Item 1A. Risk Factors
Summary of Risk Factors
An investment in our securities involves a high degree of risk. The occurrence of one or more of the events or circumstances described in the section titled “Risk Factors,” alone or in combination with other events or circumstances, may materially adversely affect our business, financial condition, and operating results. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but are not limited to:
•We are a development-stage company with no operating history or historical revenue, and we face execution risk across all major components of our business.
•We have not yet constructed our facilities and, other than the TensorWave Lease, we have not entered into any lease or other definitive agreement with any other tenants, and there is no guarantee that the TensorWave Lease will commence or that we will be able to construct our facilities or enter into definitive agreements with additional tenants in the future. Our limited commercial operating history makes it difficult to evaluate our prospects, the risks and challenges we may encounter, and our total potential addressable market. Any delays or setbacks we may experience could have a material adverse effect on our business, financial condition, and results of operations, and could harm our reputation.
•We will be dependent on third-party manufacturing and supply chain relationships to develop and lease our facilities. Our reliance on third parties and suppliers involves certain risks that may result in increased costs, delays, and loss of revenue.
•We will require significant additional capital to construct and complete Project Matador, and we may not be able to secure such financing on time with acceptable terms, or at all, which could cause delays in our construction, lead to inadequate liquidity, and increase overall costs.
•We will need to hire additional skilled employees as we grow and scale up Project Matador, and there is no assurance we will be successful in recruiting, hiring, and training the personnel we need.
•The termination of our former Chief Executive Officer, Toby Neugebauer, and resignation of our former Chief Financial Officer, Miles Everson, and the resulting leadership transition expose us to potential delays in our ability to execute on certain aspects of our business strategy as we transition to new permanent executive leadership.
•The actions of our former Chief Executive Officer, Toby Neugebauer, and related persons to initiate a proxy contest in an effort to take control of our Board of Directors, and to bring or threaten lawsuits against the Company and its directors and officers, have caused and will likely continue to cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
•If members of our Board of Directors or senior management team are unable to align on strategic direction, capital allocation, operational priorities, or other significant matters, such differences in perspective could result in delays in decision-making, the departure of key personnel, disruption to our operations, or an inability to execute on our business strategy.
•Substantial doubt about our ability to continue as a going concern was raised as a result of our pre-revenue status, recurring losses, and unrestricted cash that is insufficient to fund our known and reasonably knowable contractual obligations over the next twelve months, and the Company may not be successful in implementing management’s plans to alleviate that doubt; even if management is successful, such plans may prove insufficient or may have other adverse effects on the Company.
•Technological advances or disruptive innovations, specifically advancements in artificial intelligence or the ability of new generations of chips to produce useful output in the form of tokenized results using substantially less energy input, may outpace our development cycle, and we are exposed to technology obsolescence across all major asset classes.
•Other than the TensorWave Lease, we have not yet secured additional tenants, and we may not achieve tenant adoption at the pace or pricing levels required for financial viability.
•We depend on third-party vendors, contractors, and consultants to support our business.
•We have incurred substantial additional debt in 2026, including the Turbine Warehouse Equipment Financing (up to $500.0 million), the High Voltage Equipment Financing (equipment-backed advances of up to $120.0 million in aggregate principal, with the potential to increase by an additional $100.0 million subject to lender approval), the undrawn Promissory Note ($156.3 million, reduced to a maximum of $78.1 million as of June 30, 2026), the Turbine Warehouse II Equipment Financing ($165.0 million), and the Notes ($431.3 million). These obligations contain restrictive covenants, collateral coverage requirements, mandatory prepayment triggers, and in certain cases conditions tied to execution of tenant agreements by December 31, 2026. Our ability to service these obligations and comply with all covenants is subject to significant uncertainty.
•Servicing our debt requires a significant amount of cash. We may not have sufficient cash flow from our business to pay our substantial debt, and we may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to repurchase the Notes upon a fundamental change.
•The future issuances of our common stock, including any shares issued upon conversion of the Notes, will dilute current shareholders and may reduce the market price of our common stock.
•Wars, threats of war, terrorist attacks, cyberattacks, and threats may compromise the security, operability, or integrity of our power generation and transmission and distribution infrastructure and could have a material adverse effect on our business, financial condition, and results of operations.
•Our use of technologies and systems that use AI or large language models, given the dynamic state of such technologies, may cause inadvertent or unexpected impacts that may introduce new operational, legal, and regulatory risks that could adversely affect our business, financial condition, or results of operations.
•Project Matador is an unprecedented, large-scale, multi-phase development effort that presents significant planning, execution, and coordination risks.
•Our ability to develop and retain site control depends on maintaining our leasehold interest with the Texas Tech University System.
•The scale of infrastructure planned at Project Matador will require extensive permitting, interconnection, and third-party coordination.
•High demand for, constraints on the supply of, and increasing costs for industrial-scale gas-fired turbines could lead to significant delays or significant increases in capital costs associated with our ability to develop the natural gas-fired power generation infrastructure we will need to achieve our power delivery goals on the schedule we are projecting.
•Westinghouse reactors and small modular reactors (“SMRs”) can be costly and time-consuming to construct and commercialize. Delays and cost overruns arising from issues with our procurement, licensing, and other regulatory approvals, construction and commercialization of nuclear reactors may materially adversely affect our business.
•Our construction, delivery timeline estimates, and costs for our facilities and other equipment may increase due to a number of factors, including the degree of pre-fabrication, standardization, on-site construction, long-lead procurement, contractor performance, facility pre-operational and startup testing, demand for repairs, and other site-specific considerations.
•Our business operations rely heavily on securing agreements with suppliers for essential materials, equipment, and components which will be used to construct Project Matador facilities.
•If we cannot obtain required permits, licenses, and regulatory clearance or approvals for Project Matador or our operations, or are unable to maintain such permits, licenses, or approvals, we may not be able to continue or expand our operations.
•We are subject to complex, evolving, and potentially burdensome regulatory requirements.
•Accidents involving third-party owned and operated nuclear power facilities, including but not limited to events similar to the Three Mile Island or Fukushima Daiichi nuclear accidents, or other high-profile events involving radioactive materials, could materially and adversely affect the public perception of the safety of nuclear energy, our customers, and the markets in which we operate and potentially decrease demand for nuclear energy or facilities, increase regulatory requirements and costs, or result in liabilities or claims that could materially and adversely affect our business.
