On June 9, 2026, the Company and the Buyer consummated the Closing of the transactions contemplated by the Asset Sale. All of the assets and liabilities sold and assumed pursuant to the Asset Sale related to our historical footwear business. Refer to Note 1, Description of Business.
 

At the Closing, the aggregate consideration received by the Company in connection with the Asset Sale was $40.7 million in cash (the "Purchase Price"), as adjusted to reflect the purchase price adjustments set forth in the Asset Purchase Agreement and the release of $2.0 million in cash from the deposit amount. $3.0 million of the Purchase Price was deposited into an escrow account (the "Escrow Fund"), which Escrow Fund will serve as the primary source of recovery for (i) any negative purchase price adjustment under the Asset Purchase Agreement, and (ii) any inaccuracy in the Surviving Representations (as defined therein) for a period of 60 days following the Closing. 

In connection with the closing of the Asset Sale, the Company and Buyer entered into a transition services agreement (the "Transition Services Agreement"). The Transition Services Agreement outlines the infrastructure, people, and facility support the Company will provide to Buyer for a period of 60 days after the transaction closing date. The agreed upon charges for such services are intended to allow the Company and Buyer, respectively, to recover all costs and expenses of providing such services. Fees earned and incurred under the Transition Services Agreement for the three and six months ended June 30, 2026 were $0.9 million and $0.9 million, respectively.

Using the proceeds from the Asset Sale, we paid $19.7 million to extinguish our outstanding debt arrangement with Second Avenue Capital Partners LLC. The payment resulted in a debt extinguishment loss of $3.2 million and is included in "Loss from discontinued operations before gain from disposal, net of tax" on the condensed consolidated statement of operations and comprehensive loss. Refer to Note 5, Long-Term Debt, for more information.

The historical footwear business results and net assets are presented herein as discontinued operations for all periods presented, a change from prior presentation for the comparative periods. The Company recorded a gain from the Asset Sale of $21.6 million for the three months and six months ended June 30, 2026, and a net loss from discontinued operations of $4.9 million and $19.6 million for the three months and six months ended June 30, 2026, respectively. The Company recorded a net loss from discontinued operations of $10.4 million and $24.8 million for the three months and six months ended June 30, 2025, respectively.

The Asset Sale is treated as discontinued operations for all periods presented because the sale represents a strategic shift that had a material impact on the Company's operating results. The tables below set forth the assets and liabilities related to discontinued operations as of June 30, 2026, and December 31, 2025, and results of operations related to discontinued operations for the three and six months ended June 30, 2026 and 2025. 

Basis of Preparation—The accompanying unaudited condensed consolidated financial statements have been presented in U.S. dollars and prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes contained in the Annual Report on Form 10-K for the fiscal year ended  December 31, 2025, filed with the SEC on March 31, 2026 ("Form 10-K").

In our opinion, the accompanying unaudited condensed interim financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet as of December 31, 2025 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP.

Certain monetary amounts, percentages, and other figures included elsewhere in these condensed consolidated financial statements and accompanying notes have been subject to rounding adjustments. As such, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Liquidity and Going Concern—Accounting Standards Codification (ASC) 205-40, Presentation of Financial Statements - Going Concern requires management to evaluate an entity's ability to continue as a going concern for the twelve-month period following the date on which the financial statements are available for issuance. As of the issuance of the unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2026, the Company disclosed that there was substantial doubt of its ability to continue as a going concern. During the three months ended June 30, 2026, the Company received proceeds from the sale of the historical footwear business, from the issuance of its Convertible Notes, and from the issuance of shares under its ATM offering program. This, in conjunction with the implementation of cost-cutting measures and the AI Infrastructure Business strategy, alleviated the substantial doubt about the Company's ability to continue as a going concern for the twelve-month period following the issuance of these unaudited condensed consolidated financial statements. 

Principles of Consolidation—The condensed consolidated financial statements include the accounts of Smartbird, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Foreign Currency Transactions—Our reporting currency is the U.S. dollar. The functional currency for each subsidiary included in these condensed consolidated financial statements that is domiciled outside of the United States is generally the applicable local currency of that country or the U.S. dollar. The translation of foreign currencies into U.S. dollars is performed for assets and liabilities using current foreign currency exchange rates in effect at the balance sheet date and for revenue and expense accounts using average foreign currency exchange rates during the period. Capital accounts are translated at historical foreign currency exchange rates. Translation gains and losses are included in stockholders' equity as a component of accumulated other comprehensive income or loss. Adjustments that arise from foreign currency exchange rate changes on transactions denominated in a currency other than the functional currency are included in other income or expense on the condensed consolidated statements of operations and comprehensive loss.

