AZIO 10-K & 10-Q changes, risk factors and insider trading

Management has concluded that there is substantial doubt about our ability to continue as a going concern.

The accompanying 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. As of December 31, 2025, we had cash and cash equivalents of $0.4 million and negative working capital of $9.8 million. 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. There can be no assurance that any required future financing can be successfully completed on a timely basis or on terms acceptable to us. Based on these circumstances, management has determined there is substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Similarly, the UAV and drone industry is highly competitive and rapidly evolving, particularly in the areas of defense, public safety, industrial inspection, and autonomous logistics. Once we begin distributing our heavy-lift, industrial-grade drone platforms designed for agricultural, fire suppression, and forestry applications, we will compete with both legacy agricultural drone companies and newer drone-focused entrants. We expect this competition to intensify as regulatory pathways for UAVs and drones become more defined and commercial drone applications expand globally.

We may not be able to keep pace with technological advances and we depend on advances in technology by other companies

In addition, the drone industry continues to undergo significant changes, primarily due to technological developments. Because of the rapid growth and advancement of technology, shifting consumer tastes and the popularity and availability of other forms of activities, it is impossible to predict the overall effect these factors could have on potential revenue from, and profitability of, the broader drone industry. The development of specialized software and hardware is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during the development and certification process.

It is impossible to predict the overall effect these factors could have on our ability to compete effectively in a changing market, and if we are not able to keep pace with these technological advances or to react to changes in customer preferences, then our revenues, profitability and results of operations may be materially adversely affected. However, if we struggle to adapt to an industry-shifting technological advancement or competitor offerings that render our products relatively less attractive or obsolete, it could have a material adverse effect on our business.

Further, we rely on and will continue to rely on components of our products that are developed and produced by other companies over which we have limited control. The commercial success of certain of our planned future products will depend in part on advances in these and other technologies by other companies, and our ability to procure them from such third parties in a timely manner and on economically feasible terms.

The sizes of the markets for our current and future drone products or AI data compute infrastructure may be smaller than we estimate.

Our addressable market projections for heavy lift drones and AI data compute infrastructure are based on internal models and third-party data. While we believe our assumptions are sound, market conditions, regulatory changes, or customer adoption may diverge from these assumptions. If the actual demand, pricing structure, or target applications for our products fall short of expectations, this could materially impair our growth, financial performance, and operational results.

The market for heavy-lift drones is still emerging and may not scale as expected.

The heavy-lift drone sector, especially in agricultural and forestry applications, is evolving rapidly. The speed and scale of adoption will depend heavily on regulatory frameworks (e.g., the FAA and the European Union Aviation Safety Agency (“EASA”)), operational proof points, and customer confidence in our drone solutions. If this market develops more slowly than anticipated, or if drone-based operations face resistance due to safety, reliability, or cost concerns, our growth may be constrained.

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.

At the beginning of 2026, we announced a partnership with Azio AI Corporation (“Azio”), an AI infrastructure provider, to pilot a joint immersion-cooled energy infrastructure for AI data centers. As we continue to enter the AI data center market, competitive, operational, legal and regulatory risks may be exacerbated as there is substantial uncertainty about the extent to which AI will result in changes that come with risks that we may not be able to anticipate, prevent, mitigate or remediate.

Through the expansion of our business to include AI data compute infrastructure, we will face new sources of competition and new customer relationships, and our competitors may be larger, have longer operating histories and significantly greater resources than we do. As a result, there can be no assurance that any AI data compute infrastructure solutions we develop will be adopted by the market or be profitable or viable. Our limited experience with respect to the provision of AI data compute infrastructure solutions could limit our ability to successfully execute on this growth strategy or adapt to market changes. If we are unsuccessful in continuing to develop and offer AI data compute infrastructure, our business, results of operations and financial condition could be adversely affected. Further, an increased focus on AI data compute infrastructure could displace or reduce our existing operations related to EVs, medical supplies and drones, which may adversely affect our business, results of operations and financial condition.

Our investments in developing and offering AI data compute infrastructure may result in new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns or other complications that could adversely affect our business, reputation, results of operations or financial condition. The increasing focus on the risks and strategic importance of certain AI or machine learning technologies has already resulted in regulatory restrictions that target products and services capable of enabling or facilitating AI and machine learning and may in the future result in additional restrictions impacting any infrastructure solutions we may develop. Complying with multiple evolving laws, rules and regulations from different jurisdictions related to such new solutions could increase our cost of doing business or may change the way that we operate in certain jurisdictions. We may not be able to adequately anticipate or respond to these evolving laws and regulations, and we may need to expend additional resources to adjust our products in certain jurisdictions if applicable legal frameworks are inconsistent across jurisdictions.

