[10-Q] BLUSKY AI INC. Quarterly Earnings Report
BluSky AI Inc. reported a net loss of $429,539 for the three months ended March 31, 2026, compared with net income of $175,389 a year earlier, as general and administrative expenses rose to $414,741.
The company, which recently pivoted from mining to AI-driven modular data centers and GPU-as-a-Service, had cash of $562,950, total assets of $2,251,361, and a working capital deficit of $2,650,009. Management discloses substantial doubt about its ability to continue as a going concern given its accumulated deficit of $34,808,419 and pre-revenue status, and it is seeking additional capital while advancing its Milford, Utah power-backed data center project.
Positive
- None.
Negative
- None.
Insights
Q1 2026 shows deep losses, tight liquidity and clear going-concern risk.
BluSky AI Inc. is transitioning into AI data centers but remains pre-revenue while carrying legacy obligations. Q1 2026 produced a net loss of $429,539 and negative operating cash flow of $322,486, leaving cash at only $562,950 and total assets of $2,251,361.
The balance sheet shows a working capital deficit of $2,650,009 and total liabilities of $3,538,473 against an accumulated deficit of $34,808,419. Related-party notes payable of $1,274,455 and a solar power asset of $1,289,309 that is not yet in service underscore execution and funding risk around the Milford, Utah project.
Management explicitly states “substantial doubt” about continuing as a going concern under ASC 205, pending successful capital raising and rollout of its modular AI data center strategy. Subsequent filings around future quarters and any funding or customer contracts will be important to understand whether BluSky can bridge its liquidity gap and monetize its infrastructure assets.
Key Figures
Key Terms
going concern financial
GPU-as-a-Service (GPUaaS) technical
Neocloud operator technical
derivative liabilities financial
reverse stock split financial
Level 3 financial liabilities financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
Commission
File No.
| (Exact Name of Registrant as Specified in Its Charter) |
(State of Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Copies to:
Brunson Chandler & Jones, PLLC
175 South Main Street, Suite 1410
Salt Lake City, Utah 84111
(801) 303-5721
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-3 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | Emerging growth company | |
| ☒ | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered to Section 12(b) of the Act: None.
As
of May 13, 2026, there were
BLUSKY AI INC.
FORM 10-Q
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | F-1 | |
| Item 1. | Financial Statements | F-1 |
| Condensed Balance Sheets as of March 31, 2026 (Unaudited) and December 31, 2025 | F-1 | |
| Condensed Statements of Operations for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-2 | |
| Condensed Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-3 | |
| Condensed Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-4 | |
| Notes to Condensed Financial Statements (Unaudited) | F-5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| Item 4. | Controls and Procedures | 7 |
| PART II – OTHER INFORMATION | 8 | |
| Item 1. | Legal Proceedings | 8 |
| Item 1A. | Risk Factors | 8 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3. | Defaults Upon Senior Securities | 8 |
| Item 4. | Mine Safety Disclosures | 8 |
| Item 5. | Other Information | 8 |
| Item 6. | Exhibits | 9 |
| Signature Page | 10 | |
| 2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BluSky AI, Inc.
Condensed Balance Sheets
March 31, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Solar power asset | ||||||||
| Right of use operating lease asset | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accrued interest - related parties | - | |||||||
| Operating lease liability | ||||||||
| Note payable | ||||||||
| Notes payable - related parties - current portion | ||||||||
| Notes payable | ||||||||
| Convertible notes payable - net of discount | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to the unaudited condensed financial statements.
| F-1 |
| Table of Contents |
BluSky AI, Inc.
Condensed Statements of Operations
(Unaudited)
| March 31, 2026 | March 31, 2025 | |||||||
| For the Three Months Ended | ||||||||
| March 31, 2026 | March 31, 2025 | |||||||
| Operating Expenses | ||||||||
| General and administrative | $ | $ | ||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income/(Expenses) | ||||||||
| Other income (expense) | ||||||||
| Interest income | - | |||||||
| Change in derivative liabilities | - | |||||||
| Gain (loss) on extinguishment of debt | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total Other Income/(Expenses) | ( | ) | ||||||
| Net Income (Loss) from Operations before Income Taxes | ( | ) | ||||||
| Provision for Income Taxes | - | - | ||||||
| Net Income (Loss) | $ | ( | ) | $ | ||||
| Net income (loss) per share - Basic and Diluted | $ | ( | ) | $ | ||||
| Weighted average number of shares outstanding during the period - Basic and Diluted | ||||||||
See accompanying notes to the unaudited condensed financial statements.
| F-2 |
| Table of Contents |
BluSky AI, Inc.
