Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of operations and cash flows. The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in the 2025 Form 10-K. All amounts are in U.S. dollars.

Throughout this report, unless otherwise designated, the terms "we," "us," "our," the "Company," and "Big Digital," refer to Big Digital Energy, Inc., a Delaware corporation, Cosmos Infrastructure LLC, Luna Squares LLC, Mawson Bellefonte LLC, Luna Squares Repairs LLC, Luna Squares Property LLC, Mawson Midland LLC, Mawson Ohio LLC, Mawson Hosting LLC, Mawson Mining LLC and Mawson Capital LLC.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. Forward-looking statements can be identified by the use of forward-looking words such as "believe", "expect", "intend", "plan", "may", "should", "could" or "anticipate" or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission (the "SEC"), press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below.

The 2025 Form 10-K and subsequent Quarterly Reports on Form 10-Q identify important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, including those set forth under Item 1A. "Risk Factors" below.

The risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:

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continued evolution and uncertainty related to technologies and digital infrastructure;

	-	our ability to continue as a going concern;
	-	our ability to maintain the listing of our common stock on Nasdaq;
	-	our need to, and difficulty in, raising additional debt or equity capital and the availability of financing opportunities, including through our "at the market" offering program;
	-	access to reliable and reasonably priced electricity sources;
	-	operational, maintenance, repair, safety, and construction risks;

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the failure or breakdown of mining equipment, or internet connection failure;

	-	our reliance on key management personnel and employees;
	-	our ability to attract or retain the talent needed to sustain or grow the business;

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our ability to develop and execute on our business strategy and plans;

	-	counterparty risks related to our customers, agreements and/or contracts;
	-	the loss of a significant digital colocation customer;

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adverse actions by creditors, debt providers, or other parties;

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continued evolution and uncertainty related to growth in blockchain and Bitcoin and other digital assets' usage;

	-	the evolution of AI and HPC markets and changing technologies;
	-	high volatility in Bitcoin and other digital assets' prices and in value attributable to our business;
	-	the slower than expected growth in demand for AI, HPC and other accelerated computing technologies;
	-	the ability to timely implement and execute on AI and HPC digital infrastructure contracts or deployment;

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failure to maintain required compliance to remain eligible for the most cost-effective forms of raising additional equity capital;

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the ability to timely complete the digital infrastructure build-out in order to achieve our revenue expectations for the periods mentioned;

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downturns in the digital assets industry;

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counterparty risks and risks of delayed or delinquent payments from customers and others;

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inflation, economic or political environment;

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cyber-security threats;

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our ability to obtain proper insurance;

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banks and other financial institutions ceasing to provide services to our industry;

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changes to the Bitcoin and/or other networks' protocols and software;

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the decrease in the incentive or increased network difficulty to mine Bitcoin;

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the increase in transaction fees related to digital assets;

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the fraud or security failures of large digital asset exchanges;

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the regulation and taxation of digital assets like Bitcoin;

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our ability to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; and

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material litigation, investigations, or enforcement actions, including by regulators and governmental authorities.

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date they are made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

Company Overview

We are a technology company focused on digital infrastructure platforms.

The Company designs, builds and operates next-generation digital infrastructure platforms for enterprise customers and for its own purposes. The Company provides services spanning AI, HPC, digital assets including Bitcoin mining, and other intensive computer applications. The Company delivers both self-mining operations and colocation services to enterprise customers with a vertically integrated infrastructure model built for scalability and efficiency. The Company also has an energy management business, which utilizes software and analysis, to generate revenue when the Company participates in energy management programs related to the real-time needs of the power grid.

The Company has a strategy to prioritize the usage of carbon-free energy sources, including nuclear energy, to power its digital infrastructure platforms and computational machines to support the rapid growth of the digital economy in an environmentally sustainable way.

The Company manages and operates digital infrastructure platforms and data centers delivering a total current capacity of approximately 129 MW with its current operational sites, with additional future capacity under development, all strategically located in locations served by the PJM Energy Market in the United States. The PJM Energy Market is among the largest wholesale power markets in North America.

Recent Developments

During the three months ended June 30, 2026, the Company established a revolving line of credit and issued Series D Preferred Stock and a related Warrant, which are discussed under "Liquidity and Capital Resources."

GPU Pilot Program

Our graphics processing unit ("GPU") pilot program that launched in October 2025 on a leading decentralized AI network continues to advance our strategy of expanding the Company's AI infrastructure capabilities. The pilot remains operational and has performed in line with, and in several key operational areas above, our initial expectations.

