SharonAI Holdings Inc. 10-Q

Item 2. 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 interim 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. All amounts are in U.S. dollars. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report 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 using forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should,” “could,” “anticipate,” “will,” “will be,” “will continue,” “will likely result,” “project,” “estimate,” “strategy,” “positioned” 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. These forward-looking statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in those provisions, and we are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made and are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. In particular, information included under “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this report contain forward-looking statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of the Company’s management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. 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: changes in economic conditions, legislative or regulatory changes, availability of capital, competition, and generally accepted accounting principles. Whether any such forward-looking statements are in fact achieved will depend on future events, some of which are beyond our control. Except as may be required by applicable law, the Company undertakes no obligation to update or revise any forward-looking statements to reflect new information, events or circumstances occurring after the date of this report. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. - 24 - Business Overview We are an Australian neocloud operator, purpose-built to power the next generation of AI and HPC. Our infrastructure is architected from the ground up to meet the specific, intensive and complex demands of modern AI training and inference workloads, machine learning, and Generative AI. We provide enterprise, government and research organizations with sovereign, low-latency access to advanced accelerated computing hardware, including NVIDIA Corporation’s (“ NVIDIA ”) B200, B300 and GB300 GPUs. Through strategic partnerships with global technology leaders NVIDIA, NEXTDC Limited (“ NEXTDC ”), Cisco Systems Inc. (“ Cisco ”), World Wide Technology (“ WWT ”), Lenovo Group Limited (“ Lenovo ”), VAST Data Inc. (“ VAST ”) and Megaport Limited (“ Megaport ”), the Company delivers an integrated AI ecosystem of solutions to customers without the complexity of them needing to manage their own physical infrastructure. Key Corporate Milestones We accomplished the following key milestones in the fiscal quarter ended June 30, 2026 and the second quarter of 2026: On April 26, 2026, the Company entered into a Securities Purchase Agreement with certain qualified institutional buyers for the private placement of $350.0 million aggregate principal amount of 6.00% Convertible Senior Notes due 2031. This transaction closed on May 20, 2026. In May 2026, the Company entered into multiple long-term agreements with third-party data center infrastructure providers for approximately 29.6 MW of additional capacity to support future operations. The arrangements are expected to commence beginning in late 2026. On May 13, 2026, the Company entered into an additional customer contract with a global technology company with major Asia-pacific presence with an aggregate total contract value of approximately $950 million. On June 12, 2026, we entered into an agreement with Nvidia to deploy 72MW AI factory and up to 40,000 Grace Blackwell GB300 GPUs in Australia. Under the terms of the agreement, NVIDIA and Sharon AI are collaborating to enable 72 megawatts (MW) of new data center capacity in Australia. The companies will deploy NVIDIA’s DSX AI factory design, scaling up to 40,000 Grace Blackwell GB300 GPUs to serve growing demand from AI startups, enterprises, and university researchers. The collaboration is structured so that Sharon AI can commit to large-scale NVIDIA infrastructure while aligning economics through a revenue-sharing and credit-support model. Sharon AI will sell NVIDIA-powered cloud services, and NVIDIA will earn both standard product revenue and a share of the cloud revenue on the supported capacity. This structure accelerates adoption of NVIDIA platforms among customers that historically lacked access to capital-intensive AI infrastructure, while giving Sharon AI a capital-efficient path to scale and providing NVIDIA with a recurring, usage-linked earnings stream. On June 16, 2026, we expanded our partnership with VAST Data to Power AI Factories Across Australia and Asia-Pacific, where we will deploy 600PB of the VAST AI Operating System across its AI cloud infrastructure. This deployment represents one of the largest and most advanced sovereign AI data foundations in the Asia-Pacific region. It positions Sharon AI at the forefront of Australia’s push to build independent, high-performance AI capability – keeping the nation’s most sensitive workloads, intellectual property, and strategic data firmly onshore while delivering the raw power needed for next-generation training, inference, and agentic AI systems. Using a proven benchmark of approximately 6PB of optimized AI storage per 1,000 GPUs for demanding large-scale workloads, the new 600PB VAST deployment provides the scalable data backbone equivalent to supporting