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Item 1. Financial Statements

2024-04-11 compared with 2024-01-16 · 343 added, 166 removed, 366 unchanged (58% of the section changed)

3 unchanged sentences

(In thousands, except share and par value data)

November 30, 2023 May 31, 2023

February 29, 2024 May 31, 2023

Current assets:

3 unchanged sentences

Prepaid expenses and other current assets 6,127 2,012

Current assets held for sale

Total current assets 105,701 45,668

12 unchanged sentences

Customer deposits

32,410 32,560

Related party customer deposits

Deferred revenue

63,121 47,168

Related party deferred revenue

Sales and use tax payable 4 1,630

Current liabilities held for sale

Total current liabilities 349,160 115,460

7 unchanged sentences

Stockholders' equity:

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

Common stock, $ 0.001 par value, 166,666,667 shares authorized, 127,486,937 shares issued and 122,417,839 shares outstanding at February 29, 2024, and 100,927,358 shares issued and 95,925,630 shares outstanding at May 31, 2023

Treasury stock, 5,069,098 shares at February 29, 2024 and 5,001,728 shares at May 31, 2023, at cost

( 62 ) ( 62 )

6 unchanged sentences

See accompanying notes to the condensed consolidated financial statements

Table of Conten ts

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

(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 datacenter hosting revenue 3,634 3,593 7,819 6,178

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Revenue $ 40,284 $ 10,054 $ 110,993 $ 23,139

Related party revenue 3,064 4,036 10,883 10,215

Total revenue 43,348 14,090 121,876 33,354

1 unchanged sentence

Cost of revenues (1)

47,061 10,533 102,051 28,450

Selling, general and administrative (2)

30,386 10,546 67,142 42,779

Loss on classification as held for sale

21,723 — 21,723 —

Loss from legal settlement — — 2,380 —

2 unchanged sentences

Interest expense, net (3)

4,404 352 8,836 1,061

Loss on change in fair value of related party debt 2,612 — 2,612 —

Loss on extinguishment of debt (4)

Net loss before income tax expenses ( 62,838 ) ( 7,341 ) ( 85,221 ) ( 39,030 )

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

Income tax benefit — — — ( 280 )

Net loss ( 62,838 ) ( 7,341 ) ( 85,221 ) ( 38,750 )

3 unchanged sentences

Basic and diluted weighted average number of shares outstanding 121,426,622 94,119,944 110,500,556 93,545,687

(1) Includes cost of revenues attributable to related party revenues of $ 2.5 million and $ 3.1 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $ 6.6 million and $ 8.8 million for the nine months ended February 29, 2024 and February 28, 2023, respectively.

(2) Includes related party selling, general and administrative expense of $ 0.1 million and $ 0.5 million for the three and nine months ended February 29, 2024, respectively.

There was no related party selling, general and administrative expense incurred during the three and nine months ended February 28, 2023.

(3) Includes related party interest expense of $ 0.2 million and $ 0.8 million for the three months ended and nine months ended February 29, 2024, respectively.

There was no related party debt issued during three and nine months ended February 28, 2023 and as such, no interest expense was incurred related to related party debt.

(4) Amounts included in the nine months ended February 29, 2024 are related to the extinguishment of related party debt.

See Note 5 - Related Party Transactions for further discussion of related party transactions.

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 November 30, 2023 and November 30, 2022

For the Three Months ended February 29, 2024 and February 28, 2023

(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

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

Shares issued in offering, net of costs 4,158,243 4 — — 23,076 — 23,080 — 23,080

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

Shares issued from awards vesting 594,634 — — — — — — — —

Tax payments for restricted stock upon vesting — — — — ( 606 ) — ( 606 ) — ( 606 )

Share cancellations — — ( 67,370 ) — — — — — —

Stock-based compensation — — — — 3,194 — 3,194 — 3,194

Net loss — — — — — ( 62,838 ) ( 62,838 ) — ( 62,838 )

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

Balance, February 29, 2024 127,486,937 $ 127 ( 5,069,098 ) $ ( 62 ) $ 303,963 $ ( 185,540 ) $ 118,488 $ — $ 118,488

Common Stock Treasury Stock Additional

2 unchanged sentences

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 ) — — — —

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

Shares issued from awards vesting 523,046 1 — — ( 1 ) — — — —

Tax payments for restricted stock upon vesting — — — — ( 114 ) — ( 114 ) — ( 114 )