Since its inception, the program has provided valuable operational and commercial insights across infrastructure performance, workload optimization, marketplace dynamics, and deployment methodologies. These results have strengthened our technical capabilities and validated key assumptions underlying the development of a scalable AI infrastructure platform. The pilot has also demonstrated consistent operational performance while allowing the Company to further refine its provisioning, pricing, and utilization strategies.

The Company continues to evaluate the pilot as part of its broader AI infrastructure initiative, with ongoing efforts focused on expanding certification coverage, optimizing deployment processes, and assessing additional opportunities for future GPU capacity. The operational data and experience gained through the program continue to support management's confidence in the scalability of the platform and its potential to contribute to the Company's long-term infrastructure strategy.

Joint Mining Agreement

On April 27, 2026, the Company entered into a Joint Mining Agreement (the "Six Thirty AI Colocation Agreement") with Big Digital Energy, LLC (now Six Thirty AI, LLC), an affiliate of the Endeavor Group ("Six Thirty AI"). Under the terms of the Colocation Agreement, Six Thirty AI will purchase and deliver approximately 25,000 s19xp mining computers, and the Company will provide Six Thirty AI with approximately 75MW of computing capacity at its facility in Midland, PA. The Parties will operate under a 50%/50% profit-sharing structure, pursuant to which Big Digital will receive all cash net proceeds from the mining operations. The cash revenue will be used for general corporate purposes and asset purchases to ensure the Company's use of all available power across its facility locations. As its share of the profit-sharing structure, Six Thirty AI will receive monthly grants consisting of a combination of (i) shares of Common Stock, where the number of shares will equal 20% of its share of the monthly cash net proceeds divided by 30-day volume weighted average price of the Common Stock on the grant date, and (ii) warrants to purchase Common Stock, where the number of underlying shares will equal 80% of its share of the monthly cash net proceeds divided by $20. The prefunded warrants will allow Six Thirty AI to purchase the Common Stock at an exercise price of $20 per share and will have a five-year term. Six Thirty AI is deemed an affiliate of the Company because it is owned and/or controlled by Joshua Kilgore, the Company's Executive Chairman, Phillip Stanley, the Company's CEO, and Cody Smith, the Company's COO, who also serve as members of the Company's Board of Directors.

Termination of Rights Plan

On June 5, 2026, Company and Computershare Trust Company, N.A., as Rights Agent, executed Amendment No. 1 (the "Amendment") to the Rights Agreement dated as of February 2, 2026. The Amendment accelerated the expiration date of the Rights Agreement to the earlier of June 8, 2026, and the Redemption Date (as defined in the Rights Agreement). At the time of the termination of the Rights Agreement, all of the Rights expired that were previously distributed to holders of the Company's issued and outstanding common stock pursuant to the Rights Agreement. In deciding to accelerate the expiration date to June 8, 2026, the Company's Board of Directors determined that an active Rights Agreement is no longer needed to protect stockholder value at this time.

Nasdaq Listing Rules Compliance

On June 16, 2026, the Company received written notice from Nasdaq's Listing Qualifications Hearings Department confirming that the Company had regained compliance with the Nasdaq Listing Rules. Nasdaq's determination is subject to the Company maintaining stockholders' equity of at least $5 million in each quarter for a twelve-month period, beginning with the quarter ending June 30, 2026, and promptly notifying Nasdaq of any significant events that could affect the Company's compliance with that requirement. As previously disclosed, the Company was notified by Nasdaq that the Company was in violation of the minimum equity standard under Listing Rule 5550(b)(1), as of December 19, 2025, which requires $2.5 million in stockholders' equity.

Hood County Site Acquisition

On July 14, 2026 and July 15, 2026, the Company entered into definitive agreements with 10NetZero, Inc. to form a 50/50 joint venture, and on July 15, 2026 the joint venture acquired 30 acres of a site in Hood County, Texas for approximately $10 million in cash, with an option to purchase the remainder of the site for an additional $600,000. In connection with the acquisition, the Company provided a $4.9 million loan to 10NetZero to fund a portion of its capital contribution required for the acquisition of the Hood County Site. The loan bears interest at the short-term applicable federal rate and matures on October 13, 2026; interest and principal are due at maturity. 10NetZero's 50% ownership interest in the joint venture is transferable to the Company at a rate of 10% ownership interest per month, prorated daily, for each month past the maturity date that 10NZ fails to repay the entire loan, so that 10NetZero's entire ownership interest shall have transferred in full to the Company if the loan is not paid in full within five months of the maturity date.

