, lower insurance costs as we undertook certain cost cutting measures with respect to our policies, lower amortization expense as we wrote-off our intangibles during the second half of 2025 and overall lower costs due to certain cost cutting measures that were implemented.

G&A expenses were $9,368,866 and $6,354,896 for the six months ended June 30, 2026 and 2025, respectively. The increase in G&A costs were primarily due to higher payroll and benefit costs due to additional employees and certain payroll increases, higher rent as we needed additional space for our operations, higher legal fees incurred due to increased compliance activities, higher stock compensation due to higher number of awards, higher commissions due to debentures issued in 2026, partially offset by lower bad debts as all receivables from our electric vehicles segment were written-off at December 31, 2025, lower contract labor, lower licenses, lower utilities as we reduced activity in our Arkansas location, lower amortization expense as we wrote-off our intangibles during the second half of 2025 and overall lower costs due to certain cost cutting measures that were implemented.

Consulting Expenses

Consulting expenses were $0 and $0 for the three months ended June 30, 2026 and 2025, respectively. Consulting expenses were $0 and $46,511 for the six months ended June 30, 2026 and 2025, respectively.

Research and Development ("R&D") Expenses

R&D expenses were $12,000 and $590,121 for the three months ended June 30, 2026 and 2025, respectively. R&D expenses were $22,000 and $688,519 for the six months ended June 30, 2026 and 2025, respectively.

Goodwill Impairment Charge

Due to our declining stock price, we conducted an impairment test related to our goodwill in the first quarter of 2025. As a result of this test, we recorded an impairment charge of $10,103,048 related to our goodwill during the first quarter of 2025.

Loss on conversion and changes in fair value of convertible notes

We recorded a non-cash loss on conversion and changes in fair value of convertible notes of $460,404 for the three months ended June 30, 2026 and $366,908 for the three months ended June 30, 2025, on our financial instruments that we elected to measure at fair value. We recorded a non-cash loss on conversion and changes in fair value of convertible notes of $567,401 for the six months ended June 30, 2026 and $650,701 for the six months ended June 30, 2025, on our financial instruments.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2026 and 2025:

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2026 was $8,731,663, primarily due to a net loss of $10,624,339 and changes in operating assets and liabilities, net of $988,577, partially offset by non-cash operating charges of $2,881,253. The changes in operating assets and liabilities, net was primarily due to an increase of $1,160,693 in receivable from related party, an increase in other non-current assets and right-of-use assets for $1,509,305, a decrease of $230,876 in accrued liabilities and a decrease in EPA contract liability for $23,625, partially offset by an increase in accounts payable of $459,390, an increase in other liabilities of $1,165,196, a decrease of $160,511 in EPA fulfillment assets, a decrease in prepaid expenses of $35,211 and a decrease of $115,614 in other current assets,

Net cash used in operating activities for the six months ended June 30, 2025 was $5,385,357, primarily due to a net loss of $19,183,118, partially offset by changes in operating assets and liabilities, net of $1,897,702 and non-cash operating charges of $11,900,059. The changes in operating assets and liabilities, net was due a decrease in accounts receivable of $576,374, a decrease in inventory of $1,560,698, a decrease in prepaid expenses and other current assets of $779,123, an increase in accounts payable of $694,769, an increase in deferred revenue of $2,284,415 as a result of fundings from the EPA grants and an increase of $508,381 in other liabilities primarily from the capitalization of the Houston lease, partially offset by an increase in related party receivable of $1,161,947 from our medical supplies segment, an increase in inventory deposits of $2,743,291, an increase in non-current assets of $568,154 primarily from the capitalization of the Houston lease as a right-of-use asset and a decrease in accrued liabilities of $32,666.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2026 was $4,712,719, primarily from construction-in-progress for our AI data infrastructure segment.

Net cash used in investing activities during the six months ended June 30, 2025 was $176,828, primarily from the purchase of property and equipment that is used in our current operations.

Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2026 was $13,227,371 primarily from the issuance of debentures totaling $10,535,000, issuance of common stock for $2,724,806 and exercise of 2,918 Warrants (as defined below), partially offset by net loan repayments of $35,353.

Net cash provided by financing activities during the six months ended June 30, 2025 was $4,563,245 primarily from the issuance of the Additional Promissory Notes for $4,750,500 in net proceeds, partially offset by loan repayments of $187,255.