Stock-based compensation — — — — 4,480 — 4,480 — 4,480

Capital contribution to noncontrolling interest — — — — — — — 2,400 2,400

Net loss — — — — — ( 7,025 ) ( 7,025 ) ( 316 ) ( 7,341 )

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

Balance, February 28, 2023 99,471,128 $ 100 ( 5,001,728 ) $ ( 62 ) $ 155,055 $ ( 94,243 ) $ 60,850 $ 10,545 $ 71,395

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

For the Nine Months Ended February 29, 2024 and February 28, 2023

(In thousands, except share data)

5 unchanged sentences

Shares issued in offering, net of costs 18,945,841 20 — — 120,982 — 121,002 — 121,002

Shares issued from award vestings 5,534,837 5 — — ( 5 ) — — — —

Shares issued from awards vesting 6,129,471 5 — — ( 5 ) — — — —

Tax payments for restricted stock upon vesting — — — — ( 606 ) — ( 606 ) — ( 606 )

Share cancellations — — ( 67,370 ) — — — — — —

Stock-based compensation — — — — 13,634 — 13,634 — 13,634

1 unchanged sentence

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

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

Balance, February 29, 2024 127,486,937 $ 127 ( 5,069,098 ) $ ( 62 ) $ 303,963 $ ( 185,540 ) $ 118,488 $ — $ 118,488

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 ) — — — —

Shares issued from awards vesting 1,633,425 2 — — ( 2 ) — — — —

Tax payments for restricted stock upon vesting — — — — ( 114 ) — ( 114 ) — ( 114 )

Stock-based compensation — — — — 26,878 — 26,878 — 26,878

2 unchanged sentences

Net loss — — — — — ( 38,173 ) ( 38,173 ) ( 577 ) ( 38,750 )

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

Balance, February 28, 2023 99,471,128 $ 100 ( 5,001,728 ) $ ( 62 ) $ 155,055 $ ( 94,243 ) $ 60,850 $ 10,545 $ 71,395

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)

Six Months Ended

November 30, 2023 November 30, 2022

Nine Months Ended

February 29, 2024 February 28, 2023

CASH FLOW FROM OPERATING ACTIVITIES

3 unchanged sentences

Stock-based compensation 13,634 26,878

Lease expense

Deferred income taxes — ( 280 )

1 unchanged sentence

Amortization of debt issuance costs 498 —

Loss on abandonment of assets 189 —

Loss on classification as held for sale

Loss on change in fair value of related party debt 2,612 —

Changes in operating assets and liabilities:

2 unchanged sentences

Customer deposits

( 150 ) 24,584

Related party customer deposits

Deferred revenue

15,953 42,261

Related party deferred revenue

( 237 ) 1,481

Accounts payable 55,464 ( 10,019 )

1 unchanged sentence

Lease assets and liabilities ( 35,675 ) ( 580 )

Sales and use tax payable ( 1,626 ) 865

Other assets ( 1,363 ) ( 104 )

4 unchanged sentences

Purchases of investments ( 390 ) ( 100 )

CASH USED IN INVESTING ACTIVITIES ( 65,608 ) ( 70,305 )

CASH FLOW USED IN INVESTING ACTIVITIES ( 122,518 ) ( 96,314 )

CASH FLOW FROM FINANCING ACTIVITIES

17 unchanged sentences

Finance right-of-use assets obtained by lease obligation $ 219,268 $ 8,693

Property and equipment in accounts payable $ 23,572 $ 3,466

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

Property and equipment in accounts payable and accrued liabilities

$ 41,100 $ 9,384

Extinguishment of non-controlling interest

See accompanying notes to the condensed consolidated financial statements

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (unaudited)

For the Three and Six Months Ended November 30, 2023

For the Three and Nine Months Ended February 29, 2024

Business and Organization

12 unchanged sentences

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.

The preparation of the unaudited condensed consolidated financial statements is in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

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.

Actual results could differ significantly from those estimates.

7 unchanged sentences

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.

Any ancillary revenue for other services is generally recognized at a point in time when the services are complete.

Customer contracts include advance payment terms.

6 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

For the Three and Nine Months Ended February 29, 2024

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.

Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:

Quoted prices in active markets for identical assets or liabilities.

Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company will update its assumptions each reporting period based on new developments and will calculate fair value based on the revised assumptions, as applicable.

See Note 8 - Fair Value Measurements for further discussion of the Company’s fair value measurements.

The Company has identified three reportable segments:

8 unchanged sentences

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

We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements.

