ChronoScale Holdings Corp: Form 10-Q for the period ended Aug 31, 2026

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. You can identify these forward-looking statements through our use of words such as “will,” “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions, or state other “forward-looking” information.

These statements are based on our management’s beliefs and assumptions, which are based on currently available information. Our actual results, and the assumptions on which we relied, could prove materially different from our expectations. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

• our ability to raise additional capital or borrow funds in a timely manner, on acceptable terms, or at all;
• our ability to comply with our obligations under the Microsoft Agreement in a timely manner, or at all
• conditions in the debt and equity capital markets, including the availability and costs of financing to fund our current operations and the growth and expansion of our business;
• customer concentration (including an inability to renew existing customer agreements) and the impact that the loss of, or a material reduction in business from, any significant customer could have on our business, financial condition and results of operations;
• limitations on our ability to attract and retain key personnel, including our executive officers and members of the Board of Directors of the Company (the "Board");
• changes in operational and capital plans;
• higher than expected costs and expenses;
• unexpected future capital expenditures;
• economic and competitive conditions;
• the success of our risk management activities, including any failure by the Company to implement and maintain effective internal controls;
• litigation, including the potential litigation concerning the Business Combination;
• our ability to realize the expected benefits of focusing our operations on our Cloud Business;
• cash flow and access to capital; and
• uncertainties related to market conditions.

You should carefully review the risks described in Part I – Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended May 31, 2026, which was filed with the SEC on August 19, 2026, as well as any other cautionary language in this Quarterly Report on Form 10-Q, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties, nor are we able to assess the impact of all of these risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. These risks are not exhaustive.

Business Overview

We operate our business through ChronoScale Corporation, a Nevada corporation and a wholly-owned subsidiary of the Company (f/k/a Applied Digital Cloud Corporation, a Nevada corporation) (“Cloud”). Following the Holding Company

Transaction (as defined and described below), Applied Digital Cloud Corporation changed its name to ChronoScale Corporation. All references to “Cloud” prior to the Holding Company Transaction are to Applied Digital Cloud Corporation and after the Holding Company Transaction, to ChronoScale Corporation. Through Cloud, we provide graphics processing unit (“GPU”) computing solutions that enable customers to execute artificial intelligence (“AI”), machine learning (“ML”), rendering and other high-performance computing workloads using company-owned equipment at third-party colocation centers in Colorado, Minnesota and Utah (the “Cloud Business”). As of August 31, 2026, we had deployed 6,144 NVIDIA H100 GPUs across these locations and provided one GPU capacity customer with dedicated access to infrastructure at all three locations. Customers pay a fixed, per-GPU, per-hour rate, subject to change, with fees billed and paid monthly. Beginning in the first quarter of fiscal year 2027, we also provided certain one-time resale arrangements involving AI infrastructure hardware and ancillary support and maintenance services, which, as of August 31, 2026, served one additional customer. We maintain additional deployable capacity at each location and intend to offer this capacity to existing and prospective customers through dedicated GPU infrastructure services and our Token Factory managed inference offering, under which customers consume compute on a usage-based, per-token basis. For the three months ended August 31, 2026, the Cloud Business accounted for approximately 94.1% of our total revenue. Subsequent to the fiscal quarter ended August 31, 2026, we completed the sale of the Legacy Ekso Business.