Liquidity and Capital Resources

As of June 30, 2026, we had cash and cash equivalents of $141,955 and negative working capital of approximately $22,804,321. To date, we have financed our operations primarily through capital raises from issuing common stock. We believe that our existing cash and cash equivalents may not be sufficient to allow us to operate for the next 12 months due to our current and potential liabilities. We may need to raise additional capital through equity or debt issuances. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations and reducing overhead expenses. We cannot provide any assurance that any new financing will be available on commercially acceptable terms, if at all, or will be completed on a timely basis. These conditions raise substantial doubt about our ability to continue as a going concern.

The accompanying unaudited condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

Amended and Restated Standby Equity Purchase Agreement

On October 31, 2024, we entered into the Amended and Restated Standby Equity Purchase Agreement (the “A&R SEPA”) with YA II PN, Ltd. (the "Investor"). The A&R SEPA amends and restates in its entirety the standby equity purchase agreement, dated September 23, 2024, by and between the Company and the Investor (the “Original SEPA”).

Pursuant to the A&R SEPA, except for so long as there is a balance outstanding under the Promissory Notes (as defined below) and the Additional Promissory Notes (as defined below), we have the right, from time to time, until November 1, 2027, to require the Investor to purchase up to $25 million of shares of our common stock, subject to certain limitations and conditions set forth in the A&R SEPA, by delivering written notice to the Investor. Pursuant to the A&R SEPA, the Investor advanced to us the principal amount of $3 million (the “Pre-Paid Advance”) in exchange for our issuance to the Investor of convertible promissory notes (the “Promissory Notes”) in two tranches, resulting in net proceeds (net of discounts and fees) to us of $2,635,500. We received the first tranche of the Pre-Paid Advance in the principal amount of $2 million on October 31, 2024 in exchange for the Promissory Note dated October 31, 2024 (the “EVTV-1 Promissory Note”), and the second tranche of the Pre-Paid Advance in the principal amount of $1 million on December 17, 2024 in exchange for the Promissory Note dated December 17, 2024 (the “EVTV-2 Promissory Note”). The Promissory Notes accrued interest on the outstanding principal balance at an annual rate equal to 0%, which would increase to an annual rate of 18% upon the occurrence of an Event of Default (as defined in the Promissory Notes) or a Registration Event (as defined in the Promissory Notes) for so long as such event of default remained uncured. Prior to our entry into the Supplemental Agreement (as defined below), the Promissory Notes were initially set to mature on November 13, 2025 and were convertible at a conversion price equal to the lower of (i) $21.48 per share or (ii) 93% of the lowest daily volume weighted average price of our common stock on Nasdaq Stock Market LLC (“Nasdaq”) as reported by Bloomberg L.P. (“VWAP”) during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, which was $3.58 per share, subject to adjustment from time to time in accordance with the terms contained in the Promissory Notes). Pursuant to the terms of the Original SEPA, we issued 6,410 shares of common stock to the Investor as a commitment fee.

During 2025, the obligation under the EVTV-1 Promissory Note was partially satisfied through the conversion of the EVTV-1 Promissory Note into shares of our common stock. As a result of this conversion, 1,416,116 shares of our common stock were issued at a weighted average price of $1.06. The remaining principal balance of the EVTV-1 Promissory Note at December 31, 2025, was $285,000. The remaining obligation was fully satisfied through the conversion of the EVTV-1 Promissory Note into shares of our common stock during the first quarter of 2026. As a result of this conversion, 529,096 shares of our common stock were issued at a weighted average price of $0.63.

We have elected to measure the Promissory Notes at fair value. In estimating the fair value of the Promissory Notes, a lattice model is applied. The required inputs include the current stock price, the term, the conversion price, the risk-free rate and volatility of the common stock. The Promissory Notes' fair values are classified as Level 3 under the fair value hierarchy as provided by ASC 820. All debt obligations under the Promissory Notes were fully satisfied at June 30, 2026.

Supplemental Agreement to A&R SEPA

On February 24, 2025, we entered into a supplemental agreement, dated February 24, 2025 (the “Supplemental Agreement”), with the Investor, which amends and supplements the A&R SEPA to: (i) provide for the advancement by the Investor to us, subject to the satisfaction of certain conditions as set forth in the Supplemental Agreement, of $5 million under the A&R SEPA (the “Additional Pre-Paid Advance”), to be evidenced by convertible promissory notes (the “Additional Promissory Notes”) in two tranches, (ii) amend the maturity date for the EVTV-1 Promissory Note to March 9, 2026, and (iii) amend the floor price for the EVTV-1 Promissory Note to $0.7130 per share.