Condensed Statements of Stockholders’ Deficit
(Unaudited)
| Preferred stock | Common stock | Additional | Total | |||||||||||||||||||||||||
| ($0.00001 Par) | ($0.00001 Par) | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued for conversion of notes payable | - | - | - | - | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Preferred stock | Common stock | Additional | Total | |||||||||||||||||||||||||
| ($0.00001 Par) | ($0.00001 Par) | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Rounding shares issued with reverse split | - | - | - | - | - | - | ||||||||||||||||||||||
| Net income for the period | - | - | - | - | - | |||||||||||||||||||||||
| Net Income (Loss) | - | - | - | - | - | |||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to the unaudited condensed financial statements.
| F-3 |
| Table of Contents |
BluSky AI, Inc.
Condensed Statements of Cash Flows
(Unaudited)
| March 31, 2026 | March 31, 2025 | |||||||
| For the Three Months Ended | ||||||||
| March 31, 2026 | March 31, 2025 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operations | ||||||||
| (Gain) loss on extinguishment of debt | ( | ) | ||||||
| Change in derivative liability | ( | ) | - | |||||
| Amortization of right-of-use asset | - | |||||||
| Amortization of debt discount | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | - | |||||||
| Accounts payable and accrued liabilities | ||||||||
| Operating lease liabilities | - | |||||||
| Accounts payable and accrued liabilities - related parties | ( | ) | ||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Net Cash Provided By Investing Activities | - | - | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Repayment of notes payable-related parties | ( | ) | - | |||||
| Proceeds from notes payable-related parties | - | |||||||
| Net Cash Provided by (Used in) Continuing Financing Activities | ( | ) | ||||||
| Net Change in Cash | ( | ) | - | |||||
| Cash at Beginning of Period | - | |||||||
| Cash at End of Period | $ | $ | - | |||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | - | |||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued for conversion of debt | $ | $ | - | |||||
| Note payable issued to related party for settlement of convertible note payable | $ | - | $ | |||||
See accompanying notes to the unaudited condensed financial statements.
| F-4 |
| Table of Contents |
BluSky AI, Inc.
(FKA Inception Mining, Inc.)
Notes to Condensed Financial Statements (Unaudited)
March 31, 2026
1. Nature of Business
BluSky AI, Inc. (formerly known as Inception Mining, Inc.) was incorporated under the name of Golf Alliance Corporation and under the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. was a precious metal mineral acquisition, exploration and development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of Idaho on January 28, 2013.
Golf Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided to redirect its business focus toward precious metal mineral acquisition and exploration.
On
March 5, 2010, the Company amended its articles of incorporation to (1) change its name to Silver America, Inc. and (2) increase its
authorized common stock from
On June 23, 2010, the Company amended its articles of incorporation to change its name to Gold American Mining Corp.
On
February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly owned
subsidiary,
On May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception” or the “Company”).
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held Turks
and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession through
its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico, S.A. de C.V.
and holds other mining concessions. Pursuant to the agreement, the Company issued
On January 12, 2023, Inception Mining, Inc. (the “Company”) entered into a non-binding Letter of Intent (the “LOI”) with Mother Lode Mining, Inc. (“MLM”). The LOI became binding on January 24, 2023. Pursuant to the terms of the LOI, the Company agreed to sell all of the shares of its wholly-owned subsidiary, Compañía Minera Cerros Del Sur, S.A. de C.V. (“CMCS”), to MLM. CMCS is the Honduran-based company that owns the Clavo Rico mine.
| F-5 |
| Table of Contents |
The Company underwent a significant transformation and rebranding in March 2025 to align with its new strategic direction and name change to “BluSky AI Inc.”. This change reflects BluSky AI Inc.’s commitment to advancing technology and providing unparalleled services in the data center industry. The Company’s operations are primarily in AI-driven data center solutions, combining innovation with regulatory compliance and sustainability. The Company is a modular data center provider focused on high-performance computing infrastructure, strategic site selection, and operational risk management and specializing in artificial intelligence (AI) and as a Neocloud operator. The Company is dedicated to delivering state-of-the-art infrastructure and solutions tailored to meet the demands of modern AI applications and computational workloads.
The new business model centered on modular data center development and GPU-as-a-Service (GPUaaS), marking a strategic pivot toward scalable, AI-optimized infrastructure. The Company designs and deploys modular data centers engineered for rapid deployment, energy efficiency, and geographic flexibility, enabling tailored solutions for high-performance computing environments. As a Neocloud operator, BluSky AI offers GPUaaS to enterprise and institutional clients, delivering dedicated, on-demand access to advanced GPU clusters optimized for artificial intelligence, machine learning, and large-scale simulation workloads. This model integrates site-specific risk management, regulatory compliance, and sustainability into every deployment, positioning BluSky AI as a next-generation infrastructure provider for mission-critical AI applications.
