What changed in this filing

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Item 1. Financial Statements

2024-01-16 compared with 2023-10-10 · 220 added, 165 removed, 312 unchanged (55% of the section changed)

3 unchanged sentences

(In thousands, except share and par value data)

August 31, 2023 May 31, 2023

November 30, 2023 May 31, 2023

Current assets:

30 unchanged sentences

Stockholders' equity:

Common stock, $ 0.001 par value, 166,666,667 shares authorized, 110,850,885 shares issued and 105,849,157 shares outstanding at August 31, 2023, and 100,927,358 shares issued and 95,925,630 shares outstanding at May 31, 2023

Treasury stock, 5,001,728 shares at August 31, 2023 and 5,001,728 shares at May 31, 2023, at cost

Common stock, $ 0.001 par value, 166,666,667 shares authorized, 122,734,060 shares issued and 117,732,332 shares outstanding at November 30, 2023, and 100,927,358 shares issued and 95,925,630 shares outstanding at May 31, 2023

Treasury stock, 5,001,728 shares at November 30, 2023 and 5,001,728 shares at May 31, 2023, at cost

( 62 ) ( 62 )

4 unchanged sentences

Total stockholders' equity including noncontrolling interest 155,658 69,679

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 349,153 $ 263,957

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 480,654 $ 263,957

See accompanying notes to the condensed consolidated financial statements

Table of Conten ts

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

Three Months Ended

August 31, 2023 August 31, 2022

Hosting revenue $ 29,987 $ 4,338

(In thousands, except share and per share data)

Three Months Ended Six Months Ended

November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Datacenter hosting revenue $ 34,119 $ 8,747 $ 64,106 $ 13,086

Cloud services revenue 4,450 — 6,602 —

Related party hosting revenue 4,184 2,586

Related party datacenter hosting revenue 3,634 3,593 7,819 6,178

Total revenue 42,203 12,340 78,527 19,264

2 unchanged sentences

Selling, general and administrative 21,075 27,226 38,127 32,245

Loss from legal settlement

Total costs and expenses 50,377 39,038 94,127 50,150

Operating loss ( 8,174 ) ( 26,698 ) ( 15,600 ) ( 30,886 )

Interest Expense 2,074 356

Interest expense, net 2,355 364 4,430 709

Loss on extinguishment of debt — — 2,353 94

Loss from legal settlement

Net loss before income tax expenses ( 10,529 ) ( 27,062 ) ( 22,383 ) ( 31,689 )

Income tax expense — 32

Income tax expense (benefit) — ( 312 ) — ( 280 )

Net loss ( 10,529 ) ( 26,750 ) ( 22,383 ) ( 31,409 )

1 unchanged sentence

Net loss attributable to Applied Digital Corporation $ ( 10,529 ) $ ( 26,617 ) $ ( 21,986 ) $ ( 31,148 )

Basic and diluted net (loss) gain per share:

Basic and diluted net loss per share $ ( 0.12 ) $ ( 0.05 )

Basic and diluted net loss per share attributable to Applied Digital Corporation $ ( 0.10 ) $ ( 0.28 ) $ ( 0.21 ) $ ( 0.33 )

Basic and diluted weighted average number of shares outstanding 109,663,030 93,422,427 105,067,375 93,263,266

See accompanying notes to the condensed consolidated financial statements

Table of Conten ts

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended August 31, 2023 and August 31, 2022

For the Three Months ended November 30, 2023 and November 30, 2022

(In thousands, except share data)

3 unchanged sentences

Shares Amount Shares Amount

Balance, August 31, 2023 110,850,885 $ 110 ( 5,001,728 ) $ ( 62 ) $ 240,073 $ ( 112,173 ) $ 127,948 $ — $ 127,948

Shares issued in offering, net of costs 6,879,070 8 — — 33,432 — 33,440 — 33,440

Shares issued from award vestings 5,004,105 5 — — ( 5 ) — — — —

Stock-based compensation — — — — 4,799 — 4,799 — 4,799

Net loss — — — — — ( 10,529 ) ( 10,529 ) — ( 10,529 )

Balance, November 30, 2023 122,734,060 $ 123 ( 5,001,728 ) $ ( 62 ) $ 278,299 $ ( 122,702 ) $ 155,658 $ — $ 155,658

Common Stock Treasury Stock Additional

Stockholders’

Noncontrolling interest

Shares Amount Shares Amount

Balance, August 31, 2022 97,837,703 $ 98 ( 5,001,728 ) $ ( 62 ) $ 128,872 $ ( 60,601 ) $ 68,307 $ 8,594 $ 76,901