Business Combination

On May 5, 2026, we consummated the previously announced business combination transaction (the “Business Combination”) contemplated by that certain Contribution and Exchange Agreement (the “Contribution and Exchange Agreement”), dated February 15, 2026, by and among Ekso Bionics Holdings, Inc., a Nevada corporation (“Ekso”), APLD Intermediate HoldCo LLC, a Delaware limited liability company (“APLD Intermediate”), APLD ChronoScale HoldCo LLC, a Delaware limited liability company and a wholly-owned subsidiary of APLD Intermediate (“Contributor”), each a wholly-owned direct or indirect subsidiary of Applied Digital Corporation, a Nevada corporation (“Applied Parent”), and Cloud, a wholly-owned indirect subsidiary of Applied Parent and a direct subsidiary of Contributor as of immediately prior to the consummation of the Business Combination (the “Closing”). Upon the Closing, Ekso changed its name to “ChronoScale Corporation” and Cloud became a wholly-owned subsidiary of Ekso. Following the Closing, we operated two distinct businesses: the Cloud Business, which operated through Cloud, and the Legacy Ekso Business, which operated through Legacy Ekso, which is a direct wholly-owned subsidiary of Ekso.

Holding Company Transaction

On July 1, 2026, we completed a holding company formation transaction (the “Holding Company Transaction”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of July 1, 2026, by and among ChronoScale Corporation, ChronoScale Holdings Corporation (“ChronoScale Holdings”), and CHRN Merger Sub Inc. (“Merger Sub”). The Holding Company Transaction was effected as a corporate restructuring under Section 92A.134 of the Nevada Revised Statutes. As part of the Holding Company Transaction, ChronoScale Corporation contributed all of the outstanding equity interests of its wholly-owned subsidiary, Cloud, to ChronoScale Holdings pursuant to a contribution agreement, resulting in Cloud becoming a direct, wholly-owned subsidiary of ChronoScale Holdings. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into ChronoScale Corporation, with ChronoScale Corporation continuing as the surviving corporation and a wholly owned direct subsidiary of ChronoScale Holdings. As a result of the Holding Company Transaction, ChronoScale Holdings became the public company parent of and successor issuer to ChronoScale Corporation, and ChronoScale Corporation subsequently converted from a Nevada corporation to a Nevada limited liability company and changed its name to “ChronoScale Intermediate LLC.” In addition, Applied Digital Cloud Corporation changed its name to “ChronoScale Corporation.” The holding company structure better reflects our individual operating businesses, allows for and can accommodate future growth from internal operations and generally provides for greater administrative and operational flexibility.

Business Updates

Strategic Partnership Agreements

Microsoft Strategic Partnership

On August 6, 2026, we entered into a GPU Services Agreement with Microsoft Corporation, which was amended effective as of August 21, 2026 (as amended, the "Microsoft Agreement"). Under the Microsoft Agreement, we will provide Microsoft with dedicated GPU services at a data center facility in Texas, over an approximately three-year service term, supporting approximately 50 MW of AI compute capacity. The GPU services will be made available to Microsoft in two tranches of NVIDIA GB300 GPUs, with the respective deliveries expected to occur in February and March of 2027 (subject to extension in certain circumstances). The GPU quantity and contract value are expected to be approximately equal across both tranches. The deployment is subject in part to our ability to obtain financing and to satisfy customary development, construction and operational conditions and milestones.

The Microsoft Agreement may be terminated by Microsoft under certain circumstances, for which cure rights may be available. Upon certain terminations, we are required to refund the upfront payments in full for any tranche not yet accepted and on a pro rata basis for any accepted tranche. Our termination rights are more limited, and neither party may terminate for convenience. The Microsoft Agreement also contains other customary provisions for an agreement of this nature, including service level commitments, excluded delays, delay credits, governance reporting, representations and warranties, force majeure, indemnities, limitations of liability and change of control restrictions. For a discussion of the risks related to the Microsoft Agreement, see Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended May 31, 2026.

Nutanix Strategic Partnership

On August 18, 2026, we announced a strategic partnership with Nutanix, Inc. ("Nutanix") to jointly deliver enterprise-ready AI infrastructure. The partnership is expected to enable enterprises to extend Nutanix on-premises environments into our GPU-as-a-Service capacity, access pre-paid inference through ChronoScale Token Factory (as defined above), and deploy ChronoScale Foundry for agentic AI workflows within their own environments. The framework includes joint go-to-market, solution development, and technical integration, and is expected to be implemented through one or more definitive agreements.