Results of Operations - Three months ended June 30, 2026 compared to the three months ended June 30, 2025

		For the three months ended June 30,
		2026				2025
Revenues:
Digital colocation revenue		$	3,505,814			$	3,660,298
Energy management revenue			2,613,936				5,130,712
Digital assets mining revenue			33,469				742,173
Total revenues			6,153,219				9,533,183
Less: Cost of revenues (excluding depreciation)			4,544,735				5,599,553
Gross Profit			1,608,484				3,933,630
Selling, general and administrative			6,027,299				5,925,308
Stock based compensation			677,043				978,261
Depreciation and amortization			1,097,390				1,466,119
Change in fair value of derivative asset			105,608				2,137,052
Total operating expenses			7,907,340				10,506,740
Loss from operations			(6,298,856	)			(6,573,110	)
Non-operating income (expense):
Loss on foreign currency transactions			(36,994	)			(689,952	)
Interest expense			(1,011,808	)			(827,336	)
Other income			8,933				60,646
Other expenses			(7,095	)			(9,614	)
Total non-operating expense, net			(1,046,964	)			(1,466,256	)
Loss before income taxes			(7,345,820	)			(8,039,366	)
Income tax benefit (expense)			(29,920	)			17,933
Net Loss		$	(7,375,740	)		$	(8,021,433	)

Revenues

Digital colocation revenues for the three months ended June 30, 2026 and 2025, were $3.5 million and $3.7 million, respectively. This represented a 4% decrease or a decrease of $0.2 million, compared to the same period in 2025. Digital colocation revenues for the three months ended June 30, 2026 include profit share revenues earned from our new joint mining agreement with Six Thirty AI which partially offset decreases in revenue due to reductions in both the number of customers and the average contract size as compared to the 2025 period.

Energy management revenues for the three months ended June 30, 2026 and 2025, were $2.6 million and $5.1 million, respectively. This represented a 49% decrease or a decrease of $2.5 million, compared to the same period in 2025. The decrease was primarily attributable to changes to miner specification requirements for curtailment program participation beginning in 2026, in which the Company's mining fleet did not achieve the target life expectancy. The Company also realized lower curtailment earnings due to fewer customers and reductions in the average size of customer contracts. These decreases were partially offset by higher payments received for the sale of excess energy capacity.

Digital assets mining revenues from self-mining of Bitcoin for the three months ended June 30, 2026 and 2025, were $0.03 million and $0.7 million, respectively. The decline was driven by the reallocation of our self-mining fleet capacity at our facilities in Midland and Bellefonte to customer fleets from our new joint mining agreement.

Cost of revenues

Our cost of revenues consists primarily of direct power costs related to colocation services.

Cost of revenues for the three months ended June 30, 2026 and 2025, were $4.5 million and $5.6 million, respectively. This decrease of $1.1 million, or 19%, in cost of revenues compared to the same period in 2025 was attributable to lower energy consumption from reduced digital colocation services and digital asset mining from self-mining, partially offset by higher average energy prices during the 2026 period.

Operating Expenses

Our operating expenses include: selling, general and administrative expenses; stock-based compensation; depreciation and amortization; and change in fair value of derivative asset.

Selling, general and administrative

Our selling, general and administrative expenses consist primarily of audit, legal, and other professional fees, employee compensation, director fees, equipment repairs, marketing, freight, insurance, consultant fees, lease amortization and general expenses.

Selling, general and administrative expenses for the three months ended June 30, 2026 and 2025 were $6.0 million and $5.9 million, respectively, an increase of $0.1 million, or 2%, from period to period. The increase was primarily due to higher insurance expenses, partially offset by lower bonus-related expenses.

Stock-based compensation

Stock-based compensation expenses for the three months ended June 30, 2026 and 2025 were $0.7 million and $1.0 million, respectively. The decrease was primarily due to a reduction in new award issuances and the completion of service-based vesting conditions from awards issued over the prior two years. Stock-based compensation expense for the three months ended June 30, 2026 includes the acceleration of expense from outstanding service-based awards due to the April 6, 2026 change in the Company's Board of Directors.

Depreciation and amortization

Depreciation consists primarily of depreciation of energy equipment, transformers and MDC equipment.

Depreciation and amortization for the three months ended June 30, 2026 and 2025, were $1.1 million and $1.5 million, respectively. The lower depreciation and amortization expense is due to an increase in the amount of fully depreciated equipment compared to prior periods.

Change in fair value of derivative asset

During the three months ended June 30, 2026 and 2025, there was a loss on the fair value of the derivative asset of $0.1 million and $2.1 million, respectively. The change in fair value is primarily due to decreasing volatility in fair value due to the shorter remaining term of the power supply agreement.

Non-operating income (expense)

Non-operating income (expense) consists primarily of interest expenses, gain (loss) on foreign currency transactions, and other income and expenses.

Interest expenses for the three months ended June 30, 2026 and 2025, were $1.0 million and $0.8 million, respectively. The higher amount of interest expense recognized in 2026 compared to 2025 is due to interest accreting to the total outstanding debt.