The Additional Promissory Notes accrued interest on the outstanding principal balance at an annual rate equal to 5%, which would increase to an annual rate of 18% upon the occurrence of an Event of Default (as defined in the Additional Promissory Notes) or a Registration Event (as defined in the Additional Promissory Notes) for so long as such event remained uncured. The Additional Promissory Notes were scheduled to mature on March 9, 2026. The Additional Promissory Notes were convertible at a conversion price equal to the lower of (i) $10.00 per share or (ii) 93% of the lowest daily VWAP during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, which is $0.7130 per share, subject to adjustment from time to time in accordance with the terms contained in the Additional Promissory Notes).

The first tranche of the Additional Pre-Paid Advance was disbursed on February 25, 2025 in the principal amount of $3 million (with net proceeds to us of approximately $2.7 million after deducting discounts and fees) as evidenced by an Additional Promissory Note issued by us to the Investor on February 24, 2025 (the “EVTV-3 Additional Promissory Note”). During 2025, the obligation under the EVTV-3 Additional Promissory Note in the principal amount of $3 million was partially satisfied through the conversion of the EVTV-3 Additional Promissory Note into shares of our common stock. As a result of this conversion, 2,134,613 shares of our common stock were issued at a weighted average price of $1.51. The remaining principal balance of the EVTV-3 Additional Promissory Note on December 31, 2025, was $50,000. The remaining obligation was fully satisfied through the conversion of the EVTV-3 Additional Promissory Note into shares of our common stock during the first quarter of 2026. As a result of this conversion, 94,657 shares of the common stock were issued at a weighted average price of $0.53.

We have elected to measure the Additional Promissory Notes at fair value. In estimating the fair value of the Additional Promissory Notes, a lattice model is applied. The required inputs include the current stock price, the term, the conversion price, the risk-free rate and volatility of our common stock. The Additional Promissory Notes' fair values are classified as Level 3 under the fair value hierarchy as provided by ASC 820. All debt obligations under the Additional Promissory Notes were fully satisfied at June 30, 2026.

Debenture Financing

On March 6, 2026, we entered into a securities purchase agreement (the “SPA”) with the Investor, pursuant to which the Company agreed to issue and sell to the Investor, and the Investor agreed to purchase, debentures (the “Debentures”) in the aggregate principal amount of $11,000,000 (the “Subscription Amount”) in two tranches with the purchase price of the Debentures in each tranche being equal to 96% of the Subscription Amount to be purchased. The closing of the initial tranche of Debentures occurred on March 6, 2026 (the “First Closing”), in which we issued Debentures in the aggregate principal amount of $4,000,000 (the “First Closing Debentures”) to the Investor. The closing of the second tranche of the remaining $7,000,000 in aggregate principal amount of the Debentures (the “Second Closing” and such Debentures, the “Second Closing Debentures”) occurred on May 6, 2026.

In addition, in connection with the First Closing, as a commitment fee for the transactions contemplated by the SPA, we issued to the Investor warrants to purchase up to 1,291,778 shares of our common stock at an exercise price of $0.01 per share (the “Warrants”). The Warrants are immediately exercisable and will expire 60 months from the date of issuance. The Warrants include customary adjustment provisions for stock splits, combinations and similar events.

The Debentures bear interest at a rate of 5.0% per annum, subject to a potential increase to 18.0% per annum upon the occurrence of certain events of default. The Debentures mature on March 6, 2027 (the “Maturity Date”). We will repay the outstanding principal of the Debentures in monthly installments of (i) $363,636 for the First Closing Debentures and (ii) $636,364 for the Second Closing Debentures, in each case, plus accrued and unpaid interest, in cash, beginning on the earlier of the 30th calendar day following

May 5, 2026, the date of effectiveness of our registration statement on Form S-1 to register the resale of the shares of common stock issuable upon exercise of the Warrants and additional shares of common stock issuable pursuant

to the A&R SEPA. Any outstanding principal amount of, and accrued and unpaid interest on, the Debentures as of the Maturity Date will be due and payable on the Maturity Date.

The Debentures provide us with an optional redemption right pursuant to which we, at any time, may redeem in cash, in whole or in part, all amounts outstanding under the Debentures prior to the Maturity Date. The redemption amount shall be equal to the outstanding principal balance of the Debentures being redeemed by us, plus all accrued and unpaid interest thereon as of such redemption date. The outstanding principal balance at June 30, 2026 was $10,339,276.

Capital Expenditures

We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis and will continue increasing those expenditures as deemed necessary in our business operations.

Contractual Obligations

Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report for the period ended June 30, 2026, we have no contractual obligations.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting policies as those accounting principles under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.

