Avax One Technology LTD.: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis of our financial condition and results of operations should be read together with our historical financial statements and the notes to those statements and other financial information included elsewhere in this Quarterly Report. Certain statements in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” You should review the “Risk Factors” section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

BUSINESS OVERVIEW AND STRATEGIC EVOLUTION

In late 2024, the Company initiated its strategic transformation into a diversified technology and digital asset infrastructure company through the acquisition of its first Bitcoin mining site in Alberta, Canada. What began as an entry point into the cryptocurrency sector less than 18 months ago has evolved rapidly into a comprehensive institutional platform bridging traditional capital markets with the onchain financial economy.

A defining milestone in this evolution was the closing of the Company’s $219.1 million financing in November 2025. This capital infusion provided the financial foundation to meaningfully expand the Company’s participation in the Avalanche ecosystem. The integration of Avalanche includes the establishment of a strategic digital asset treasury, the generation of recurring revenue through AVAX staking, and active pursuit of mergers and acquisitions. These potential acquisitions are focused on identifying cashflow positive businesses that can be optimized through the speed, scalability, and low transaction costs of the Avalanche blockchain.

Complementing these digital asset initiatives, the Company has leveraged its longstanding operational relationships and deep industry knowledge in Alberta to advance its physical infrastructure footprint. The Company is currently developing a 10 MW Tier 3 microgrid-powered data center, which has been designed and is being constructed in record time at a highly competitive cost per MW. This facility is engineered to support both high-performance Bitcoin mining and artificial intelligence / high performance compute (“AI/HPC”) workloads, reflecting the Company’s forward looking approach to multi-use digital infrastructure.

Management believes this three-pronged strategy of Bitcoin mining operations, Avalanche ecosystem participation, and data center development creates a robust and differentiated business model. It enables the Company to capitalize on the specialized expertise of its leadership team in both cryptocurrency and energy infrastructure. The strategy is expected to deliver stable cash flows in the short to medium term through Bitcoin mining and AVAX staking, while positioning the Company for substantial long-term value creation through the expansion of its data center platform and broader ecosystem investments.

Differentiated Business Model and Market Context

From 2020 through 2025, more than 172 publicly traded companies incorporated cryptocurrency assets onto their balance sheets. A significant portion of these entities operated primarily as passive treasury vehicles, often lacking independent revenue streams, operational infrastructure, or sustainable cash flow generation capabilities.

AVAX One has deliberately pursued a structurally different approach. The Company’s strategy is anchored in the ownership and operation of critical physical infrastructure that powers blockchain networks. By investing directly in mining operations and data centers, the Company generates independent, recurring cash flows that provide financial resilience and reduce exposure to the volatility-driven forced-seller dynamics experienced by many digital asset treasuries.

Furthermore, these infrastructure investments are designed to drive tangible value back into the Avalanche ecosystem. By increasing onchain activity and network utilization, the Company contributes to higher transaction volumes, which in turn generate additional token burns. This mechanism permanently reduces AVAX token supply while simultaneously enhancing the network’s real-world utility and economic security, outcomes that benefit both the Company and the broader Avalanche community.

Recent Operational and Infrastructure Initiatives

In recent periods, the Company has accelerated its growth trajectory through two concurrent and complementary infrastructure initiatives. First, the Company signed a Front End Engineering and Design (FEED) agreement for the development of a 10 MW AI/HPC-capable microgrid data center in Alberta, Canada. This facility is being purpose-built to meet the highest industry standards for reliability, efficiency, and scalability. Second, the Company completed the acquisition of 220 additional Bitcoin mining machines. This equipment deployment is expected to increase the Company’s operational hash rate capacity in Alberta by approximately 33%, meaningfully expanding its Bitcoin mining output and associated revenue potential.

Taken together, these initiatives represent a deliberate and disciplined expansion of the Company’s core strategy: to build sustainable, long-term cash flow by investing in both the physical infrastructure (data centers and power solutions) and the digital infrastructure (blockchain participation and staking) that underpins the future of the onchain economy.

Strategic Outlook and Value Creation Opportunities

AVAX One is not merely accumulating AVAX tokens as a passive treasury asset. The Company is actively constructing next-generation data center infrastructure capable of supporting both leading blockchain protocols and the rapidly growing demands of artificial intelligence and high-performance computing workloads.