Baseten Strategic Partnership

On August 28, 2026, we entered into a three-year strategic partnership with Baseten Labs, Inc. ("Baseten") to support the planned deployment of approximately four megawatts of AI compute capacity. Upon projected completion in the first calendar quarter of 2027, the deployment is expected to expand our available compute capacity and further strengthen our position as a provider of high-performance digital infrastructure supporting AI and cloud computing applications. The deployment is subject to our ability to obtain financing on favorable terms and satisfy customary development, construction and operational conditions and milestones. Failure to satisfy these conditions or meet these milestones could result in penalties or entitle our counterparty to credits.

We intend to pursue similar strategic partnerships globally over time to extend the reach of our platform and accelerate enterprise AI adoption worldwide.

Change of Principal Place of Business

On August 6, 2026, we changed our principal place of business to 2440 Sand Hill Road, Suite 400, Menlo Park, California 94025.

Management Update

On September 18, 2026, Rajasekar Jegannathan, our Chief Technology Officer since June 2026, notified us of his intention to resign from his position, effective October 2, 2026. We have initiated a search for his successor.

On September 30, 2026, and in connection with the Legacy Ekso Business sale, Jason Jones was terminated from his position as the Chief Operating Officer of Ekso. In connection with the sale of the Legacy Ekso Business, Scott Davis, a member of the Board and Chief Executive Officer of Ekso, resigned from his position as a member of the Board, effective as of October 3, 2026.

Prepayments under Customer Contracts

Following the fiscal quarter ended August 31, 2026, we received $328.2 million in aggregate prepayments under our existing customer contracts.

Sale of Legacy Ekso Business

Following the Business Combination and in connection therewith, the Company determined that the Legacy Ekso Business met the criteria to be classified as “held for sale” on our consolidated balance sheets as the Board committed to a plan to divest Legacy Ekso and the Legacy Ekso Business to focus our operations solely on the Cloud Business.

On September 30, 2026, the Company completed the sale of its Legacy Ekso Business in two related transactions: Ekso Bionics, Inc. (“Ekso”) and its wholly-owned German subsidiary sold substantially all of the assets of Ekso’s “EksoWorks” industrial exoskeleton business, including the EVO product line, to DynaWear Tech, Inc. under an asset purchase agreement, and immediately thereafter, ChronoScale Intermediate LLC, a wholly-owned subsidiary of the Company sold all of the outstanding capital stock of Ekso, which held the remaining neuro-rehabilitation business, to WanderEkso Inc., a subsidiary of Wandercraft SAS, under a stock purchase agreement. The divestiture of Legacy Ekso and the Legacy Ekso Business, which was previously included as a reportable segment, represents a strategic shift in our operations and financial results, and as such, we have excluded the results of this business from continuing operations and presented them in discontinued operations on the condensed consolidated statements of operations for all periods presented in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Amendment to IRA

On September 1, 2026, the Company and APLD ChronoScale HoldCo LLC amended the Investor Rights Agreement, dated May 5, 2026. It increased Applied Digital Corporation’s director designation rights by one director at each ownership threshold to preserve its majority control of the Board after the Board increased its size from seven to eight directors.

Tenant Fit-Out Funding Advance

On October 11, 2026, we entered into a term sheet with Applied Parent, a related party, to provide a $50.0 million upfront advance for tenant fit-out ("TFO") costs at a third-party data center facility in Texas. The contemplated related party transaction was approved by our Related Party Committee of the Board. We expect to lease space at the facility from a joint venture being formed between Applied Parent and a third-party who currently has site control, to develop the data center. The lease remains under negotiation and is expected to include customary TFO provisions and provide the compute capacity necessary to fulfill our deployment agreement with Microsoft.