•We are subject to federal environmental review processes, including the National Environmental Policy Act (“NEPA”), that may materially delay or restrict project development.
•Commodity prices (particularly for natural gas) could impact the economic viability of our businesses or impair our ability to commence operations if we are not able to adequately pass through the cost of natural gas and other raw materials to our tenants.
•Our near-term revenue may be heavily concentrated among a small number of anchor tenants.
•Failure of any major tenant to perform under its lease could result in material financial losses.
•We were a C corporation for our short taxable year ended December 31, 2025, and expect to be taxable as a C corporation for our taxable year ending December 31, 2026. The timing of any future REIT election has not been determined, and it is possible that we will never make a REIT election.
•Adverse macroeconomic conditions could impair our ability to raise capital or complete development phases.
•Influential political actors, shifting domestic policy priorities, and organized opposition by politically connected stakeholders could materially adversely affect our ability to develop, finance, and operate Project Matador.
•As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
•We have identified a material weakness in our internal control over financial reporting. If our remediation of the material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to develop and maintain effective internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.
•The Jumpstart Our Business Startups Act (the “JOBS Act”) will allow us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC. We cannot be certain if this reduced disclosure will make our common stock less attractive to investors.
•We are subject to risks related to the volatility of our common stock and to provisions in our charter and bylaws.
•A significant portion of our total outstanding shares of common stock were restricted from immediate resale but may be sold into the market in the near future. The sale of such shares could cause the market price of our common stock to drop significantly.
•We are named as a defendant in a securities class action lawsuit alleging materially false and misleading statements in connection with our IPO registration statement and subsequent public disclosures. Regardless of the merits, this litigation could divert management attention, require substantial legal costs, result in adverse judgments, and impair our ability to raise capital.
Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 30, 2026, and Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2026. Except as set forth below, we are not aware of any material changes to the risk factors disclosed in the Annual Report, and the following risk factor updates supplement and should be read in conjunction with the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2026. These disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.
Risks Related to Our Business and Industry
Substantial doubt about our ability to continue as a going concern was raised as a result of our pre-revenue status, recurring losses, and unrestricted cash that is insufficient to fund our known and reasonably knowable contractual obligations over the next twelve months, and the Company may not be successful in implementing management’s plans to alleviate that doubt; even if management is successful, such plans may prove insufficient or may have other adverse effects on the Company.
Project Matador will require substantial capital investment to achieve commercial operation. As of June 30, 2026, the Company had not generated any revenues, had incurred recurring losses from operations and negative cash flows from operating activities since inception, and had substantial near-term capital expenditure obligations under existing equipment purchase, construction, lease, and other project-related commitments, in addition to recurring operating expenses that must
be funded. As of June 30, 2026, the Company had cash on hand of $62.5 million and restricted cash of $29.2 million, a portion of which is available to fund defined capital expenditures. When measured against forecasted disbursements under the Company’s current operating plan, these resources are not sufficient to satisfy the Company’s financial obligations as they become due within one year after the date the accompanying unaudited condensed consolidated financial statements are issued.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date of issuance of the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report. Management has implemented plans which are disclosed in Note 2, Significant Accounting Policies, to the accompanying unaudited condensed consolidated financial statements. These plans include the application of the net proceeds from the Notes issued in July 2026, as described in Note 9, Subsequent Events. As a result of these actions, management believes that the substantial doubt about the Company’s ability to continue as a going concern has been alleviated. There is no guarantee, however, that we will successfully implement the plans described in Note 2. If our planned borrowing draws under existing committed facilities, monetization of unencumbered equipment, sequencing of capital expenditures with the execution of definitive tenant agreements and corresponding project-level financing, or efforts to defer, scale, or renegotiate near-term collateral and credit support obligations are not successful, or if we are unable to identify and execute additional project-level capital arrangements or customer arrangements with strategic counterparties on acceptable terms, we may need to scale back our business plan, reduce our operating costs and headcount, or discontinue or curtail certain of our development activities.
Although we have entered into a definitive lease agreement with our first tenant, there is no guarantee that the lease will commence or that we will enter into definitive agreements with additional tenants in the future.
Our business plan to construct and operate Project Matador depends on, among other things, our ability to negotiate and enter into binding agreements with tenants to lease our facilities. Although we entered into the TensorWave Lease, our first customer lease at Project Matador, on August 9, 2026, the effectiveness of the lease is subject to the satisfaction or waiver of customary closing conditions, including Board approvals and the obtaining of project-level financing, and there can be no assurance that these conditions will be satisfied or that the lease will commence. If the TensorWave Lease does not commence, or if no additional near-term tenant enters into such a binding agreement with us, our plan could be significantly delayed, which would result in delays in revenue and could hinder our ability to gain market traction with other potential tenants. It could also trigger an early termination right under our 99-year ground lease with the Texas Tech University System. Additionally, the TTU Lease imposes conditions to the commencement of construction of tenant facilities, including obtaining financing for the first phase buildout at Project Matador and the execution and delivery of a sublease agreement for our first tenant for not less than 200 MW of capacity at Project Matador, that must occur before the end of 2026. See the risk factor titled “Our ability to develop and retain site control depends on maintaining our leasehold interest with the Texas Tech University System” in Part I, Item 1A of the Annual Report. Additionally, our Turbine Warehouse Equipment Financing permits the lender to market the collateral securing our obligations to potential buyers if we have not entered into a 400 MW lease agreement by November 10, 2026.
Risks Related to Our Governance and Operating Model
Litigation involving the Company and our former Chief Executive Officer, Toby Neugebauer, and certain related persons has caused and is expected to continue to cause us to incur substantial costs, divert the attention of the Board of Directors and management, take up management’s resources, cause uncertainty about the strategic direction of our business, and adversely affect our business, operating results, and financial condition.
As discussed above under Item 1. Legal Proceedings, we are subject to litigation involving the Company, our former Chief Executive Officer, Toby Neugebauer, and certain related persons, including Vicksburg Investments Management LLC and other affiliated entities. This litigation arises out of, among other things, Mr. Neugebauer’s departure from the Company, disputes concerning the composition and authority of our Board of Directors, challenges to actions taken by the Board, and a related contest for control of the Company.