During the three months ended June 30, 2026, loss on foreign currency transactions was $0.04 million. During the three months ended June 30, 2025, loss on foreign currency transactions was $0.7 million. The difference is due to the impact of changes in the US Dollar and Australian Dollar exchange rate on intercompany transactions.

Income tax benefit (expense)

The Company recorded income tax expense of $30,000 and an income tax benefit of $18,000 for the three months ended June 30, 2026 and 2025, respectively. The income tax expense for the three months ended June 30, 2026 versus the income tax benefit for the three months ended June 30, 2025 relates mainly to differences in estimated interest and penalty accruals included in the current income tax payable for each of those periods, as well as changes in estimates regarding the realizability of deferred tax balances that impact the Company's deferred tax expense.

Results of Operations - Six months ended June 30, 2026 compared to the six months ended June 30, 2025

		For the six months ended June 30,
		2026				2025
Revenues:
Digital colocation revenue		$	7,016,843			$	14,089,171
Energy management revenue			3,803,790				8,195,587
Digital assets mining revenue			152,889				1,062,798
Total revenues			10,973,522				23,347,556
Less: Cost of revenues (excluding depreciation)			8,358,544				13,489,996
Gross Profit			2,614,978				9,857,560
Selling, general and administrative			13,645,437				11,703,716
Stock based compensation			1,103,405				3,078,765
Depreciation and amortization			2,291,654				2,994,032
Change in fair value of derivative asset			24,580				(1,922,521	)
Total operating expenses			17,065,076				15,853,992
Loss from operations			(14,450,098	)			(5,996,432	)
Non-operating income (expense):
Loss on foreign currency transactions			(401,425	)			(777,290	)
Gain on legal settlements			10,157,593				-
Interest expense			(1,967,906	)			(1,612,201	)
Other income			65,381				164,758
Other expenses			(7,095	)			(18,955	)
Total non-operating income (expense), net			7,846,548				(2,243,688	)
Loss before income taxes			(6,603,550	)			(8,240,120	)
Income tax expense			(162,387	)			(92,176	)
Net Loss		$	(6,765,937	)		$	(8,332,296	)

Revenues

Digital colocation revenues for the six months ended June 30, 2026 and 2025, were $7.0 million and $14.1 million, respectively. This represented a 50% decrease or a decrease of $7.1 million, compared to the same period in 2025. The decrease in revenue was primarily attributable to a reduction in both the number of customers and the average contract size as compared to the 2025 period. One customer, Consensus Technology Group LLC, accounted for $7.0 million of the decrease. Digital colocation revenues for the six months ended June 30, 2026 include profit share revenues from our new joint mining agreement with Six Thirty AI.

Energy management revenues for the six months ended June 30, 2026 and 2025, were $3.8 million and $8.2 million, respectively. This represented a 54% decrease or a decrease of $4.4 million, compared to the same period in 2025. The decrease was primarily attributable to changes to miner specification requirements for curtailment program participation beginning in 2026, in which the Company's mining fleet did not achieve the target life expectancy. The Company also realized lower curtailment earnings due to fewer customers and reductions in the average size of customer contracts. These decreases were partially offset by higher payments received for the sale of excess energy capacity.

Digital assets mining revenues from self-mining of Bitcoin for the six months ended June 30, 2026 and 2025, were $0.2 million and $1.1 million, respectively. This represented an 86% decrease or a decrease of $0.9 million compared to the same period in 2025. The decline was primarily driven by industry-wide conditions, including higher overall energy costs and an increase in global network difficulty, both of which contributed to lower Bitcoin production from self-mining activities. The decline was also driven by the reallocation of our self-mining fleet capacity at our facilities in Midland and Bellefonte to customer fleets from our new joint mining agreement.

Cost of revenues

Our cost of revenues consists primarily of direct power costs related to digital asset mining and colocation services and cost of mining equipment sold.

Cost of revenues for the six months ended June 30, 2026 and 2025, were $8.4 million and $13.5 million, respectively. This decrease of $5.1 million, or 38%, in cost of revenues compared to the same period in 2025 was attributable to lower energy consumption from reduced digital colocation services and digital asset mining from self-mining, partially offset by higher average energy prices during the 2026 period.

Operating Expenses

Our operating expenses include: selling, general and administrative expenses; stock-based compensation; depreciation and amortization; and change in fair value of derivative asset.

Selling, general and administrative

Our selling, general and administrative expenses consist primarily of audit, legal, and other professional fees, employee compensation, director fees, equipment repairs, marketing, freight, insurance, consultant fees, lease amortization and general expenses.