Shares issued from award vestings 1,110,379 1 — — ( 1 ) — — — —

Stock-based compensation — — — — 21,819 — 21,819 — 21,819

Net loss — — — — — ( 26,617 ) ( 26,617 ) ( 133 ) ( 26,750 )

Balance, November 30, 2022 98,948,082 $ 99 $ ( 5,001,728 ) $ ( 62 ) $ 150,690 $ ( 87,218 ) $ 63,509 $ 8,461 $ 71,970

See accompanying notes to the condensed consolidated financial statements

Table of Conten ts

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended November 30, 2023 and November 30, 2022

(In thousands, except share data)

Common Stock Treasury Stock Additional

Stockholders’

Noncontrolling interest

Shares Amount Shares Amount

Balance, May 31, 2023 100,927,358 $ 101 $ ( 5,001,728 ) $ ( 62 ) $ 160,194 $ ( 100,716 ) $ 59,517 $ 10,162 $ 69,679

4 unchanged sentences

Extinguishment of noncontrolling interest 1,484,267 1 — — 9,764 — 9,765 ( 9,765 ) —

Balance, August 31, 2023 110,850,885 $ 110 ( 5,001,728 ) $ ( 62 ) $ 240,073 $ ( 112,173 ) $ 127,948 $ — $ 127,948

Balance, November 30, 2023 122,734,060 $ 123 ( 5,001,728 ) $ ( 62 ) $ 278,299 $ ( 122,702 ) $ 155,658 $ — $ 155,658

Common Stock Treasury Stock Additional

3 unchanged sentences

Balance, May 31, 2022 97,837,703 $ 98 ( 36,296 ) $ ( 62 ) $ 128,293 $ ( 56,070 ) $ 72,259 $ 6,976 $ 79,235

Shares issued from award vestings 1,110,379 1 — — ( 1 ) — — — —

Stock-based compensation — — — — 22,398 — 22,398 — 22,398

2 unchanged sentences

Net loss — — — — — ( 31,148 ) ( 31,148 ) ( 261 ) ( 31,409 )

Balance, August 31, 2022 97,837,703 $ 98 ( 5,001,728 ) $ ( 62 ) $ 128,872 $ ( 60,601 ) $ 68,307 $ 8,594 $ 76,901

Balance, November 30, 2022 98,948,082 $ 99 ( 5,001,728 ) $ ( 62 ) $ 150,690 $ ( 87,218 ) $ 63,509 $ 8,461 $ 71,970

See accompanying notes to the condensed consolidated financial statements

Table of Conten ts

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)

Three Months Ended

August 31, 2023 August 31, 2022

Six Months Ended

November 30, 2023 November 30, 2022

CASH FLOW FROM OPERATING ACTIVITIES

5 unchanged sentences

Loss on extinguishment of debt 2,353 94

Loss from legal settlement

Amortization of debt issuance costs 352 —

5 unchanged sentences

Related party customer deposits — 381

Current deferred revenue

Current related party deferred revenue ( 553 ) —

Deferred revenue

Related party deferred revenue 429 370

Accounts payable 6,442 ( 6,844 )

16 unchanged sentences

Payment of deferred financing costs — ( 378 )

Tax payments for restricted stock upon vesting — ( 43 )

Noncontrolling interest contributions — 1,747

Proceeds from issuance of common stock 64,482 —

Proceeds from issuance of common stock, net of costs 97,922 —

CASH FLOW PROVIDED BY FINANCING ACTIVITIES 47,612 14,101

9 unchanged sentences

Conversion of non-controlling interest $ 9,765 $ —

Loss from legal settlement

See accompanying notes to the condensed consolidated financial statements

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (unaudited)

For the Three Months Ended August 31, 2023

For the Three and Six Months Ended November 30, 2023

Business and Organization

Applied Digital Corporation (the “Company”), is a designer, builder, and operator of next generation digital infrastructure providing cost-competitive solutions to customers in High-Performance Compute (“HPC”), artificial intelligence cloud service (“Cloud services”), and datacenter hosting (“Hosting”) industries.

Applied Digital Corporation (the “Company”), is a designer, builder, and operator of digital infrastructure providing cost-competitive solutions to customers.

The Company has three reportable segments.

9 unchanged sentences

Significant Accounting Policies and Use of Estimates

There were no material changes in the Company’s significant accounting policies for the three months ended August 31, 2023 as compared to the year ended May 31, 2023.

