What changed in this filing

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Item 1. Financial Statements

2024-10-09 compared with 2024-04-11 · 412 added, 368 removed, 341 unchanged (70% of the section changed)

3 unchanged sentences

(In thousands, except share and par value data)

February 29, 2024 May 31, 2023

August 31, 2024 May 31, 2024

Current assets:

10 unchanged sentences

TOTAL ASSETS $ 937,732 $ 762,867

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

Current liabilities:

4 unchanged sentences

Current portion of debt 6,892 10,082

Customer deposits

Current portion of debt, at fair value

30,464 35,836

Customer deposits 13,676 13,819

Related party customer deposits — 1,549

Deferred revenue 16,867 37,674

63,121 47,168

Related party deferred revenue — 1,692

Current liabilities held for sale

Due to customer 17,211 13,002

Other current liabilities 96 96

Total current liabilities 386,665 385,537

2 unchanged sentences

Long-term debt 106,227 79,472

Long-term related party loan 17,612 35,257

Other long-term related party liabilities — 1,000

Total liabilities 640,604 638,037

Commitments and contingencies

Commitments and contingencies (Note 11)

Temporary equity

Series E preferred stock, $ 0.001 par value, 2,000,000 shares authorized, 301,673 shares issued and outstanding at August 31, 2024, and no shares authorized, issued or outstanding at May 31, 2024

Series F preferred stock, 0.001 par value, 53,191 shares authorized, issued and outstanding at August 31, 2024, and no shares authorized, issued or outstanding at May 31, 2024

Stockholders' equity:

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

Common stock, $ 0.001 par value, 300,000,000 shares authorized, 162,471,048 shares issued and 157,438,246 shares outstanding at August 31, 2024, and 144,083,944 shares issued and 139,051,142 shares outstanding at May 31, 2024

Treasury stock, 5,032,802 shares at August 31, 2024 and 5,032,802 shares at May 31, 2024, at cost

( 62 ) ( 62 )

2 unchanged sentences

Total stockholders’ equity attributable to Applied Digital Corporation 241,846 124,830

Noncontrolling interest — 10,162

Total stockholders' equity including noncontrolling interest 118,488 69,679

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 643,168 $ 263,957

See accompanying notes to the condensed consolidated financial statements

TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS' EQUITY

$ 937,732 $ 762,867

See accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

(In thousands, except share and per share data)

Three Months Ended Nine Months Ended

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

Three Months Ended

August 31, 2024 August 31, 2023

Revenue $ 58,778 $ 32,139

3 unchanged sentences

Cost of revenues 61,060 25,221

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

Selling, general and administrative (1)

14,341 16,170

Loss on classification as held for sale

21,723 — 21,723 —

Gain on classification of held for sale (2)

Loss on abandonment of assets

Loss from legal settlement — 2,300

Total costs and expenses 51,221 43,691

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

Operating income (loss) 9,483 ( 7,368 )

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)

Loss on change in fair value of debt 6,422 —

Loss on extinguishment of related party debt — 2,353

Net loss before income tax expenses ( 4,247 ) ( 11,854 )

Income tax benefit — — — ( 280 )

Income tax expense (benefit) — —

Net loss ( 4,247 ) ( 11,854 )

Net loss attributable to noncontrolling interest — ( 397 )

Net loss attributable to Applied Digital Corporation $ ( 62,838 ) $ ( 7,025 ) $ ( 84,824 ) $ ( 38,173 )

Preferred dividends

Net loss attributable to Common Stockholders $ ( 4,291 ) $ ( 11,457 )

Basic and diluted net loss per share attributable to Applied Digital Corporation $ ( 0.03 ) $ ( 0.11 )

Basic and diluted weighted average number of shares outstanding 149,009,336 100,521,673

(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.

(1) Includes related party selling, general and administrative expense of $ 0.2 million and $ 0.3 million for the three months ended August 31, 2024 and August 31, 2023, respectively.

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

See accompanying notes to the condensed consolidated financial statements

(2) Includes $ 25 million received in connection with the sale of our Garden City facility.

See Note 11 - Commitments and Contingencies for further discussion.

(3) Includes related party interest expense of $0.7 million for the three months ended August 31, 2023.

There was no related party debt outstanding during the three months ended August 31, 2024 and as such, no interest expense was incurred related to related party debt.