Selling, general and administrative expenses for the six months ended June 30, 2026 and 2025 were $13.6 million and $11.7 million, respectively, an increase of $1.9 million, or 17%, from period to period. The increase was primarily due to higher insurance, legal and professional fees, partially offset by lower bonus-related expenses.

Stock-based compensation

Stock-based compensation expenses for the six months ended June 30, 2026 and 2025 were $1.1 million and $3.1 million, respectively. The decrease was primarily due to a reduction in new award issuances and the completion of service-based vesting conditions from awards issued over the prior two years. Stock-based compensation expense for the six months ended June 30, 2026 includes the acceleration of expense from outstanding service-based awards due to the April 6, 2026 change in the Company's Board of Directors.

Depreciation and amortization

Depreciation consists primarily of depreciation of energy equipment, transformers and modular data center ("MDC") equipment.

Depreciation and amortization for the six months ended June 30, 2026 and 2025, were $2.3 million and $3.0 million, respectively. The lower depreciation and amortization expense is due to an increase in the amount of fully depreciated equipment compared to prior periods.

Change in fair value of derivative asset

During the six months ended June 30, 2026, and 2025, there was a loss on the fair value of the derivative asset of $0.02 million and a gain on the fair value of the derivative asset of $1.9 million, respectively. The change in fair value is primarily due to decreasing volatility in fair value due to the shorter remaining term of the power supply agreements.

Non-operating income (expense)

Non-operating income (expense) consists primarily of interest expenses, gain (loss) on foreign currency transactions, gain on legal settlements, and other income and expenses.

Interest expenses for the six months ended June 30, 2026 and 2025, were $2.0 million and $1.6 million, respectively. The higher amount of interest expense recognized in 2026 compared to 2025 is due to interest accreting to the total outstanding debt.

During the six months ended June 30, 2026, loss on foreign currency transactions was $0.4 million. During the six months ended June 30, 2025, loss on foreign currency transactions was $0.8 million. The difference is due to the impact of changes in the US Dollar and Australian Dollar exchange rate on intercompany transactions.

During the six months ended June 30, 2026, we reached a confidential settlement with Ionic Digital Mining LLC ("Ionic") to resolve all claims Ionic brought against us and two of our subsidiaries related to the Celsius Colocation Agreement. In addition, the Company entered a separate, unrelated settlement to resolve a customer dispute over a hosting arrangement. These two settlements resulted in the Company recognizing gains on legal settlements of $10.2 million.

Income tax expense

The Company recorded income tax expense of $162 thousand and $92 thousand for the six months ended June 30, 2026 and 2025, respectively. The difference in the income tax expense for the six months ended June 30, 2026 versus the six months ended June 30, 2025 relates mainly to differences in estimated interest and penalty accruals included in the current payable for each of those periods, as well as changes in estimates regarding the realizability of deferred tax balances that impact the Company's deferred tax expense.

Liquidity and Capital Resources

General

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. For the six months ended June 30, 2026, we financed our operations primarily through cash from operations, proceeds from our ATM Program, the Revolver, as defined below, and other cash reserves.

ATM Program

On October 16, 2025, the Company entered into an At the Market Offering Agreement (the "Sales Agreement") with H.C. Wainwright & Co., LLC ("Wainwright") to sell shares (the "Shares") of our Common Stock having an aggregate sales price of up to $9.6 million, from time to time, through an "at-the-market" offering program (the "ATM Program") under which Wainwright will act as sales agent. On December 11, 2025, the Company filed a prospectus supplement (the "Prospectus Supplement") with the SEC to increase the capacity of the ATM Program by $40 million.

During the six months ended June 30, 2026, the Company has sold 1,693,968 shares of Common Stock under the Sales Agreement at an average price of approximately $4.43 per share, which has resulted in cash proceeds to the Company of $7.3 million, net of issuance costs.

Revolving Line of Credit

On May 28, 2026, the Company and Endeavor Blockchain, LLC, an Arkansas limited liability company ("Endeavor" and the "Noteholder"), entered into a promissory note providing for a revolving line of credit, with the aggregate principal sum of all revolving loans advanced from time to time by the Noteholder to the Company not to exceed forty million dollars ($40,000,000) (the "Revolver"). Endeavor is wholly owned by Josh Kilgore, the Company's Executive Chairman.

Pursuant to the Revolver, each revolving loan bears interest at a fixed rate of 12% per annum, with principal and interest payable upon demand. The revolving line of credit is secured by assets of the Company listed in the Revolver.

The Revolver contains customary representations, warranties, covenants, events of default and security arrangements. The Company is also subject to restrictions on incurring additional indebtedness and additional liens on the collateral. The Revolver provides for customary events of default, including, among others, failure to pay principal or interest, breach of representations and warranties, violation of covenants, bankruptcy or insolvency events. As of June 30, 2026, the Company was in compliance with covenants under the Revolver.