For example, in April 2023, the U.S. Federal Trade Commission, Department of Justice, Consumer Financial Protection Bureau and Equal Employment Opportunity Commission issued a joint statement on AI, demonstrating their interest in monitoring the development and use of automated systems and enforcement of their respective laws and regulations. In December 2025, the presidential administration issued an executive order aimed at challenging and preempting state AI laws that are inconsistent with federal policy with respect to AI regulation and calling for federal AI legislation.

Such future regulatory frameworks, as well as developing regulatory guidance and judicial decisions in this area, may affect our use of AI and our ability to provide and to improve our products, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us and could adversely affect our business, financial condition and results of operations.

Furthermore, concerns regarding third-party use of AI for purposes contrary to governmental and societal interests, including concerns relating to the misuse of AI applications, models, and solutions, could result in restrictions on AI products. Any such restrictions could reduce the demand for our intended AI data compute infrastructure, and negatively impact our business, financial condition and operating results, and damage our reputation.

It is also unclear how our strategy to provide infrastructure for customers developing and deploying AI applications could affect the applicability of these existing or proposed regulatory frameworks and other restrictions with respect to any solutions we may offer from time to time. However, it is possible that such regimes will impose obligations on infrastructure providers, such as us, to oversee, monitor or restrict the use of AI systems that are trained or deployed on their systems, and/or to ensure compliance with such regulatory frameworks and other restrictions. If our customers violate existing or proposed regulatory regimes or other restrictions, or if they use our services for unlawful, harmful or non-compliant purposes, we could be subject to regulatory investigations, regulatory fines, reputational damage or contractual liability for any such actions, even if we do not control the customer applications. Further, AI data compute customers increasingly are looking to pass through their regulatory obligations and other liabilities to their outsourced data center providers, and we may not be able to limit our liability or damages in the event of loss suffered by such customers whether as a result of our breach of an agreement or otherwise.

These competitive, operational, legal and regulatory risks are evolving and uncertain and could impact our business in ways we cannot predict. Any of the foregoing could limit our ability to offer, or grow our partnership in, AI data center infrastructure solutions and continue to grow our business, which could have a material adverse effect on prospects, results of operations and financial condition.

Due to the nature of our products and services, a product safety failure, quality issue or other failure affecting our or our customers’ or suppliers’ products or systems could seriously harm our business

We are a diversified, power-backed hardware technology company focused on the development, integration, and deployment of electrified and energy-intensive systems across multiple end markets. Our operating and development initiatives are organized around a common foundation of power management, electrification, and integrated hardware know-how, with current focus areas including commercial EVs, electric drone platforms, and medical supplies.

Recent Developments

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

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

Import Tariffs

Tariffs imposed by the current presidential administration may significantly affect demand for our EVs 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 EV strategy.

Nasdaq Deficiency Notices

On March 6, 2025, we received a letter from the Nasdaq Listing Qualifications Department, notifying us that, based upon the closing bid price of our common stock for the 30 consecutive business days from January 21, 2025 to March 5, 2025, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

On August 6, 2025, we filed a certificate of amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of our common stock at a ratio of 1-for-10 (the “Reverse Stock Split”). Our common stock began trading on a post-split basis on the Nasdaq Capital Market as of the open of trading on August 8, 2025 (the “Split Effective Time”). Pursuant to the Reverse Stock Split, every 10 shares of our common stock issued and outstanding immediately prior to the Split Effective Time were automatically combined into one issued and outstanding share of our common stock without any change in the par value per share or the total number of authorized shares. Proportional adjustments were made to the exercise price and number of shares of our common stock issuable upon exercise of outstanding stock options and warrants to purchase shares of our common stock and the shares reserved for issuance under our 2017 Equity Incentive Plan (the “2017 Plan”).

On August 25, 2025, we received a letter from the Nasdaq Listing Qualifications Department confirming that we had regained compliance with the Minimum Bid Price Requirement.

Due to the resignation of one of our directors effective as of our 2025 Annual Meeting of Stockholders, we no longer satisfy the requirements to maintain a majority of independent directors on our Board as required by Nasdaq Listing Rule 5605(b)(1) or to maintain an Audit Committee comprised of three independent directors meeting the additional requirements under Nasdaq Listing Rule 5605(c)(2)(A). We are relying on the cure period to regain compliance with these requirements provided in Nasdaq Listing Rules 5605(a)(1)(A) and 5605(c)(4). We are in the process of identifying a new independent director to appoint to the Board to fill the vacancy created by this resignation, and we anticipate appointing such replacement director within the applicable cure period. However, there can be no assurance that we will do so.

Debenture Financing

On March 6, 2026, we entered into a securities purchase agreement (the “SPA”) with YA II PN, Ltd. (the “Investor”), pursuant to which we 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. Pursuant to the SPA, we and the Investor have agreed that 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”) will occur on or before the first business day after our filing of the registration statement with SEC registering the resale of the shares of our common stock issuable upon exercise of the Warrants (as defined below) and no less than 10,000,000 shares of our common stock issuable pursuant to the A&R SEPA(such registration statement, the “Resale Registration Statement”), has been declared effective and subject to the satisfaction or waiver of customary closing conditions set forth in the SPA. The sale of the Debentures to the Investor is expected to result in gross proceeds to us of approximately $10.5 million, after deducting a one-time due diligence and structuring fee to the Investor of $25,000 but before deducting any other fees and expenses.