See Note 3 - Property and Equipment to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2023, as filed with the SEC, for additional information regarding the Company’s significant accounting policies and use of estimates.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods.

3 unchanged sentences

The Company recognizes revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers.

Hosting Revenue

Datacenter Hosting Revenue

The Company provides energized space to customers who locate their hardware within the Company’s co-hosting facility.

All hosting performance obligations are achieved simultaneously by providing the hosting environment for the customers’ operations.

Customers pay a fixed rate to the Company in exchange for a managed hosting environment supported by Company-provided equipment.

Hosting revenues are recorded monthly in fixed amounts, net of credits for non-performance, based on the terms of the agreements.

Any ancillary revenue for maintenance or installation services is at a point in time when the customer has received the full service.

As these services support the hosting operation as a whole, this revenue is captured within the hosting revenue caption.

All datacenter hosting performance obligations are achieved simultaneously by providing the hosting environment for the customers’ operations.

Customers pay a fixed rate to the Company in exchange for a managed hosting environment supported by customer-provided equipment.

Revenue is recognized based on the contractual fixed rate, net of any credits for non-performance, over the term of the agreements.

Any ancillary revenue for maintenance or installation services is at a point in time when the maintenance or installation service is complete.

As these services are directly attributable to the Company’s datacenter hosting service, this revenue is captured within the datacenter hosting revenue caption in our condensed consolidated statements of operations.

Customer contracts include advance payment terms.

Advanced payments are recorded as deferred revenue until the related service is provided.

All advanced service payments are recorded as deferred revenue and are recognized as revenue once the related service is provided.

Cloud Services Revenue

The Company also provides managed cloud infrastructure services to customers, such as artificial intelligence and machine learning developers, to help develop their advanced products.

Customers pay a fixed rate to the Company in exchange for managed cloud services supported by Company-provided equipment.

Revenues are recognized based on the fixed rate, net of any credits for non-performance, over the term of the agreements.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

Cloud Services Revenue

The Company also provides cloud services applicable to artificial intelligence.

Customers pay a rate to the Company in exchange for managed services supported by Company-provided equipment.

Revenues are recorded based on the fixed rate, net of any credits for non-performance, based on the terms of the agreements.

For the Three and Six Months Ended November 30, 2023

The Company has identified three reportable segments:

artificial intelligence cloud services (“Cloud services”), high performance computing (“HPC”) datacenter hosting, and datacenter hosting (“Hosting”).

Our chief operating decision-maker evaluates performance, makes operating decisions and allocates resources on both a consolidated basis and on these three reportable segments.

cloud services (“Cloud services”), high-performance compute hosting (“HPC hosting”), and datacenter hosting (“Datacenter hosting”).

The Company’s chief operating decision-maker evaluates performance, makes operating decisions and allocates resources on both a consolidated basis and on the basis of these three reportable segments.

Intercompany transactions between segments are excluded for management reporting purposes.

The Cloud services segment operates through our Sai Computing brand and provides cloud services applicable to artificial intelligence.

The Datacenter hosting segment operates datacenters to provide energized space to crypto mining customers.

Customer-owned hardware is installed in the Company’s facilities and the Company provides operational and maintenance services for a fixed fee.

The Cloud services segment operates through our Sai Computing brand and provides cloud services to customers, such as artificial intelligence and machine learning developers, to develop their advanced products.

Customers pay a fixed rate to the Company in exchange for a managed hosting environment supported by Company-provided equipment.

The HPC datacenter segment designs, builds, and operates next generation datacenters which are designed to provide massive computing power and support high-compute applications within a cost-effective model.

The Hosting segment provides infrastructure, including energized space, and colocation services to crypto mining customers.

Customers place hardware they own into the Company’s facilities and the Company provides operational and maintenance services for a fixed fee.

The HPC hosting segment designs, builds, and operates datacenters which are designed to support high-compute applications using advanced and sophisticated infrastructures to provide services to customers.

See Note 3 - Basis of Presentation and Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2023, as filed with the SEC, for additional information regarding the Company’s significant accounting policies and use of estimates.

Recent Accounting Pronouncements

1 unchanged sentence

Reclassifications

We have reclassified certain prior period revenue amounts from hosting revenue to cloud services revenue and related party revenue on our condensed consolidated statements of operations.