The Company may at any time, and without penalty, prepay outstanding amounts under the revolving loans, or if there are no outstanding amounts, terminate the Revolver. The outstanding balance including interest is $2.5 million as of June 30, 2026, all of which is classified as a current liability.

Joint Mining Agreement

On April 27, 2026, the Company entered into the Six Thirty AI Colocation Agreement, which is described under "Recent Developments" of Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

The total amount of cash the Company will receive from the Six Thirty AI Colocation Agreement will be largely dependent on the economics of mining during the term of the Agreement. The Agreement has a twelve-month term and may be terminated upon 30 days' notice, subject to its conditional terms.

Series D Convertible Preferred Stock and Warrant

On June 30, 2026, the Company entered into a Securities Purchase Agreement, pursuant to which it issued and sold 16,700 shares of newly designated Series D Convertible Preferred Stock, par value $0.001 per share, with a stated value of $1,000 per share, at a purchase price of $900.00 per share, for net proceeds of $14.0 million, to Six Thirty AI, LLC. See Note 9, Stockholders' Equity, for additional information on the terms of the Series D Convertible Preferred Stock and a related warrant.

While this financing strengthened our capital position, it includes covenants that, subject to customary exceptions, limit our ability to pay dividends or repurchase shares, take on new debt or create new liens, and enter into variable-rate financing. These restrictions may limit our flexibility to raise capital or refinance certain obligations in the near term. We plan to manage liquidity within the permitted baskets, seek consents if needed, and may prioritize equity or fixed-rate structures to remain compliant.

Hood County Site Acquisition

On July 14, 2026 and July 15, 2026, the Company entered into and closed on a series of definitive agreements with 10NetZero, Inc. ("10NZ") as joint venture partners, including (i) the Operating Agreement of Texas Load House, LLC (the "Operating Agreement"), (ii) a Loan and Security Agreement between the joint venture partners (the "Loan and Security Agreement"), and (iii) a Side Agreement regarding the Interim Management of Texas Load House, LLC (the "Side Agreement," and collectively with the other definitive agreements, the "Joint Venture Agreements"), to establish a joint venture for the acquisition, ownership, and development of certain real property located in Hood County, Texas (the "Hood County Site"). Subject to the terms of the Joint Venture Agreements, the Company initially owns a 50% membership interest in the joint venture and 10NZ initially owns the remaining 50% membership interest.

On July 15, 2026, the joint venture acquired 30 acres of the Hood County Site from Century Oaks Independence Farms, LLC ("Century Oaks"), for an aggregate purchase price of approximately $10 million in cash, with an option to purchase the remainder of the site for an additional $600,000. The Hood County Site consists of a 50-acre site containing over 30,000 square feet of existing structures which the joint venture intends to repurpose for datacenter use as well as an administrative office which will be utilized as the command center. The Hood County Site carries 17 MW of operational power and will be expandable up to 111 MW of grid power, subject to validation by the Electric Reliability Council of Texas. On-site are two 12-inch and one 20-inch natural-gas pipelines providing the option to add behind-the-meter generation, supporting a total buildout of up to 300 MW.

We believe our near-term working capital requirements will continue to be funded through a combination of the cash we expect to generate from future operations, our existing funds, external debt facilities that may be available to use, future issuances of shares, and other potential sources of capital, monetization, or funds. We believe a combination of these opportunities is expected to be adequate to fund our operations over the next twelve months. For our business growth, it is expected we may continue to invest in expanding and/or upgrading our infrastructure and/or other equipment and will require additional working capital in the short-term and long-term. As of June 30, 2026, we had an aggregate of $30.1 million of debt, $27.5 million of which is overdue for repayment unless we refinance, renegotiate the terms, or prevail in our disputes and/or related claims and/or counterclaims.

We will need to raise substantial additional capital to continue our operations, execute our business strategy and meet our debt service obligations. We expect to continue to consider and evaluate potential strategic options and capital-raising transactions including, among other things, dispositions of certain businesses and assets and significant equity investments in us by third parties. Any capital-raising through equity or convertible debt could result in significant dilution to existing stockholders. In addition, newly issued securities may have rights, preferences, or privileges senior to those of our common shares. We may not be able to raise adequate capital on a timely basis, on favorable terms, or at all. Our inability to raise sufficient capital would have a material adverse effect on our financial condition and business.

The process of reviewing potential strategic opportunities may be time consuming, distracting and disruptive to our business operations. Our management may devote significant time, and we may incur substantial costs in pursuing, evaluating and negotiating potential strategic options or capital-raising transactions and those efforts may not prove successful on a timely basis, or at all.