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 the effectiveness of the Resale Registration Statement or June 6, 2026, with all remaining outstanding principal plus accrued and unpaid interest due in full on the Maturity Date. 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.

Going Concern and Management’s Plan

The consolidated financial statements included elsewhere herein 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. We sustained significant losses and negative cash flows from our operations and are dependent on debt and equity financing to fund our operations. We incurred a net loss of approximately $39.1 million and $8.8 million for the years ended December 31, 2025 and 2024, respectively. Cash used in operating activities was approximately $5.6 million and $3.5 million for the years ended December 31, 2025 and 2024, respectively. Accumulated deficit was approximately $112.6 million and $73.5 million as of December 31, 2025 and 2024, respectively These conditions raise substantial doubt about our ability to continue as a going concern within one year after the filing of this Annual Report. The 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 in the First Closing on March 6, 2026, resulting in gross proceeds of approximately $3.8 million. Subject to the Resale Registration Statement being declared effective, we will close the second tranche of Debentures in the second closing for gross proceeds of approximately $6.7 million. The Company also plans to grow and expand its operations and seek additional sources of capital through either an additional debt or equity financial and to pursue acquisitions of cash flow generating assets or businesses. Although the Company has been successful in raising funds in the past, and expects to do so in the future, there are no guarantees that it will be able to raise funds as anticipated. In addition, there is no assurance that any such acquisition will be successful or that we will realize the anticipated benefits for such acquisition following the closing.

General and administrative expenses for the year ended December 31, 2025 were $11.3 million, compared to $8.1 million for general and administrative expenses for the year ended December 31, 2024. General and administrative expenses increased by $3.1 million primarily due to an increase of $0.9 million in legal fees as a result of additional filings and the SEC subpoena described under Item 3, Part II of this Annual Report, and increase of $1.3 million in accounting and other professional fees as a result of additional consultants needed within finance and operations, additional amortization of $0.7 million related to our intangible assets recorded from the Maddox Acquisition, additional bad debts of $0.8 million as a result of unfavorable market conditions, additional tax and licenses of $0.5 million and an increase in other expenses of $0.1 million, partially offset by a decrease in stock-based compensation of $1.2 million.

Consulting expenses were approximately $65,000 for the year ended December 31, 2025, as compared to $70,000 for the year ended December 31, 2024.

Research and development expenses were $731,808 and $192,885 for the year ended December 31, 2025 and December 31, 2024, respectively. R&D expenses increased as we incurred expenses primarily related to our drone segment in alignment with our venture into new business opportunities.

Impairment of Intangible Assets

Due to a decline in our cash flow forecast related to our medical supplies segment, we conducted an impairment test in 2025 for our intangible assets and recorded a non-cash impairment charge of $3.3 million as of December 31, 2025.

As of December 31, 2025, we had cash and cash equivalents of $0.4 million and negative working capital of $9.8 million. 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 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 consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

In February 2022, we moved into an approximately 580,000 square foot facility in Osceola, Arkansas. We plan to close this facility in 2026.

Net cash used in operating activities for the year ended December 31, 2024 was $3.5 million, primarily due to a net loss of $8.8 million, partially offset by changes in operating assets and liabilities, net of $2.6 million and non-cash operating charges of $2.7 million, of which $1.9 million was related to non-cash stock-based compensation expense and $0.6 million was related to non-cash loss on changes in fair value of convertible notes. The changes in operating assets and liabilities, net was due to a decrease in inventory of $0.4 million, a decrease in other current assets of $0.1 million, a decrease in other non-current assets of $0.4 million, an increase in accounts payable of $0.7 million, and an increase in accrued liabilities and deferred revenue of $4.7 million, partially offset by an increase in accounts receivable of $0.3 million, an increase in inventory deposits of $2.7 million, an increase in prepaid expenses of $0.5 million and a decrease in other non-current liabilities of $0.2 million.

Net cash used in investing activities during the year ended December 31, 2025 was $0.2 million, primarily related to the purchase of property and equipment used in our current operations.

Net cash provided by financing activities during the year ended December 31, 2024 was $9.7 million, primarily due to proceeds from our equity line of credit under the A&R SEPA of $2.6 million, proceeds from the issuance of our common stock of $1.8 million, proceeds from the issuance of a convertible note of $0.9 million, proceeds from the issuance of common stock for the Maddox Acquisition of $4.3 million and proceeds from issuance of debt for $0.6 million, partially offset by the repayment of debt of $0.6 million.

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.

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:

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.

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.

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.

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.

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.