We have also reclassified amounts from accounts payable and accrued expenses and prepaid expenses and other current assets to accounts payable, accrued expenses, prepaid expenses, and other current assets as well as from customer deposits and deferred revenue to the associated related party caption lines in our condensed consolidated balance sheets to conform to our current period presentation.

We have reclassified certain prior period revenue amounts from datacenter hosting revenue to related party datacenter hosting revenue on our condensed consolidated statements of operations.

We have also reclassified amounts from accounts payable and accrued expenses and prepaid expenses and other current assets to accounts payable, accrued expenses, prepaid expenses, and other current assets as well as from customer deposits and deferred revenue to the associated related party caption lines and from prepaid expenses and other current assets to other assets in our condensed consolidated balance sheets to conform to our current period presentation.

Lastly, we have reclassified interest income from selling, general and administrative to interest expense, net in our condensed consolidated statement of operations to conform to our current period presentation.

These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of August 31, 2023 and August 31, 2022 were as follows (in thousands):

August 31, 2023 May 31, 2023

Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of November 30, 2023 and May 31, 2023 were as follows (in thousands):

November 30, 2023 May 31, 2023

Net Cash & Equivalents $ 9,217 $ 28,999

3 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

For the Three and Six Months Ended November 30, 2023

Property and Equipment

Property and equipment consisted of the following as of August 31, 2023, and May 31, 2023 (in thousands):

Estimated Useful Life August 31,

Hosting equipment

Property and equipment consisted of the following as of November 30, 2023, and May 31, 2023 (in thousands):

Estimated Useful Life November 30,

Electric generation and transformers 15 years $ 13,169 $ 4,655

10 unchanged sentences

Property and equipment, net $ 258,508 $ 195,593

Depreciation expense totaled $ 2.2 million and $ 0.8 million and for the three months ended August 31, 2023 and 2022, respectively.

Depreciation expense totaled $ 2.6 million and $ 4.9 million for the three and six months ended November 30, 2023 and $ 0.8 million and $ 1.7 million for the three and six months ended November 30, 2022.

Revenue from Contracts with Customers

Below is a summary of the Company’s revenue concentration by major customers for the three months ended August 31, 2023 and 2022, respectively.

Three Months Ended August 31,

Below is a summary of the Company’s revenue concentration by major customers for the three and six months ended November 30, 2023 and 2022, respectively.

Three Months Ended November 30, Six Months Ended November 30,

2023 2022 2023 2022

Customer A 70 % — % 69 % — %

4 unchanged sentences

Customer F — % 12 % — % 13 %

Customer G 11 % — % — % — %

Deferred Revenue

As of August 31, 2023, the Company had $ 51.8 million in deferred revenue, which represents the Company’s remaining performance obligations, and expects to recognize the entire balance within the next 12 months.

Changes in the Company's deferred revenue balances for the three months ended August 31, 2023 and 2022, respectively, are shown in the following tables (in thousands):

Three Months Ended

August 31, 2023 August 31, 2022

As of November 30, 2023, the Company had $ 52.0 million in deferred revenue (inclusive of related party deferred revenue), which represents the Company’s remaining performance obligations, and expects to recognize the entire balance

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

within the next 12 months.

Changes in the Company's deferred revenue balances for the six months ended November 30, 2023 and 2022, respectively, are shown in the following tables (in thousands):

Six Months Ended

November 30, 2023 November 30, 2022

Balance, beginning of period $ 48,692 $ 3,877

1 unchanged sentence

Revenue recognized ( 78,527 ) ( 19,264 )

Other adjustments — 135

Related party balances ( 1,953 ) ( 1,639 )

Balance, end of period $ 50,051 $ 27,755

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

Customer Deposits

Changes in the Company's customer deposits balances for the three months ended August 31, 2023 and 2022, respectively, are shown in the following table (in thousands):

Three Months Ended

August 31, 2023 August 31, 2022

Changes in the Company's customer deposits balances for the six months ended November 30, 2023 and 2022, respectively, are shown in the following table (in thousands):

Six Months Ended

November 30, 2023 November 30, 2022

Balance, beginning of period $ 36,370 $ 9,524

Customer deposits received 4,274 15,300

Customer deposits refunded — —

Other adjustments — ( 135 )

Related party balances ( 3,811 ) ( 1,940 )

Balance, end of period $ 36,833 $ 22,749

1 unchanged sentence

Related Party Revenue

The following table illustrates related party revenue for the three months ended August 31, 2023 and August 31, 2022 (in thousands):

Three Months Ended August 31,

The following table illustrates related party revenue for the three and six months ended November 30, 2023 and November 30, 2022 (in thousands):