Smaller Reporting Company Status

We are a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million measured on the last business day of our most recently completed second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second fiscal quarter. We may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including reduced disclosure about our executive compensation arrangements.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) for the quarter ended June 30, 2026. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of such time due to the material weakness described below.

In making such conclusion, our management determined that such deficiencies were determined to be material weaknesses that are primarily due to a lack of number of employees since the beginning of the fourth quarter of 2020 and such deficiencies continue through the date of this filing. During such periods and for all periods thereafter through the date of such determination, we increased our reliance on outsourced accounting help. As a result of such changes, our management concluded that we were unable to maintain the levels of resources during such periods at the levels of prior periods, and that such changes to our procedures significantly affected our internal control over financial reporting during the quarter ended June 30, 2026.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the most recent three-month period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

There were no material changes from the risk factors previously disclosed in our 2025 Annual Report, except as described below.

We have a limited operating history in our AI data center, GPU compute, and digital power business, and our strategy in this area is unproven at scale.

Following the Azio Acquisition, our business now encompasses the development, ownership, and operation of artificial intelligence data centers, enterprise GPU compute infrastructure, digital power solutions, and digital asset mining operations, serving enterprise, institutional, government, and technology customers across domestic and international markets. This business model requires us to execute across a complex and interdependent set of operational, technical, financing, and commercial challenges that our combined organization has not previously faced, including large-scale data center site selection and development, power procurement and interconnection, GPU procurement and systems integration, and the sale and distribution of enterprise GPU systems and server infrastructure. Because we have only recently adopted this expanded business strategy, we have a limited track record on which investors can evaluate our ability to execute it, and our historical financial results, to the extent they reflect our prior business, are not indicative of our future performance under this new strategy. We cannot assure you that our strategy will succeed, that we will achieve or sustain profitability in this business, or that we will be able to compete effectively against more established participants.

Our business strategy is evolving, and changes to that strategy, or our failure to execute it successfully, could adversely affect our results of operations and the market price of our common stock.

Our business strategy for our AI infrastructure, GPU compute, digital power, and digital asset mining operations continues to evolve as market conditions, customer demand, technology, and capital availability change. We may adjust our strategy, including the mix of AI hosting, GPU resale and distribution, compute-as-a-service, colocation, and digital asset mining activities we pursue, or the geographic markets and customer segments we target, in ways that are difficult to predict and that may not prove successful. Strategic shifts of this kind can result in unanticipated costs, the write-down or abandonment of assets or business lines, workforce reductions or realignments, and diversion of management attention, any of which could adversely affect our business, financial condition, and results of operations.

Our business depends on our ability to develop and operate large-scale, power-intensive AI data center campuses, and any delay, cost overrun, or failure in that development could materially harm our business.

We have announced plans to develop an AI infrastructure campus in Texas designed to support a substantial amount of power capacity, and our business strategy depends on our ability to complete such development, and any future campuses, on time and within budget. The development of large-scale AI data center campuses requires substantial upfront and ongoing capital investment, securing suitable sites and power interconnection capacity, engineering and construction expertise, and coordination with utilities, grid operators, municipalities, and equipment suppliers. Construction of this kind of project is subject to significant risk of delay or cost overrun as a result of, among other things, permitting and utility interconnection delays, supply chain constraints for critical equipment (including transformers, switchgear, cooling systems, and networking equipment), labor availability and cost, weather and other force majeure events, and unanticipated site, environmental, or engineering issues. We may also be exposed to the risk that a general contractor, subcontractor, or key supplier involved in our construction projects experiences financial difficulty, insolvency, or performance failure. Any failure to complete our planned infrastructure on the anticipated timeline or budget could impair our ability to meet customer commitments, expose us to contractual penalties or termination rights, damage our reputation, and have a material adverse effect on our business, financial condition, and results of operations. Comparable data center operators have identified similar construction, financing, and site-concentration risks in their public disclosures.

We may pursue development at a limited number of sites, and geographic concentration of our operations exposes us to regional regulatory, market, and physical risks.

To the extent our AI infrastructure operations become concentrated in a limited number of geographic markets, including Texas, we are and will be particularly exposed to the regulatory environment, wholesale power market structure and rules, grid operator requirements, weather patterns, and general economic and political conditions of those markets. Adverse regulatory, market, or physical developments affecting any single region in which we have concentrated operations could have an outsized and disproportionate effect on our overall business, financial condition, and results of operations compared to a more geographically diversified operator.

We depend on a concentrated customer and counterparty base for our GPU sales and infrastructure agreements, and the loss of, or failure to perform by, one or more of these counterparties could materially harm our results.