Discontinued Operations—Effective June 9, 2026, following the closing of the Asset Sale described in Note 1, Description of Business, the Company no longer operated the historical footwear business. The transaction qualifies as a "strategic shift" under ASC 205-20, requiring discontinued operations reporting, as the historical footwear business constituted a significant business line for the Company. Prior period amounts have been adjusted from those reported to reflect discontinued operations. Refer to Note 3, Discontinued Operations.

Cash, Cash Equivalents, and Restricted Cash—We consider all highly liquid investments with an original maturity date of three months or less as cash equivalents. Cash and cash equivalents are comprised primarily of domestic and foreign bank accounts and money market funds. Cash equivalents are valued based on Level 1 inputs, which consist of quoted prices in active markets. We place our cash and cash equivalents with several high credit quality financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits. We have not experienced any losses in such accounts and periodically evaluate the credit worthiness of the financial institutions. Our foreign bank accounts are not subject to FDIC insurance.

Revenue Recognition—Our primary source of revenue is from sales of AI Infrastructure Platforms. Revenue is recognized when control of the AI Infrastructure is transferred to the customer and our performance obligation is satisfied. Our arrangements generally contain a single performance obligation consisting of the delivery of the AI Infrastructure. Revenue is measured as the amount of consideration to which we expect to be entitled in exchange for transferring the AI Infrastructure to the customer.

Revenue from leases of AI Infrastructure is recognized depending on whether the Company classifies the contract as an operating or a sales-type lease. Where the customer controls the use of identified assets for a period of time defined in a contract, it will be classified as a sales-type lease if it meets certain criteria under ASC Topic 842, Leases, otherwise, it will be classified as an operating lease. Operating lease revenue is recognized on a straight-line basis over the lease term. Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and recorded under interest income in the condensed consolidated statements of operations and comprehensive loss. Payments under sales-type leases are discounted using the interest rate implicit in the lease. When the Company's leases are embedded in contracts with customers that include non-lease performance obligations, the Company allocates consideration in the contract between lease and non-lease components based on their relative standalone selling prices. Assets subject to operating leases are included in property and equipment and subject to depreciation. Assets subject to sales-type leases result in a net investment in the lease asset being recognized in the condensed consolidated balance sheets.

Convertible Promissory Notes – The Company has elected the fair value option to account for its outstanding convertible notes, with changes in estimated fair value presented in other expense, net in the unaudited condensed consolidated statements operations and comprehensive loss. The Company has made this election as the fair value option better reflects the underlying economics within convertible notes. Through June 30, 2026, there were no changes in the instrument-specific credit risk that are required to be presented as a component of accumulated other comprehensive income.

Fair Value Measurements—Financial Accounting Standards Board ("FASB") ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs, such as quoted prices in active markets.

Level 2—Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3—Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions.

This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. We record accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities at cost. The carrying values of these instruments approximate their fair values due to their short‐term maturities. The Company's Convertible Notes are measured at fair value on a recurring basis and are classified within Level 3 of the fair value hierarchy. See Note 5, Long-Term Debt, for additional information.

Emerging Growth Company—As an "emerging growth company," the Jumpstart Our Business Startups Act, or JOBS Act, allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. For certain pronouncements, we have elected to use the adoption dates applicable to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

Smaller Reporting Company—We are currently a "smaller reporting company," as defined by Rule 12b-2 of the Exchange Act and therefore qualify for reduced disclosure requirements for smaller reporting companies.

Recently Adopted Accounting Pronouncements

In July 2025, the FASB issued Accounting Standards Update ("ASU") 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 provides a practical expedient that permits entities to assume that conditions existing as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. ASU 2025-05 is effective for annual periods beginning after December 15, 2025, including interim periods within those annual periods. The Company adopted ASU 2025-05 as of January 1, 2026, and the adoption did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, which amends the disclosure or presentation requirements of a variety of topics in the ASC in order to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. We are evaluating the potential impact of this guidance on our consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). This ASU improves financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. This ASU will be effective for annual periods beginning after December 15, 2026, for interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the potential impact of this guidance on our consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments in this update remove all references to prescriptive and sequential software development stages, providing more consistent operability of software capitalization guidance. This ASU will be effective for annual periods beginning after December 15, 2027, for interim reporting periods beginning after December 15, 2027, with early adoption is permitted. We are evaluating the potential impact of this guidance on our consolidated financial statements and related disclosures.

2015 Equity Incentive Plan

In 2015, we adopted the 2015 Equity Incentive Plan (the "2015 Plan") that authorized the granting of options for shares of common stock. Our 2015 Plan provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit ("RSU") awards, and other stock awards. The 2015 Plan was terminated in connection with the adoption of the 2021 Equity Incentive Plan (the "2021 Plan") in November 2021 in connection with the initial public offering ("IPO"), and we will not grant any additional awards under the 2015 Plan. However, the 2015 Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.

2021 Equity Incentive Plan

In September 2021, our Board of Directors adopted, and our stockholders approved, the 2021 Plan, which became effective in connection with the IPO in November 2021. The 2021 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSU awards, performance awards, and other forms of equity compensation. In addition, the number of shares of our Class A common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each year for a period of 10 years, beginning on January 1, 2022 and continuing through (and including) January 1, 2031, in an amount equal to 4% of the total number of share of our common stock (both Class A and Class B) outstanding on December 31 of the immediately preceding year, except that, before the date of any such increase, our Board of Directors may determine that the increase for such year will be a lesser number of shares. Additionally, to the extent that any stock options outstanding under the 2015 Plan expire, terminate prior to exercise, are not issued because the award is settled in cash, are forfeited because of the failure to vest, or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, the shares of Class B common stock reserved for issuance pursuant to such equity awards will become available for issuance as shares of Class A common stock under the 2021 Plan. The maximum number of shares of our Class A common stock that may be issued on the exercise of incentive stock options under the 2021 Plan is 100,000,000 shares.

2021 Employee Stock Purchase Plan

In September 2021, our Board of Directors adopted, and our stockholders approved, the 2021 Employee Stock Purchase Plan (the "2021 ESPP"), which became effective in connection with the IPO in November 2021. The 2021 ESPP authorizes the issuance of shares of Class A common stock pursuant to purchase rights granted to employees. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1 of each year for a period of 10 years, beginning on January 1, 2022 and continuing through (and including) January 1, 2031, by the lesser of (1) 1% of the total number of shares of our common stock (both Class A and Class B) outstanding on December 31 of the immediately preceding year and (2) 142,500 shares, except that, before the date of any such increase, our Board of Directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). The price at which Class A common stock is purchased under the 2021 ESPP is equal to 85% of the fair market value of a share of our Class A common stock on the first day of the offering period, or the date of purchase, whichever is lower. Offering periods are six months long and begin on November 3 and May 3 of each year.

Stock Options

A summary of the status of the 2015 Plan and 2021 Plan as of  December 31, 2025 and  June 30, 2026, and changes during the six month period ended  June 30, 2026, is presented below:

There were no stock options granted for the three and six months ended June 30, 2026 and 2025.

2021 ESPP

The following table summarizes the weighted-average assumptions used in estimating the fair value of the 2021 ESPP grants for the following offering periods presented, using the Black Scholes option-pricing model:

RSUs

The Company grants RSUs to certain employees. The RSUs granted have service-based vesting conditions. The service-based vesting condition for awards to new employees is typically satisfied over four years, with a cliff vesting period of one year and continued vesting quarterly thereafter. The service-based vesting condition for refresh grants of RSUs to existing employees is typically satisfied over three years with vesting occurring quarterly, subject to the employees' continued service to us. RSUs and the related stock-based compensation are recognized on a straight-line basis over the requisite service period. 

As a material inducement to Dr. Carlsten entering into employment with the Company, the Compensation Committee of the Board of Directors approved an inducement grant (granted outside the 2021 Equity Incentive Plan) in the form of an RSU award comprised of 1,532,379 RSUs converting into an equal number of shares of the Company's Class A common stock. 255,397 shares underlying the award vested as of the initial date of grant in June, 2026 and the remaining shares underlying award will vest in 16 equal quarterly installments on each vesting date thereafter, subject to Dr. Carlsten's continuous service to the Company as of each such vesting date.

RSU activity during the six months ended June 30, 2026 was as follows:

Performance Stock Units

In March 2025, we granted certain members of our executive leadership team 50 thousand RSUs with performance-based and service-based vesting conditions (the "PSUs"). The awards vest based on the achievement of certain financial performance targets as well as the individuals' continued employment with us. The total grant date fair value of the awards was determined to be $0.3 million. Stock-based compensation expense is recognized on a straight-line basis over their requisite service periods, if it is probable the performance condition will be met. Stock-based compensation expense is reversed if the achievement of the performance condition does not occur. As of June 30, 2026, it is not probable that the PSUs will vest.

PSU activity during the six months ended June 30, 2026 was as follows:

Stock-Based Compensation Expense

Stock-based compensation expense, recognized as selling, general, and administrative expenses in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2026 and 2025, was $2.0 million and $2.4 million respectively, and $0.4 million and $0.8 million for the three and six months ended June 30, 2025, respectively. 

As of  June 30, 2026, there was approximately $0.3 million of total unrecognized compensation cost related to unvested stock options granted under both equity incentive plans, which is expected to be recognized over the weighted-average remaining vesting period of approximately 0.94 years. There was approximately $14.4 million of total unrecognized compensation cost related to outstanding unvested RSUs under the 2021 Plan, which is expected to be recognized over the weighted-average remaining vesting period of approximately 3.83 years.