Any potential transaction may be dependent on a number of factors that may be beyond our control, for example, market conditions, industry trends or acceptable terms. We may ultimately determine that no transaction is in the best interest of our stockholders and there can be no assurance that we will pursue or enter into any transaction at all. There can be no assurance of the impact to the value of our Common Stock after the announcement or consummation of any strategic transaction. In addition, any perceived uncertainty regarding our future operations may limit our ability to retain or hire qualified personnel.

Working Capital and Cash Flows

As of June 30, 2026 and December 31, 2025, we had a cash and cash equivalent balance of $16.3 million and $13.3 million, respectively. As of June 30, 2026 and December 31, 2025, the trade receivables balance was $9.4 million and $9.6 million, respectively. As of June 30, 2026, we had $30.1 million of outstanding short-term loans, and as of December 31, 2025, we had $25.2 million of short-term loans. The short-term loans as of June 30, 2026, relate to the Celsius Promissory Note, W Capital Loan, Secured Convertible Promissory Notes and Marshall Loan (each of which is currently in default) and the revolving line of credit extended by Endeavor. Refer to "Material Cash Requirements" below for more information. As of June 30, 2026 and December 31, 2025, we had negative working capital of $13.7 million and $31.3 million, respectively.

The following table presents the major components of net cash flows (used in) provided by operating, investing and financing activities for the six months ended June 30, 2026 and 2025:

		Six Months Ended June 30,
		2026				2025
Net cash used in operating activities		$	(20,455,174	)		$	(2,588,984	)
Net cash used in investing activities		$	(53,925	)		$	(54,633	)
Net cash provided by (used in) financing activities		$	23,528,116			$	(206,588	)

For the six months ended June 30, 2026, net cash used in operating activities was $20.5 million. We had a net loss of $6.8 million for the six months ended June 30, 2026, which included $10.2 million of gain on legal settlements, $0.1 million gain on other income, $1.1 million non-cash stock-based compensation, $2.3 million of depreciation and amortization expense and $2.0 million of interest expense. Net cash used in operating activities was also impacted by cash payments to settle outstanding income tax liabilities, totaling $0.7 million. For the six months ended June 30, 2025, net cash used in operating activities was $2.6 million. We had a net loss of $8.3 million for the six months ended June 30, 2025, which included $1.9 million of gain on derivative asset, $3.1 million of stock based compensation, $3.0 million of depreciation and amortization expense, $1.0 million of provision for doubtful accounts and $1.6 million of non-cash interest expense.

For the six months ended June 30, 2026 and June 30, 2025, net cash used in investing activities was $0.05 million. The net cash used in investing activities during the six months ended June 30, 2026 and June 30,2025, was primarily attributable to capital expenditures and the purchase of equipment.

For the six months ended June 30, 2026, net cash provided by financing activities was $23.5 million and for the six months ended June 30, 2025, net cash used was $0.2 million. The cash provided by financing activities during the six months ended June 30, 2026, was primarily attributable to cash proceeds of $7.2 million from the issuance of our Common Stock under the ATM Program, $14.0 million from the issuance of our Series D Convertible Stock and $2.5 million from the revolving line of credit.

Material Cash Requirements

The following discussion summarizes our material cash requirements from contractual and other obligations. For more information on these matters, please see Note 8 - Commitments and Contingencies to the unaudited consolidated condensed financial statements included in Item 1. "Financial Statements" of this Quarterly Report.

The Company is included as a guarantor of the Marshall Loan. The loan matured in February 2024 and bears interest at a rate of 12% per annum (with an overdue rate provision of an additional 500bps), payable monthly with interest payments that commenced in December 2021. This loan facility is secured by direct assets of MIG No.1 and a general security agreement given by the Company. Principal repayments began during November 2022. There has been no principal and interest payments made since May 2023. The outstanding balance including interest is $14.1 million as of June 30, 2026, all of which is currently classified as a current liability.

The Company is included as a guarantor of the W Capital Loan. As of June 30, 2026, the balance was AUD $2.8 million (USD $1.9 million) representing outstanding interest, all of which is currently classified as a current liability. The W Capital Loan accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 800bps). The W Capital Loan expired in March 2023.

On February 23, 2022, Luna Squares entered into the Digital Colocation Agreement with Celsius Mining LLC. In connection with this agreement, Celsius Mining LLC loaned Luna Squares a principal amount of $20.0 million, for the purpose of funding the infrastructure required to meet the obligations of the Digital Colocation Agreement, for which Luna Squares issued the Celsius Promissory Note for repayment of such amount. The Celsius Promissory Note accrues interest daily at a rate of 12% per annum (with an overdue rate provision of an additional 200bps). Luna Squares is required to amortize the loan at a rate of 15% per quarter, principal repayments began at the end of September 2022. The Celsius Promissory Note had a maturity date of August 23, 2023. The outstanding balance including interest is $11.3 million as of June 30, 2026, all of which is currently classified as a current liability.