“Neocloud” refers to a new breed of cloud providers that specialize in offering high-performance computing, particularly GPU-as-a-Service (GPUaaS), tailored specifically for demanding AI and machine learning workloads. Neoclouds are specialist cloud providers filling a crucial gap in the market by offering dedicated and optimized infrastructure for the rapidly expanding field of artificial intelligence.
2. Summary of Significant Accounting Policies
Going
Concern - The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company
had a net loss of $
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Management is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet the Company’s need for cash during the next twelve months and beyond.
Basis of Presentation - The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America.
Condensed Financial Statements -The interim financial statements included herein have been prepared by BluSky AI, Inc. (“BluSky” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC” or the “Commission”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in this filing and the Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026.
| F-6 |
| Table of Contents |
In the opinion of management, all adjustments have been made consisting of normal recurring adjustments necessary to present fairly the financial position of the Company and as of March 31, 2026, the results of its statements of operations and comprehensive income (loss) for the three-month period ended March 31, 2026, its condensed statement of stockholders’ deficit and its cash flows for the three-month period ended March 31, 2026. The results of operations for the interim periods are not necessarily indicative of the results for the full year.
Use of Estimates – In preparing financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenditures during the reported periods. Actual results could differ materially from those estimates. Estimates may include those pertaining to valuation of the estimated useful lives and valuation of properties, plant and equipment, deferred tax assets, convertible preferred stock, derivative assets and liabilities, stock-based compensation and payments, and contingent liabilities.
Cash
and Cash Equivalents -The Company considers all highly liquid temporary cash investments with an original maturity of three months
or less to be cash equivalents. At March 31, 2026 and December 31, 2025, the Company had $
Fair Value Measurements -The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
| Level 1: Quoted market prices in active markets for identical assets or liabilities. | |
| Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
| F-7 |
| Table of Contents |
The carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
Notes
Receivable - Notes receivable include amounts due to the Company pursuant to financial agreements stipulating interest rates,
payment terms and maturity dates. As of March 31, 2026 and December 31, 2025, notes receivable balance includes one note due from Mother
Lode Mining, Inc. in the amounts of $
Long-Lived Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flows.
Stock Issued for Goods and Services - Common and preferred shares issued for goods and services are valued based upon the fair market value of our common stock or the goods and services received.
Stock-Based Compensation - For stock-based transactions, compensation expense is recognized over the requisite service period, which is generally the vesting period, based on the estimated fair value on the grant date of the award.
Income
(Loss) per Common Share -Basic net income (loss) per common share is computed by dividing net income (loss), by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional dilution
from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not antidilutive.
Derivative Liabilities - Derivative liabilities are recorded at fair value when issued and the subsequent change in fair value each period is recorded in other income (expense) in the statements of operations. We do not hold or issue any derivative financial instruments for speculative trading purposes.
Income Taxes -The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Significant judgments and estimates are required in determining the income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than not.
| F-8 |
| Table of Contents |
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business Segments – The Company operates in one segment and therefore segment information is not presented.
Operating
Lease – The Company leases its corporate headquarters and administrative offices in Salt Lake City, Utah. This lease expired
in August 2024 and is now a month-to-month lease. The Company made cash payments of $
On
July 11, 2025, the Company entered into a Ground Lease with an Option to Purchase (the “Lease”) with Wild Mustang Ventures
LLC, a Wyoming limited liability company (the “Landlord”), through which the Company leased
The supplemental balance sheet information related to the operating lease for the periods is as follows:
Schedule of Balance Sheet Operating Lease
| March 31, 2026 | December 31, 2025 | |||||||
| Operating leases | ||||||||
| Long-term right-of-use assets | $ | $ | ||||||
| Short-term operating lease liabilities | $ | $ | ||||||
| Long-term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Maturities of the Company’s undiscounted operating lease liabilities are as follows:
Schedule of Maturities Undiscounted Operating Lease Liabilities
| Year Ending | Operating Leases | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total lease payments | ||||
| Less: Imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
The
Company made cash payments of $
Recently Issued Accounting Pronouncements –From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
| F-9 |
| Table of Contents |
3. Derivative Financial Instruments
The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2026:
Schedule of Changes in Fair Value of the Company’s Level 3 Financial Liabilities
Debt Derivative Liabilities | ||||
| Balance, December 31, 2025 | $ | |||
| Change in Fair Value of Derivative Liabilities | ( | ) | ||
| Balance, March 31, 2026 | $ | |||
Derivative Liabilities –The Company issued convertible promissory notes which are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
4. Note Receivable
On January 12, 2023, the Company entered into a non-binding Letter of Intent (the “LOI”) with Mother Lode Mining, Inc. (“MLM”). The LOI became binding on January 24, 2023 when the final installment of initial payment set forth under the LOI was received by the Company. Pursuant to the terms of the LOI, the Company agreed to sell all of the shares of its wholly-owned subsidiary, Compañía Minera Cerros Del Sur, S.A. de C.V. (“CMCS”), to MLM. CMCS is the Honduran-based company that owns the Clavo Rico mine.