Equity Offerings & Changes in Equity

Series B Preferred Stock Conversions

On July 21, 2026, we issued a total of 355,961 shares of our common stock upon the conversion of 2,926 shares of Series B Preferred Stock held by one of the holders. On September 29, 2026, the Company filed a Certificate of Withdrawal with the Secretary of State of the State of Nevada withdrawing the Certificate of Designation of the Company's Series B Preferred Stock. No shares of Series B Preferred Stock were issued or outstanding at the time of the withdrawal

Warrant Exercises

On July 21, 2026, we issued a total of 66,666 shares of our common stock upon the exercise of 66,666 common stock warrants held by an investor, with an exercise price of $15.00 per common stock warrant, resulting in net proceeds of approximately $1.0 million.

Debt Financings

B. Riley Promissory Note

In connection with the Business Combination, ChronoScale Corporation assumed a Secured Promissory Note and Security Agreement (the “B. Riley Promissory Note”) by and between Legacy Ekso and B. Riley Commercial Capital, LLC (“B. Riley”) as lender. On September 12, 2026, we amended the terms of the B. Riley Promissory Note to, among other things, extend the maturity date of the term loan from September 12, 2026 to November 12, 2026 and permit the sale of Ekso Bionics, Inc. (as discussed above) as a "Permitted Disposition" thereunder.

Parker Hannifin Promissory Note

In connection with the Business Combination, ChronoScale Corporation assumed an unsecured, subordinated promissory note (the “Parker Hannifin Promissory Note”) by and between Legacy Ekso and Parker Hannifin Corporation (“Parker”). On September 30, 2026, in connection with the sale of the Legacy Ekso Business (as discussed above), we paid off all obligations under the Parker Hannifin Promissory Note. The outstanding principal amount of $1.6 million was paid in full, resulting in no outstanding liability owed by us to Parker as of September 30, 2026. The Parker Hannifin Promissory Note is deemed cancelled as of this date.

Applied Parent Grid Note

On June 26, 2026, we, as the borrower, entered into a Demand Grid Promissory Note (the “Grid Note”) with Applied Parent, as the lender. The aggregate principal amount available under the Grid Note is up to $100.0 million, reduced by the value of any of our liabilities guaranteed by the lender and a reserve amount determined by the lender. Advances on the Grid Note bear interest at the short-term Applicable Federal Rate, compounded semi-annually, and the Grid Note is payable on demand. On July 1, 2026, we drew $7.0 million under the Grid Note, and on September 15, 2026, we drew $8.0 million under the Grid Note, resulting in total principal outstanding of $15.0 million as of the date of this Quarterly Report on Form 10-Q. Applied Parent has agreed not to exercise its demand right under the Grid Note prior to October 15, 2027.

Results of Operations

Results of Operations for three months ended August 31, 2026 compared to the three months ended August 31, 2025

The following table sets forth key components of the results of operations (in thousands) during the three months ended August 31, 2026 and August 31, 2025:

(*) Not meaningful

(1) Other Financial Data are non-GAAP (as defined below) performance measures. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliation" section of Management’s Discussion and Analysis.

Commentary on Results of Operations for the three months ended August 31, 2026 compared to the three months ended August 31, 2025

Revenue

Revenue increased $24.8 million, or 148%, from $16.7 million for the three months ended August 31, 2025 to $41.5 million for the three months ended August 31, 2026. The increase was primarily attributable to revenue generated from new customers during the three months ended August 31, 2026, including revenue recognized from the sale of AI infrastructure hardware and related support and maintenance services pursuant to resale arrangements with the customer.

Cost of revenues increased by $21.8 million, or 91%, from $23.9 million for the three months ended August 31, 2025 to $45.6 million for the three months ended August 31, 2026. The increase was primarily due to the following changes:

• Approximately $22.4 million of the increase was attributable to higher AI infrastructure hardware purchases pursuant to resale arrangements with a customer;
• approximately $0.8 million increase in depreciation and amortization expense primarily due to an increase of in-service compute equipment and leases, compared to the same period of fiscal year 2025; and
• Approximately $0.7 million increase in energy costs primarily due to higher energy rates and usage, which are directly attributable to generating revenue.
• approximately $0.5 million increase in personnel expenses for employee costs directly attributable to generating revenue;

These increases were partially offset by an approximately $2.5 million decrease in lease and lease related expenses due to the renegotiations of certain of our leases in the prior period, as well as an approximately $0.1 million decrease related to other costs.