On July 8, 2022, the Company issued the Secured Convertible Promissory Notes in exchange for an aggregate of $3.6 million in cash. On September 29, 2022, the Company entered into a letter variation relating to some of the Secured Convertible Promissory Notes, with an aggregate principal amount of $3.1 million, which gave those holders the option to elect for pre-payment (including accrued interest to maturity) subject to certain conditions. All of the investors included in this letter variation elected for the pre-payment option and therefore there were $3.1 million principal repayments made during November 2022. The final convertible noteholder who was not a party to this variation opted to enter into an arrangement whereby it received pre-payment of interest but agreed that repayment of the principal was not required therefore the remaining $0.50 million had been classified as a current liability. The Secured Convertible Promissory Notes matured in July 2023. Interest has been accrued from July 2023 onwards and therefore the outstanding balance is $0.2 million as of June 30, 2026, all of which is classified as a current liability. During 2024 the principal amount outstanding of $0.50 million was repaid to the investor.

On May 28, 2026, the Company and Endeavor entered into Promissory Note. The outstanding balance including interest is $2.5 million as of June 30, 2026, all of which is classified as a current liability

Financial condition

As of June 30, 2026, and December 31, 2025, we had current liabilities of $46.5 million and $58.8 million, respectively. As of June 30, 2026, and December 31, 2025, we had net assets of $12.4 million and negative net assets $3.1 million, respectively. As of June 30, 2026, we had an accumulated deficit of $259.2 million compared to $252.5 million as of December 31, 2025. Our cash position as of June 30, 2026, was $16.3 million in comparison to $13.3 million as of December 31, 2025.

For the six months ended June 30, 2026 and 2025, the Company generated net loss of $6.8 million and $8.3 million, respectively.

Our primary requirements for liquidity and capital are working capital, capital expenditures, public company costs and general corporate needs. In particular, we have large power usage costs, and other significant costs include our legal, lease, operational, and employee costs. We expect these capital and liquidity needs to continue as we further develop and grow our business.

We require additional capital to respond to near-term debt repayment obligations, competitive pressure, market dynamics, new technologies, customer demands, business opportunities and challenges, potential acquisitions or unforeseen circumstances, and we will likely need to engage in equity or debt financings in the short term. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to fund, grow or support our business model and to respond to business challenges could be significantly limited, our business, financial condition and results of operations could be adversely affected, and this may result in bankruptcy or our ceasing operations.

The Company is taking steps to preserve cash by optimizing operations, reducing costs and pursuing efficiencies. The Company has been improving its revenue generation by enhancing its operations, driving growth in business lines, adding digital colocation services customers and diversifying its businesses. The Company will continue to seek to optimize its cash flows through these and other initiatives.

Non-GAAP Financial Measures

The Company reports all financial information required in accordance with generally accepted accounting principles in the United States of America ("GAAP"). The Company believes, however, that evaluating its ongoing operating results will be enhanced if it also discloses certain non-GAAP information. Adjusted EBITDA, which is a non-GAAP financial measure, is defined by the Company as net income (loss) plus income tax, depreciation and amortization, further adjusted by stock-based compensation, gain/loss on foreign currency, other non-operating income and expenses, change in fair value of derivative assets, gain on legal settlements, and bad debt expense.

Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.

		For the three months ended								For the six months ended
		June 30,								June 30,
		2026				2025				2026				2025
Reconciliation of non-GAAP Adjusted EBITDA:
Net loss:		$	(7,375,740	)		$	(8,021,433	)		$	(6,765,937	)		$	(8,332,296	)
Depreciation and amortization			1,097,390				1,466,119				2,291,654				2,994,032
Stock based compensation			677,043				978,261				1,103,405				3,078,765
Losses on foreign currency transactions			36,994				689,952				401,425				777,290
Other non-operating income			(8,933	)			(60,646	)			(65,381	)			(164,758	)
Interest expense			1,011,808				827,336				1,967,906				1,612,201
Other non-operating expenses			7,095				9,614				7,095				18,955
Change in fair value of derivative asset			105,608				2,137,052				24,580				(1,922,521	)
Income tax (benefit) expense			29,920				(17,933	)			162,387				92,176
Provision for doubtful accounts			-				-				-				977,755
Gain on legal settlements			-				-				(10,157,593	)			-
Adjusted EBITDA (non-GAAP)		$	(4,418,815	)		$	(1,991,678	)		$	(11,030,459	)		$	(868,401	)

Critical accounting estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates as set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the 2025 Form 10-K.