Assets Held For Sale

The Company generally considers assets to be held for sale when the following criteria are met:

(i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) management has initiated an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group, (iv) the sale of the property within one year is considered probable, (iv) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value and (vi) significant changes to the plan to sell are not expected.

Property classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell in accordance with ASC 360, Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets .

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

Reclassifications

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.

Balance Sheet

We have reclassified certain prior period amounts in our condensed consolidated balance sheets to conform to our current period presentation.

Specifically, we have reclassified “Accounts payable and accrued expenses” to separate captions of “Accounts payable” and “Accrued expenses.” We have also reclassified the presentations of restricted cash from “Prepaid expenses and other current assets” to its own caption of “Restricted cash” and security deposits from “Prepaid expenses and other current assets” to “Other assets.” Finally, we have condensed “Sales and use tax payable” into “Accrued expenses.”

Income Statement

We have reclassified certain prior period revenue amounts from “Revenue” to “Related party revenue” and have reclassified interest income from “Selling, general and administrative” expense 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 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

The Company has restricted cash related to its letters of credit totaling $ 36.5 million, which is held in money market funds.

The Company is required to keep these balances in separate accounts for the duration of the letter of credit agreements, which have terms of up to two years .

These letters of credit were issued in lieu of security deposits.

The Company considers the money market funds to be Level 1 which the Company believes approximates fair value.

Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of February 29, 2024 and May 31, 2023 were as follows (in thousands):

February 29, 2024 May 31, 2023

Cash and cash equivalents $ 4,435 $ 28,999

Restricted cash 29,545 14,575

Total Cash & Cash Equivalents $ 34,633 $ 43,574

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

Restricted cash included in other assets 7,000 —

Total cash, cash equivalents, and restricted cash $ 40,980 $ 43,574

Property and Equipment

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

Estimated Useful Life November 30,

Property and equipment consisted of the following as of February 29, 2024, and May 31, 2023 (in thousands):

Estimated Useful Life February 29,

Networking equipment, electrical equipment, and software

5 years $ 31,003 $ 21,173

Electric generation and transformers 15 years 5,983 4,655

Other equipment and fixtures 5 years - 7 years

Construction in progress 70,846 106,226

Information systems and software 5 years 41,295 21,173

Land and building

Building 39 years 103,624 63,350

Land 6,205 2,152

Land improvements 15 years 1,380 1,293

Building 39 years 129,815 63,350

Leasehold improvements 3 years - 7 years

Construction in progress 67,297 106,226

Other equipment and fixtures 5 years - 7 years

Total cost of property and equipment 222,741 200,533

1 unchanged sentence

Property and equipment, net $ 211,172 $ 195,593

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.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

Depreciation expense totaled $ 7.9 million and $ 12.9 million for the three and nine months ended February 29, 2024 and $ 0.9 million and $ 2.6 million for the three and nine months ended February 28, 2023.

During the three months ended February 29, 2024, the Company recognized $ 2.8 million of accelerated depreciation expense related to the abandonment of certain transformers and $ 1.4 million of accelerated amortization on the related right of use assets.

These expenses relate primarily to transformers at the Company’s Ellendale datacenter hosting facility that required additional repairs and upgrades.

The accelerated expense amount is presented within Cost of revenues in the accompanying Condensed Consolidated Statements of Operations.

Revenue from Contracts with Customers

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

Below is a summary of the Company’s revenue concentration by major customers for the three and nine months ended February 29, 2024 and February 28, 2023, respectively.

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Customer A 68 % — % 69 % — %

6 unchanged sentences

Deferred Revenue

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

Changes in the Company's deferred revenue balances for the nine months ended February 29, 2024 and February 28, 2023, respectively, are shown in the following table (in thousands):

Nine Months Ended

February 29, 2024 February 28, 2023

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

5 unchanged sentences

Customer Deposits

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

Changes in the Company's customer deposits balances for the nine months ended February 29, 2024 and February 28, 2023, respectively, are shown in the following table (in thousands):

Nine Months Ended

February 29, 2024 February 28, 2023

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

Customer deposits received 8,397 26,980

Customer deposits refunded — —

Other adjustments ( 8,547 ) ( 135 )

1 unchanged sentence

Balance, end of period $ 32,410 $ 32,559

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

Related Party Transactions

Related Party Revenue

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

The following table illustrates related party revenue for the three and nine months ended February 29, 2024 and February 28, 2023 (in thousands):

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Customer D* $ 1,662 $ 2,250 $ 5,980 $ 5,690

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 November 30, 2023 and May 31, 2023 (in thousands):

The following table illustrates related party deferred revenue and deposits balances as of February 29, 2024 and May 31, 2023 (in thousands):

Customer D balances as of Customer E balances as of

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

February 29, 2024 May 31, 2023 February 29, 2024 May 31, 2023

Deferred revenue $ 895 $ 1,474 $ 392 $ 50

Customer Deposits $ 2,450 $ 2,450 $ 1,360 $ 1,360

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

2 unchanged sentences

Riley Financial, Inc.