Three Months Ended November 30, Six Months Ended November 30,

2023 2022 2023 2022

Customer D* $ 1,986 $ 1,996 $ 4,319 $ 3,446

2 unchanged sentences

** Customer E is 60 % owned by an individual who is deemed to beneficially own over 5 % of the Company's outstanding common stock

The following table illustrates related party deferred revenue and deposits balances as of August 31, 2023 and May 31, 2023 (in thousands):

The following table illustrates related party deferred revenue and deposits balances as of November 30, 2023 and May 31, 2023 (in thousands):

Customer D balances as of Customer E balances as of

August 31, 2023 May 31, 2023 August 31, 2023 May 31, 2023

November 30, 2023 May 31, 2023 November 30, 2023 May 31, 2023

Deferred revenue $ 1,470 $ 1,474 $ 483 $ 50

Customer Deposits $ 2,450 $ 2,450 $ 1,361 $ 1,361

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

Related Party Sublease Income

For three months ended August 31, 2023 and August 31, 2022, the Company received sublease income of $ 23 thousand and $ 27 thousand, respectively, from B.

The Company receives sublease income from B.

Riley Asset Management, which is also a wholly-owned subsidiary of B.

2 unchanged sentences

Riley Asset Management.

Long-term debt consisted of the following components (in thousands):

August 31, 2023 May 31, 2023

6.50 % Starion term loan

$ 12,109 $ 12,786

6.15 % Vantage Garden City loan

13,154 10,074

7.48 % Starion Ellendale loan

The following table illustrates related party revenue for the three and six months ended November 30, 2023 and November 30, 2022 (in thousands):

Three Months Ended November 30, Six Months Ended November 30,

2023 2022 2023 2022

Sublease Income $ 24 $ 30 $ 47 $ 58

During the six months ended November 30, 2023, the Company borrowed an additional $ 8.0 million and repaid the outstanding balance of $ 44.5 million.

Interest expense associated with the loan was $ 0.5 million for the six months ended November 30, 2023.

Total remaining unused capacity on the B.

Riley Loan as of November 30, 2023, was $ 5.5 million.

Long-term debt consisted of the following components (in thousands):

Interest Rate Maturity Date November 30, 2023 May 31, 2023

Starion term loan 6.50 % July 25, 2027 $ 11,428 $ 12,786

Vantage Garden City loan 6.15 % April 26, 2028 13,427 10,074

Starion Ellendale loan 7.48 % February 3, 2028 17,974 19,728

Other long-term debt 372 354

Debt issuance costs, net of amortization ( 463 ) ( 3,012 )

Deferred financing costs, net of amortization ( 421 ) ( 3,012 )

Current portion of term loan ( 9,279 ) ( 7,950 )

Long-term debt, net $ 33,501 $ 31,980

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

Letters of Credit

As of August 31, 2023, the Company had letters of credit totaling $ 25.3 million.

As of May 31, 2023, the Company had letters of credit totaling $ 14.5 million.

The Company has restricted cash related to its letters of credit and is required to keep these balances in separate accounts for the duration of the letter of credit agreements, which all have terms ending within the 12 months following August 31, 2023.

On May 23, 2023, Sai Computing LLC, a wholly-owned subsidiary of the Company (“SAI”), entered into a Loan and Security Agreement (the "B.

Riley Loan") with B.

Riley Commercial Capital, LLC and B.

Riley Securities, with the Company as Guarantor.

Riley Loan provides for a term loan of up to $ 50 million in the principal with an interest rate of 9.00 % per annum and a 3 % commitment fee on outstanding balances as of each quarter.

The proceeds of the B.

Riley Loan are being used to provide additional liquidity to help fund the buildout of the Company’s recently announced cloud services platform and datacenters by the Company, and for general corporate purposes and working capital.

As of August 31, 2023, the Company had repaid all balances on the loans.

Total remaining unused capacity on the B.

Riley Loan as of August 31, 2023 was $ 10.5 million.

Remaining Principal Payments

Below is a summary of the remaining principal payments due over the life of the term loans as of August 31, 2023 (in thousands):

Below is a summary of the remaining principal payments due over the life of the term loans as of November 30, 2023 (in thousands):

Remainder of FY24 $ 4,645

Total $ 43,201

Letters of Credit

As of November 30, 2023, the Company had letters of credit totaling $ 25.4 million.

Stockholders' Equity

On October 9, 2021, the Company’s Board of Directors approved two equity incentive plans, which the Company’s stockholders approved on January 20, 2022.