the data needs of ~100,000 GPUs. This is a transformative leap that cements Sharon AI’s AI Cloud platform as one of the most substantial sovereign AI clouds in Australia and Asia-Pacific. On June 17, 2026, we entered into securities purchase agreements with certain qualified institutional and accredited buyers relating to the private offering of approximately 6,719,896 shares of the Company’s Class A Ordinary Common Stock at a purchase price of $68.73 per share and pre-funded warrants at a price per pre-funded warrant of $68.2799 to purchase up to an aggregate of 6,374,823 shares of Class A Ordinary Common Stock for aggregate gross proceeds of approximately $900 million. The offering closed on June 22, 2026, and the net proceeds are expected to be used to support our previously announced six-year strategic compute collaboration with NVIDIA, where we intend to deploy one of Australia’s largest AI Factories including up to 40,000 Grace Blackwell GB300 GPUs as well as broader expansion plans. - 25 - On June 17, 2026, we entered into a securities purchase agreement with certain qualified institutional buyers relating to a private offering of $700 million aggregate principal amount of the Convertible Notes. The Convertible Notes are senior, unsecured obligations that mature on June 15, 2032, bear interest at a rate of 4.75% per year payable quarterly in arrears, and are convertible into shares of Class A Ordinary Common Stock at an initial conversion price of approximately $99.66 per share. The offering closed on June 22, 2026, and the net proceeds are expected to be used for GPU and network procurement, along with working capital to support revenue-generating AI cloud deployments. On July 16, 2026, we announced the signing of a cloud computing service agreement with a global Artificial Intelligence (“AI”) Lab valued at $1.32 Billion over five years. Under the terms of the contract, we expect to deploy cloud computing solutions across data center infrastructure in New Zealand with revenue from the contract expected to commence across the first and second quarter of 2027. The Company announced on July 22, 2026, that effective as of August 24, 2026, Mr. Tim Broadfoot will resign as the Company’s Chief Financial Officer and Mr. Anuj Goel will serve as the Company’s Chief Financial Officer. Key Factors Affecting Operating Results The Company’s operating results for the quarter were primarily influenced by continued strategic activity following corporate transactions completed in 2025. During the period, the Company completed the sale of its investment in TCDC, which favorably impacted financial performance for the quarter. Concurrently, the Company continued to make significant investments in the development and deployment of proprietary operating software and cloud computing platforms. These investments are expected to support the acquisition of higher quality customers, deliver operational efficiencies, and position the business for long-term revenue growth and profitability. The Company views these developments as critical to its forward strategy, despite their limited impact on short-term results. The second quarter of 2026 showed a net loss of $430,369 thousand. Industry Trends During the prior year, the Company has strategically shifted its focus from providing storage services to developing and delivering GPU Cloud services, aligning with the growing demand for HPC and AI-driven workloads. This transition reflects a response to changing market dynamics and the increasing need for scalable, on-demand GPU infrastructure to support machine learning, AI training, and other compute-intensive applications. The market for GPU Cloud services has shown strong theoretical demand, with significant interest from AI developers, research institutions, and enterprises seeking cost-effective, scalable compute resources. The Company anticipates that once its GPU deployments are fully operational and its orchestration layers are in place to facilitate seamless customer interaction and resource management, it will be well-positioned to capture an increase in revenue from this expanding industry. However, the Company operates in a highly dynamic and competitive landscape, with several key challenges that could impact its ability to scale efficiently. Access to essential GPU hardware remains constrained, with supply chain limitations, geopolitical restrictions, and high demand from hyperscalers and AI-focused enterprises driving longer lead times and increased acquisition costs. The evolving nature of AI and high-performance computing technologies also presents a risk of obsolescence, requiring continuous adaptation and investment in next-generation infrastructure. Additionally, rising operational costs, particularly for power, colocation services, and network infrastructure, are increasing the cost base for GPU Cloud services. These inputs are critical to the Company’s ability to deliver competitive pricing and maintain sustainable margins in a market where efficiency and performance optimization are key differentiators. The Company is actively working to optimize its deployment strategies, secure long-term supplier agreements, and refine its orchestration technology to enhance scalability, utilization, and cost efficiency. As the GPU Cloud platform reaches full-scale deployment, the Company expects to capitalize on the strong demand for AI and HPC compute resources while mitigating