We have announced an agreement with a single counterparty covering the purchase of up to 128 NVIDIA HGX B300 GPU systems, which the Company has estimated could represent an aggregate hardware value of approximately $77 million if all contemplated systems are purchased, although actual revenues may differ materially and remain subject to future purchase orders and customary conditions. Our GPU sales, compute leasing, and infrastructure businesses may depend on a small number of customers and counterparties for a disproportionate share of revenue in any given period. Any failure by a significant customer or counterparty to submit anticipated purchase orders, to make timely payment, or to perform its other obligations to us, whether due to its own financial condition, changed business needs, breach, insolvency, or other factors, could have an outsized adverse effect on our revenue, cash flow, and results of operations. In addition, because several of our current and potential customers may be early-stage, private, or otherwise non-investment-grade counterparties, we are subject to heightened counterparty credit risk, and our ability to collect amounts owed to us, or to enforce contractual remedies, may be limited.

Our customers may terminate agreements with us, decline to renew, or demand damages if we fail to meet contracted service levels, delivery timelines, or performance commitments.

Our AI hosting, colocation, and GPU supply arrangements may impose significant service-level, delivery, indemnity, and liability obligations on us. Our ability to meet these commitments depends on the timely completion of construction and infrastructure deployment projects, the continuous availability of power, cooling, and connectivity, the uninterrupted operation of our hardware systems, and our ability to source contracted hardware on the agreed timeline. Any failure to meet committed service levels, delivery dates, or performance standards, whether due to construction delays, equipment failures, supply chain disruptions, power curtailment, or other factors, could result in customer terminations, non-renewals, reputational harm, and significant financial liability, including damages, penalties, or the obligation to provide credits or refunds.

Our commercial partnerships with key suppliers and service providers are important to our business, and the loss of, or deterioration in, any of these relationships could adversely affect our operations.

We rely on relationships with key hardware suppliers, connectivity providers, and infrastructure partners to support our AI infrastructure business, including arrangements for the supply of enterprise GPU systems (including through reseller or distribution relationships) and for enterprise fiber connectivity to support low-latency AI training, inference, and cloud computing operations. The loss of, or a material adverse change in the terms of, any such relationship could disrupt our ability to source hardware, deliver contracted services, or maintain the network performance our customers require, and could require us to seek alternative arrangements on less favorable terms, at increased cost, or on a delayed basis, any of which could adversely affect our business, financial condition, and results of operations. We may have limited or no ability to control the business decisions of these third parties, including their pricing, allocation, or continued willingness to do business with us. These supplier and partner dependencies are in addition to the risks associated with our strategic relationships and joint ventures, including our former pilot partnership with Legacy Azio, described in our 2025 Annual Report.

Our engagement in enterprise GPU sales and distribution exposes us to inventory, pricing, warranty, and product-related risks that differ from our infrastructure hosting and compute services businesses.

In addition to developing and operating AI data centers, we source, integrate, and distribute enterprise-grade GPU hardware and server infrastructure. This activity exposes us to risks not present, or present to a lesser degree, in our hosting and compute services operations, including the risk of rapid price declines or volatility in GPU hardware pricing, the risk that hardware we acquire for resale becomes technologically obsolete or unsellable before it can be delivered or monetized, inventory and working capital risk, warranty and product liability exposure, exposure to defective or non-conforming products from our suppliers, and the risk that key suppliers limit, delay, condition, or discontinue our allocation of GPUs or other critical components. We may also be exposed to fluctuations in foreign currency exchange rates, import/export and customs requirements, and tariffs to the extent our GPU sourcing or distribution involves cross-border transactions. Any of these risks could result in inventory write-downs, margin compression, contract disputes, or an inability to fulfill customer orders, which could materially and adversely affect our results of operations. See also “Expansion of our business strategy into the AI infrastructure market could increase competitive, operational, legal and regulatory risks to our business in ways we cannot predict” in our most recent Annual Report on Form 10-K.

We operate in a rapidly evolving industry, and our business model, revenue streams, and cost structure may not develop as expected.

Our AI infrastructure business is intended to generate revenue from multiple potential sources, including AI data center hosting and colocation, GPU compute leasing (compute-as-a-service), enterprise GPU and server sales and distribution, power hosting, and digital asset mining, as well as through structured partnerships such as joint ventures, power purchase agreements, and equipment financing arrangements. There can be no assurance that any or all of these revenue streams will develop as we anticipate, that the relative mix of revenue among them will be favorable, or that our cost structure across these different activities will allow us to achieve or sustain profitability. Failure of one or more of these business lines to perform as expected could have a disproportionate effect on our overall results given the early stage of our operations in this sector.