As these cashflow generating operations scale, the Company anticipates increased financial flexibility to pursue several value-enhancing initiatives. These include further expansion of its digital asset treasury, opportunistic acquisitions within the Avalanche ecosystem, and strategic investments that contribute to the overall health, security, and adoption of the Avalanche network.

Management remains confident that this integrated model of combining revenue producing infrastructure assets with active ecosystem participation will differentiate AVAX One in the market and create enduring value for shareholders as the convergence of cryptocurrency, artificial intelligence, and digital infrastructure continues to accelerate.

RECENT DEVELOPMENTS

NASDAQ Compliance

On March 13, 2026, the Company received a letter from Nasdaq that it no longer complies with Rule 5550(a)(2) of Nasdaq’s Listing Rules which require listed securities to maintain a minimum bid price of $1 per share. Based upon the closing bid price for the last 30 consecutive business days (January 29, 2026 to March 12, 2026), the Company no longer met this requirement.

The Company presented its appeal to the Hearing Panel (the “Panel”), and the hearing was held on April 21, 2026. On May 8, 2026, the Company received from the Panel an exception to cure its listing deficiencies and provides for the continued listing on The Nasdaq Stock Market subject to certain conditions. The conditions include, among other things, that the Company must demonstrate compliance with the minimum bid price of $1 per share for a minimum of 10 consecutive trading days on or before July 6, 2026. The Company plans to complete a reverse stock split (the "RSS") to cure the deficiency and will seek approval for the RSS at the annual shareholder meeting on May 29, 2026. The Company is confident that the RSS will be approved since enough shareholder votes in favor of the RSS have been secured as of May 5, 2026.

Data Center and Digital Infrastructure

On April 20, 2026, the Company executed a letter of intent with BlueFlare Energy Solutions Inc. (“BlueFlare”), an Alberta-based infrastructure developer, for the development of powered land capable of supporting a 10 MW AI/HPC Edge Compute facility. This initiative represents the Company’s formal expansion into the data center and digital infrastructure vertical, positioning AVAX One to participate in the rapidly accelerating demand for AI and high-performance computing capacity.

The initiative addresses the power bottleneck which is a foundational constraint for AI/HPC Edge computing capacity by presenting a scalable and replicable micro grid model in 10 MW increments. This advantageous differentiator is a key element to enabling the Company to achieve recurring revenue at scale. This transformative event demonstrates a power synergy with the Company’s existing Avalanche treasury and on-chain strategy by positioning the Company at the intersection of on-chain finance and the physical compute structure that will power it. Furthermore, this creates a clear path to recurring high-margin revenue through long-term infrastructure agreements with end clients thus creating sustainable shareholder value opportunities.

The Alberta site remains on schedule for end-client deployment readiness in Q1 2027. The Company also engaged BlueFlare as the infrastructure development partner for the project, and on May 6, 2026, ASCENT Consulting Ltd. was selected to lead engineering and design services for the Alberta site. This is a critical milestone that advances the project from letter of intent stage into formal technical execution.

Share Repurchase Program

In November 2025, the Company’s board of directors authorized a share repurchase program (the “Repurchase Program”) under which the Company may repurchase up to $40.0 million of its outstanding common shares, for a period of 12 months, subject to contractual requirements. The board of directors will periodically review the Company’s Repurchase Program and may decide to extend its term or increase the authorized amount. As of March 31, 2026, the Company has repurchased 3,273,383 shares in the open market for a total cost of $3.1 million pursuant to the Repurchase Program. Subsequently, the Company repurchased an additional 182,620 shares in the open market for a total cost of $88.5 thousand.

STATUS AS AN EMERGING GROWTH COMPANY

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions from, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (a) the last day of our fiscal year following the 5th anniversary of the closing of our initial public offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

TRENDS AND UNCERTAINTIES IMPACTING OUR BUSINESS AND INDUSTRY

Digital Assets

We generate revenue from blockchain-based operations, comprised of two primary sources: (i) staking rewards earned from delegating and validator node operations, through the Avalanche Protocol and (ii) the production of digital assets through mining activities, in Bitcoin (“Bitcoin Mining”). We commenced our digital asset strategy with regards to the Avalanche Protocol in the fourth quarter of 2025 with our transition to AVAX One and with regard to Bitcoin Mining in the fourth quarter of 2024 with the acquisition of our first Bitcoin Mining facility. We currently own and operate three Bitcoin Mining facilities.