Cummins, the CEO of the Company, is also the President of B.

Riley Asset Management.

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

As previously disclosed, the Company’s Chairman and Chief Executive Officer, served as the President of B.

Riley Asset Management, and effective February 5, 2024, resigned from that position.

Sublease income is included in selling, general and administrative expenses in our condensed consolidated statements of operations.

The following table illustrates related party sublease income for the three and nine months ended February 29, 2024 and February 28, 2023 (in thousands):

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Sublease Income $ 23 $ 23 $ 70 $ 81

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.

During the nine months ended February 29, 2024, the Company borrowed an additional $ 8.0 million and early repaid the total outstanding balance of $ 44.5 million.

Interest expense and deferred issuance cost amortization associated with the loan was $ 0.7 million for the nine months ended February 29, 2024.

The Company recognized a $ 2.4 million loss on debt extinguishment associated with the early repayment of the outstanding balance for the nine months ended February 29, 2024.

On February 5, 2024, the Company entered into a Termination of Loan and Security letter with B.

Riley Commercial Capital, LLC and B.

Riley Securities, Inc.

which terminated the Loan and Security Agreement dated as of May 23, 2023, as amended, among the parties.

At the time of the Termination Letter, all principal, interest and fees under the Loan and Security Agreement had been paid in full.

No early termination penalty was paid in connection with the Termination of Loan and Security letter.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

AI Bridge Loan

On January 30, 2024, the Company issued an Unsecured Promissory Note (the “AI Bridge Loan”) payable to AI Bridge Funding LLC (the “Lender”), providing for an unsecured loan in the aggregate principal amount of up to $ 20.0 million, of which $ 15.0 million was available immediately and funded upon the execution of the AI Bridge Loan.

The obligation of the Lender to advance the remaining $ 5.0 million shall be in the Lender’s sole discretion.

The AI Bridge Loan will mature on January 30, 2026 and bears interest at a rate of 12.5 % per annum.

Additionally, upon the receipt by the Company or any of its subsidiaries of any cash proceeds from either the incurrence of any indebtedness (other than the AI Bridge Loan) or the issuance of any equity interests in the Company, which net proceeds total more than $ 35.0 million, the Company shall apply such net proceeds toward the prepayment of the outstanding principal of the AI Bridge Loan.

Pursuant to the terms of the AI Bridge Loan, the Company is obligated to pay to the Lender a repayment fee in an amount sufficient for the Lender to receive an aggregate amount equal to 1.25 x the aggregate principal amount funded as loans by the Lender to the Company.

As of February 29, 2024, the total outstanding balance under the AI Bridge Loan was $ 15.0 million.

The Company has elected to recognize the entire note at fair value under ASC 815, Derivatives and Hedging .

During the three and nine months ended February 29, 2024, the Company recognized a $ 2.6 million loss on change in fair value of debt associated with such election which is included in our condensed consolidated statements of operations.

See Note 8 - Fair Value Measurements for further discussion on the Company’s fair value considerations.

Affiliates of the Lender are both an investor in B.

Riley Financial, Inc.

and also an investment management client of B.

Riley Asset Management.

As previously disclosed, the Company’s Chairman and Chief Executive Officer, served as the President of B.

Riley Asset Management, and effective February 5, 2024, resigned from that position.

Other Related Party Transactions

During the three and nine months ended February 29, 2024, the Company paid construction and consulting costs of $ 44.4 thousand and $ 0.3 million, respectively, to a company owned by a family member of the Company’s Chief Financial Officer.

During the three and nine months ended February 29, 2024, the Company paid software license fees of $ 0.1 million and $ 0.2 million, respectively, to a company whose chairman is also a member of the Company’s Board of Directors.

During the three and nine months ended February 29, 2024, the Company paid $ 23 thousand in consulting fees to a Board of Director member for sales consulting work.

The Company did not make any payments to these related parties during the three and nine months ended February 28, 2023.