We may seek to expand internationally, and our international operations, if any, would subject us to additional legal, regulatory, operational, and currency risks.

To the extent we pursue international expansion of our AI data center, GPU compute, or digital power businesses, we would be subject to a variety of additional risks not present in our current U.S.-focused operations, including compliance with foreign laws and regulations (including data protection, export control, and anti-corruption laws), foreign currency exchange rate fluctuations, differing labor and employment practices, political and economic instability, difficulty enforcing contracts and collecting receivables, and the burden of complying with multiple, potentially conflicting, legal and regulatory regimes. Any of these risks could increase the cost and complexity of our international operations or limit our ability to expand internationally as planned.

Our operations depend on the availability of specialized GPU and related hardware from a limited number of suppliers, and shortages, allocation constraints, or price increases could impair our ability to grow our business.

The market for high-performance GPUs, including current-generation NVIDIA systems, and other specialized AI infrastructure equipment, is characterized by a limited number of suppliers, long lead times, significant global demand, and periodic allocation constraints. We compete for supply against much larger and better-capitalized companies, including hyperscale cloud providers. Any shortage, allocation restriction, price increase, or delay in the delivery of GPUs or related hardware could delay our infrastructure buildouts, impair our ability to fulfill customer or resale commitments, increase our costs, and place us at a competitive disadvantage relative to better-capitalized competitors with preferred supplier relationships.

Rapid technological change in AI hardware could render our GPU and data center infrastructure obsolete, requiring significant additional capital expenditures.

The AI infrastructure market is characterized by rapid and unpredictable technological change, including the frequent introduction of new generations of GPUs, networking infrastructure, and cooling technologies. If we are unable to upgrade, integrate, or resell our hardware in a timely and cost-effective manner, our existing infrastructure and inventory may become less competitive or economically unviable, we may be unable to attract or retain customers who demand state-of-the-art infrastructure, and we may be required to make substantial additional capital expenditures earlier than planned, any of which could materially and adversely affect our competitive position, financial condition, and results of operations. In addition, advances that reduce the amount of compute required to train or run AI models (for example, more efficient model architectures or open-source alternatives) could reduce demand for the type or quantity of infrastructure we provide.

Failures of critical systems or infrastructure at our data centers, or defects affecting our concentrated GPU hardware fleet, could result in significant operational disruptions, customer losses, and financial liability.

Our data center operations depend on the continuous functioning of critical systems, including power infrastructure, cooling systems, networking equipment, and compute hardware, many of which have long replacement lead times and may represent single points of failure. Because our GPU fleet may be concentrated in a limited number of hardware generations or suppliers, a serial defect or systemic issue could cause widespread underperformance or outages across multiple sites simultaneously. Any failure of these systems due to, for example, equipment malfunction, human error, natural disaster, cyberattack, or utility disruption, could result in material service interruptions, breach of customer service-level commitments, significant remediation costs, customer loss, and lasting reputational harm.

We may be unable to obtain sufficient insurance coverage for our operations, and losses that are uninsured or exceed our coverage could materially harm our financial condition.

Our AI data center, GPU compute, and digital power operations involve substantial capital assets and exposure to property damage, business interruption, equipment breakdown, cyber incidents, and third-party liability claims. We may not be able to obtain insurance coverage at commercially reasonable rates, or at all, for some or all of these risks, and our existing or future coverage may contain exclusions, sublimits, or deductibles that leave us exposed to material uninsured losses. A significant uninsured or underinsured loss could have a material adverse effect on our business, financial condition, and results of operations.

We operate in the digital asset mining business in addition to our AI infrastructure business, and our ability to allocate power and computing capacity between these uses, as well as the volatility of digital asset markets, subjects us to additional risk.

Our business includes digital asset mining operations alongside our AI data center and GPU compute businesses, and we may retain flexibility to deploy power and compute hardware between AI workloads and digital asset mining depending on power availability and relative market yields. Our results of operations may accordingly be affected by the substantial price volatility, regulatory uncertainty, and evolving legal treatment of bitcoin and other digital assets, independent of demand for our AI infrastructure services. Our operating results may fluctuate significantly and unpredictably as a result of movements in digital asset prices, changes in mining difficulty or network hash rate, and halving or other protocol-level events affecting mining economics.

Our ability to reallocate power or computing capacity between AI and digital-asset-mining uses may be constrained, reducing our operational flexibility.