Litigation of this nature is inherently uncertain, and we cannot predict its outcome, duration, or cost. Regardless of the merits or the ultimate resolution of any particular matter, this litigation has required us to incur substantial costs, including legal fees and expenses and amounts that we are or may become obligated to advance or indemnify to current and former directors and officers under our organizational documents, indemnification agreements, and applicable law. It has also required the Board of Directors and management to devote significant time and attention to these matters, away from the operation of our business. In addition, the pendency and publicity of this litigation could harm our reputation and our
relationships with our shareholders, employees, customers, suppliers, and other stakeholders, and our insurance may not be sufficient to cover, or may not apply to, all of the costs, losses, or liabilities arising from these matters.
We intend to vigorously defend against this litigation, but the outcome of the litigation remains uncertain. An adverse ruling could render ineffective certain governance measures adopted by the Board, including our staggered Board structure, could facilitate efforts to change the composition of our Board and management, and could result in continued uncertainty regarding control of the Company and further litigation. Such developments could also cause us to incur substantial costs, divert the attention of the Board of Directors and management, take up management’s attention and resources, cause uncertainty about the strategic direction of our business, and adversely affect our business, operating results, and financial condition.
Our former President and Chief Executive Officer, Toby Neugebauer, and certain of his family members and related persons have previously engaged in an activist campaign against the Company, which, if resumed, would cause us to incur substantial costs, divert the attention of the Board of Directors and management, take up management’s attention and resources, cause uncertainty about the strategic direction of our business, and adversely affect our business, operating results, and financial condition, and other future proxy contests could do so as well.
A proxy contest or other activist campaign and related actions, such as the recently suspended proxy contest by our former President and Chief Executive Officer, Toby Neugebauer, and certain of his family members and related persons could have a material and adverse effect on us for the following reasons:
•Mr. Neugebauer previously sought and could seek again to install new directors on our Board of Directors, which could result in a change in the control of our Board of Directors and could result in significant changes in the Company’s management and strategic direction. Mr. Neugebauer has previously indicated that he would commence an immediate effort to sell the Company at a price that our current Board believes would grossly undervalue the Company should he or his affiliates take control of the Company.
•Mr. Neugebauer has filed, and may in the future file, additional legal proceedings against the Company and/or its current and former officers and directors relating to his termination, his removal from the Board of Directors, and/or his proxy contest. Defending against such proceedings could require the Company to incur significant legal and other costs, consume substantial management and Board attention and resources, and result in potential indemnification obligations to current and former officers and directors, any of which would have an adverse effect on our business.
•While the Company welcomes the opinions of all shareholders, responding to proxy contests and related actions by activist investors such as Mr. Neugebauer has been, and may in the future be, costly and time-consuming, disruptive to our operations, and distracting to our Board of Directors, senior management, and employees, which may divert their attention away from their regular duties and the pursuit of business opportunities. In addition, there is ongoing litigation in connection with Mr. Neugebauer’s suspended campaign, which may serve as a further distraction to our Board of Directors, senior management, and employees and could require the Company to incur significant additional costs.
•Perceived uncertainties as to our future direction as a result of potential changes in the composition of our Board of Directors and management team should the Neugebauer group resume their proxy contest may lead to concern among potential tenants, existing and future financing counterparties and investors, vendors, contractors, employees, and other important stakeholders regarding the stability of our business, which may be exploited by our competitors, may inhibit potential customers and financing counterparties from transacting with us, may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners. These uncertainties may also negatively impact our ability to enter into additional definitive lease agreements with tenants.
•Proxy contests and related actions by activist investors such as the Neugebauer group could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Our former President and Chief Executive Officer, Toby Neugebauer, is involved in additional litigation that could cause negative publicity or perception about us and could divert management’s attention, particularly if he is successful in gaining control of our Board of Directors.
• In addition to the matters discussed above, our former President and Chief Executive Officer, Toby Neugebauer, is involved in additional legal proceedings that have garnered in the past, and may in the future garner, negative
publicity. In light of Mr. Neugebauer’s efforts to take control of our Board of Directors and management, these legal proceedings could adversely affect our Company.
• On January 4, 2023, creditors of Animo Services, LLC (“Animo”), an affiliate of GloriFi (defined below), involuntarily placed Animo in Chapter 7 of Title 11 of the United States Code (“Chapter 7”). On February 7, 2025, the Chapter 7 Trustee in Animo’s bankruptcy proceedings filed a series of adversary proceedings against Mr. Neugebauer, and his related entities, alleging a series of fraudulent transfers and breaches of fiduciary duties (such proceedings, collectively with the ongoing bankruptcy proceedings, the “Animo Proceedings”).
• On February 8, 2023, With Purpose, Inc. (d/b/a GloriFi) (“GloriFi”) filed for bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Texas under Chapter 7. On February 7, 2025, the Chapter 7 Trustee in GloriFi’s bankruptcy proceedings filed a series of adversary proceedings against Mr. Neugebauer, and his related entities, alleging a series of fraudulent transfers and breaches of fiduciary duties (such proceedings, collectively with the ongoing bankruptcy proceedings, the “GloriFi Bankruptcy Proceedings”).
• Similarly, on March 3, 2023, a group of GloriFi investors also filed a lawsuit in the 191st Judicial District of the District Court of Dallas County, Texas, against Mr. Neugebauer, and related entities, alleging (i) fraudulent inducement, (ii) negligent misrepresentation, (iii) breach of fiduciary duty, (iv) unjust enrichment, and (v) exemplary damages (such proceedings, the “GloriFi State Court Proceedings”).
• On May 16, 2024, and on May 17, 2024, Mr. Neugebauer, and related entities, also filed lawsuits in the District of Georgia and District of Delaware, respectively, against certain GloriFi investors alleging, among other things, investor violations under the Racketeer Influenced and Corrupt Organizations Act (RICO) as it relates to GloriFi (such proceedings, the “RICO Proceedings,” and together with the Animo Proceedings, the GloriFi Bankruptcy Proceedings, and the GloriFi State Court Proceedings, the “Animo/GloriFi Proceedings”). The RICO Proceedings have been temporarily stayed in connection with the GloriFi Bankruptcy Proceedings but may be resumed.
• If Mr. Neugebauer is successful in gaining control of our Board of Directors through his attempted proxy contest, the Animo/GloriFi Proceedings may attract negative press coverage and other forms of negative attention to the Company.
The changing regulatory environment with respect to data centers in Texas could cause delays in, increase the costs of, or otherwise adversely affect our development of data centers and power generation infrastructure at Project Matador.