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

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

Interest Rate Maturity Date February 29, 2024 May 31, 2023

Starion term loan 6.50 % July 25, 2027 $ 10,730 $ 12,786

1 unchanged sentence

Starion Ellendale loan 7.48 % February 3, 2028 17,079 19,728

Vantage transformer loan 6.50 % February 8, 2029 3,660 —

Other long-term debt

2 unchanged sentences

Long-term debt, net $ 24,845 $ 33,222

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

Remaining Principal Payments

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

Below is a summary of the remaining principal payments due over the life of the term loans as of February 29, 2024 (in thousands):

Remainder of FY24 $ 14,429

1 unchanged sentence

Letters of Credit

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

As of February 29, 2024, the Company had letters of credit totaling $ 36.5 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.

The Company presents all restricted cash amounts with letter of credit term of 12 months or less within the Restricted Cash caption within current assets and any amounts with a related letter of credit term of over 12 months in Other Assets.

Vantage Garden City Loan

During the third quarter of fiscal year 2024, the Company approved plans to sell its Garden City facility.

In accordance with the original loan agreement, the sale of the Garden City facility will cause the associated loan to become immediately callable by the lender as those assets were pledged as collateral for the loan.

As such, the Company has reclassified the outstanding balance on the loan of $ 12.8 million to Current portion of long-term debt on its condensed consolidated balance sheets as of February 29, 2024.

Cornerstone Bank Loan

On February 28, 2024, APLD GPU-01, LLC, a wholly-owned subsidiary of the Company, entered into a Loan Agreement with Cornerstone Bank and the Company as Guarantor (the “Cornerstone Bank Loan”).

The Cornerstone Bank Loan provides for a term loan in the principal amount of $ 16.0 million with a maturity date of March 1, 2029.

The Cornerstone Bank Loan contains customary covenants, representations, warranties and events of default.

The Cornerstone Bank Loan provides for an interest rate of 8.59 % per annum.

The proceeds of the Cornerstone Bank Loan will be used to finance, in part, existing improvements to real property.

As of February 29, 2024, the Company had not received funding from the Cornerstone Bank Loan and accordingly, no amounts have been included in the tables above.

Vantage Transformer Loan

On February 8, 2024, APLD ELN-02 LLC, a wholly-owned subsidiary of the Company, entered into a Loan Agreement with Vantage Bank and the Company as Guarantor (the “Vantage Transformer Loan”).

The Vantage Transformer Loan provides for a term loan in the principal amount of $ 3.7 million with a maturity date of February 8, 2029.

The Loan Agreement contains customary covenants, representations, warranties and events of default.

The Vantage Transformer Loan provides for an interest rate of 6.50 % per annum.

The proceeds of the Vantage Transformer Loan were used to fund a transformer for its HPC location in Ellendale.

As of February 29, 2024, there was $ 3.7 million outstanding on the loan.

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

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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.

For the Three and Nine Months Ended February 29, 2024

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 February 29, 2024, the Company had issued awards for approximately 15.1 million shares of common stock of the Company under the plans.

During the three and nine months ended February 29, 2024 the Company recognized $ 3.2 million and $ 13.6 million in stock-based compensation, respectively.

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:

The following is a summary of the activity and balances for unvested restricted stock awards granted for the nine months ended February 29, 2024:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 67,370 ) 4.75

Outstanding as of November 30, 2023

Outstanding as of February 29, 2024

237,434 $ 4.98

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.

As of February 29, 2024, total remaining expense to be recognized related to these awards was $ 1.0 million and the weighted average remaining recognition period for the unvested awards was 1.4 years.

Restricted Stock Units

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

The following is a summary of the activity and balances for unvested restricted stock units granted for the nine months ended February 29, 2024:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 314,575 ) 2.49

Outstanding as of November 30, 2023

Outstanding as of February 29, 2024

8,509,297 $ 3.62

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.

As of February 29, 2024, total remaining expense to be recognized related to these awards was $ 29.6 million and the weighted average remaining recognition period for the unvested awards was 2.0 years.

Public Offering

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.

During the nine months ended February 29, 2024, the Company completed sales of common stock under an "at the market" sale agreement pursuant to which the Company could sell up to $ 125 million in aggregate proceeds of common stock.

The Company sold approximately 18.9 million shares for net proceeds of approximately $ 121.0 million in total.

Commission and legal fees related to the issuance were $ 0.7 million and $ 4.0 million for the three and nine months ended February 29, 2024, respectively.