The two plans consist of the 2022 Incentive Plan, previously referred to in the Company’s SEC filings as the 2021 Incentive Plan (the “Incentive Plan”), which provides for grants of various equity awards to the Company’s employees and consultants, and the 2022 Non-Employee Director Stock Plan previously referred to in the Company’s SEC filings as the 2021 Non-Employee Director Stock Plan (the “Director Plan” and, together with the Incentive Plan, the “Plans”), which provides for grants of restricted stock to non-employee directors and for deferral of cash and stock compensation if such deferral provisions are activated at a future date.

As of August 31, 2023, the Company had issued awards for approximately 13.8 million shares of common stock of the Company (the “Common Stock”) under the plans.

Restricted Stock Awards

As of August 31, 2023, total remaining expense to be recognized related to these awards was $ 0.3 million and the weighted average remaining recognition period for the unvested awards was 0.2 years.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

For the Three and Six Months Ended November 30, 2023

awards to the Company’s employees and consultants, and the 2022 Non-Employee Director Stock Plan previously referred to in the Company’s SEC filings as the 2021 Non-Employee Director Stock Plan (the “Director Plan” and, together with the Incentive Plan, the “Plans”), which provides for grants of restricted stock to non-employee directors and for deferral of cash and stock compensation if such deferral provisions are activated at a future date.

As of November 30, 2023, the Company had issued awards for approximately 14.2 million shares of common stock of the Company (the “Common Stock”) under the plans.

During the three and six months ended November 30, 2023 the Company recognized $ 4.8 million and $ 10.4 million in stock-based compensation.

Restricted Stock Awards

The following is a summary of the activity and balances for unvested restricted stock awards granted for the six months ended November 30, 2023:

Number of Shares Weighted Average Grant Date Fair Value Per Share

Outstanding as of May 31, 2023

380,955 $ 2.22

Granted 202,110 4.75

Vested ( 380,955 ) 2.22

Forfeited — —

Outstanding as of November 30, 2023

202,110 $ 4.75

As of November 30, 2023, total remaining expense to be recognized related to these awards was $ 0.9 million and the weighted average remaining recognition period for the unvested awards was 0.9 years.

Restricted Stock Units

The Company has granted restricted stock unit awards (“RSUs”) to certain consultants and full-time employees.

The following is a summary of the activity and balances for unvested restricted stock units granted for the three months ended August 31, 2023:

The following is a summary of the activity and balances for unvested restricted stock units granted for the six months ended November 30, 2023:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 305,110 ) 2.43

Outstanding as of August 31, 2023

Outstanding as of November 30, 2023

8,347,447 $ 3.42

As of August 31, 2023, total remaining expense to be recognized related to these awards was $ 32.3 million and the weighted average remaining recognition period for the unvested awards was 1.9 years.

As of November 30, 2023, total remaining expense to be recognized related to these awards was $ 29.2 million and the weighted average remaining recognition period for the unvested awards was 2.1 years.

Public Offering

During the three months ended August 31, 2023, the Company began issuing and selling common stock under an "at the market" sale agreement pursuant to which the Company may sell up to $ 125 million in shares of Common Stock.

As of August 31, 2023, the Company has sold approximately 7.9 million shares.

During the six months ended November 30, 2023, the Company began issuing and selling common stock under an "at the market" sale agreement pursuant to which the Company may sell up to $ 125 million in aggregate proceeds of Common Stock.

As of November 30, 2023, the Company has sold approximately 14.8 million shares.

Net proceeds, less commission and legal fees of approximately $ 3.3 million, were approximately $ 97.9 million.

2 unchanged sentences

The Company is now the sole member of 1.21 Gigawatts LLC and will report all activity as attributable to the Company in future periods.

The Company enters into leases for hosting equipment, office space, and land.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

The Company enters into leases for equipment, office space, and land.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

1 unchanged sentence

Components of lease expense were as follows (in thousands):

Three months ended

August 31, 2023 August 31, 2022

Three Months Ended Six Months Ended

November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Operating lease cost:

4 unchanged sentences

Amortization of right-of-use assets (1)

10,860 735 16,490 1,033

Interest on lease liabilities 1,659 183 2,741 292

Total finance lease cost 12,519 918 19,231 1,325

Variable lease cost 40 — 77 —

Sublease Income ( 24 ) ( 30 ) ( 47 ) ( 58 )