The
purchase price for the sale of CMCS by the Company to MLM consisted of the following cash consideration (a) $
In
addition to the amounts already delivered under the LOI, an additional amount of $
| F-10 |
| Table of Contents |
On February 4, 2026, the Company and MLM entered into a settlement agreement resolving all disputes in connection with the LOI. Under the settlement, the parties agreed to a mutual dismissal with prejudice of all claims, counterclaims, and causes of action asserted or that could have been asserted in United States District Court for the District of Utah, Central Division, Case No. 2:24-cv-00171-TS-CMR, or in any other forum. As part of the settlement, the parties executed a mutual general release of all claims and potential claims against the other parties and their affiliates. Following the settlement, no further amounts are expected to be collected under the LOI.
The following table summarizes the note receivable of the Company as of March 31, 2026 and December 31, 2025:
Schedule of Note Receivable
| March 31, 2026 | December 31, 2025 | |||||||
| Note Receivable from Mother Lode Mining, Inc. pursuant to a Letter of Intent dated effective January 12, 2023, in the original principal amount of $ | $ | - | $ | |||||
| Less: Payments received | - | - | ||||||
| Total Note Receivable outstanding | - | |||||||
| Less: Allowance for Doubtful Note Receivable | - | ( | ) | |||||
| Total Note Receivable | $ | - | $ | - | ||||
5. Solar Power Asset
On
July 7, 2025, BluSky AI Inc., entered into an Acquisition and Power Assignment Agreement with Digital Asset Medium, LLC (“DAM”),
a Wyoming limited liability company, whose managing member, Trent D’Ambrosio, is also the Company’s CEO. DAM assigned to
the Company its exclusive right to utilize solar and grid-interconnected power at a data center project located in the Milford area of
Beaver County, Utah. In exchange for the assignment of the Power Commitment in the Acquisition Agreement, the Company issued
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at March 31, 2026 and December 31, 2025 consisted of the following:
Schedule of Accounts Payable and Accrued Liabilities
| March 31, 2026 | December 31, 2025 | |||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Interest Payable | ||||||||
| Accrued Salaries and Benefits | ||||||||
| Total Accrued Liabilities | $ | $ | ||||||
| F-11 |
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7. Notes Payable
Notes payable were comprised of the following as of March 31, 2026 and December 31, 2025:
Schedule of Notes Payable
| Notes Payable | March 31, 2026 | December 31, 2025 | ||||||
| Phil Zobrist | $ | $ | ||||||
| Total Notes Payable | ||||||||
| Less Short-Term Notes Payable | ( | ) | ( | ) | ||||
| Total Long-Term Notes Payable | $ | - | $ | - | ||||
Phil
Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount of $
8. Notes Payable – Related Parties
Notes payable – related parties were comprised of the following as of March 31, 2026 and December 31, 2025:
Schedule of Related Parties Notes Payable
| Notes Payable - Related Parties | Relationship | March 31, 2026 | December 31, 2025 | |||||||
| Cluff-Rich PC 401K | $ | $ | ||||||||
| Whit Cluff | ||||||||||
| Digital Asset Medium, LLC | ||||||||||
| Debra D’ambrosio | ||||||||||
| Francis E. Rich | ||||||||||
| Pine Valley Investments | ||||||||||
| Total Notes Payable - Related Parties | ||||||||||
| Less Short-Term Notes Payable - Related Parties | ( | ) | ( | ) | ||||||
| Total Long-Term Notes Payable - Related Parties | $ | - | $ | - | ||||||
Cluff-Rich
PC 401K (Affiliate – Director) – On June 29, 2022, the Company issued an unsecured Short-Term Promissory Note to Cluff-Rich
PC 401K in the principal amount of $
| F-12 |
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Digital
Asset Medium, LLC (Affiliate – Director) – On January 9, 2025, the Company formalized an unsecured Short-Term Promissory
Notes to Digital Asset Medium, LLC in principal amounts totaling $
D.