Selling, general and administrative expense

Selling, general and administrative expense increased by approximately $20.4 million, from $0.4 million for the three months ended August 31, 2025, to $20.7 million for the three months ended August 31, 2026. The increase was primarily due to the following changes:

• approximately $10.1 million increase in stock-based compensation due to the grant of restricted stock and restricted stock units to eligible employees and non-employee directors that occurred during the period;
• approximately $4.6 million increase in professional service expenses related to legal services primarily provided on discrete transactions and projects;
• approximately $2.8 million increase in personnel expenses due to an increase in our employee headcount during the period;
• approximately $2.4 million increase in lease and lease related expenses that were not directly attributable to generating revenue; and
• approximately $0.5 million increase in other general operating costs, including filing fees, insurance, and supplies, that were not directly attributable to generating revenue.

Loss on sale of assets

There was no loss (gain) on sale of assets for the three months ended August 31, 2026. There was a loss on sale of assets of $0.5 million for the three months ended August 31, 2025, driven by the write down of assets to their fair value upon disposal.

Interest expense, net

Interest expense, net decreased $1.6 million, or 51%, from $3.2 million for the three months ended August 31, 2025 to $1.6 million for the three months ended August 31, 2026. The decrease was primarily driven by a decrease in finance lease interest associated with the renegotiation of the majority of our finance leases during the prior period.

Gain on change in fair value of warrants

Gain on change in fair value of warrants was de minimis for the three months ended August 31, 2026, and was associated with the revaluation of the Private Placement and Placement Agent Warrants issued in 2026, which were assumed by ChronoScale Holdings after the consummation of the Holding Company Transaction. There was no comparable amount for the three months ended August 31, 2025 due to the Closing taking place on May 5, 2026. Gains and losses on revaluation of warrants are primarily driven by changes in our stock price, as well as stock price volatility, time to maturity, and the risk-free interest rate.

Net loss from discontinued operations

Net loss from discontinued operations was $16.1 million for the three months ended August 31, 2026, and represents the statement of operations activity related to the Legacy Ekso Business (as discussed above). There was no comparable amount for the three months ended August 31, 2025.

Non-GAAP Measures

To supplement our unaudited condensed consolidated financial statements presented under generally accepted accounting principles in the United States ("GAAP"), we are presenting certain non-GAAP financial measures. We are providing these non-GAAP financial measures to disclose additional information to facilitate the comparison of past and present operations by providing perspective on results absent one-time or significant non-cash items. We utilize these measures in the business planning process to understand expected operating performance and to evaluate results against those expectations. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results, provide management and investors with an additional understanding of our business operating results regarding factors and trends affecting our business and provide a reasonable basis for comparing our ongoing results of operations.

These non-GAAP financial measures are provided as supplemental measures to our performance measures calculated in accordance with GAAP and therefore, are not intended to be considered in isolation or as a substitute for comparable GAAP measures. Because of the non-standardized definitions of non-GAAP financial measures, we caution investors that the non-GAAP financial measures as used by us in this Quarterly Report on Form 10-Q have limits in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. Further, investors should be aware that when evaluating these non-GAAP financial measures, these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, from time to time in the future there may be items that we may exclude for purposes of our non-GAAP financial measures and we may in the future cease to exclude items that we have historically excluded for purposes of our non-GAAP financial measures. Likewise, we may determine to modify the nature of the adjustments to arrive at our non-GAAP financial measures. Investors should review the non-GAAP reconciliations provided below and not rely on any single financial measure to evaluate our business.