1 unchanged sentence

(1) Amortization of right-of-use assets is included within depreciation expense, and is recorded within cost of revenues and selling, general and administrative expense in the condensed consolidated statements of operations.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

The following table represents the Company’s future minimum lease payments as of May 31, 2023:

The following table represents the Company’s future minimum lease payments as of November 30, 2023:

Operating Leases Finance Leases Total

10 unchanged sentences

Long-term portion of lease liability $ 52,324 $ 36,748 $ 89,072

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

Supplemental cash flow and other information related to leases is as follows:

Three Months Ended

August 31, 2023 August 31, 2022

Six Months Ended

November 30, 2023 November 30, 2022

Weighted-average years remaining (in years):

4 unchanged sentences

Operating leases 7.9 % 12.5 %

The Company has entered into operating leases which are executed but not yet commenced with total minimum payments of approximately $ 143.4 million to support the Company's Cloud service business.

The payments are for various leases with various lease terms ranging from 60 months to 84 months.

The Company has entered into operating leases which are executed but not yet commenced with total minimum payments of approximately $ 130.4 million.

The payments are for various leases with terms ranging from 2 years to 7 years.

Commitments and Contingencies

Energy Commitment

The Company also has a minimum commitment of approximately $ 95.7 million related to the energy services agreement for its Jamestown, North Dakota cohosting facility with a remaining term of approximately 3.5 years as of August 31, 2023.

The Company also has a minimum commitment of approximately $ 89.2 million related to the energy services agreement for its Jamestown, North Dakota co-hosting facility with a remaining term of approximately 3.2 years as of November 30, 2023.

Claims and Litigation

5 unchanged sentences

The complaint alleges that the defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies.

Specifically, the complaint alleges that the Company overstated the profitability of its datacenter hosting business and its ability to successfully transition into a low-

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

cost cloud services provider and that the Company’s board of directors was not “independent” within the meaning of NASDAQ listing rules.

Specifically, the complaint alleges that the Company overstated the profitability of its datacenter hosting business and its ability to successfully transition into a low-cost cloud services provider and that the Company’s board of directors was not “independent” within the meaning of NASDAQ listing rules.

On November 15, 2023, a putative securities complaint, captioned Robert Weich v.

Wes Cummins, Chuck Hastings, Kelli McDonald, Douglas Miller, Virginia Moore, and Richard Nottenburg, No.

A-23-881629-C, was filed in the U.S.

District Court for Clark County, Nevada against certain members of Applied Digital Corporation’s Board of Directors and two of its officers, Chief Executive Officer Wesley Cummins and Chief Financial Officer David Rench, asserting breaches of fiduciary duties and unjust enrichment from April 2022 through the present.

The complaint alleges that the defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies.

The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this action.

If an unfavorable action were to occur, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.

As of August 31, 2023 and May 31, 2023, there were no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated operations.

As of November 30, 2023, there were no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated operations.

There are also no legal proceedings in which any of the Company’s management or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

Settlement of Potential Claim

Subsequent to August 31, 2023, the Company entered into a settlement agreement in respect of employment-related claims by a former executive.

The terms of the settlement include payment to the claimant of $ 2.3 million, which was included in accrued liabilities on the condensed consolidated balance sheets as of August 31, 2023.

During the second quarter of fiscal year 2024, the Company entered into a settlement agreement with respect to employment-related claims by a former executive.

The terms of the settlement included payment to the claimant of $ 2.3 million, which is included in Loss on legal settlement on our condensed consolidated statements of operations.

Business Segments

Revenue by segment (excluding HPC as that segment has no revenue) was as follows (in thousands):

Three Months Ended

August 31, 2023 August 31, 2022

Revenue by segment (excluding HPC hosting as that segment has no revenue) was as follows (in thousands):

Three Months Ended Six Months Ended

November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Datacenter hosting segment $ 37,753 $ 12,340 $ 71,925 $ 19,264

Cloud services segment

Hosting segment

4,450 — 6,602 —

Total revenue $ 42,203 $ 12,340 $ 78,527 $ 19,264

Segment profit and a reconciliation to net income (loss) before income tax expenses is as follows (in thousands):

Three Months Ended

August 31, 2023 August 31, 2022

Segment Profit:

Segment profit (loss) and a reconciliation to net loss before income tax expenses is as follows (in thousands):

Three Months Ended Six Months Ended

November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Segment Profit (Loss):

Datacenter hosting segment $ 10,846 $ ( 14,236 ) $ 19,804 $ ( 15,101 )