the impact of rising costs and supply chain constraints. - 26 - Results of Operations Results of Operations for the quarter ended June 30, 2026 compared to quarter ended June 30, 2025 The following table sets forth key components of the results of operations during the three months ended June 30, 2026 and 2025. For the Three Months Ended June 30, 2026 2025 Revenue $ 1,931,381 $ 376,984 Cost of revenue 761,755 398,266 Gross profit (loss) 1,169,626 (21,282 ) Share-based compensation 2,670,588 489,345 Selling, general and administrative expenses 8,685,424 1,083,093 Other expenses 14,597,792 1,169,712 Gain on disposal of property and equipment - (153,199 ) Loss from operations (24,784,178 ) (2,610,233 ) Non-operating income (expense), net: Change in fair value of digital assets - (62,657 ) Change in fair value of warrant liabilities (6,138,775 ) - Change in fair value of convertible notes (400,440,855 ) - Change in fair value of share-based payment 334,502 - Gain on investment in NUAI shares 6,493,245 - Gain on sale of investment in TCDC 856 - Interest expense, net (4,527,540 ) (43,521 ) Loss before income taxes (429,062,745 ) (2,716,411 ) Income tax (expense) benefit (1,305,951 ) 127,579 Net loss (430,368,696 ) (2,588,832 ) Revenue Q2 2026: $1,931 thousand| Q2 2025: $377 thousand Total revenue for the three months ended June 30, 2026 and 2025 was $1,931 thousand and $377 thousand, respectively. The increase of $1,554 thousand, or approximately 412%, was primarily attributable to revenue generated from new customers onboarded during the second quarter of 2026, reflecting the continued expansion of the Company’s GPU infrastructure services business. Cost of Revenue Q2 2026: $762 thousand| Q2 2025: $398 thousand Cost of revenue for the three months ended June 30, 2026 and 2025, was $762 thousand and $398 thousand, respectively, an increase of approximately $363 thousand. The increase was primarily driven by costs incurred in delivering GPU cloud computing operations. Key components included data center costs- comprising colocation facility fees, internet connectivity, and power consumption necessary to support high-performance infrastructure. The Company also incurred service fees under managed service agreements with third-party suppliers who provide and maintain the computer data storage equipment used in its operations. These fees include the use, upkeep, and performance monitoring of the hardware infrastructure. Share-Based Compensation Q2 2026: $2,670 thousand| Q2 2025: $489 thousand Share-based compensation expense for the three months ended June 30, 2026 and 2025 was $2,670 thousand and $489 thousand, respectively. The increase of $2,181 thousand, or approximately 446%, was primarily attributable to new equity awards granted during the quarter to employees, executives, and advisors in support of the Company’s continued growth and talent acquisition initiatives. Share-based compensation expense is recognized over the requisite service period based on the grant-date fair value of the awards, subject to the satisfaction of any applicable performance and service-based vesting conditions. - 27 - Selling, General, and Administrative Expenses (SG&A) Q2 2026: $8,685 thousand| Q2 2025: $1,083 thousand Selling, general and administrative expenses for the three months ended June 30, 2026 and 2025 were $8,685 thousand and $1,083 thousand, respectively. The increase of $7,602 thousand, or approximately 702%, was primarily attributable to higher employee-related costs, financing costs, and professional fees, including legal, consulting, and audit services, incurred to support the Company’s growth initiatives, financing activities, and expanding operations. Other Expenses Q2 2026: $14,598 thousand| Q2 2025: $1,170 thousand Other expenses for the three months ended June 30, 2026 and 2025 were $14,598 thousand and $1,170 thousand, respectively. The increase of $13,428 thousand, or approximately 1,148%, was primarily attributable to unrealized foreign exchange losses arising from the remeasurement of foreign currency-denominated monetary balances. The increase was also attributed to routine depreciation and amortization expense recognized on the Company’s property and equipment and intangible assets supporting its GPU infrastructure and cloud services operations. Other Income Q2 2026: 0 | Q2 2025: $153 thousand Other income for the three months ended June 30, 2026 and 2025 was $0 and $153 thousand, respectively. The decrease was attributable to the absence of a gain on the sale of fixed assets recognized in the prior-year period. During the three months ended June 30, 2025, the Company recognized a gain of $153 thousand on the disposal of fully depreciated storage server assets that were no longer in active operational use. Change in Fair Value of Digital Assets Q2 2026: $0 | Q2 2025: (63) thousand Change in the fair value of digital assets for the three months ended June 30, 2026 and 2025 was $0 and a loss of $63 thousand, respectively. No gain or loss on the fair value of digital assets was recognized during the current-year period, as the Company had fully disposed of its digital asset holdings during the third quarter of 2025. The prior-year loss reflected the decline in the market value of digital assets previously held in connection with the Company’s former Filecoin data storage operations. Change in fair value of warrant liabilities Q2 2026: $(6,139) thousand| Q2 