The political and regulatory environment for data centers in Texas has been evolving and is subject to changes at the state and local levels that could cause delays in, increase the cost of, or otherwise adversely affect our development plans for Project Matador. For example, on June 20, 2025, Texas Senate Bill 6 (“SB6”) was enacted into law, increasing the regulatory oversight of large electric loads such as data centers operating within the Electric Reliability Council of Texas (“ERCOT”) grid. The law equips grid operators and the Public Utility Commission of Texas (“PUCT”) with new tools to protect grid reliability and curb infrastructure strain driven by large industrial power demands. On March 12, 2026, the PUCT published a proposed rule in Docket No. 58481 implementing SB6 for notice and comment. In its current form, the proposed rule would apply to any party seeking a new interconnection of 75 MW or more (including additional loads of 75 MW or more on an existing connection), and would obligate such parties to undergo a multi-step interconnection process during which such parties must, among other things, (i) pay a non-refundable interconnection fee of $50,000/MW, (ii) pay interconnection study fees, (iii) post financial security of $50,000/MW for an interconnection study fee (which fees would be substantially forfeited in the event a project was aborted), and (iv) pay financial penalties for load ramp delays. In addition, on July 9, 2026, the PUCT approved the adoption of Nodal Operating Guide Revision Request (“NOGRR”) 282, and related Nodal Protocol Revision Request (“NPRR”) 1308, which establish new “Large Electronic Load” reliability standards applicable to certain large computational loads, including hyperscale data centers and similar facilities with aggregate peak demand of 75 MW or greater where a substantial portion of the load consists of power-electronic-based computational equipment. Additionally, on August 3, 2026, Texas Governor Greg Abbott directed the PUCT and ERCOT to conduct an audit of all data centers advancing through ERCOT’s interconnection process. While Fermi resides in the Southwest Power Pool and not in ERCOT and largely relies on behind-the-meter power, measures like SB6, NOGRR 282, and NPRR 1308 are evidence of a changing, and more restrictive, regulatory regime in Texas with respect to the data center industry. We can give no assurance that state and local government officials in Texas will not pass additional legislation or issue additional directives that may affect Project Matador. To the extent additional restrictive measures are placed on the Company or its business, our results of operations may be materially and adversely affected.
Risks Related to Our Common Stock
Future issuances of our common stock will dilute the percentage interests of current shareholders and may reduce the value per share and market price of our common stock.
Under certain circumstances, our Board of Directors has the authority to authorize the offer and sale of additional securities without the vote of or notice to existing shareholders. We may issue equity in the future in connection with capital formation, acquisitions, strategic transactions, or for other purposes. Based on the need for additional capital to fund expected growth, it is likely that we will issue additional securities to provide such capital and that such additional issuances may involve a significant number of shares of our common stock. We are engaged in preliminary discussions regarding transactions that may result in the issuance of capital stock of the Company in material amounts. Issuance of additional securities in the future, including any shares of our common stock issued upon conversion of the Notes, would dilute the percentage interest of existing shareholders and may reduce the value per share and market price of our common stock and any other outstanding securities. Furthermore, the sale of a significant amount of our common stock by any selling security holders may depress the price of our common stock. As a result, you may lose all or a portion of your investment.
Risks Related to Our Business and Industry — Financing and Debt Obligations
Our newly incurred equipment financing obligations contain restrictive covenants, collateral coverage requirements, and tenant execution conditions that, if not satisfied, could result in events of default, mandatory prepayments, or acceleration of our debt.
Since December 31, 2025, we have incurred substantial additional indebtedness to finance equipment for Project Matador. As of June 30, 2026, we had the following financing facilities and amounts outstanding under each: (i) a $500.0 million Turbine Warehouse Equipment Financing facility, of which $444.9 million had been drawn; (ii) the Keystone Master Loan Agreement providing for equipment-backed advances of up to $120.0 million in aggregate principal, with the potential to increase by an additional $100.0 million subject to lender approval, of which $77.3 million had been drawn; (iii) a $165.0 million Turbine Warehouse II Equipment Financing facility to fund the purchase of six Siemens Energy SGT-800 industrial gas turbines, of which $14.7 million had been drawn; and (iv) an undrawn Promissory Note with a committed principal amount of $156.3 million (reduced to a maximum of $78.1 million). On July 14, 2026, we issued $431.3 million aggregate principal amount of 5.00% convertible senior notes due 2031, including $56.3 million aggregate principal amount of Notes issued upon the exercise in full by the initial purchasers of their option to purchase additional Notes. Net proceeds from the Offering were approximately $416.8 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses.
These facilities contain numerous restrictive covenants and conditions, including: (a) under the Turbine Warehouse Equipment Financing, loan-to-value requirements whereby an event of default will occur if the LTV ratio exceeds the applicable target for more than thirty consecutive days following an updated appraisal reflecting a value more than 2% below the initial appraisal; (b) under the High Voltage Equipment Financing, a minimum liquidity covenant requiring us to maintain at least $20.0 million in liquidity until the facility is repaid or a qualifying customer agreement is executed, and a mandatory prepayment requirement if the Keystone Agent has not received an approved customer agreement by December 31, 2026; (c) under the Turbine Warehouse II Equipment Financing, an exit fee obligation and restrictions on asset dispositions; and (d) under the Promissory Note, mandatory monthly amortization payments beginning thirty days after the first advance, with at least $10.0 million of each payment to be satisfied in shares of common stock.
Our ability to comply with these covenants is subject to uncertainty, particularly given the early stage of our development, the absence of signed definitive tenant agreements as of the date of this filing (other than the TensorWave Lease, which remains subject to conditions to commencement), and leadership transition risk. A breach of any covenant or failure to satisfy any condition could trigger an event of default, acceleration of the applicable debt obligation, and potential cross-default under our other financing arrangements, any of which would have a material adverse effect on our business, financial condition, liquidity, and results of operations.
Risks Related to Our Convertible Notes
In July 2026, we issued $431.3 million aggregate principal amount of the Notes in the Offering, including $56.3 million aggregate principal amount of Notes issued upon the exercise in full by the initial purchasers of their option to purchase additional Notes, and, in connection with the pricing of the Notes, we entered into the Capped Call Transactions with certain financial institutions (the “option counterparties”). See Note 9, Subsequent Events, to our unaudited condensed
consolidated financial statements for additional information. The following risk factors relate to the Notes, the Offering, and the Capped Call Transactions.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. As of June 30, 2026, the Company had not generated any revenues, had incurred recurring losses from operations and negative cash flows from operating activities since inception, and had substantial near-term capital expenditure obligations under existing equipment purchase, construction, lease, and other project-related commitments, in addition to recurring operating expenses that must be funded. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.
We may still incur substantially more debt or take other actions which would intensify the risks discussed above.
We and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We will not be restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, or taking a number of other actions that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on our debt, including the Notes, when due.
We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to repurchase the Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.
Holders of the Notes will have the right, subject to certain conditions, to require us to repurchase all or any portion of their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under the agreements governing the indebtedness of our subsidiaries and/or agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert their Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
Conversion of the Notes may dilute the ownership interest of our shareholders or may otherwise depress the price of our common stock.
The conversion of some or all of the Notes may dilute the ownership interests of our shareholders. Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.
The accounting method for the Notes could adversely affect our reported financial condition and financial results.
The accounting method for reflecting the Notes on our consolidated balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. In August 2020, the Financial Accounting Standards Board published Accounting Standards Update 2020-06 (“ASU 2020-06”), which simplified certain of the accounting standards that apply to convertible notes. ASU 2020-06 eliminated the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, an entity accounts for convertible debt securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the guidance requires entities to use the “if-converted” method for all convertible instruments in the diluted earnings per share calculation and to include the effect of potential share settlement for instruments that may be settled in cash or shares.
In accordance with ASU 2020-06 and subject to our full accounting assessment with respect to the Notes, which is not complete as of the date of this Quarterly Report on Form 10-Q, we expect that the Notes will be reflected as a liability on our consolidated balance sheet, with the initial carrying amount equal to the principal amount of the Notes, net of issuance costs. Issuance costs are treated as a debt discount for accounting purposes, which are amortized into interest expense over the term of the Notes. As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported income. In addition, we expect that the shares of common stock underlying the Notes will be reflected in our diluted earnings per share using the “if-converted” method for fiscal periods in which we report net income. Under that method, diluted earnings per share would generally be calculated assuming that all the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method may reduce our reported diluted earnings per share to the extent we are profitable in the future. We have not reached a final determination regarding the accounting treatment for the Notes, and the description above is preliminary. Accordingly, we may account for the Notes in a manner that is significantly different than described above.
Changes to applicable tax laws and regulations or exposure to additional tax liabilities could adversely affect our operating results and cash flows, which may reduce our cash available for servicing our debt obligations, including the Notes.
We are subject to various complex and evolving U.S. federal, state, and local tax laws. U.S. federal, state, and local tax laws, policies, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us, in each case, possibly with retroactive effect. Any significant variance in our interpretation of current tax laws or a successful challenge of one or more of our tax positions by the Internal Revenue Service (“IRS”) or other tax authorities could increase our future tax liabilities and adversely affect our operating results and cash flows, which may reduce our cash available for servicing our debt obligations, including the Notes.
The Capped Call Transactions may affect the value of the Notes and the market price of our common stock.
In connection with the pricing of the Notes, we entered into privately negotiated Capped Call Transactions with the option counterparties. The Capped Call Transactions initially cover, subject to customary adjustments substantially similar to those applicable to the Notes, the number of shares of our common stock initially underlying the Notes. The Capped Call Transactions are generally expected to reduce the potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, upon any conversion of the Notes, with such reduction and/or offset subject to a cap. In connection with the initial purchasers’ exercise in full of their option to purchase additional Notes, we entered into additional Capped Call Transactions with the option counterparties.
In connection with establishing their initial hedges of the Capped Call Transactions, the option counterparties or their respective affiliates entered into or expect to enter into various derivative transactions with respect to our common stock
and/or purchase shares of our common stock concurrently with or shortly after the pricing of the Notes. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes. This activity could cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect the ability of noteholders to convert the Notes and, to the extent the activity occurs during any valuation period related to a conversion of Notes, it could affect the number of shares of common stock, if any, and the value of the consideration that noteholders will receive upon conversion of the Notes.
In addition, if any such Capped Call Transactions fail to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our common stock and the value of the Notes.
The potential effect, if any, of these transactions and activities on the market price of our common stock or the Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock and the value of the Notes.
The Capped Call Transactions are separate transactions, in each case entered into between us and the applicable option counterparty, are not part of the terms of the Notes and will not affect the holders’ rights under the Notes. As a holder of the Notes, you will not have any rights with respect to the Capped Call Transactions.
We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of the Notes or the shares of our common stock. In addition, we do not make any representation that the option counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
We are subject to counterparty risk with respect to the Capped Call Transactions.
The option counterparties are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the Capped Call Transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
The Notes are effectively subordinated to our future secured indebtedness and any liabilities of our subsidiaries.
The Notes are our general unsecured obligations and rank senior in right of payment to all of our future indebtedness that is expressly subordinated in right of payment to the Notes, equal in right of payment with all of our current and future liabilities that are not so subordinated, effectively junior to all of our current and future secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization, or other winding up, our assets that secure debt ranking senior or equal in right of payment to the Notes will be available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The indenture governing the Notes does not prohibit us from incurring additional senior debt or secured debt, nor does it prohibit any of our subsidiaries from incurring additional liabilities.
The Notes are our obligations only.
The Notes are our obligations exclusively and are not guaranteed by any of our subsidiaries. Our current and any future subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due with respect to the Notes or to make any funds available therefor, whether by dividends, loans, or other payments. Our right to receive any assets of any of our subsidiaries upon such subsidiary’s bankruptcy, liquidation, or reorganization, and, therefore, the right of the holders of the Notes to participate in those assets, will be subject to prior claims of creditors of the subsidiary, including trade creditors, and such subsidiary may not have sufficient assets remaining to make any
payments to us as a stockholder or otherwise. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. In addition, dividends, loans, or other distributions to us from such subsidiaries are subject to contractual and other restrictions and are subject to other business considerations.
Regulatory actions and other events may adversely affect the trading price and liquidity of the Notes.
We expect that many investors in, and potential purchasers of, the Notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short the common stock underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock. We cannot assure holders that market conditions will permit investors to implement this type of strategy, whether on favorable pricing and other terms or at all. If market conditions do not permit investors to implement this type of strategy, whether on favorable pricing and other terms or at all, at any time while the Notes are outstanding, the trading price and liquidity of the Notes may be adversely affected.
The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock). Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. and the national securities exchanges of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Any governmental or regulatory action that restricts the ability of investors in, or potential purchasers of, the Notes to effect short sales of our common stock, borrow our common stock, or enter into swaps on our common stock could adversely affect the trading price and the liquidity of the Notes.
In addition, the number of shares of our common stock available for lending in connection with short sale transactions and the number of counterparties willing to enter into an equity swap on our common stock with a note investor may not be sufficient for the implementation of a convertible arbitrage strategy. These and other market events could make implementing a convertible arbitrage strategy prohibitively expensive or infeasible. We cannot assure holders that a sufficient number of shares of our common stock will be available to borrow on commercial terms, or at all. If holders of the Notes that seek to employ a convertible arbitrage strategy are unable to do so on commercial terms, or at all, then the trading price of, and the liquidity of the market for, the Notes may significantly decline.
Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the Notes.
The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section and elsewhere in this Quarterly Report on Form 10-Q or for reasons unrelated to our operations, many of which are beyond our control, such as reports by industry analysts, investor perceptions, or negative announcements by our customers, competitors, or suppliers regarding their own performance, as well as industry conditions and general financial, economic, and political instability. A decrease in the market price of our common stock would likely adversely impact the trading price of the Notes. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading price of the Notes.
An increase in market interest rates could result in a decrease in the value of the Notes.
In general, as market interest rates rise, notes bearing interest at a fixed rate generally decline in value because the premium, if any, over market interest rates will decline. Consequently, if market interest rates increase, the market value of the Notes may decline. We cannot predict the future level of market interest rates.
Redemption may adversely affect holders’ return on the Notes.
We may not redeem the Notes prior to July 20, 2029, other than pursuant to a cleanup redemption. We may redeem for cash all or any portion of the Notes (subject to the partial redemption limitation set forth in the indenture governing the Notes), at our option, on or after July 20, 2029, and prior to the 31st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the
last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, we may redeem for cash all, but not less than all, of the Notes at any time in a cleanup redemption if the amount of the Notes that remains outstanding is less than 10% of the aggregate principal amount of the Notes initially issued under the indenture, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. As a result, we may choose to redeem some or all of the Notes, including at times when prevailing interest rates are relatively low. As a result, holders may not be able to reinvest the proceeds they receive from a redemption in a comparable security at an effective interest rate as high as the interest rate on the Notes being redeemed. In addition, a redemption of less than all of the outstanding Notes will likely harm the liquidity of the market for the unredeemed Notes following the redemption, and holders of unredeemed Notes may be unable to sell their Notes at the times they desire or at favorable prices, if at all.
Future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock and adversely impact the trading price of the Notes.
In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the settlement of outstanding equity awards, upon any issuance of shares under the Promissory Note and upon conversion of the Notes. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of our common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.
Holders of the Notes are not entitled to any rights with respect to our common stock, but they are subject to all changes made with respect to our common stock to the extent our conversion obligation includes shares of our common stock.
Holders of the Notes are not entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock) prior to the conversion date relating to such Notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)) or the last trading day of the relevant observation period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevant conversion), but holders of the Notes are subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of formation (the “Charter”) or our bylaws (the “Bylaws”) requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to the conversion date related to a holder’s conversion of its Notes or the last trading day of the relevant observation period, as applicable, such holder will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes affecting our common stock.
The conditional conversion feature of the Notes could result in holders receiving less than the value of our common stock into which the Notes would otherwise be convertible.
Prior to the close of business on the business day immediately preceding April 15, 2031, holders may convert their Notes only if specified conditions are met. If the specific conditions for conversion are not met, holders will not be able to convert their Notes, and may not be able to receive the value of the cash, common stock, or a combination of cash and common stock, as applicable, into which the Notes would otherwise be convertible.
Upon conversion of the Notes, holders may receive less valuable consideration than expected because the value of our common stock may decline after the conversion right is exercised but before we settle our conversion obligation.
Under the Notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders Notes for conversion until the date we settle our conversion obligation.
Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock, the amount of consideration that holders will receive upon conversion of their Notes will be determined by reference to the volume-weighted average price of our common stock for each trading day in a 30 trading day observation period. If the price of our common stock decreases during this period, the amount and/or value of consideration holders receive will be adversely affected. In addition, if the market price of our common stock at the end of such period is below the average volume-weighted average price of our common stock during
such period, the value of any shares of our common stock that holders receive in satisfaction of our conversion obligation will be less than the value used to determine the number of shares that they will receive.
If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the second business day following the relevant conversion date (subject to limited exceptions). Accordingly, if the price of our common stock decreases during this period, the value of the shares that holders receive will be adversely affected and would be less than the conversion value of the Notes on the conversion date.
The Notes are not protected by restrictive covenants.
The indenture governing the Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The indenture contains no covenants or other provisions to afford protection to holders of the Notes in the event of a fundamental change or other corporate transaction involving us except to the limited extent set forth in the indenture.
The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change or a notice of redemption may not adequately compensate holders for any lost value of their Notes as a result of such transaction or redemption.
If a make-whole fundamental change occurs prior to the maturity date or if we deliver a notice of redemption, we will, under certain circumstances, increase the conversion rate by a number of additional shares of our common stock for Notes converted in connection with such make-whole fundamental change or Notes called (or deemed called) for redemption that are converted during the related redemption period. The increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective, or the date we deliver the notice of redemption, as the case may be, and the price paid (or deemed to be paid) per share of our common stock in the make-whole fundamental change or determined with respect to the notice of redemption, as the case may be. The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change or notice of redemption may not adequately compensate holders for any lost value of their Notes as a result of such transaction or redemption. Furthermore, if we call only a portion of the outstanding Notes for redemption, only those Notes called (or deemed called) for redemption will become convertible as a result of such call for redemption and only the conversion rate of Notes converted in connection with such notice of redemption will be increased. In addition, if the “stock price” (as defined in the indenture governing the Notes) is greater than $60.00 per share or less than $7.32 per share (in each case, subject to adjustment), no additional shares will be added to the conversion rate. Moreover, in no event will the conversion rate per $1,000 principal amount of Notes as a result of this adjustment exceed 136.6120 shares of common stock, subject to adjustment in the same manner as the conversion rate.
Our obligation to increase the conversion rate for Notes converted in connection with a make-whole fundamental change or Notes called (or deemed called) for redemption that are converted during the related redemption period could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.
