SharonAI Holdings (SHAZ) risk factors, FY2025 10-K

Risks Related to Our Business in General

1. 01We have a limited operating history and have incurred operating losses since our inception and anticipate that the Company will continue to incur losses in the foreseeable future, which could adversely impact our operations, strategy and financial performance
2. 02We have an evolving business model and strategy
3. 03Our results of operations may fluctuate significantly and may not fully reflect the underlying performance of our business
4. 04We may be unable to raise additional capital needed to grow our business
5. 05Our business has and is expected to continue to have significant customer concentration
6. 06We are substantially dependent on NEXTDC as our primary data center provider, and any delay, disruption or failure by NEXTDC could materially impair our ability to deliver services and generate revenue
7. 07We may fail to retain existing customers and attract new customers the results of which could have a material adverse effect on our business, financial condition and results of operations
8. 08The lack of back-to-back contractual provisions with key suppliers could cause operational issues which could have a material adverse effect on the Company’s business, financial condition and results of operations
9. 09Our ability to meet customer demand for GPU compute services is dependent on the timely deployment of infrastructure, and we may be unable to fulfill customer commitments if deployment is delayed
10. 10Our public statements regarding our capacity to meet AI compute demand may not reflect the full extent of operational and infrastructure risks, which could expose us to securities litigation
11. 11Revenue guidance and financial projections may be materially impacted by factors outside our control, including third-party data center construction timelines and GPU delivery schedules
12. 12Our concentration of data center infrastructure with a single primary provider creates significant operational and financial risk that may not be fully reflected in our current disclosures
13. 13Certain key supplier agreements and assets are held through DSS, a subsidiary of the Company that is not wholly owned. A minority shareholder holds approximately 0.5% of the issued capital of DSS
14. 14We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy
15. 15We may not have, or be able to obtain or maintain, relevant business insurance
16. 16Failure to effectively manage our growth could place strains on our managerial, operational, and financial resources and could adversely affect our business and operating results
17. 17We have potential risks in connection with growth and acquisitions
18. 18If we are unable to manage these risks effectively as part of any acquisition, our business could be adversely affected
19. 19Our future results will suffer if we do not effectively manage our expanded operations
20. 20Our industry has significant competition and technological change
21. 21We may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect our business
22. 22We or our suppliers may not be able to procure or repair hardware that is required in our operations
23. 23We are substantially dependent on NVIDIA Corporation as a supplier of graphics processing units (“GPUs”), and any disruption in our ability to obtain NVIDIA GPUs could materially and adversely affect our business, financial condition, and results of operations
24. 24Supply chain and logistics issues for us, our contractors or our suppliers may delay our expansion plans or increase the cost of constructing our infrastructure
25. 25We rely on third-party providers for services essential to our business
26. 26Any long-term outage or limitation of the internet and network connections at our sites could materially impact our operations and financial performance
27. 27Access to reliable electricity sources at reasonable prices, developed land and co-location arrangements are critical to our growth and profitability
28. 28We face risks related to system interruption and lack of redundancy
29. 29Any critical failure of key electrical or data center equipment may result in material impacts to our operations and financial performance
30. 30Serial defects in our GPUs and other equipment may result in failure or underperformance relative to expectations and impact our operations and financial performance
31. 31A loss of confidence in our security system, or a breach of our security system, may adversely affect our business
32. 32Any breach of our digital infrastructure, or potentially the digital infrastructure of trusted third parties, could result in damage to our reputation which could adversely affect our business, financial condition, results of operations and prospects
33. 33Cyberattacks and security breaches of cloud services, or those impacting our third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition
34. 34There are a number of climate-related factors that may affect the operations and proposed activities of the Company, including the emergence of new or expanded regulations associated with transitioning to a lower-carbon economy and market changes related to climate change mitigation
35. 35We may be subject to material litigation, investigations or enforcement actions by regulators and governmental authorities
36. 36Global climate change and related environmental regulations may have an adverse effect on our business operations and financial position
37. 37Changes in tax law may negatively affect our business
38. 38Our operations could be negatively impacted by import tariffs and/or other government mandates
39. 39We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance
40. 40Our cash balances are held at a number of financial institutions that expose us to their credit risk
41. 41Our results of operations may suffer if we are not able to successfully manage our exposure to foreign exchange rate risks
42. 42Our international operations subjects us to international operational, financial, legal, political and public health risks which could harm our operating results

Risks Related to our AI/HPC Cloud Platform Business

1. 43If we fail to succeed in the high performance computing and cloud services market, our revenues, growth prospects, and financial condition could be materially and adversely affected
2. 44Our high performance computing and cloud services technology and infrastructure may not operate properly or as we expect them to, which could cause us to incur fines and monetary penalties, adversely affecting our business, results of operations, and financial condition
3. 45Regulators may limit our ability to develop or implement our high performance computing and cloud services technology and infrastructure and/or may eliminate or restrict the confidentiality of our technology, which could have a material adverse effect on our business, financial condition and results of operations
4. 46We use certain open source technology in our business. We may face claims from open source licensors claiming ownership of, or demanding the release of, the technology and any other intellectual property that we developed using or derived from such open-source technology
5. 47Impact of advancements in artificial intelligence on demand for AI and HPC data centers may reduce the need for HPC and AI-specific data center infrastructure, which could have an adverse effect on our business, results of operations, and financial condition
6. 48AI technologies are constantly evolving, and any flaws in or misuse of AI, even if committed by other third parties, could have a negative impact on our business, reputation, brands, and the general acceptance of AI solutions by society
7. 49Our cloud services business is subject to complex and evolving U.S. and foreign laws and regulations regarding AI, machine learning, and automated decision making
8. 50Regulatory restrictions that target AI, including, but not limited to, export restrictions may have a material adverse impact on our intended operations
9. 51Issues in the development and use of AI may result in reputational or competitive harm or liability