D’Ambrosio (Immediate Family Member of Director) – On January 1, 2023, there were six notes outstanding with outstanding
balance of the Notes of $
Francis
E. Rich (Immediate Family Member of Director) – On January 1, 2023, there were two notes outstanding with outstanding balance
of the Notes of $
Pine
Valley Investments, LLC (Affiliate – Shareholder) – On January 1, 2023, there were three Notes outstanding with outstanding
balance of the Notes of $
Whit
Cluff (Affiliate – Director) – On March 28, 2024, the Company issued an unsecured Short-Term Promissory Note to Cluff-Rich
PC 401K in the principal amount of $
9. Convertible Notes Payable
Convertible notes payable were comprised of the following as of March 31, 2026 and December 31, 2025:
Schedule of Convertible Notes Payable
| Convertible Notes Payable | March 31, 2026 | December 31, 2025 | ||||||
| Lowell Fuller | $ | $ | ||||||
| Robert Knoop | - | |||||||
| Total Convertible Notes Payable | ||||||||
| Less Unamortized Discount | - | ( | ) | |||||
| Total Convertible Notes Payable, Net of Unamortized Debt Discount | ||||||||
| Less Short-Term Convertible Notes Payable | ( | ) | ( | ) | ||||
| Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount | $ | - | $ | - | ||||
| F-13 |
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Regulation
D Convertible Notes Payable – From October through December 2025, the Company raised $
10. Stockholders’ Deficit
Common Stock
The
Company is authorized to issue
The
Company enacted a reverse stock split of
On
April 1, 2025, the Company issued
On
June 10, 2025, the Company issued
On
June 24, 2025, the Company issued
On
July 7, 2025, BluSky AI Inc., entered into an Acquisition and Power Assignment Agreement with Digital Asset Medium, LLC (“DAM”),
a Wyoming limited liability company, whose managing member, Trent D’Ambrosio, is also the Company’s CEO (see Note 5). In
exchange for the assignment of the Power Commitment in the Acquisition Agreement, the Company issued
In
August and September 2025, the Company issued
On
September 4, 2025, the Company issued
On
September 24, 2025, the Company issued
On
September 30, 2025, the Company issued
On
September 30, 2025, the Company issued
| F-14 |
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On
October 31, 2025, the Company issued
On
December 12, 2025, the Company issued
On
December 15, 2025, the Company issued
On
January 10, 2026, the Company issued
11. Related Party Transactions
Consulting
Agreement – In February 2014, the Company entered into a consulting agreement with stockholder/director Trent D’Ambrosio.
The Company agreed to pay $
Mr. Cluff currently serves as a director of the Company and has a separate agreement as a consultant of the Company effective as of October 2, 2015.
Employment
Agreements – The Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The
employment agreement was effective as of April 1, 2019 and provides for compensation of $
Notes
Payable –The Company made payments of $
Accounts
Payable –Two officers/directors of the Company have been paying expenses for the Company on their personal credit cards. The
Company has recorded these expenses and accrued the amounts in accounts payable to the individuals. As of March 31, 2026, there is $
Land
Lease Agreement – On July 11, 2025, the Company entered into a Ground Lease with an Option to Purchase (the “Lease”)
with Wild Mustang Ventures LLC, a Wyoming limited liability company (the “Landlord”), through which the Company leased
12. Commitments and Contingencies
Litigation
The Company at times is subject to other legal proceedings that arise in the ordinary course of business. The following is a summary of pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations of the Company.
March
4, 2024, the Company filed a complaint against Mother Lode Mining, Inc., a Canadian company, and Robert Salna (the “Defendants”),
alleging an amount of not less than $
13. Subsequent Events
Management has evaluated subsequent events, in accordance with ASC 855, “Subsequent Events,” through the date which the financial statements were available to be issued and there are no material subsequent events.
| F-15 |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The statements contained in the following MD&A and elsewhere throughout this Quarterly Report on Form 10-Q, including any documents incorporated by reference, that are not historical facts, including statements about our beliefs and expectations, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar words or expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect our management’s beliefs, objectives, and expectations as of the date hereof, are based on the best judgement of our management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following: economic, social and political conditions, global economic downturns resulting from extraordinary events such as the COVID-19 pandemic and other securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability for errors in clearing functions; systemic risk; systems failures, delays and capacity constraints; network security risks; competition; reliance on external service providers; new laws and regulations affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters; failure to maintain relationships with employees, customers, business partners or governmental entities; the inability to achieve synergies or to implement integration plans and other consequences associated with risks and uncertainties detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q.