Extinguishment of Noncontrolling Interest

On August 31, 2023, pursuant to the joint venture agreement, the minority partner in 1.21 Gigawatts LLC exercised the option to exchange their interest in the joint venture for approximately 1.5 million shares for a value of $ 9.8 million of the Company’s common stock.

On August 31, 2023, pursuant to the joint venture agreement, the minority partner in 1.21 Gigawatts LLC exercised the option to exchange their interest in the joint venture for approximately 1.5 million shares, or a value of $ 9.8 million, of the Company’s common stock.

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.

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Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended November 30, 2023

For the Three and Nine Months Ended February 29, 2024

Fair Value Measurements

The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature.

The majority of the Company’s non-financial instruments, which include lease assets and property and equipment, are not required to be carried at fair value on a recurring basis.

However, if certain triggering events occur, a non-financial instrument is required to be evaluated for impairment.

If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value.

No such triggering events were identified during the three and nine months ended February 29, 2024.

The Company’s debt outstanding under the AI Bridge Loan (See Note 5 - Related Party Transactions for further discussion) contains an accelerated redemption feature and the Company has elected to measure the entire note at fair value.

The Company has not elected to measure its other existing long-term debt instruments at fair value.

The Company engaged a third party valuation specialist to assist management in its determination of the fair value of the AI Bridge Loan.

Changes in the fair value of debt are disclosed in loss on change in fair value of debt on the condensed consolidated statements of operations.

Fair value of debt is determined on a recurring basis, which results are summarized as follows (in thousands):

February 29, 2024

Debt instrument Fair Value Hierarchy Outstanding Principal Fair Value

AI Bridge Loan Level 3

$ 15,000 $ 17,612

The fair value of the AI Bridge Loan was estimated using a discounted cash flow method applied to the remaining quarterly payments using a credit-adjusted discount rate calculated based on a risk-free rate derived from the U.S.

yield curve for a similar term plus a credit risk adjustment derived from an estimated credit rating of CCC and above and which ranged from 5.31 % to 5.71 %.

The resulting fair value represents a Level 3 fair value measurement.

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

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Operating lease cost:

10 unchanged sentences

Total net lease cost $ 26,843 $ 1,418 $ 49,115 $ 3,073

(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.

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

(1) Amortization of right-of-use assets is included 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 and Nine Months Ended February 29, 2024

The following table represents the Company’s future minimum lease payments as of February 29, 2024:

Operating Leases Finance Leases Total

10 unchanged sentences

Long-term portion of lease liability $ 69,260 $ 63,803 $ 133,063

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:

Six Months Ended

November 30, 2023 November 30, 2022

Nine Months Ended

February 29, 2024 February 28, 2023

Weighted-average years remaining (in years):

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Operating leases 7.6 % 12.5 %

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

The Company has entered into leases which are executed but not yet commenced with total minimum payments of approximately $ 120.7 million.

The payments are for various leases with terms ranging from 2 years to 6.7 years.

Commitments and Contingencies

Energy Commitment

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.

Energy Contracts

The Company has a minimum commitment of approximately $ 82.2 million related to the energy services agreement for its Jamestown, North Dakota co-hosting facility with a remaining term of approximately 2.9 years as of February 29, 2024.

Construction Contracts

The Company routinely engages with construction vendors for the construction of our facilities.

These engagements are governed by contracts containing standard terms and conditions, including certain milestones that obligate the Company to pay as work is completed.

In the event of termination of any of these contracts by the Company, the Company would be liable for all work that has been completed or in process, plus any applicable fees.

The Company generally has the right to cancel these open purchase orders prior to delivery or terminate the contracts without cause.

Claims and Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.

On August 12, 2023, a putative securities class action complaint, captioned McConnell v.

Applied Digital Corporation, Wesley Cummins and David Rench , No.

3:23-cv-1805, was filed in the U.S.

District Court for the Northern District of Texas, Dallas Division against Applied Digital Corporation (the “Company”) and two of its officers, Chief Executive Officer Wesley Cummins and Chief Financial Officer David Rench, asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act.

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-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, Wes Cummins, the Company's Chief Executive Officer, and David Rench, the Company's Chief Financial Officer, have been named as defendants in a putative securities class action lawsuit in the matter styled, McConnell v.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

Applied Digital Corporation, et al.

3:23-cv-1805, filed in August 2023 in the U.S.

District Court for the Northern District of Texas (the “Securities Lawsuit”).

Specifically, the complaint asserts claims pursuant to Section 10(b) of the Securities and Exchange Act of 1934 based on allegedly false or misleading statements regarding the company’s business, operations, and compliance policies, including claims 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.

The case is in an early stage, and the Court has not appointed a lead plaintiff nor has any class been certified.

The Company has not yet responded to the complaint and no response is currently due.

On November 15, 2023, a derivative action was filed in the matter styled, Weich v.

Cummins, et al.

A-23-881629-C in the District Court of Clark County, Nevada.

The Weich complaint names as defendants certain members of the Company’s Board of Directors and its Chief Executive Officer Wesley Cummins and purports to name chief Financial Officer David Rench as a defendant.

The complaint asserts claims for breaches of fiduciary duties, unjust enrichment, and corporate waste against the individual defendants largely based on the same fact allegations as the Securities Lawsuit.

On February 27, 2024, the plaintiff filed an amended complaint, asserting the same causes of action against the same defendants as the original complaint.

The deadline to file or otherwise respond the amended complaint is April 12, 2024.

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 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.

As of February 29, 2024, 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

3 unchanged sentences

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

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Datacenter hosting segment $ 37,795 $ 14,090 $ 109,720 $ 33,354

2 unchanged sentences

Total revenue $ 43,348 $ 14,090 $ 121,876 $ 33,354

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

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):

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Segment loss:

Datacenter hosting segment (1)

$ ( 24,443 ) $ ( 3,117 ) $ ( 4,647 ) $ ( 18,218 )

Cloud services segment

3 unchanged sentences

( 8,369 ) ( 3,113 ) ( 22,973 ) ( 18,898 )

Operating loss (55,822) (6,989) (71,420) (37,875)

Interest expense, net 4,404 352 8,836 1,061

Loss on change in fair value of related party debt 2,612 — 2,612 —

Loss on debt extinguishment — — 2,353 94

Net loss before income tax expenses $ ( 62,838 ) $ ( 7,341 ) $ ( 85,221 ) $ ( 39,030 )

(1) The three and nine months ended February 29, 2024 includes $ 21.7 million loss on held for sale classification related to the sale of the Garden City facility, as well as $ 2.8 million of accelerated depreciation and $ 1.4 million of accelerated amortization related to damaged transformers at the Company’s Ellendale facility that have been rendered obsolete.

See Note 13 - Assets Held for Sale and Note 3 - Property and Equipment, respectively, for further discussion of these events.

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

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Depreciation and amortization:

4 unchanged sentences

Total depreciation and amortization (2)

$ 26,205 $ 1,926 $ 47,664 $ 4,630

(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

(2) Includes amortization of the finance lease right-of-use assets.

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

November 30, 2023 May 31, 2023

February 29, 2024 May 31, 2023

Datacenter hosting segment $ 218,698 $ 224,447

6 unchanged sentences

(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 Nine Months Ended February 29, 2024

Earnings Per Share

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing the Company’s net earnings (loss) by the weighted average number of shares of common stock outstanding during the period.

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing a company’s net earnings (loss) by the weighted average number of shares of common stock outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if the securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

1 unchanged sentence

The table below shows the calculation for earnings per share:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

Net loss $ ( 62,838 ) $ ( 7,341 ) $ ( 85,221 ) $ ( 38,750 )

3 unchanged sentences

Basic and diluted weighted average number of shares outstanding 121,426,622 94,119,944 110,500,556 93,545,687

Assets Held for Sale

During the third quarter of fiscal 2024, the Company’s board approved plans to sell its Garden City facility.

As such, the Company determined that the Garden City datacenter hosting facility met the “held for sale” classification as of February 29, 2024.

On March 14, 2024, the Company entered into an agreement to sell the facility for a total potential cash consideration of $ 87.3 million (the “Cash Purchase Price”).

As part of the agreement, the Company can earn additional consideration if it is able to assist the buyer in achieving regulatory approval for additional megawatt energization for the Garden City datacenter hosting facility within 120 days after the transaction closing (the “Contingent Amount”).

As such, the associated property, equipment, and lease assets and liabilities have been classified as “held for sale” and the Company recorded a charge of $ 21.7 million in loss on held for sale classification on its condensed consolidated statements of operations for the three and nine months ended February 29, 2024 to record the asset group at its fair value less costs to sell.

The Company has determined that this disposal did not qualify as a discontinued operation as the sale of the Garden City Facility was determined to not be a strategic shift as it does not represent a change in services provided or a change to the Company’s customer base.