Our ability to reallocate power or computing capacity between AI and digital-asset-mining uses may be constrained by contractual commitments to AI or hosting customers, by the differing technical requirements of each use case (including differences in hardware, cooling, and networking configurations), or by regulatory restrictions, and any such constraint could reduce our operational flexibility and adversely affect our revenue and profitability. A sustained decline in digital asset prices or an adverse change in the regulatory treatment of digital asset mining could have a material adverse effect on the portion of our business attributable to those operations, and could also affect our ability to monetize infrastructure originally built or intended for mining use.

Digital asset mining hardware is subject to rapid technological obsolescence, physical degradation, and supply chain risk.

To the extent we own or operate bitcoin miners or other digital-asset-mining hardware, that hardware is subject to malfunction, technological obsolescence, and physical degradation, and may need to be replaced or upgraded frequently to remain competitive. We may also face disruptions or shortages in the supply chain for mining hardware and related components, which could impair our ability to maintain or expand our mining operations on favorable terms.

Regulatory developments affecting digital assets or digital asset mining could restrict our operations or increase our costs.

Government regulators may restrict the ability of electricity suppliers to provide electricity to digital asset mining operations such as ours, impose new taxes on electricity used for mining, or fully or partially ban mining operations in certain jurisdictions. Increasing regulatory and public scrutiny of the environmental impact of digital asset mining could result in new restrictions that adversely affect our ability to conduct mining operations or increase our compliance costs.

We are dependent on a reliable, cost-effective, and scalable supply of electricity, and any disruption, shortage, or increase in the cost of power could materially harm our business.

Our AI data center, GPU compute, and digital asset mining operations are highly energy-intensive, and electricity is a significant component of our operating costs. We have announced plans to develop infrastructure that includes substantial dedicated power capacity, and in some cases we may pursue behind-the-meter or on-site power generation (including natural gas generation) to reduce reliance on the traditional utility grid. Wholesale and retail power price volatility, transmission and interconnection constraints, curtailment risk, and our reliance on specific utilities, grid operators, or independent power arrangements each present risk to our ability to secure sufficient, reliable, and reasonably priced electricity for our planned expansion. Any electricity shortage, outage, curtailment, or material cost increase could impair our ability to meet uptime and performance commitments to customers, trigger contractual termination rights, delay our development plans, and have a material adverse effect on our business, financial condition, and results of operations.

Regulatory actions or grid operator requirements relating to large electricity loads could increase our costs or restrict our operations.

As our data center operations scale, we may become subject to heightened scrutiny from regulators, utilities, and grid operators with respect to our electricity consumption and the impact of our operations on grid reliability, including with respect to interconnection processes for large loads, grid stability, voltage and frequency ride-through requirements, and curtailment obligations. New rules, tariffs, or operational restrictions could require us to incur significant additional costs, delay expansion plans, reduce the operational flexibility of our facilities, or limit our ability to participate in ancillary services or demand-response markets, any of which could have a material adverse effect on our results.

Our reliance on behind-the-meter or on-site power generation, if pursued, subjects us to additional operational, regulatory, and commodity price risk.

To the extent we rely on on-site power generation, including natural gas generation, to supply our data center or mining operations, we are subject to risks associated with the availability and price of natural gas or other fuel, the operation and maintenance of generation equipment, compliance with air quality and other environmental permitting requirements, and the risk that behind-the-meter arrangements are challenged or restricted by regulators or utilities. Any disruption to our on-site generation arrangements could require us to rely on grid power on less favorable terms, or could disrupt our operations entirely.

Severe weather, natural disasters, and other physical events could disrupt our operations and cause material losses.

Our data center and power infrastructure facilities are susceptible to damage from severe weather events, including floods, storms, extreme heat, winter weather events, and other climate-related phenomena, as well as earthquakes, fires, and other natural or man-made disasters. Any such event could result in extended outages, significant repair and replacement costs, loss of customer contracts, and potential liability, and our insurance coverage may prove insufficient to cover the full extent of any such losses.

We face significant cybersecurity risks, and a breach of our systems or those of our customers or third-party providers could result in substantial harm to our business and reputation.

Our data centers and compute services may house sensitive or proprietary customer workloads, including AI model training data, and our information technology and operational technology systems may be vulnerable to cyberattacks, including from sophisticated and well-resourced threat actors. Any breach or unauthorized access affecting our systems or those of our third-party partners could expose us to significant legal liability, regulatory investigation, litigation, remediation costs, loss of customer confidence, and reputational harm. The integration of the acquired AI business with our legacy systems, and the consolidation of new personnel, vendors, and technology platforms, may introduce additional vulnerabilities during the transition period beyond those addressed by our existing cybersecurity risk management program described under Item 1C of our most recent Annual Report on Form 10-K.