2025: $0 thousand The Company recognized a loss of $6,139 thousand from the change in fair value of warrant liabilities for the three months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The warrant liabilities were assumed in connection with the Company’s business combination completed in December 2025 and, accordingly, there were no comparable warrant liabilities outstanding during the three months ended June 30, 2025. The current-year loss was attributable to the periodic remeasurement of these warrant liabilities, with changes in fair value primarily driven by movements in the Company’s share price and other valuation assumptions during the quarter. The resulting fair value adjustment is a non-cash item recognized in the consolidated condensed statements of operations. Change in Fair Value of Convertible Notes Q2 2026: ($400,441) thousand | Q2 2025: $0 The Company recognized a loss of $400,441 thousand from the change in fair value of convertible notes for the three months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The convertible notes were issued in December 2025 and were accounted for under the fair value option. Accordingly, changes in their fair value were recognized in the consolidated condensed statements of operations until conversion. During the quarter, approximately 99% of the outstanding convertible notes were converted into the Company’s common shares on June 11, 2026. The significant fair value loss recognized during the period was primarily driven by the increase in the Company’s share price prior to the conversion of the notes. Following the conversion, substantially all of these convertible notes were derecognized from the Company’s balance sheet. - 28 - Change in fair value of share-based payment Q2 2026: $335 thousand| Q2 2025: $0 The Company recognized a gain of $335 thousand from the change in fair value of share-based payment for the three months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The gain was primarily attributable to adjustments related to the settlement of vested share awards, including the accounting for shares withheld to satisfy employee tax withholding obligations. This was partially offset by a loss from the remeasurement of the Consulting Services Fee payable, which was settled in common shares in April 2026. The resulting fair value adjustment was a non-cash item recognized in the consolidated condensed statements of operations. Gain (loss) on investment in NUAI shares Q2 2026: $6,493 thousand| Q2 2025: $0 The Company recognized a gain on investment in NUAI shares of $6,493 thousand for the three months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The NUAI shares were received as part of the consideration for the sale of the Company’s TCDC investment in January 2026. On May 14, 2026, the Company sold all of its NUAI common shares for proceeds of $14,984 thousand. The carrying amount of the investment immediately prior to the sale was $8,490 thousand, resulting in a realized gain on sale of $6,493 thousand, which was recognized in the condensed consolidated condensed statements of operations. The sale proceeds were received and recorded as cash held in trust. Gain on sale of investment in TCDC Q2 2026: $856 | Q2 2025: $0 The Company recognized a gain on the sale of its investment in TCDC of $856 for the three months ended June 30, 2026, compared to no such gain in the prior-year period. The gain was attributable to the reversal of an overaccrual of transaction costs associated with the TCDC sale completed in January 2026. No additional gain was recognized from the underlying sale transaction during the current quarter. Interest Income (Expense), Net Q2 2026: ($4,527) thousand| Q2 2025: $(44) thousand Net interest expense for the three months ended June 30, 2026 was $4,527 thousand, compared with net interest expense of $44 thousand for the three months ended June 30, 2025. The increase of $4,484 thousand was primarily attributable to interest expense recognized on the convertible notes issued in December 2025, May 2026, and June 2026, partially offset by interest income earned on the Company’s cash balances. Income Tax Benefit (Expense) Q2 2026: $(1,306) thousand| Q2 2025: $128 thousand Income tax expense for the three months ended June 30, 2026 was $(1,306) thousand, compared with an income tax benefit of $128 thousand for the three months ended June 30, 2025. The increase in income tax expense was primarily attributable to the non-deductibility of the fair value loss on convertible notes for tax purposes, and changes in the valuation allowance maintained against certain deferred tax assets. - 29 - Comparative Results for the six months ended June 30, 2026, and 2025: Results of Operations for the six months ended June 30, 2026 compared to six months ended June 30, 2025 The following table sets forth key components of the results of operations during the six months ended June 30, 2026 and 2025. For the Six Months Ended June 30, 2026 2025 Revenue $ 2,225,396 $ 702,077 Cost of revenue 1,287,572 711,648 Gross profit (loss) 937,824 (9,571 ) Share-based compensation 3,052,746 956,968 Selling, general and administrative expenses 12,700,643 2,090,523 Other expenses 12,787,838 1,676,132 Gain on disposal of property and equipment - (961,713 ) Loss from operations (27,603,403 ) (3,771,481 ) Non-operating income (expense), net: Change in fair value of digital assets - (391,090 ) Change in fair value of warrant liabilities (5,255,450 ) - Change in fair value of convertible notes (470,668,608 ) - Change in fair value of share-based payment 334,502 - Gain on investment in NUAI shares 4,984,130 - Gain on sale of investment in TCDC 65,920,568 - Interest expense, net (3,267,654 ) (55,912 ) Loss before income taxes (435,555,915 ) (4,218,483 ) Income tax (expense) benefit (14,824,603 ) 190,161 Net loss (450,380,518 ) (4,028,322 ) Revenue H1 2026: $2,225 thousand| H1 2025: $702 thousand Total revenue for the six months ended June 30, 2026 and 2025 was $2,225 thousand and $702 thousand, respectively. The increase of $1,523 thousand, or approximately 217%, was primarily attributable to higher GPU infrastructure services revenue driven by new customers onboarded during the second quarter of 2026, reflecting the continued expansion of the Company’s customer base and operations. Cost of Revenue H1 2026: $1,288 thousand| H1 2025: $712 thousand Cost of revenue for the six months ended June 30, 2026 and 2025 was $1,288 thousand and $712 thousand, respectively. The increase of $576 thousand, or approximately 81%, was primarily attributable to higher costs incurred in delivering the Company’s GPU infrastructure services as operations expanded during the period. These costs primarily consisted of data center expenses, including colocation facility fees, power consumption, and internet connectivity, as well as managed service fees paid to third-party providers for the operation, maintenance, and monitoring of the Company’s computing infrastructure. Share-Based Compensation H1 2026: $3,053 thousand| H1 2025: $957 thousand Share-based compensation expense for the six months ended June 30, 2026 and 2025 was $3,053 thousand and $957 thousand, respectively. The increase of $2,096 thousand, or approximately 219%, was primarily attributable to new equity awards granted during the period to employees, executives, and advisors in support of the Company’s continued growth and talent acquisition initiatives. - 30 - Selling, General, and Administrative Expenses (SG&A) H1 2026: $12,701 thousand| H1 2025: $2,091 thousand Selling, general and administrative expenses for the six months ended June 30, 2026 and 2025 were $12,701 thousand and $2,091 thousand, respectively. The increase of $10,610 thousand, or approximately 508%, was primarily attributable to higher legal and other professional fees associated with the Company’s public offering and financing transactions, together with increased employee-related costs and financing costs incurred to support the Company’s continued growth and expansion. Other Expenses H1 2026: $12,788 thousand| H1 2025: $1,676 thousand Other expenses for the six months ended June 30, 2026 and 2025 were $12,788 thousand and $1,676 thousand, respectively. The increase of $11,112 thousand, or approximately 663%, was primarily attributable to unrealized foreign exchange losses arising from the remeasurement of foreign currency-denominated monetary balances. The increase was also attributable, to a lesser extent, to depreciation and amortization expense recognized on the Company’s property and equipment and intangible assets supporting its GPU infrastructure and cloud services operations. Other Income H1 2026: $0 | H1 2025: $962 thousand Other income for the six months ended June 30, 2026 and 2025 was $0 and $962 thousand, respectively. The decrease was attributable to the absence of gains on the sale of fixed assets recognized during the prior-year period. During the six months ended June 30, 2025, the Company recognized gains on the disposal of fixed assets, including storage server assets and other equipment that were no longer required for operations. Change in Fair Value of Digital Assets H1 2026: $0 | H1 2025: (391) thousand Change in the fair value of digital assets for the six months ended June 30, 2026 and 2025 was $0 and a loss of $391 thousand, respectively. No gain or loss on the fair value of digital assets was recognized during the current period, as the Company had fully disposed of its digital asset holdings during the third quarter of 2025. The prior-year loss reflected the decline in the market value of digital assets previously held in connection with the Company’s former Filecoin data storage operations. Change in fair value of warrant liabilities H1 2026: $(5,255) thousand| H1 2025: $0 thousand The Company recognized a loss of $5,255 thousand from the change in fair value of warrant liabilities for the six months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The warrant liabilities were assumed in connection with the Company’s business combination completed in December 2025 and, accordingly, there were no comparable warrant liabilities outstanding during the six months ended June 30, 2025. The current-period loss was attributable to the periodic remeasurement of these warrant liabilities, with changes in fair value primarily driven by movements in the Company’s share price and other valuation assumptions. The resulting fair value adjustment is a non-cash item recognized in the consolidated condensed statements of operations. - 31 - Change in Fair Value of Convertible Notes H1 2026: ($470,669) thousand | H1 2025: $0 The Company recognized a loss of $470,669 thousand from the change in fair value of convertible notes for the six months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The convertible notes were issued in December 2025 and were accounted for under the fair value option. Accordingly, changes in their fair value were recognized in the consolidated condensed statements of operations until conversion. During the six-month period, approximately 99% of the outstanding convertible notes were converted into the Company’s common shares on June 11, 2026. The significant fair value loss recognized during the period was primarily driven by the increase in the Company’s share price prior to the conversion of the notes. Following the conversion, substantially all of these convertible notes were derecognized from the Company’s balance sheet. Change in fair value of share-based payment H1 2026: $335 thousand| H1 2025: $0 The Company recognized a gain of $335 thousand from the change in fair value of share-based payment for the six months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The gain was primarily attributable to adjustments related to the settlement of vested share awards, including the accounting for shares withheld to satisfy employee tax withholding obligations. The resulting fair value adjustment was a non-cash item recognized in the consolidated condensed statements of operations. Gain (loss) on investment in NUAI shares H1 2026: $4,984 thousand| H1 2025: $0 The Company recognized a net gain on investment in NUAI shares of $4,984 thousand for the six months ended June 30, 2026, compared to no such gain or loss in the prior-year period. The NUAI shares were received as part of the consideration for the sale of the Company’s TCDC investment in January 2026 and were subsequently measured at fair value based on quoted market prices. On May 14, 2026, the Company sold all of its NUAI common shares for proceeds of $14,984 thousand. The investment had a carrying amount of $8,490 thousand immediately prior to the sale, resulting in a realized gain on sale of $6,493 thousand. The net gain recognized for the six-month period reflects this realized gain, partially offset by fair value losses recognized prior to the sale. The sale proceeds were received and recorded as cash held in trust. Gain on sale of investment in TCDC H1 2026: $65,920 thousand | H1 2025: $0 The Company recognized a gain on the sale of its investment in TCDC of $65,920 thousand for the six months ended June 30, 2026, compared to no such gain in the prior-year period. The gain arose from the completion of the sale of the Company’s investment in TCDC in January 2026. Under the sale agreement, the Company received total consideration with a fair value of approximately $70 million, consisting of $10 million in cash, $10 million of NUAI common shares (including additional shares issued pursuant to the agreement’s top-off mechanism, which was designed to preserve the agreed $10 million equity consideration following a decline in NUAI’s share price), and a $50 million senior secured convertible promissory note. Interest Income (Expense), Net H1 2026: ($3,268) thousand| H1 2025: $(56) thousand Net interest expense for the six months ended June 30, 2026 was $3,268 thousand, compared with net interest expense of $56 thousand for the six months ended June 30, 2025. The increase of $3,212 thousand was primarily attributable to interest expense recognized on the convertible notes issued in December 2025, May 2026, and June 2026, partially offset by interest income earned on the Company’s cash balances and interest earned on the $50 million senior secured convertible promissory note received as part of the consideration for the sale of the Company’s TCDC investment. - 32 - Income Tax Benefit (Expense) H1 2026: $(14,825) thousand| H1 2025: $190 thousand Income tax expense for the six months ended June 30, 2026 was $(14,825) thousand, compared with an income tax benefit of $190 thousand for the six months ended June 30, 2025. The increase in income tax expense was primarily attributable to the non-deductibility of the fair value loss on convertible notes for tax purposes, tax impact of the gain recognized on the sale of the Company’s investment in TCDC and the changes in the valuation allowance maintained against certain deferred tax assets Liquidity and Capital Resources Liquidity represents the Company’s ability to generate adequate resources to fund operations, meet contractual obligations, and support ongoing and future business activities. The Company’s primary liquidity requirements relate to working capital, capital expenditures associated with infrastructure expansion, and general corporate purposes. Key drivers of liquidity include cash flows from operations, the timing of customer receipts, vendor payment terms, and strategic investment activities. As of June 30, 2026, the Company had cash and cash equivalents of approximately $1.86 billion. During the six months ended June 30, 2026, the Company significantly strengthened its liquidity position through several financing and strategic transactions, including the completion of its February 2026 Nasdaq listing, which generated gross proceeds of approximately $125 million; the issuance of $350 million aggregate principal amount of Convertible Senior Notes in May 2026; and the completion of the $1.6 billion strategic financing in June 2026. The Company also benefited from the proceeds of approximately $104 million of pre-IPO convertible notes issued during 2025, which provided funding prior to the Company’s public listing. As disclosed in Note 13, Convertible Notes, to the consolidated condensed financial statements, the Company continues to have outstanding note payables with terms that may require cash settlement, conversion into equity, or repayment upon maturity depending on future events. Other than scheduled repayments associated with these notes, no significant principal repayments are contractually required within the next 12 months. The Company continues to monitor its liquidity position and obligations in light of operational funding needs and market conditions. Management continuously evaluates the Company’s capital structure and may seek additional financing, including equity issuances, debt facilities, or hybrid instruments, to support the expansion of its GPU infrastructure and related platform capabilities. The Company has historically accessed external capital to fund growth and believes it will be able to continue doing so as needed. The Company has incurred operating losses to date and expects to continue investing in scaling its infrastructure and operations. The Company also expects to incur significant capital expenditures in connection with the deployment of its AI infrastructure, including investments in GPU hardware, data center infrastructure, and related technology assets to support existing customer commitments and future growth opportunities. As of June 30, 2026, the Company’s material future cash requirements consisted primarily of obligations under finance leases, debt service requirements, and infrastructure-related purchase commitments. The Company expects to satisfy these obligations through a combination of cash generated from operations and available liquidity. Contractual purchase and infrastructure commitments make up the majority of the future spending and total approximately $6 billion as of June 30, 2026. While management believes existing cash resources, anticipated operating cash flows, and access to capital markets are sufficient to fund currently anticipated requirements, the Company may seek additional financing to support future growth opportunities, strategic investments, or accelerated expansion initiatives. The Company is actively engaged in capital raising discussions with existing and prospective investors. Management believes that these efforts, together with operational cash flows and strategic investment plans, will provide sufficient liquidity to support the Company’s continued operations. Cash flow analysis The following table provides a summary of the cash flow statement for the six months ended June 30, 2026 and 2025: For the Six Months Ended June 30, 2026 2025 Net cash provided by (used in) operating activities $ 23,241,180 $ (1,708,451 ) Net cash provided by (used in) investing activities $ (263,314,000 ) $ 55,708 Net cash provided by (used in) financing activities $ 2,044,174,430 $ (284,491 ) - 33 - Operating activities Net cash provided by operating activities was $23,241 thousand for the six months ended June 30, 2026, compared with net cash used in operating activities of $1,708 thousand for the six months ended June 30, 2025. The improvement in operating cash flows was primarily attributable to increased receipts from the Company’s GPU infrastructure and cloud services business, including customer deposits, partially offset by payments for operating expenses, infrastructure-related costs, employee-related costs, and professional fees incurred to support the Company’s continued growth and expansion. Net cash used in operating activities for the six months ended June 30, 2025 primarily reflected operating expenditures, including product development costs, equipment-related costs to support infrastructure expansion, and professional fees associated with strategic corporate activities. These cash outflows were only partially offset by cash receipts generated from the Company’s Filecoin data storage operations and its early-stage GPU cloud services business. Investing activities Net cash used in investing activities was $263,314 thousand for the six months ended June 30, 2026. The cash outflows primarily reflected deposits on capital expenditures, purchases of certificates of deposit, and the investment in Joint Venture interests. These outflows were partially offset by proceeds received from the sale of the Company’s investment in TCDC, the sale of NUAI common shares, and the repayment of the convertible promissory note receivable. Net cash provided by investing activities was $56 thousand for the six months ended June 30, 2025. Investing cash flows during the period primarily reflected proceeds from the sale of digital assets, which were partially offset by capital expenditures. Financing activities Net cash provided by financing activities was $2,044,173 thousand for the six months ended June 30, 2026, compared with net cash used in financing activities of $284 thousand for the six months ended June 30, 2025. The significant increase in financing cash flows was primarily attributable to proceeds from the issuance of common stock, convertible notes, and pre-funded warrants in connection with the Company’s financing activities during the period. Financing cash inflows were partially offset by capital raising costs, repayments of note payable obligations, and payments of lease liabilities. Net cash used in financing activities for the six months ended June 30, 2025 primarily reflected payments of lease liabilities. Future cash requirements The company is in a position of stable cash balance to continue its intrinsic operations and expansion of products. The Company also expects to raise further funds to acquire additional equipment and participation in joint venture requirements for further increase in business expansion. - 34 - US Taxes On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The legislation permanently extends certain expiring provisions of the Tax Cuts and Jobs Act, introduces changes to the international tax framework, and reinstates favorable tax treatment for select business-related provisions. The OBBBA includes multiple effective dates, with some measures applicable beginning in 2025 and others taking effect in subsequent periods. We are currently evaluating the potential impact of the OBBBA on our consolidated condensed financial statements. Research and development, patents, and licenses Our research and development, or R&D, program is focused on the software elements of computing and are in the initial stages of researching a range of programs to improve efficiency and accessibility of our products. We are currently only conducting research in Australia under the R&D Tax incentive scheme. We do not operate a separate division or forecast budget for R&D activities instead evaluating expenses occurred through the year on an arrears basis. The R&D Tax Incentive in Australia is a government program that provides tax offsets to businesses investing in eligible research and development activities. Companies with an aggregated turnover below AUD$20 million receive a refundable tax offset of their corporate tax rate plus an 18.5% premium, while larger businesses receive a non-refundable offset based on their R&D intensity. To qualify, activities must involve systematic experimentation to generate new knowledge, adhering to scientific principles. Businesses must register their R&D activities with Department of Industry Science and Resources and then claim the offset through the Australian Taxation Office. The incentive is designed to support innovation, technology development, and business growth, but companies must ensure reporting and compliance to be eligible. Off-Balance Sheet Arrangements As of the reporting date, SharonAI has entered into certain contractual obligations that are not recognized on the balance sheet but may have a material effect on the Company’s financial condition, results of operations, or liquidity. These off-balance sheet arrangements primarily consist of data center colocation facility commitments and managed service agreements. Colocation Facility Commitments The Company has entered into colocation agreements for data center facilities under non-cancellable operating lease arrangements. These agreements are generally structured with five-year terms, with costs that fluctuate based on the quantity of deployed equipment and power usage. The Company’s future obligations under these agreements are contingent upon business expansion, changes in IT infrastructure needs, and energy consumption levels. Although these commitments do not appear as liabilities on the balance sheet under applicable accounting standards, they represent a significant financial obligation that impacts future cash flows. If the Company’s colocation needs increase or energy prices rise, the total financial exposure under these agreements could materially increase. Conversely, the Company’s ability to reduce these commitments may be limited due to contract terms and renewal obligations. Managed Service Agreements The Company has multiple agreements for managed service equipment and associated services with third-party vendors. These agreements involve commitments totaling approximately $34,000 per month, with remaining contract durations ranging from 2 to 5 years. The Company’s obligations under these contracts include ongoing infrastructure support, equipment maintenance, and service-level agreements (SLAs). Although these obligations do not meet the criteria for balance sheet recognition, they represent recurring financial commitments that impact operating expenses and liquidity. If the Company seeks to renegotiate, terminate, or scale these agreements, penalties or additional costs may be incurred. - 35 - Potential Effects on Liquidity and Financial Condition The Company continuously evaluates its off-balance sheet arrangements to assess their impact on liquidity, financial position, and operational flexibility. Factors that could materially affect these commitments include: ● Changes in power costs: Volatility in energy pricing could increase the total cost of colocation facility commitments. ● Scalability of IT infrastructure: Higher-than-expected deployment of new equipment may lead to increased costs under colocation agreements. ● Service provider risks: Changes in vendor pricing, contract renewals, or service disruptions could impact the cost-effectiveness of managed service agreements. At this time, the Company does not believe that these off-balance sheet arrangements create material risks beyond those disclosed in its financial statements and risk factors. However, the Company will continue to monitor and manage these obligations in alignment with its operational and financial strategies. Critical Accounting Estimates and Significant Judgements 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 our Annual Report on Form 10-K for the year ended December 31, 2025. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.