Our digital assets were comprised of the following as of March 31, 2026 and December 31, 2025, which value may be materially impacted as the market value of digital assets fluctuates.

Management believes, given our recent investments, coupled with our relative position and liquidity, we are well-positioned to execute on our long-term growth strategy.

Energy Cost

Energy cost is one of the most significant cost drivers for Bitcoin Mining operations and these costs can be highly volatile and sensitive to geopolitical events and weather conditions, such as winter storms and earthquakes, which impact supply and demand for power regionally. We believe these costs are effectively managed through our power purchase agreement which allow us to obtain natural gas required to generate power at our mining facilities at favorable prices. Though energy prices are less predictable, our power purchase agreement gives us greater flexibility and ability to actively manage the energy we consume with the goal of increasing energy efficiency and profitability.

Concentrations and Current Vulnerability

Our principal activities consist primarily from investing, staking and evaluating digital tokens technologies that run on the Avalanche public blockchain network. Due to the current nature of our operations and the scale of business transacted on the Avalanche Network, a concentration could potentially result in a vulnerability. The concentration and potential associated vulnerabilities include, but are not limited to:

• A decline in, or loss of, staking rewards earned from the staking of AVAX tokens delegated to one or more validator nodes on the network,
• A decline in, or loss of, our AVAX holdings and its utility to the Avalanche Network and a source of liquidity for our business, and
• Disruption to the nature and extent of the business plan should the Avalanche public blockchain network fail or become redundant due to technological obsolescence or regulatory action.

The AVAX token performs various functions within the Avalanche ecosystem, including incentivizing network security and functionality and acting as the payment currency on the primary network. Therefore, this concentration may result in vulnerability to a near-term severe impact, and at least possible that there could be events outside of our control that may result in a severe impact in the near term.

As a result, of the foregoing, we believe a concentration exists as of the date of these financial statements, and a dissolution of the Avalanche Foundation or an inability of the Avalanche public blockchain network and/or AVAX tokens to function as expected, could result in near-term severe impacts to our business.

RESULTS OF OPERATIONS FOR THE three months ended March 31, 2026 and 2025

Revenues

Total revenue was comprised of the following during the three months ended March 31, 2026 and 2025 (in thousands):

We generate revenue from blockchain-based operations and comprises two primary sources: (i) staking rewards earned from delegating and validator node operations, primarily through our Avalanche Protocol and (ii) the production of digital assets through mining activities, primarily Bitcoin Mining.

Our Avalanche Protocol operations commenced in the fourth quarter of 2025 in connection with our transition to AVAX One and the implementation of our digital asset strategy. Our Avalanche Protocol revenues are generated through network-based smart contracts. We stake our crypto assets on our own validator nodes and nodes from third-party operators. Through these contracts, we provide crypto assets to stake to a node for the purpose of validating transactions and adding blocks to a respective blockchain network. We define the duration of our smart contracts, typically lasting from a few days to several weeks, and these contracts require that the crypto assets staked remain locked up for the duration.

Pursuant to our Bitcoin Mining, we earn revenue from the production of certain digital assets through mining activities. Our Bitcoin Mining operations commenced in December 2024 with the acquisition of first mining facility in Alberta, Canada (the “Redwater acquisition”) and then in January 2025 we added an additional mining facility with the Bald Eagle acquisition.

Operating Expenses

Operating expenses were comprised of the following during the three months ended March 31, 2026 and 2025 (in thousands):

Total operating expenses increased primarily due to the following:

• The increase in cost of revenue, excluding depreciation of $1.0 million is directly related to the increase in our Bitcoin Mining operations.
• Selling, general and administrative expenses increased primarily due to investor relations ($0.6 million) related to additional campaigns to promote the Company, coupled with office expenses ($0.6 million) primarily due to insurance costs, partially offset by the decline in severance expense ($0.1 million), shareholder/regulatory ($61.0 thousand) related to exchange listing expenses and business consulting ($51.0 thousand).
• The impairment of assets of $1.1 million is directly attributable to the liquid staking tokens (the tAVAX tokens) due to the decline in the market value of AVAX tokens and the realized loss on digital asset transactions of $5.3 million is a direct attributable to the deployment of AVAX tokens to tAVAX tokens, which resulted in a loss on the deployment date due to the decline in the market value of AVAX tokens.
• The increase in unrealized loss of on market valuation of digital assets is primarily due to the decline in market value of our AVAX tokens.