Assets and liabilities held for sale as of February 29, 2024 are as follows:

Assets held for sale

Property and equipment, net $ 57,260

Finance lease right of use assets 8,109

Total assets held for sale $ 65,369

Liabilities held for sale

Current portion of finance lease liability

Long-term portion of finance lease liability

Total liabilities held for sale $ 8,279

The Company has calculated the loss on assets held for sale as of February 29, 2024 based on the purchase price agreed upon with Marathon on March 14, 2024.

The Company notes that the purchase agreement contains a $ 34.0 million

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

“holdover” amount that is conditionally owed to the Company if additional energy capacity at the facility receives regulatory approval within 120 days of closing.

For purposes of applying the fair value as of February 29, 2024, the Company did not consider achievement of this approval probable, and therefore has not considered any of the holdover amount when calculating the implied purchase price and fair value.

Further, the Company notes that Marathon will release approximately $ 10.0 million of deferred revenue held by the Company in conjunction with the closing of the agreement.

The Company also notes that Marathon will receive all assets related to the facility but is only assuming the ground lease liabilities, and the remaining $ 5.1 million of equipment lease liabilities are the responsibility of the Company to pay off at closing.

Accordingly, the Company has excluded these lease liabilities in its calculation of fair value below.

See below for the Company’s calculation of the implied transaction price and fair value and the resulting loss on the classification of assets as held for sale (in thousands):

Assets held for sale

Maximum Purchase Price

Conditional Amount

Cash Consideration

Lease Liabilities Assumed

Deferred Revenue Released

Implied Fair Value

Estimated Costs to Sell

Total fair value less costs to sell

Loss calculation

Carrying value of assets held for sale

Fair value less costs to sell

Loss on classification of held for sale

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.

Cornerstone Bank Loan Funding

On March 1, 2024, the Company received funding under the Cornerstone Bank Loan.

The funding, net of issuance fees, totaled $ 15.7 million.

See Note 6 - Debt for further discussion of the Cornerstone Bank Loan.

AI Bridge Loan

Subsequent to the quarter ended February 29, 2024, the Company borrowed the remaining $ 5 million in funds available under the existing AI Bridge Loan.

This additional borrowing brings the total outstanding under the AI Bridge loan to $ 20.0 million.

On March 27, 2024, concurrent with the Yorkville Promissory Notes, the Company and the Lender entered into a Waiver, Consent and Amendment with respect to certain provisions of the AI Bridge Loan as set forth above (the “Amendment and Waiver”).

Pursuant to the terms and conditions of the Amendment and Waiver, (i) the Lender agreed to waive the prepayment obligations of the Company that otherwise would have been triggered upon closing of the PPA and Promissory Notes described below, and (ii) the Company’s obligations with respect to the repayment fee due to the Lender were amended so that upon repayment the Lender would receive an aggregate amount equal to 1.30 x the aggregate principal amount funded as loans by the Lender to the Company in accordance with the terms and provisions of the AI Bridge Loan.

Sale of Garden City Facility

On March 14, 2024, APLD – Rattlesnake Den I LLC, a Delaware limited liability company and a subsidiary of the Company, entered into a purchase and sale agreement with Mara Garden City LLC, a Delaware limited liability company

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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.

For the Three and Nine Months Ended February 29, 2024

and a subsidiary of Marathon Digital Holdings, Inc., pursuant to which Rattlesnake Den I LLC agreed to sell to Mara Garden City LLC its datacenter facility located in Garden City, Texas (the “Garden City Transaction”).

The Garden City Transaction closed on April 1, 2024.

Yorkville Convertible Notes

On March 27, 2024, the Company entered into a Prepaid Advance Agreement (the “PPA”) with YA II PN, LTD., a Cayman Islands exempt limited partnership (the “Investor”).

In accordance with the terms of the PPA, the Investor has agreed to advance up to $ 50.0 million to the Company pursuant to two convertible unsecured promissory notes (the “Promissory Notes”).

The Company issued the first Promissory Note on March 27, 2024, in the principal amount of $ 40.0 million, in consideration of a cash payment from the Investor of approximately $ 38.0 million, representing a five percent original issue discount.

The second Promissory Note will be issued in the principal amount of $ 10.0 million, less a five percent original issue discount, within two trading days after a resale registration statement relating to the shares of common stock underlying the Promissory Notes is declared effective.

The Promissory Notes are convertible into shares of the Company’s common stock, which have a par value of $ 0.001 per share.

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