The conversion rate of the Notes may not be adjusted for all dilutive events.
The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends, and certain issuer tender or exchange offers. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.
Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to repurchase the Notes.
Upon the occurrence of a fundamental change, holders have the right to require us to repurchase all or any portion of their Notes. However, the fundamental change provisions will not afford protection to holders of the Notes in the event of other transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamental change requiring us to offer to repurchase the Notes. In the event of any such transaction, the holders would not have the right to require us to repurchase
the Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of the Notes.
Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us.
Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the Notes requires us, except in limited circumstances, to repurchase the Notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.
We have not registered, and are not required to register, the Notes or the common stock issuable upon conversion of the Notes, if any, which will limit holders’ ability to resell them.
The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to be, registered under the Securities Act or any state securities laws. Unless the Notes and the shares of common stock issuable upon conversion of the Notes, if any, have been registered, the Notes and such shares may not be transferred or resold except in a transaction exempt from or not subject to the registration requirements of the Securities Act and applicable state securities laws. We do not intend to file a U.S. registration statement or a prospectus qualifying the resale of the Notes and the common stock, if any, into which the Notes are convertible, and the holders of the Notes are not entitled to require us to register or qualify the Notes or the common stock for resale or otherwise.
We cannot assure holders that an active trading market will develop for the Notes.
Prior to the Offering, there was no trading market for the Notes, and we do not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. We have been informed by the initial purchasers that they intend to make a market in the Notes, but the initial purchasers are not obligated to do so and may cease their market-making at any time without notice. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by, among other things, changes in the overall market for this type of security and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure holders that an active trading market will develop for the Notes. Even if an active trading market for the Notes does develop, there is no guarantee that it will continue. Historically, the market for non-investment grade debt has been subject to severe disruptions that have caused substantial volatility in the prices of securities that are similar to the Notes. The market, if any, for the Notes may experience similar disruptions, and any such disruptions may adversely affect the liquidity in that market or the prices at which holders may sell their Notes.
Any adverse rating of the Notes may cause their trading price to fall.
We do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating service were to lower its rating on the Notes below the rating initially assigned to the Notes or otherwise announces its intention to put the Notes on credit watch, the trading price of the Notes could decline.
Holders may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Notes even though holders do not receive a corresponding cash payment.
The conversion rate of the Notes is subject to adjustment in certain circumstances, including the payment of certain cash dividends and in connection with a conversion upon a make-whole fundamental change or notice of redemption. Adjustments (or failures to adjust or to adjust adequately) that have the effect of increasing the proportionate interest of a holder of the Notes in our assets or earnings and profits may, in some circumstances, result in a deemed distribution to such holder for U.S. federal income tax purposes even though no cash is received. Adjustments to the conversion rate made pursuant to a bona fide, reasonable adjustment formula that has the effect of preventing the dilution of the interest of the holders of the Notes, however, will generally not be considered to result in a deemed distribution. In addition, if we do not adjust (or adjust adequately) the conversion rate after an event that increases a holder’s proportionate interest in us, the holder could be treated as having received a deemed taxable dividend. If a holder is subject to backup withholding, or is a non-U.S. holder subject to U.S. federal withholding tax, such withholding may be withheld from or set off against subsequent payments on the Notes or our common stock owned by such holder or from any proceeds of any subsequent sale, exchange, or other disposition of such Notes or such common stock or other funds or assets held by such holder. The
IRS has issued proposed regulations addressing the amount and timing of deemed distributions, obligations of withholding agents, and filing and notice obligations of issuers, which, if adopted, could affect the U.S. federal income tax treatment of a holder of the Notes deemed to receive such a distribution.
Non-U.S. holders may be subject to U.S. federal income or withholding tax because we are considered to be a United States real property holding corporation.
We believe that we are, and expect to remain for the foreseeable future, a “United States real property holding corporation” for U.S. federal income tax purposes. As a result, non-U.S. holders whose ownership of the Notes or our common stock exceeds certain levels will be subject to U.S. federal income tax and may be subject to U.S. federal withholding tax in respect of payments in connection with a sale, exchange, redemption, conversion, or other taxable disposition of the Notes or our common stock. Non-U.S. holders are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of acquiring, owning, converting, and disposing of the Notes or owning and disposing of our common stock.
Ownership limitations in our Charter may impair the ability of holders to convert Notes into our common stock.
In order to assist us in qualifying and maintaining our qualification as a REIT for U.S. federal income tax purposes, our Charter prohibits, among other prohibitions, any person or entity, other than an “excepted holder,” as defined below, from actually or constructively owning more than 2.5% in value or in number, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock (the “ownership limit”). As a result, notwithstanding any other provision of the Notes, no holder of the Notes, other than an “excepted holder,” will be entitled to receive common stock following conversion of such Notes to the extent that receipt of such common stock would cause such holder (after application of certain constructive ownership rules) to exceed the ownership limit or violate any other restriction on the ownership and transfer of our common stock as provided in our Charter. Our Board of Directors, in its sole discretion, may waive, prospectively or retroactively, the ownership limit with respect to a particular person or entity (such person or entity, an “excepted holder,” and such increased ownership limit, an “excepted holder limit”); provided that the Board of Directors will not grant any such excepted holder limit if it would cause us to fail to qualify as a REIT under the Code. If any delivery of our common stock owed to a holder upon conversion of the Notes is not made, in whole or in part, as a result of the limitations described above, our obligation to make such delivery shall not be extinguished, and we shall deliver such common stock as promptly as practicable after any such converting holder gives notice to us that such delivery would not result in it being the beneficial or constructive owner of common stock in excess of the ownership limit or applicable excepted holder limit or violate any other restriction on ownership and transfer of our common stock set forth in our Charter.
Because the Notes were initially issued in book-entry form, holders must rely on DTC’s procedures to receive communications relating to the Notes and exercise their rights and remedies.