Cloud services segment

( 11,719 ) — ( 19,129 ) —

Hosting segment

8,958 ( 658 )

HPC hosting segment ( 908 ) — ( 1,662 ) —

Total segment profit 794 ( 658 )

Total segment loss ( 1,781 ) ( 14,236 ) ( 987 ) ( 15,101 )

( 6,393 ) ( 12,462 ) ( 14,613 ) ( 15,785 )

Interest expense 2,074 356

Interest expense, net 2,355 364 4,430 709

Loss on debt extinguishment — — 2,353 94

Income before income taxes $ ( 11,854 ) $ ( 4,627 )

Net loss before income tax expenses $ ( 10,529 ) $ ( 27,062 ) $ ( 22,383 ) $ ( 31,689 )

(1) Other includes corporate related items not allocated to reportable segments.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

We also provide the following additional segment disclosures (in thousands):

Three Months Ended

August 31, 2023 August 31, 2022

Three Months Ended Six Months Ended

November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Depreciation and amortization:

Cloud services segment

Hosting segment

HPC hosting segment 126 —

Total depreciation and amortization $ 7,860 $ 1,136

Capital expenditures:

Datacenter hosting segment $ 4,365 $ 1,568 $ 7,564 $ 2,692

Cloud services segment

Hosting segment

8,782 — 13,290 —

HPC hosting segment 184 — 311 —

Total capital expenditures $ 75,659 $ 33,097

Total depreciation and amortization $ 13,424 $ 1,568 $ 21,284 $ 2,704

(1) Other includes corporate related items not allocated to reportable segments.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

Information on segment assets and a reconciliation to consolidated assets are as follows (in thousands):

August 31, 2023 May 31, 2023

November 30, 2023 May 31, 2023

Datacenter hosting segment $ 232,747 $ 224,447

Cloud services segment

166,536 3,127

Hosting segment

232,451 224,447

HPC hosting segment 54,748 10,949

8 unchanged sentences

The table below shows the calculation for earnings per share:

Three Months Ended

August 31, 2023 August 31, 2022

Three Months Ended Six Months Ended

November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Net loss $ ( 10,529 ) $ ( 26,750 ) $ ( 22,383 ) $ ( 31,409 )

1 unchanged sentence

Net loss attributable to Applied Digital Corporation $ ( 10,529 ) $ ( 26,617 ) $ ( 21,986 ) $ ( 31,148 )

Basic and diluted net (loss) gain per share:

Basic and diluted net loss per share $ ( 0.12 ) $ ( 0.05 )

Basic and diluted net loss per share attributable to Applied Digital Corporation $ ( 0.10 ) $ ( 0.28 ) $ ( 0.21 ) $ ( 0.33 )

Basic and diluted weighted average number of shares outstanding 109,663,030 93,422,427 105,067,375 93,263,266

Subsequent Events

At-The-Market Common Stock Offering

The Company completed sales of common stock under the “at the market” common stock sale agreement dated June 26, 2023.

The Company sold approximately 4.2 million shares subsequent to November 30, 2023.

Net proceeds from these sales, less commission fees of approximately $ 0.7 million, are approximately $ 23.1 million.

Indemnification Agreements

On January 13, 2024, the Company entered into an individual Indemnification Agreement with each member of its Board of Directors.

The Indemnification Agreements generally provide that the Company will indemnify the indemnitees, to the fullest extent permitted by applicable law, against liabilities that may arise by reason of their status with, or service to, the Company.

The Indemnification Agreements also generally provide that the Company advance expenses incurred by the indemnitees as a result of any proceeding related to such matters.

Conditional Agreement

On January 15, 2024, the Company entered into a conditional agreement to provide HPC datacenter capacity at its Ellendale, North Dakota campus, subject to finalization of definitive lease documents.

The conditional agreement is for a total of 100 MWs for a term of 10 years, with a total value of approximately $ 2.2 billion over such 10 year term.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2023

Subsequent Events

SAI borrowed an additional $ 5.0 million under the remaining capacity from the existing B.

Riley Loan that the Company entered into in May 2023.

For the Three and Six Months Ended November 30, 2023

conditional agreement is conditioned upon each party securing satisfactory financing for the completion of construction, with the ability of each party to terminate within 45 days, without penalty, if the condition is not satisfied.

Other Agreements

Subsequent to November 30, 2023, the Company entered into three additional agreements for services in our cloud services and datacenter hosting segments totaling a combined $ 104.4 million over a weighted average term of 32 months.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements