POWERCOMPUTE, INC.

Item 1A. Risk Factors

TOthere h than the updated risk factors set forth below, there have been no material changes from the risk factors previously disclosed in the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2025.

Risks Related to our High-Performance Computing and Artificial Intelligence Services Business

Our transition to HPC and AI infrastructure services may not be successful and involves significant execution risk.

Our strategy to expand into HPC and AI infrastructure services is subject to significant execution risk. The successful conversion of our existing mining infrastructure to HPC and AI applications requires substantial capital investment, technical expertise in data center design and operations for GPU-intensive workloads, and the ability to attract and retain qualified engineering and sales personnel. There can be no assurance that we will be able to successfully convert our existing facilities, that converted facilities will meet the technical requirements of potential customers, or that the economic returns from HPC and AI operations will exceed those available from our existing Bitcoin mining operations. The transition may require the displacement of Bitcoin mining hardware and significant retrofit or replacement of data center infrastructure, which could result in impairment expenses, accelerated depreciation, and additional capital expenditures during the transition period.

We have limited operating history in HPC and AI infrastructure services.

We have a limited operating history providing GPU-as-a-service to customers for HPC and AI applications. Our limited experience in this market, including with respect to sales, marketing, customer onboarding, service level management, and infrastructure optimization for GPU-intensive workloads, may limit our ability to compete effectively against established data center operators and cloud service providers with significantly greater experience, resources, and customer relationships. Our limited track record may also make it difficult to attract new customers or negotiate favorable contract terms.

Tariffs and trade restrictions may increase our equipment costs and delay deployment timelines.

Our HPC/AI infrastructure operations require specialized hardware, including GPU servers, networking equipment, cooling systems, and power distribution components, a significant portion of which is manufactured outside the United States. Tariffs, trade restrictions, or export controls could materially increase our capital expenditure requirements, delay equipment procurement timelines, reduce the economic viability of planned conversions, or limit our ability to procure next-generation hardware. There can be no assurance that we will be able to pass increased costs on to customers or that alternative domestic supply sources will be available at competitive prices.

Our diversification into HPC and AI services may divert management attention and resources from our existing operations.

Our efforts to diversify revenue streams through HPC and AI infrastructure services require significant management time and attention, including with respect to customer negotiations, facility design and construction oversight, personnel recruitment, technology evaluation, and strategic planning. These activities may divert management focus from optimizing our existing bitcoin mining operations, potentially resulting in decreased mining efficiency, missed opportunities in digital asset markets, or failure to adequately manage operational risks in our core business. The allocation of capital to HPC and AI development may also reduce resources available for Bitcoin mining fleet upgrades or capacity expansion, which could affect our competitive position in digital asset mining.

The demand for HPC and AI infrastructure services is uncertain and depends on factors outside our control.

Our increased focus on high-density data center infrastructure for AI and HPC applications may not be successful and depend on the continuing development of, and demand for, large-scale computing infrastructure for AI model training, inference, and related applications. Demand for our services could be adversely affected by a slowdown in AI investment by enterprise customers, consolidation among hyperscale cloud providers, technological advances that reduce computing requirements for AI workloads, regulatory restrictions on AI development or deployment, economic recession, or other factors outside our control. There can be no assurance that the current growth in demand for AI computing infrastructure will continue at historical rates or at all.

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Risks Related to our Securities

If we are unable to continue to comply with the continued listing requirements of the The Nasdaq Capital Market, including the proposed rule that would require a $5 million Market Value of Listed Securities, we could be delisted from Nasdaq, which would seriously harm the liquidity of our stock and our ability to raise capital.

Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain that listing, we must maintain compliance with the continued listing requirements and standards of The Nasdaq Capital Market. There can be no assurances that we will be able to comply with the applicable listing requirements and standards of The Nasdaq Capital Market. 

On January 13, 2026, Nasdaq filed a proposed rule change with the Securities and Exchange Commission, or SEC, to adopt a new continued listing requirement requiring the maintenance of a minimum Market Value of Listed Securities, or MVLS, of at least $5 million. Under the proposal, a company that fails to maintain an MVLS of at least $5 million for 30 consecutive business days would be subject to suspension and delisting proceedings with no cure right and limited appeal rights. The rule change applies to companies listed on the Nasdaq Capital Market, including the Company. The proposed rule was approved by the SEC on July 22, 2026, and was subsequently stayed on July 29, 2026, pending review by the SEC. Its not certain whether or when the MVLS rule will retake effect. As we do not currently maintain a MVLS of at least $5.0 million and, to the extent our MVLS does not exceed $5.0 million within 30 consecutive business days of the MVLS rule retaking effect, we expect to be in violation of the new rule, which could trigger an immediate suspension and delisting from Nasdaq. We can provide no assurance that we will be able to regain compliance with this new MVLS requirement if and when it retakes effect. 

There is no guarantee that we will be able to remain in compliance with Nasdaqs listing requirements in the future. Any failure to maintain compliance with continued listing requirements of the Nasdaq Capital Market could result in delisting of our common stock from the Nasdaq Capital Market and negatively impact our company and holders of our common stock, including by reducing the willingness of investors to hold our common stock because of the resulting decreased price, liquidity and trading of our common stock, limited availability of price quotations and reduced news and analyst coverage. Delisting may adversely impact the perception of our financial condition, cause reputational harm with investors, our employees and parties conducting business with us and limit our access to debt and equity financing.

Risks Related to our Financial Condition

Our indebtedness under our Bitcoin-secured loan facility is substantial, and we may be unable to roll over or refinance this indebtedness on commercially reasonable terms, or at all.

We recently incurred a significant amount of indebtedness under a new loan facility with ChainFi Inc. d/b/a Arch Lending, pursuant to which our wholly owned subsidiary, US Digital Mining and Hosting Co, LLC, borrowed approximately $18.1 million under an initial 30-day, non-recourse, collared rolling loan secured by 307 Bitcoin and bearing interest at 2.0% per annum. Although the loan facility automatically rolls over for successive 30-day periods unless either party provides notice of non-renewal, the interest rate, floor price, and ceiling price are reset at each rollover date based on then-prevailing market conditions. As a result, we may be required to accept less favorable terms in connection with future rollovers, including higher interest rates or less favorable collateral-related economics, or we may be unable to continue rolling over the loan on terms acceptable to us. 

If we are unable to roll over, refinance, or otherwise repay this indebtedness at maturity on commercially reasonable terms, we may be required to use available cash, seek alternative financing, sell assets, pledge additional collateral, or take other actions that could adversely affect our liquidity, financial condition, and business operations. In addition, if the Bitcoin reference price is below the agreed-upon floor price at maturity, we may be required to cure the shortfall in order to roll the loan, repay the loan to recover the collateral, or elect to walk away from the collateral, any of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 

Our operating losses and indebtedness may currently and in the future raise substantial doubt as to our ability to continue as a going concern.

In connection with the filing of this Quarterly Report on Form 10-Q, we evaluated our ability to continue as a going concern for the twelve months following the issuance of the financial statements contained herein. The Company has experienced significant operating losses over the past two and a half years (2024 through 2026) with cumulative losses of approximately $49.3 million. As of June 30, 2026, the Company had $854 thousand available cash on-hand and Bitcoin with a fair market value of $8.5 million (of which $7.7 million is pledged as collateral against outstanding borrowings). In addition, the Company had Bitcoin with a fair market value of $10.2 million classified as Digital assets receivable which was pledged as collateral against $11 million of borrowings. This indebtedness was refinance through our above-described credit facility with Arch. These conditions raise substantial doubt about the Companys ability to continue as a going concern.

Management's plans to address these conditions include a plan to refinance certain indebtedness and the continued use of its ATM program. The ATM program is currently effective and has been utilized to raise capital; however, future proceeds under the ATM program depend, among other things, on the Company's ability to maintain compliance with Nasdaq's continued listing requirements, 

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including applicable market value requirements, market conditions, trading volume, the Company's stock price, and other factors that are not within the Company's control. 

As of the date these financial statements are issued, management has not concluded that its plans are probable of mitigating the conditions and events that raise substantial doubt within one year after the date these financial statements are issued. Accordingly, substantial doubt about the Company's ability to continue as a going concern has not been alleviated. The financial statements included in this report do not reflect any adjustments that may be required if the Company is unable to continue as a going concern.