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

See accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

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

Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders’ Equity (Unaudited)

For the Three Months ended August 31, 2024 and August 31, 2023

(In thousands, except share data)

Common Stock Treasury Stock Additional

Temporary Equity

Permanent Equity

Preferred Stock

Preferred Stock Common Stock Treasury Stock Additional

Stockholders’

Noncontrolling interest

Shares Amount Shares Amount

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

Shares Amount Shares Amount Shares Amount Shares Amount

Balance, May 31, 2024 — $ — — $ — 144,083,944 $ 144 ( 5,032,802 ) $ ( 62 ) $ 374,738 $ ( 249,990 ) $ 124,830

Shares issued in offering, net of costs — — — — 6,124,218 6 — — 31,065 — 31,071

Shares issued from awards vesting

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

Common Stock Treasury Stock Additional

Stockholders’

Noncontrolling interest

Shares Amount Shares Amount

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 )

— — — — 769,908 1 — — ( 1 ) — —

Conversions of debt — — — — 11,392,978 11 — — 56,190 — 56,201

Issuance of Yorkville amendment shares

— — — — 100,000 — — — 519 — 519

Issuance of warrants to CIM, at fair value

— — — — — — — — 36,479 — 36,479

Preferred Series E Stock 301,673 6,932 — — — — — — — — —

Preferred Series E Dividends — — — — — — — — — ( 44 ) ( 44 )

Preferred Series F Stock — — 53,191 48,350 — — — — — —

Stock-based compensation — — — — — — — — ( 2,919 ) — ( 2,919 )

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

Preferred stock dividends

— — — — — — — — ( 44 ) — ( 44 )

Net loss — — — — — — — — — ( 4,247 ) ( 4,247 )

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

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

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

(In thousands, except share data)

Balance, August 31, 2024 301,673 $ 6,932 53,191 $ 48,350 162,471,048 $ 162 ( 5,032,802 ) $ ( 62 ) $ 496,027 $ ( 254,281 ) $ 241,846

Common Stock Treasury Stock Additional

4 unchanged sentences

Shares issued in offering, net of costs 7,908,528 8 — — 64,708 — 64,716 — 64,716

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

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

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

Issuance of common stock from stock plans 530,732 — — — — — — — —

Stock-based compensation — — — — 5,641 — 5,641 — 5,641

Stock issuance costs — — — — ( 234 ) — ( 234 ) — ( 234 )

Net loss — — — — — ( 11,457 ) ( 11,457 ) ( 397 ) ( 11,854 )

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

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

Stockholders’

Noncontrolling interest

Shares Amount Shares Amount

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

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

Capital contribution to noncontrolling interest — — — — — — — 4,146 4,146

Common stock forfeited — — ( 4,965,432 ) — — — — — —

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

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

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

See accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

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

Nine Months Ended

February 29, 2024 February 28, 2023

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Three Months Ended

August 31, 2024 August 31, 2023

CASH FLOW FROM OPERATING ACTIVITIES

Net loss $ ( 4,247 ) $ ( 11,854 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization 34,316 7,860

1 unchanged sentence

Lease expense 7,659 —

Deferred income taxes — ( 280 )

Loss on extinguishment of debt — 2,353

Loss on legal settlement

Amortization of debt issuance costs 2,769 235

Loss on classification as held for sale

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

Gain on classification of held for sale

Loss on change in fair value of debt 6,422 —

Loss on abandonment of assets

Changes in operating assets and liabilities:

2 unchanged sentences

Customer deposits ( 143 ) —

( 150 ) 24,584

Related party customer deposits ( 1,549 ) —

Deferred revenue ( 20,807 ) 3,695

15,953 42,261

Related party deferred revenue ( 1,692 ) ( 553 )

( 237 ) 1,481

Accounts payable ( 77,537 ) 205

Accrued liabilities 9,738 2,113

Due to customer

Lease assets and liabilities ( 8,757 ) 39

Sales and use tax payable

Other assets — ( 5,972 )

CASH FLOW PROVIDED BY OPERATING ACTIVITIES 47,896 54,144

CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES ( 75,890 ) 4,517

CASH FLOW FROM INVESTING ACTIVITIES

Purchases of property and equipment and other assets ( 54,798 ) ( 32,591 )

Proceeds from satisfaction of contingency on sale of assets

Finance lease prepayments ( 2,808 ) ( 7,560 )

8 unchanged sentences

Payment of deferred financing costs ( 8,484 ) —

Tax payments for restricted stock upon vesting ( 606 ) ( 114 )

Noncontrolling interest contributions — 4,146

Proceeds from issuance of common stock, net of costs 31,590 64,482

Common stock issuance costs ( 44 ) —

Proceeds from issuance of preferred stock 60,726 —

Preferred stock issuance costs ( 5,444 ) —

Dividends issued on preferred stock ( 44 ) —

Proceeds from issuance of SAFE agreement included in long-term debt

CASH FLOW PROVIDED BY FINANCING ACTIVITIES 163,365 23,663

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 2,594 ) ( 23,378 )