We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.
This discussion should be read in conjunction with our financial statements on our 2025 Form 10-K, and our financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
Introduction to Interim Financial Statements.
The interim financial statements included herein have been prepared by BluSky AI Inc. (“BluSky AI” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.
In the opinion of management, all adjustments have been made consisting of normal recurring adjustments necessary to present fairly the financial position of the Company and subsidiaries as of March 31, 2026, the results of its statements of operations for the three-month periods ended March 31, 2026 and 2025, and its cash flows for the three-month periods ended March 31, 2026 and 2025. The results of operations for the interim periods are not necessarily indicative of the results for the full year.
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
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Overview and Plan of Operation
Overview
BluSky AI Inc., is a pioneering company in AI-driven data center solutions, combining innovation with regulatory compliance and sustainability. The Company is a modular data center provider focused on high-performance computing infrastructure, strategic site selection, and operational risk management and specializing in artificial intelligence (AI) and as a Neocloud Provider. The company is dedicated to delivering state-of-the-art infrastructure and solutions tailored to meet the demands of modern AI applications and computational workloads. The Company operates with a focus on innovation, scalability, and environmental sustainability.
Previously known as Inception Mining Inc., the company underwent a significant transformation and rebranding in March 2025 to align with its new strategic direction. This change reflects BluSky AI Inc.’s commitment to advancing technology and providing unparalleled services in the data center industry. The Company is headquartered in Salt Lake City, Utah, BluSky AI Inc.
Historically, we have operated within the mining industry, serving as a consultant to mining companies and as an operator of a mine engaged in the production of precious metals. On January 12, 2023, the Company entered into an agreement through which the Company divested its ownership interest in the Clavo Rico mine, resulting in the transfer of operations to Mother Lode Mining and full control of the Clavo Rico mine asset.
Current Operations
BluSky AI Operations
Since March 1, 2025, the Company has focused its operations on artificial intelligence compute infrastructure and participating in the dynamic and expanding AI industry. The Company has plans to grow its AI operations organically within the Company. BluSky AI was established by drawing on extensive industry expertise, insights from outside experts, and a careful evaluation of current conditions in the data center markets. The innovative concept is built around a modular design that leverages existing power infrastructure. BluSky AI plans to develop multiple data center sites across various U.S. jurisdictions, with artificial intelligence (AI) focus, specifically targeting facilities with the ability to develop power capacity or utilize existing power capacities. This strategy enables a faster time to market, scalable deployment, and a cost-effective approach that meets the evolving needs of the data center market.
BluSky AI is revolutionizing the artificial intelligence compute landscape by addressing the immediate global supply shortage with a cutting-edge, turnkey solution. Our strategy centers on rapidly deployable, plug-and-play, modular compute centers on powered land assets—sites that already possess permitted energy infrastructure. This approach not only accelerates time to market but also intends to positions BluSky AI as a premier AI compute infrastructure provider dedicated to meeting the surging demand for advanced AI services.
Results of Operations
Three months ended March 31, 2026 compared to the three months ended March 31, 2025
We had a net loss of $429,539 for the three-month period ended March 31, 2026, and a net income of $175,389 for the three-month period ended March 31, 2025. This change in our results over the two periods is primarily the result of a decrease in consulting expense, the change in the derivative liabilities and the increase in the loss on extinguishment of debt. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods ended March 31, 2026 and 2025:
| Three Months Ended March 31, | Increase/ | |||||||||||
| 2026 | 2025 | (Decrease) | ||||||||||
| General and Administrative | $ | 414,740 | $ | 146,105 | $ | 268,635 | ||||||
| Total Operating Expenses | 414,740 | 146,105 | 268,635 | |||||||||
| Income (Loss) from Operations | (414,740 | ) | (146,105 | ) | (268,635 | ) | ||||||
| Other Income (expense) | 9,512 | 96 | 9,416 | |||||||||
| Interest Income | 6,171 | - | 6,171 | |||||||||
| Change in Derivative Liabilities | 6,916 | - | 6,916 | |||||||||
| Loss on Extinguishment of Debt | (22,921 | ) | 338,673 | (361,594 | ) | |||||||
| Interest Expense | (14,477 | ) | (17,275 | ) | 2,798 | |||||||
| Income (Loss) from Operations Before Taxes | (429,539 | ) | 175,389 | (604,928 | ) | |||||||
| Provision for Income Taxes | - | - | - | |||||||||
| Net Income (Loss) | $ | (429,539 | ) | $ | 175,389 | $ | (604,928 | ) | ||||
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General and administrative expenses increased for the three-month period ended March 31, 2026 because of an increase in consulting, legal and investor relations expenses, compared to the three-month period ended March 31, 2025.