EBITDA and Adjusted EBITDA

“EBITDA” is defined as earnings before interest expense, interest income, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation, unutilized colocation expenses, diligence, acquisition, disposition and integration expenses, gain on change in fair value of warrants, loss on sale of assets, and other non-recurring expenses that management believes are not representative of our expected ongoing costs.

Reconciliation of GAAP to Non-GAAP Measures

(1) Represents stock-based compensation expense and employment taxes incurred in connection with the vesting of stock-based awards.

(2) Represents expenses at third-party owned colocation facilities where we have not yet deployed.

(3) Represents legal, accounting and consulting costs incurred in association with certain discrete transactions and projects.

(4) Represents expenses that are not representative of our expected ongoing costs.

Funding Requirements

We have experienced net losses through the period ended August 31, 2026. Our transition to profitability is dependent on the successful operation of our business.

We expect to have sufficient liquidity (as discussed in Sources of Liquidity below), including cash on hand, payments from customers, access to debt financing, and access to public capital markets, to support ongoing operations and meet our working capital needs for at least the next 12 months and all of our known requirements and plans for cash. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our ongoing operations and development plans. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case, we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We expect that our general and administrative expenses and our operating expenditures will continue to increase as we continue to expand our operations.

Sources of Liquidity

Our primary capital requirements are to fund our ongoing operations and working capital requirements. As of August 31, 2026, we had cash of $15.2 million and a working capital deficit of $70.5 million which raised substantial doubt about our ability to continue as a going concern. Historically, we have incurred losses and have relied on equity financings and Applied Parent to fund our operations. We have primarily generated cash in the last 12 months from issuances of common stock, warrants, preferred stock, convertible promissory notes, debt, and the receipt of contractual deposits and revenue payments from our customers.

On July 1, 2026, we drew $7.0 million under the Grid Note. Additionally, we have the ability to modify the timing of our capital spending and extend our payment terms with vendors, if necessary. Subsequent to the three months ended August 31, 2026, on September 15, 2026, we drew $8.0 million under the Grid Note, leaving $85.0 million of undrawn capacity available to us. Applied Parent has agreed not to exercise its demand right under the Grid Note prior to October 15, 2027.

As described in Note 2. Significant Accounting Policies — Liquidity of the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we have the ability and intent to collect the remaining upfront milestone payments under our customer contracts and to match planned capital expenditures required under our customer agreements with financings. Additionally, we have the ability to modify the timing of our capital spending and extend our payment terms with vendors, if necessary. We have concluded that it is probable these plans will be effectively implemented within the twelve-month look-forward period, and will provide sufficient liquidity to fund all project-related capital outlays and maintain run-rate operations.

Based on the above analysis, we concluded that we have substantial liquidity to meet our obligations as they become due for at least one year after the issuance of our condensed consolidated financial statements. Accordingly, management has concluded that substantial doubt about our ability to continue as a going concern has been alleviated.

Recent Financing Activities

See Note 8. Debt in the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information on our convertible promissory notes and other debt instruments.

On July 21, 2026, we issued a total of 66,666 shares of our common stock upon the exercise of 66,666 common stock warrants held by an investor, with an exercise price of $15.00 per common stock warrant, resulting in net proceeds of approximately $1.0 million.

Subsequent to the three months ended August 31, 2026, on September 15, 2026, we drew $8.0 million under the Grid Note, resulting in total principal outstanding of $15.0 million.

Material Contractual Obligations

In the ordinary course of business, we enter into contractual arrangements that require future cash payments. The following table sets forth information regarding our anticipated future cash payments under our contractual obligations as of August 31, 2026 (in thousands):

(1) Debt obligations presented in the table reflect the B. Riley Promissory Note and Parker Hannifin Promissory Note agreements assumed in the Business Combination, in addition to the outstanding principal on the Grid Note. See Note 8. Debt in the notes to our condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q for additional information regarding our debt obligations.

(2) Operating lease obligations include future minimum payments for our operating leases. See Note 15. Leases in the notes to our condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q for additional information regarding our lease obligations.

(3) Financing lease obligations include future minimum payments for our finance leases. See Note 15. Leases in the notes to our condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q for additional information regarding our lease obligations.

(4) Purchase obligations reflect planned purchases of AI infrastructure. See Note 16. Commitments and Contingencies in the notes to our condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q for additional information regarding our purchase obligations.

Summary of Cash Flows

The following table provides information about our net cash flow for the three months ended August 31, 2026 and August 31, 2025, respectively (in thousands):

$ in thousands

Commentary on the cash flows during three months ended August 31, 2026 and August 31, 2025

Operating Activities

The net cash provided by operating activities changed by $14.5 million, from $0.1 million for the three months ended August 31, 2025 to $14.6 million for the three months ended August 31, 2026. Activities that positively impacted operating cash flows during the three months ended August 31, 2026 included changes in operating assets and liabilities, primarily due to the timing of accounts receivable collections and accounts payable payments, between comparative periods.

Investing Activities

The net cash used in investing activities increased by $2.1 million, from $1.0 million for the three months ended August 31, 2025 to $3.1 million for the three months ended August 31, 2026. This change was primarily due to an increase in investments in property and equipment during the three months ended August 31, 2026 compared to August 31, 2025.

Financing Activities

The net cash used in financing activities changed by $4.5 million, from $1.5 million for the three months ended August 31, 2025 to $6.0 million for the three months ended August 31, 2026. The net change was primarily driven by an approximately $24.2 million decrease in capital contributions with Applied Parent and $0.3 million of principal payments towards the Parker Hannifin Promissory Note. These decreases were partially offset by $7.0 million of proceeds from the Grid Note, $1.0 million of proceeds from the exercise of warrants, and a decrease of $12.0 million in finance lease repayments during the three months ended August 31, 2026 compared to the three months ended August 31, 2025.

Recent Accounting Pronouncements

For a discussion of recently issued financial accounting standards, refer to Note 2. Significant Accounting Policies in the notes to our condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q.

Critical Accounting Estimates and Significant Judgments

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). In connection with the preparation of our condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

While our significant accounting policies are described in more detail in Note 2 to our condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements:

• the fair value of the intangible and tangible assets acquired and liabilities assumed in our business combination;
• the unobservable inputs and assumptions used by management in estimating the fair value of our convertible preferred stock, warrants, and employee and non-employee director equity awards, which impacts our financial condition; and
• useful lives assigned to long-lived assets.

Assets Acquired and Liabilities Assumed in Business Combinations

We allocate the fair value of the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, the amount and timing of projected future cash flows based on expected future growth rates and margins, discount rate used to determine the present value of these cash flows, future changes in technology and royalty for similar brand licenses, and asset lives. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities would ordinarily affect our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. When applicable, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are included in the consolidated statement of operations. Refer to Note 3. Business Combinations in the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion regarding the valuation of the Business Combination.

Convertible Preferred Stock and Warrant Liabilities

We use the Black-Scholes option-pricing model to value our warrant liabilities at each reporting period, which requires the input of highly subjective assumptions, most notably the estimated volatility of our common stock over the expected term. We use our historical common stock volatility to estimate expected volatility over the warrant terms. Management also made uncertain estimates regarding the likelihood and timing of certain future events for application of the Binomial Lattice model for the valuation of its convertible Series B Preferred Stock and certain warrants. Changes in these assumptions could have potential material impacts on the estimated fair value of warrant liabilities. Refer to Note 11. Warrants and Note 13. Temporary Equity in the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion regarding the valuation of warrants and Series B Preferred Stock, respectively.

Useful Lives Assigned to Long-Lived Assets

The useful life of an asset represents the period during which the asset is expected to contribute directly or indirectly to future cash flows. We estimate the useful lives of the Company’s long-lived assets based on various factors, including the expected period of economic benefit of the asset in use, our intended use of the asset, economic factors such asset obsolescence and technological advances, any limitations imposed by legal, regulatory, or contractual requirements, and industry norms. These assumptions affect the timing and amount of depreciation expense, which could have a material adverse effect on the results of our operations.

We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this Item 3.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this Quarterly Report as of August 31, 2026. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed by us under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

It should be noted that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment and makes assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Management believes that the financial statements included in this Quarterly Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended August 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As of the date of this filing, we have not identified any material changes to the risk factors associated with our business and previously disclosed in the “Risk Factors” section in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended May 31, 2026, other than as set forth below:

We will require substantial additional financing to meet our obligations under customer agreements and fund our growth, and we may be unable to obtain such financing when needed or on acceptable terms.

Our customer agreements and growth plans require substantial capital expenditures to acquire GPUs and related equipment, secure and develop data center capacity, and deploy infrastructure on specified schedules. We expect to seek funding through multiple transactions, which may include registered or unregistered equity or debt financings, equipment financing and joint venture arrangements. Customer upfront payments and our existing cash resources may be insufficient to fund these commitments, and we may need to obtain financing before we receive the revenue expected from the related deployments. For example, our agreement with Microsoft requires us to procure large-scale GPU capacity and complete a dedicated data center facility on a fixed delivery schedule, obligations that will require financing beyond our existing cash resources.

There can be no assurance that any contemplated financing will be completed, that it will provide sufficient proceeds, or that funds will be available when required under our customer agreements. Our ability to obtain financing may depend on market conditions, the availability and value of collateral, prospective lenders’ and investors’ assessment of our business and customer arrangements, and our ability to satisfy financing conditions. If financing is delayed or unavailable, we may be unable to place equipment orders, complete construction or deliver capacity on schedule. This could result in customer credits or penalties, termination of customer agreements, repayment of upfront payments, and the loss of anticipated revenue. We may also need to reduce or delay other planned investments or seek alternative financing on less favorable terms.

Additionally, any equity securities offerings could substantially dilute our existing stockholders and may, in certain cases, carry rights senior to those of our common stock. Debt financing could increase our fixed payment obligations, require us to pledge assets, and impose covenants that limit our operating and financing flexibility. Joint venture or other alternative arrangements may require us to share the economics of projects or relinquish some control over them. Any of these outcomes could materially adversely affect our business, financial condition, results of operations and liquidity.

Our current and prospective international business relationships expose us to risks under U.S. economic sanctions and export control laws, and a failure to comply could materially harm our business.

We are subject to economic sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and other applicable authorities. We are engaged in business discussions with companies outside the United States, including in China and Singapore, and may pursue additional international relationships. Although those jurisdictions are not themselves subject to comprehensive U.S. sanctions, a prospective counterparty, its owners, affiliates, intermediaries, financial institutions or end users could be subject to sanctions or have dealings involving sanctioned persons or jurisdictions. Complex ownership structures and indirect transactions may make these risks difficult to identify, and sanctions designations and restrictions can change during an ongoing relationship.

We are also subject to export control laws, including the Export Administration Regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security. These laws may restrict the export, re-export or transfer of advanced computing equipment, software and technology based on the destination, end user or intended use, and may require licenses or other authorizations that could be delayed or denied. Our international business discussions may require us to assess whether equipment or technology could be transferred to, or used for the benefit of, a restricted party or end user, including through an intermediary.

We have implemented procedures intended to support compliance with applicable sanctions and export control laws. However, those procedures may not identify every prohibited party or transaction or prevent conduct by employees, agents or counterparties that exposes us to liability. Compliance concerns or changes in applicable restrictions could require us to delay, abandon or terminate a transaction or relationship. An actual or alleged violation could result in government investigations, substantial civil or criminal penalties, restrictions on our business and reputational harm. Any of these outcomes could materially adversely affect our business, financial condition and results of operations.