Other (Expenses) Income

Total other (expenses) income were comprised of the following during the three months ended March 31, 2026 and 2025 (in thousands):

Other expenses increased primarily due to the change in fair value of derivative liabilities and the increase in accretion of interest on debentures. The change in fair value of derivative liabilities is directly attributable to the reclass of derivatives to additional-paid-in capital during the second quarter of 2025 as a result of the conversion of our functional currency, from the Canadian dollar to the United States dollar, effective April 1, 2025. The increase in accretion of interest on debentures is primarily due to the issuance of additional debentures.

Operating Segments

We have chosen to organize our operating segments based on products or services offered. Each operating segment is also a reportable segment (i.e., operating segments have not been aggregated). Our operating and reportable segments at March 31, 2026, include Avalanche Protocol and Bitcoin Mining. All other activities, including financing, are carried out through the corporate entity. We evaluate the performance of each of the segments using operating income (loss) to provide a consistent and comparable measure of our performance between periods. Our calculations of operating income (loss) herein may be different from the calculations used by other companies, therefore, comparability may be limited. The accounting policies for the operating segments are the same as those disclosed in the notes to the unaudited condensed consolidated financial statements in this Quarterly Report, specifically Part I, Item 1. Financial Statements, Note 2, “Summary of Significant Accounting Policies.”

The following table summarizes our total revenues, by segment, during the three months ended March 31, 2026 and 2025 (in thousands):

Total revenue increased during the three months ended March 31, 2026 primarily due to the Avalanche Protocol operations, which commenced operations in the fourth quarter of 2025 with the implementation of our digital asset strategy, coupled with the increase in our Bitcoin Mining operations primarily due to the increase in our Bitcoin Mining infrastructure.

The following table summarized our operating income (loss), by segment, during the three months ended March 31, 2026 and 2025 (in thousands):

The total increase in operating loss during the three months ended March 31, 2026 is primarily attributable to the decline in market value of AVAX tokens, which resulted in an unrealized loss on market valuation of digital assets ($36.3 million), coupled with an impairment of assets related to the liquid staking tokens ($1.1 million) and the realized loss on digital asset transactions ($5.3 million) related to the deployment of AVAX tokens to the liquid staking tokens (tAVAX tokens), partially offset by the increase in revenue ($2.2 million). The operating loss was further impacted by the increase in cost of revenue, excluding depreciation ($1.0 million), which is directly related to the increase in our Bitcoin Mining operations and the increase in selling, general and administrative expenses ($0.9 million) primarily due to costs associated with promoting the Company and insurance.

LIQUIDITY AND CAPITAL RESOURCES

Management’s Assessment of Liquidity

Our primary need for liquidity is to fund working capital requirements, capital expenditures, and for general corporate purposes. Our ability to fund operations and make planned capital expenditures and debt service obligations depends on future operating performance and cash flows, which are subject to prevailing economic conditions, financial markets, business and other factors. The cash on hand is expected to be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months from the date these financial statements are issued.

Though we experienced a loss from operations of approximately $44.6 million during the three months ended March 31, 2026, this loss included $43.0 million of non-cash charges related to: 1) depreciation and amortization ($0.3 million); 2) impairment of assets ($1.1 million); and 3) realized and unrealized losses on digital asset transactions and market valuations ($5.3 million and $36.3 million, respectively). Adjusting for these non-cash charges, the adjusted operating loss would be $1.6 million.

Cash Flow Summary

The following information has been derived from the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. The change in cash and cash equivalents during the three months ended March 31, 2026 and 2025 is as follows (presented in thousands):

30

Operating Activities

Net cash used in operating activities was $1.4 million and $2.2 million during the three months ended March 31, 2026 and 2025, respectively, a decrease of $0.8 million, primarily due to the net change in operating assets and liabilities.

Non-cash items increased primarily due to the unrealized loss on digital assets of $36.3 million, asset impairments of $1.1 million, realized loss on digital asset transactions of $5.3 million and the change in amortization of debt issuance costs of $0.9 million, coupled with the change in fair value of derivative liabilities of $3.0 million. The net change in operating assets and liabilities is primarily due the net change in prepaid expenses and other current assets of $2.5 million, partially offset by the increase in revenue from digital asset production $2.2 million.

Investing Activities

Net cash used in investing activities during the three months ended March 31, 2026 was directly attributable to the purchase of equipment and digital assets. During the comparable prior year period, the Company paid $4.8 million for an acquisition within the Bitcoin Mining segment.

Financing Activities

Net cash provided by financing activities was $3.7 million during the three months ended March 31, 2026 as compared to the $7.9 million of net cash provided during the comparable prior year period. The net change is primarily due to decrease in proceeds from debentures of $1.5 million, coupled with the shares repurchased in the open market of $3.0 million.

Off Balance Sheet Arrangements

None.

Significant Accounting Policies

See the notes to our unaudited condensed consolidated financial statements for the three months ended March 31, 2026 and 2025, included within this Quarterly report.

As a registrant that qualifies as a smaller reporting company, the Company is not required to provide the information required by this Item.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation and supervision of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2026. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2026, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.

Changes in Internal Controls Over Financial Reporting

There were no changes to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not 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 its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

There are no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 31, 2026, under the heading Part I, Item 1A., “Risk Factors,” except for the following -

Risks Related to AVAX Delegation, Staking, Liquid Staking and Lock-Up Periods

We engage in the delegation and staking of AVAX tokens, including through liquid staking arrangements. These activities expose us to significant risks that could result in partial or complete loss of staked tokens, reduced liquidity, price depreciation of our staked positions, and material adverse effects on our business, financial condition, results of operations, and prospects.

In particular, our liquid staking activities are conducted through Treehouse, where we hold tAVAX and sAVAX tokens. Both tAVAX and sAVAX are issued and supported by smart contracts deployed on the Avalanche C-Chain, including the BENQI Protocol, a decentralized liquid staking and validator infrastructure protocol that issues interest-bearing sAVAX. Although the BENQI Protocol has undergone third-party security audits, smart contracts are inherently vulnerable to undiscovered bugs, coding errors, or exploits. Any such vulnerability could be exploited, resulting in partial or total loss of the underlying staked AVAX tokens. Smart contract risk is inherent in all DeFi protocols and cannot be eliminated through audits or other risk mitigation measures.

The BENQI Protocol is managed by relatively small teams and governed by decentralized autonomous organizations (“DAOs”) controlled by holders of its governance tokens. We do not hold governance tokens and therefore have no ability to influence protocol governance decisions. Token holders could vote to implement changes that materially and adversely affect the terms of liquid staking, including modifications to fee structures, redemption processes, validator selection criteria, or other operational parameters. Such governance actions, or the failure of governance processes, could reduce the value or redeemability of our liquid staking tokens. In addition, the BENQI Protocol (or related protocols) could cease operations, experience a governance failure, or be subject to malicious attacks that compromise its functionality or security.

Liquid staking tokens such as tAVAX and sAVAX are less liquid than the underlying AVAX token. While holders may sell these tokens on decentralized exchanges, such sales may incur significant slippage and result in proceeds substantially below the theoretical exchange rate to AVAX, particularly during periods of market stress or low liquidity. Neither tAVAX nor sAVAX is widely listed on centralized exchanges, which concentrates trading activity in on-chain liquidity pools and may exacerbate price dislocations and volatility during periods of elevated selling pressure. The value of both tAVAX and sAVAX is directly correlated with the value of AVAX, which has historically experienced, and may continue to experience, significant price volatility. Although these liquid staking tokens are designed to maintain a predictable and increasing exchange rate relative to AVAX, they may trade at a discount to their theoretical value on secondary markets due to liquidity constraints, market sentiment, perceived protocol risks, or other factors.