Changes in derivative liabilities was due to there being no derivative liabilities in the prior year.
Interest expense decreased for the three-month period ended March 31, 2026 because of the amendments removing the interest accruals on notes from related parties.
Liquidity and Capital Resources
Our balance sheet as of March 31, 2026 reflects assets of $2,251,361. We had cash in the amount of $562,950 and working capital deficit in the amount of $2,650,009 as of March 31, 2026. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.
Working Capital
| March 31, 2026 | December 31, 2025 | |||||||
| Current assets | $ | 724,086 | $ | 1,122,661 | ||||
| Current liabilities | 3,374,095 | 3,416,051 | ||||||
| Working capital deficit | $ | (2,650,009 | ) | $ | (2,293,390 | ) | ||
We anticipate generating losses and, therefore, may be unable to continue operations in the future, if we don’t acquire additional capital and issue debt or equity or enter into a strategic arrangement with a third party.
Going Concern Consideration
As reflected in the accompanying unaudited condensed financial statements, the Company has an accumulated deficit of $34,808,419. In addition, there is a working capital deficit of $2,650,009 as of March 31, 2026. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net Cash Provided by (Used in) Operating Activities | $ | (322,486 | ) | $ | (37,271 | ) | ||
| Net Cash Provided by (Used in) Investing Activities | - | - | ||||||
| Net Cash Provided by (Used in) Financing Activities | (75,000 | ) | 37,271 | |||||
| Net Increase (Decrease) in Cash | $ | (397,486 | ) | $ | - | |||
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Operating Activities
Net cash flow used in operating activities during the three months ended March 31, 2026 was $322,486, an increase of $285,215 from the $37,271 net cash used during the three months ended March 31, 2025. This increase in the cash used in operating activities was primarily due to the increase in net loss for 2026 that used more cash from operations for the period.
Investing Activities
Investing activities during the three months ended March 31, 2026 provided $0, a decrease of $0 from the $0 provided by investing activities during the three months ended March 31, 2025.
Financing Activities
Financing activities during the three months ended March 31, 2026 used cash of $75,000, a decrease of $112,271 from the $37,271 provided by financing activities during the three months ended March 31, 2025. During the three months ended March 31, 2026, the Company made $75,000 in payments on notes payable – related parties.
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
BluSky AI Inc. (“the Company”) is a publicly traded, development-stage enterprise specializing in the design, deployment, and operation of prefabricated modular data centers that deliver GPU-as-a-Service (“GPUaaS”) infrastructure. Operating within the emerging NeoCloud sector, the Company is focused on scalable, energy-optimized compute solutions for AI-native and enterprise customers. As of the reporting date, the Company is pre-revenue and actively evaluating multiple development sites across diverse regulatory and utility jurisdictions.
The preparation of the Company’s condensed financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosures. These estimates are based on historical experience, current conditions, and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates. The Company considers the following accounting policies and estimates to be critical to the understanding of its financial statements:
Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss), less the preferred stock dividends, by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not antidilutive. 14,696 and 0 common share equivalents have been excluded from the diluted loss per share calculation for the three-month periods ended March 31, 2026 and 2025, respectively, because it would be anti-dilutive.
Convertible Instruments and Embedded Features
The Company has issued convertible notes with features such as mandatory conversion triggers and variable conversion prices. These instruments are assessed, Debt with Conversion and Other Options, and, Derivatives and Hedging, to determine whether embedded features require bifurcation and separate accounting. Fair value estimates of such features, when applicable, are based on inputs and require significant judgment regarding volatility, discount rates, and probability-weighted outcomes.
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Fair Value Measurements
The Company applies, Fair Value Measurement, in the valuation of non-cash transactions, including equity issuances and debt conversions. Given the Company’s pre-revenue status and limited trading history, observable market inputs may be supplemented with internal valuation models to estimate the fair value of common stock and other instruments. These estimates impact the recognition of stock-based compensation, extinguishment of debt, and other equity-linked transactions.
Stock-Based Compensation
The Company will account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. The fair value of equity awards granted to employees, directors, and consultants is estimated on the grant date using the Black-Scholes option pricing model or other appropriate valuation techniques. Key assumptions include expected volatility, risk-free interest rate, expected term, and forfeiture rates. As a public company, the Company uses its own trading history to estimate volatility, supplemented by peer data where appropriate.