Our reliance on third-party service providers, software, and infrastructure creates additional operational and security risk.

We rely on third-party vendors, service providers, and software platforms to support our operations, including for networking, connectivity, monitoring, and administrative functions. A failure, security incident, or service disruption affecting any of these third parties could impair our ability to operate our infrastructure or serve our customers, and we may have limited visibility into, or control over, the security and reliability practices of these providers.

We compete against larger, better-capitalized, and more established participants in the AI infrastructure, GPU compute, and digital power markets.

We compete for customers, sites, power, hardware, and personnel against specialized AI infrastructure and cloud providers, large-scale bitcoin-mining-to-HPC conversion companies, and general-purpose hyperscale cloud providers, many of which have substantially greater financial, technical, marketing, and operational resources, greater name recognition, longer operating histories, and stronger customer and supplier relationships than we do. We expect competition in this sector to intensify as additional entrants, including well-capitalized technology companies and financial sponsors, pursue AI infrastructure opportunities.

Demand for AI infrastructure may not develop as we anticipate, may develop more slowly than expected, or the industry may develop excess capacity relative to demand.

The AI infrastructure sector has attracted substantial capital investment industry-wide, and there is a risk that the industry could develop excess compute or data center capacity relative to customer demand. A slowdown or reprioritization of AI-related spending, weaker-than-expected enterprise or institutional adoption of AI workloads, or technological advances that reduce the amount of compute required for AI training or inference, could reduce demand for our infrastructure, depress pricing, and adversely affect our revenue growth and results of operations. Conversely, if industry-wide demand outpaces available power and site capacity, we may be unable to secure the resources necessary to grow as planned, or may face increased costs in doing so.

Our AI infrastructure and digital power operations are capital-intensive, and we may require significant additional financing that may not be available on acceptable terms, if at all.

The development, construction, and operation of AI data center infrastructure, GPU compute capacity, and associated power infrastructure requires substantial upfront and ongoing capital investment. Our ability to execute our growth strategy will depend on our ability to access debt and equity capital markets, project financing, equipment financing, or other structured arrangements on acceptable terms. Any inability to raise sufficient capital when needed could result in delays to or curtailment of our expansion plans, impairment of our ability to meet customer or supplier commitments, and a material adverse effect on our business. Additional equity or convertible debt financing, if obtained, could result in significant dilution to existing stockholders, and additional debt financing, if obtained, could include restrictive covenants that limit our operational and financial flexibility. This capital-intensive expansion is undertaken against the backdrop of our existing history of losses, negative working capital, and management’s conclusion that there is substantial doubt about our ability to continue as a going concern as discussed in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part I of this Quarterly Report, which increases the risk that financing for our AI infrastructure buildout may not be available to us on acceptable terms, or at all.

Our capital expenditure plans and expected returns are based on assumptions that may not prove accurate, and actual returns on our infrastructure investments may be lower than expected.

Our decisions to invest in AI data center capacity, GPU hardware, and power infrastructure are based on assumptions regarding future customer demand, pricing, utilization rates, and the useful life of our assets. If actual demand, pricing, or utilization differs materially from our assumptions, the returns on our capital expenditures may be lower than expected, or we may be required to impair the value of our assets, which could have a material adverse effect on our financial condition and results of operations.

We are subject to environmental, health, safety, and land use regulation, and increasing scrutiny of the energy intensity of AI and digital-asset-mining infrastructure could increase our costs or restrict our operations.

Our data center and digital asset mining operations are subject to a variety of federal, state, and local environmental, health and safety, zoning, building code, and land use regulations. Increasing regulatory and stakeholder scrutiny of the energy intensity and environmental impact of AI infrastructure and digital asset mining, including potential new restrictions on large electricity loads, water usage for cooling, noise, or the availability of power for such uses, could require us to incur significant additional capital or operating expenditures, restrict or delay our development activities, or otherwise adversely affect our results of operations and reputation.

Climate-related regulatory developments could increase our costs, restrict our access to energy, or otherwise adversely affect our operations.

Legislative and regulatory responses to climate change, including potential restrictions on greenhouse gas emissions, carbon pricing mechanisms, or requirements affecting the availability of power for energy-intensive uses, could increase our operating costs, restrict our access to energy on favorable terms, or otherwise adversely affect our ability to develop and operate our infrastructure as planned