The Notes were initially issued in the form of one or more global notes registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). Beneficial interests in global notes are shown on, and transfers of global notes are effected only through, the records maintained by DTC. Except in limited circumstances, we will not issue certificated notes. Accordingly, a holder of a beneficial interest in a global note is not considered an owner or holder of the Notes; instead, DTC or its nominee is the sole holder of the global notes. Unlike persons who have certificated notes registered in their names, owners of beneficial interests in global notes do not have the direct right to act on our solicitations for consents or requests for waivers or other actions from holders. Instead, those beneficial owners are permitted to act only to the extent that they have received appropriate proxies to do so from DTC or, if applicable, a DTC participant. The applicable procedures for the granting of these proxies may not be sufficient to enable owners of beneficial interests in global notes to vote on any requested actions on a timely basis. In addition, notices and other communications relating to the Notes will be sent to DTC, and we expect DTC to forward any such communications to DTC participants, which in turn would forward such communications to indirect DTC participants, but we can make no assurances that holders will timely receive any such communications.
The market price of our common stock may be volatile and could affect the price at which holders can sell any common stock received upon conversion of the Notes.
Fluctuations in the price of our common stock could affect the price at which holders can sell any shares of common stock received upon conversion of the Notes. The market price of our common stock has been highly volatile, and it is likely that such price will continue to be volatile in the future. For example, since our first day of trading following our IPO on October 1, 2025, our common stock has traded as high as $36.99 per share and as low as $4.47 per share. The market price of our common stock could be subject to wide fluctuations in response to various factors, including due to the risks described in this section and elsewhere in this Quarterly Report on Form 10-Q or for reasons unrelated to our operations,
some of which are beyond our control. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and our common stock may trade at prices significantly below current levels. The realization of any of these risks could have a dramatic and material adverse impact on the market price of our common stock.
We have broad discretion in the use of the net proceeds of the Offering and may not use them in a manner that increases the value of an investment in our securities.
We used approximately $34.5 million of the net proceeds from the Offering to pay the cost of the Capped Call Transactions and intend to use the remainder of the net proceeds for general corporate purposes, including, but not limited to, funding our expected capital expenditures with respect to Project Matador, our continuing operations, our procurement and installation of equipment, our power generation milestone payments, and our pipeline development projects. We have not determined the specific allocation of the net proceeds among these potential general corporate uses. Our management has broad discretion over the use and investment of the net proceeds of the Offering and our cash resources generally, and, accordingly, investors will need to rely upon the judgment of our management with respect to the use of proceeds, with only limited information concerning our specific intentions. These proceeds and our cash resources generally could be applied in ways that do not improve our operating results or increase the value of an investment in our securities.
Risks Related to REIT Qualification
We previously stated that we intended to elect to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2025; however, we have determined to defer our REIT election. Accordingly, our current expectation is that we will be taxable as a C corporation for U.S. federal income tax purposes at least through our taxable year ending December 31, 2026. It is possible that we may seek to qualify and elect to be taxable as a REIT for U.S. federal income tax purposes in the future, but the timing of any such election has not been determined, and it is possible that we will never make a REIT election. These determinations are described in Note 2, Significant Accounting Policies — Income Taxes, to our unaudited condensed consolidated financial statements. The risk factors under “Risks Related to REIT Qualification” in Part I, Item 1A of the Annual Report should be read accordingly, and the following risk factors supersede and replace the corresponding risk factors disclosed in the Annual Report.
We were taxable as a C corporation for our short taxable year ended December 31, 2025, and we expect to be taxable as a C corporation for our taxable year ending December 31, 2026. The timing of any future REIT election has not been determined, and it is possible that we will never make a REIT election.
We previously stated that we intended to elect to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2025; however, we have determined to defer our REIT election. Accordingly, our current expectation is that we will be taxable as a C corporation for U.S. federal income tax purposes at least through our taxable year ending December 31, 2026. It is possible that we may seek to qualify and elect to be taxable as a REIT for U.S. federal income tax purposes in the future, but the timing of any such election has not been determined, and it is possible that we will never make a REIT election.
There are implementation and operational complexities associated with operating as a REIT, and if we decide to make a REIT election, we cannot assure you that we will qualify or remain qualified as a REIT. Our qualification and taxation as a REIT will depend upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the U.S. federal income tax laws. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements.
During any period in which we do not have an election in place to be taxed as a REIT, we will be subject to U.S. federal income tax on our net taxable income as a C corporation without reduction for the dividends paid deduction available to REITs, and we generally will not be required to distribute any of our net taxable income to our shareholders. We can provide no assurance that any election to be taxed as a REIT will be made for any particular taxable year or at all.
In order to preserve our ability to elect to be taxed as a REIT, our Charter limits the number of shares a person may own, which may discourage a takeover that could result in a premium price for our common stock or otherwise benefit our shareholders.
Our Charter authorizes our Board of Directors to take such actions as are necessary and desirable to preserve our qualification as a REIT for U.S. federal income tax purposes. Unless exempted by our Board of Directors, no person may actually or constructively own more than 2.5% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, which may inhibit large investors from desiring to purchase
our stock. This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our shareholders. In addition, no holder of Notes will be entitled to receive common stock following conversion of such Notes to the extent that receipt of such common stock would cause such holder (after application of certain constructive ownership rules) to exceed the ownership limit or violate any other restriction on the ownership and transfer of our common stock as provided in our Charter. Any purported delivery of common stock upon conversion of Notes will be void and have no effect to the extent (but only to the extent) that such delivery would result in a violation of the restrictions on ownership and transfer of our common stock set forth in our Charter.
The current ownership of our capital stock may prevent us from electing to be taxed as a REIT, increase the cost of electing and qualifying as a REIT, or adversely affect the price of our common stock.
We would be “closely held” within the meaning of Section 856(h) of the Code, if the rule prohibiting capital stock of the REIT from being “closely held” applied to a REIT’s first taxable year. In order for us to ensure we will not be deemed “closely held,” during the month of June of our second REIT taxable year, we will have the right to redeem any or all shares of capital stock of certain individuals named in our Charter, at a redemption price equal to the fair market value of such capital stock (as determined by an independent valuation firm selected by our Board of Directors and approved by the holders of such capital stock), plus any declared and unpaid dividends or other distributions to, but excluding, the date fixed for redemption. We may not have funds available to effectuate any such redemptions, and we may have to sell assets or borrow money in adverse market conditions to obtain sufficient funds for the redemptions. Alternatively, shareholders subject to this provision may choose to dispose of all or a portion of their capital stock in market transactions. Such events could adversely affect the price of our common stock and our ability to operate our business. If we elect to be taxed as a REIT and we are unable to comply with the requirement that we not be “closely held” within the meaning of Section 856(h) of the Code as of the second half of our second REIT taxable year, we would fail to qualify as a REIT.