There can be no assurance that we will be able to redeem or sell our liquid staking tokens at or near their theoretical exchange rate or in a timely manner. Any of the foregoing risks could result in material losses on our staked positions, impair our liquidity, and have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to Demand for Data Center Space, Power and Connectivity

Our business depends upon the demand for data center space, power, and connectivity. We are expanding our business to own, acquire, develop, and operate data centers. A reduction in demand for data center space, power, or connectivity would materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our substantial development pipeline and expansion activities make us particularly vulnerable to general economic slowdowns as well as adverse developments in the data center, Internet, data communications, and broader technology industries. Any such slowdown or adverse development could result in reduced corporate information technology (“IT”) spending or decreased demand for data center capacity. In addition, changes in industry practices, technological advancements, or the emergence of alternative technologies could reduce or render obsolete the demand for physical data center space that we provide.

Our customers may elect to develop new data centers for their own use, expand their existing data centers, or consolidate their operations into data centers owned or operated by third parties. Any of these actions could reduce demand for our data centers (particularly newly developed facilities), result in the loss of one or more key or potential customers, or place downward pressure on our pricing and occupancy rates. Furthermore, mergers, acquisitions, or consolidations among technology companies could further reduce the number of our existing and potential customers, increase our customer concentration, and make us more dependent on a smaller number of customers.

If our customers are acquired by or merge with entities that are not our customers, the resulting company may discontinue or significantly reduce its use of our data centers. We cannot assure you that we will be able to retain our customers, attract new customers, or maintain or increase occupancy and pricing levels at our facilities.

Any of the foregoing factors could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Risks Related to Competition in the Data Center Industry

We face significant competition in the data center market, which may adversely affect our ability to lease space, maintain occupancy rates, and achieve favorable rental rates at our facilities.

We compete with existing data center operators as well as new entrants into the market, including entrants who may acquire our current competitors. Many of our competitors and potential competitors have material competitive advantages over us, including greater name recognition, longer operating histories, established relationships with current or potential customers, significantly greater financial, marketing, and other resources, and more ready access to capital. These advantages may allow them to respond more quickly to new or emerging opportunities, develop or acquire additional data center capacity, and compete more effectively for customers.

If our competitors offer data center space that customers or potential customers perceive to be superior to ours (based on factors such as available power, security, location, connectivity, or other attributes), or if they offer rental rates at or below current market rates or the rates we are seeking, we may lose existing or potential customers, face pressure to reduce our rental rates, or incur significant costs to enhance or upgrade our facilities. In addition, many competitors are continuing to develop additional data center space. An increase in the overall supply of data center capacity, whether from our competitors or otherwise, could lead to lower rental rates, longer leasing periods, increased vacancy rates, or delays in leasing our properties, including newly developed space.

Furthermore, if customers or potential customers require services or capabilities that we do not currently offer, we may be unable to secure their business. We cannot assure you that we will be able to compete successfully against current or future competitors.

Any of the foregoing factors could have a material adverse effect on our occupancy rates, rental revenues, business, financial condition, results of operations, and cash flows.

Any failure of our physical or information technology or operational technology infrastructure or services could lead to significant costs and disruptions.

Our business depends on providing customers with highly reliable services, including with respect to power supply, physical security, cybersecurity, and maintenance of environmental conditions. We may fail to provide such services because our operations are vulnerable to, among other things, mechanical or telecommunications failure, power outage, human error, physical or electronic security breaches, cyberattacks, war, terrorism, fire, earthquake, pandemics, hurricane, flood and other natural disasters, sabotage and vandalism.

Substantially all of our customer agreements include terms requiring us to meet certain service level commitments. A failure to meet these or other commitments or equipment damage in our data centers could subject us to contractual liability, including service level credits against customer rent payments, legal liability and monetary damages, regulatory sanctions, or, in certain cases of repeated failures, the right by the customer to terminate the agreement. Service interruptions, equipment failures or security breaches could also materially impact our brand and reputation globally and lead to customer contract terminations or non-renewals and an inability to attract customers in the future.

We and our third-party providers are vulnerable to cyberattacks and security breaches that could materially disrupt or compromise our operations, data and results.

We face evolving risks that threaten the confidentiality, integrity, and availability of information systems and data, including from state-sponsored espionage actors, financially motivated hackers, hacktivists and insiders, as well as through diverse attack vectors, such as social engineering/phishing, malware (including ransomware), human or technological error, or due to “bugs,” misconfigurations and known and unknown vulnerabilities in hardware, software, systems and processes that support our business. Even if vulnerabilities are publicly known or identified through our security tools, we cannot guarantee that patches or mitigating measures will be implemented before a threat actor can exploit them.