Going Concern Assessment
In accordance with ASC 205, Presentation of Financial Statements—Going Concern, the Company evaluates whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year from the issuance of the financial statements. This assessment includes consideration of available cash, committed financing, anticipated capital raises, and the timing of potential revenue-generating deployments. Management has concluded that, while the Company is pre-revenue, its current capital structure and financing plans indicate that the Company has substantial doubt of being able to continue as a going concern for a period of one year from the issuance of these financial statements.
Recent Accounting Pronouncements
For recent accounting pronouncements, please refer to the notes to financial statements in Part I, Item 1 of this Quarterly Report.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to include disclosures under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of March 31, 2026.
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Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On or about March 4, 2024, the Company filed a complaint against Mother Lode Mining, Inc., a Canadian company, and Robert Salna (the “Defendants”), seeking damages in an amount of not less than $2,237,800 (plus interest, additional costs and attorneys’ fees) due from Defendants as a result of their breach of their obligations and duties arising from the sale of Compañía Minera Cerros Del Sur, S.A. de C.V. in 2023 (the “Sale”). The complaint was filed in the United States District Court for the District of Utah, Central Division (Case No. 2:24-cv-00171-TS-CMR, the “Case”). On February 4, 2026, the Company and the Defendants entered into a settlement agreement resolving all disputes in connection with the Sale. Under the settlement, the parties agreed to a mutual dismissal with prejudice of all claims, counterclaims, and causes of action asserted or that could have been asserted in the Case or in any other forum. As part of the settlement, the parties executed a mutual general release of all claims and potential claims against the other parties and their affiliates.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to include disclosure under this item. We refer readers to our Form 10-K for additional risk factor disclosures.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuance of Common Stock
The Company has claimed exemption from registration under the Securities Act for the sales and issuances of securities in the following transactions under Section 4(a)(2) and 3(a)(9) of the Securities Act and/or Regulation D promulgated thereunder, in that such sales and issuances did not involve a public offering, as the shareholders were accredited and/or financially sophisticated and had adequate access, through business or other relationships, to information about the Company, and the sales did not involve a public offering of securities or any general solicitation or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation.
On January 10, 2026, the Company issued 13,694 shares of Common Stock to a lender on a Reg D convertible note payable. These shares were valued at $5.325 per share for a total of $72,920. The Company recognized a loss on extinguishment of debt of $22,920 on this conversion.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable as the Company conducts no mining operations in the U.S. or its territories.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| Exhibit Number | Exhibit Description | |
| 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form SB-2 filed October 31, 2007) | |
| 3.2 | Certificate of Amendment, effective March 5, 2010 (incorporated by reference to Exhibit 3.1 to Form 8-K filed March 10, 2010) | |
| 3.3 | Certificate of Amendment, effective June 23, 2010 (incorporated by reference to Exhibit 3.1 to Form 8-K filed June 28, 2010) | |
| 3.4 | Articles of Merger, effective May 17, 2013 (incorporated by reference to Exhibit 3.1 to Form 8-K filed May 20, 2013) | |
| 3.5 | Bylaws (incorporated by reference to Exhibit 3.2 to Form SB-2 filed October 31, 2007) | |
| 10.1 | Employment Agreement with Trent D’Ambrosio (incorporated by reference to Exhibit 10.14 to Form S-1 filed June 3, 2019) | |
| 10.2 | Note Purchase Agreement (incorporated by reference to Exhibit 10.15 to Form S-1 filed June 3, 2019) | |
| 10.3 | Senior Secured Redeemable Convertible Note (incorporated by reference to Exhibit 10.16 to Form S-1 filed June 3, 2019) | |
| 10.4 | Warrant (incorporated by reference to Exhibit 10.17 to Form S-1 filed June 3, 2019) | |
| 10.5 | Settlement Agreement with Antilles Family Office, LLC dated January 18, 2023 (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 25, 2023) | |
| 10.6 | Letter of Intent with Mother Lode Mining, Inc. effective as of January 24, 2023 (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 8, 2023) | |
| 10.7 | Acquisition and Power Assignment Agreement with Digital Asset Management, LLC (incorporated by reference to Exhibit 10.7 to Form 1-A filed February 11, 2026) | |
| 10.8 | Consulting Agreement with Dan Gay dated April 1, 2025 (incorporated by reference to Exhibit 10.8 to Form 1-A filed February 11, 2026) | |
| 10.9 | Consulting Agreement with Dan Gay dated September 1, 2025 (incorporated by reference to Exhibit 10.9 to Form 1-A filed February 11, 2026) | |
| 31.1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | Certification of Chief Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BLUSKY AI INC. | ||
| Date: May 14, 2026 | By: | /s/ Trent D’Ambrosio |
| Name: | Trent D’Ambrosio | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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