Risks Related to our Development of Data Center Assets

1. 52We are subject to the risks and uncertainties of a new business and have not generated any revenues from this business segment to date
2. 53We may be unable to access sufficient additional capital needed to grow our business
3. 54We are subject to a highly evolving regulatory landscape and any adverse changes to or our failure to comply with any laws or regulations could adversely affect our business, prospects or operations
4. 55Our business depends upon the demand for data centers
5. 56Our business is expected to have significant customer concentration
6. 57Failure to attract, grow and retain a diverse and balanced customer base, could adversely affect our business and operating results
7. 58Our new services and changes to existing services could fail to attract or retain users or generate revenue and profits, or otherwise adversely affect our business
8. 59We intend to depend upon third-party suppliers for power, and we are vulnerable to service failures and price increases by such suppliers and to volatility in the supply and price of power in the open market
9. 60We will depend on third parties to provide network connectivity to the customers in our data centers and any delays or disruptions in connectivity may materially adversely affect our operating results and cash flow
10. 61Any delays or unexpected costs in the development of any new properties acquired for development may delay and harm our growth prospects, future operating results and financial condition
11. 62If we incorrectly estimate our hosting capacity requirements and related capital expenditures, our results of operations could be adversely affected
12. 63Certain natural disasters or other external events, including climate change or mechanical failures, could harm our business, financial condition, results of operations, cash flows, and prospects
13. 64Should we have additional space available for lease at any one of our data centers, our ability to lease this space to existing or new customers could be constrained by our ability to provide sufficient electrical power
14. 65Increased scrutiny and changing expectations from stakeholders with respect to our environmental, social, and governance (“ ESG ”) practices and the impacts of climate change may result in additional costs or risks
15. 66Cancellation or withdrawal of required operating and other permits and license
16. 67Our operations are subject to environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose us to environmental liabilities

Risks Relating to Laws, Regulatory Frameworks, and Legal Action affecting SharonAI

1. 68Our business and financial condition may be materially adversely affected by changes to and/or increased regulation of energy sources
2. 69HPC/AI and data center activities are energy-intensive, which may restrict the geographic locations of our activities to locations with renewable sources of power. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to HPC and data center operators, including us
3. 70We are subject to governmental regulation and other legal obligations related to data privacy, data protection and information security. If we are unable to comply with these, we may be subject to governmental enforcement actions, litigation, fines and penalties or adverse publicity
4. 71Failure to comply with anti-corruption and anti-money laundering laws, including the Foreign Corrupt Practices Act (the “ FCPA ”) and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences
5. 72Agreements with Foreign Counterparties and Foreign Governing Laws
6. 73Issues in the development and use of AI may result in reputational or competitive harm or liability

Risks Related to Ownership of the Company’s Securities

1. 74The price of the Company’s Class A Ordinary Common Stock may be volatile
2. 75In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s Class A Ordinary Common Stock
3. 76The Company’s Class A Ordinary Common Stock s thinly traded, and investors may be unable to sell some or all of their shares at the price they would like, or at all, and sales of large blocks of shares may depress the price of the Company’s Class A Ordinary Common Stock
4. 77There is no assurance that an investment in our securities will earn any positive return
5. 78Even though our Class A Ordinary Common Stock is listed on the Nasdaq Capital Market, there can be no assurance that we will be able to comply with the Nasdaq continued listing standards, a failure of which could result in a de-listing of our securities
6. 79If the December 2025 Convertible Notes are not converted and required to be repaid on full on the maturity date, it could have a material adverse effect on the Company’s financial position and results of operations
7. 80The holders of shares of Class B Super Common Stock will own a significant voting percentage of our stock and will be able to exert significant control over matters subject to stockholder approval
8. 81Our dual-class capital structure, including the disproportionate voting power conferred by the Class B Super Common Stock, may deter institutional investors from purchasing or holding our Class A Ordinary Common Stock, which could adversely affect the liquidity and market price of our Class A Ordinary Common Stock
9. 82The requirements of being a public company may strain our resources and distract management and we will incur substantial costs as a result of being a public company
10. 83Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our financial reports to be inaccurate
11. 84A decline in the price of the Company’s Class A Ordinary Common Stock could affect the Company’s ability to raise working capital and adversely impact the Company’s ability to continue operations
12. 85We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in the Company’s capital stock must come from increases in the fair market value and trading price of the capital stock
13. 86Future sales and issuances of our securities could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall
14. 87Changes in international trade policies, tariffs and treaties affecting imports and exports may have a material adverse effect on our business
15. 88Changes to United States tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations
16. 89The Warrants are exercisable for the Company’s Class A Ordinary Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders
17. 90The exercise price for the outstanding warrants is $575.00 per share of Class A Ordinary Common Stock. There can be no assurance that the warrants will be in the money following the time they become exercisable and prior to their expiration and as such, the warrants may expire worthless
18. 91We may redeem your Public Warrants prior to their exercise which may result in warrant holders receiving little or no value for their warrants thereby making your Public Warrants worthless
19. 92Public Warrant holders will only be able to exercise their Public Warrants on a “cashless basis” under certain circumstances, and if they do so, they will receive fewer shares of the Company’s Class A Ordinary Common Stock from such exercise than if such warrants were exercised for cash
20. 93We are a “smaller reporting company” and “emerging growth company” under the U.S. federal securities laws, and the reduced reporting requirements applicable to smaller reporting companies and emerging growth companies could make the Company’s Class A Ordinary Common Stock less attractive to investors