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 54,869 ( 12,361 )

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD 31,688 43,574

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD $ 86,557 $ 31,213

See accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Three Months Ended

August 31, 2024 August 31, 2023

Interest paid $ 5,511 $ 1,839

3 unchanged sentences

Property and equipment in accounts payable and accrued liabilities $ 116,440 $ 6,729

$ 41,100 $ 9,384

Conversion of debt to common stock $ 56,201 $ —

Extinguishment of non-controlling interest

See accompanying notes to the condensed consolidated financial statements

Loss from legal settlement $ — $ 2,300

Issuance of warrants to CIM, at fair value

See accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (unaudited)

For the Three and Nine Months Ended February 29, 2024

For the Three Months Ended August 31, 2024

Business and Organization

6 unchanged sentences

Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted.

The condensed consolidated balance sheet as of May 31, 2023 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements.

The unaudited condensed consolidated balance sheet as of May 31, 2024 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements.

In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented.

6 unchanged sentences

Actual results could differ significantly from those estimates.

The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates of the valuation allowance associated with the Company’s deferred tax assets.

Revenue Recognition

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

Datacenter Hosting Revenue

Data Center Hosting Revenue

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

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

All Data Center 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.

9 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

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.

For the Three Months Ended August 31, 2024

The Company has identified three reportable segments:

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

cloud services (“Cloud Services Business”), high-performance compute hosting (“HPC Hosting Business”), and data center hosting (“Data Center Hosting Business”).

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

The Data Center Hosting Business operates data centers 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 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.

The Cloud Services Business operates through our wholly-owned subsidiary, Applied Digital Cloud Corporation, 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 an energized space supported by Company-provided equipment.

The HPC Hosting Business designs, builds, and operates data centers which are designed to support high-compute applications using advanced and sophisticated infrastructures to provide services to customers.

See Note 2 - 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, 2024, as filed with the SEC, for additional information regarding the Company’s significant accounting policies and use of estimates.

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

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.”

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

Specifically, we have reclassified certain restricted cash held in long term instruments from “Restricted cash” to “Other assets”.

We have also reclassified the presentations of state income tax payable to “Other current liabilities” 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.

We have reclassified certain prior period amounts in our unaudited condensed consolidated statements of operations to conform to our current period presentation.

Specifically, we have reclassified certain amounts of “Selling, general and administrative” expenses to “Cost of revenues”.

We have condensed the presentation of segment revenue into a single “Revenue” caption as segment disclosures are presented in Note 12 - Business Segments.

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

Cash, Cash Equivalents, and Restricted Cash

3 unchanged sentences

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

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

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

August 31, 2024 May 31, 2024

Cash and cash equivalents $ 58,215 $ 3,339

2 unchanged sentences

Total cash, cash equivalents, and restricted cash $ 86,557 $ 31,688

As noted above, the Company had a working capital deficit of $ 302.6 million which raises substantial doubt about the Company's ability to continue as a going concern.

Based on an analysis of subsequent events which are disclosed in "Note 14 - Subsequent Events", the Company believes that substantial doubt to continue as a going concern has been alleviated.

Therefore, the Company has sufficient liquidity to meet its obligations as they become due for at least twelve months from the date these financial statements were issued.

Preferred Stock

The Company applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement:

Classification and Measurement of Redeemable Securities and classified the Series E Preferred Stock (as defined below) and the Series F Convertible Preferred Stock as temporary equity in the temporary equity section of the unaudited condensed consolidated balance sheets on August 31, 2024.

The Series E Preferred Stock is recorded outside of stockholders’ equity because under the terms thereof, there are optional redemption features, which may require redemption arising from events outside the control of the Company.

The Series F Convertible Preferred Stock is recorded outside of stockholders’ equity because under the terms thereof, the redemption right is at a fixed price of the stated value and a fixed date of December 31, 2024 through January 10, 2025.

See further discussion in Note 8 - Temporary Equity.

Property and Equipment

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

Estimated Useful Life February 29,

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

Estimated Useful Life August 31,

Networking equipment, electrical equipment, and software

11 unchanged sentences

Property and equipment, net $ 478,249 $ 340,381

Depreciation expense totaled $ 3.0 million and $ 2.2 million for the three months ended August 31, 2024 and 2023, respectively.

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.

For the Three Months Ended August 31, 2024

Revenue from Contracts with Customers

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

Below is a summary of the Company’s revenue concentration by major customers for the three months ended August 31, 2024 and August 31, 2023, respectively.

Three Months Ended

August 31, 2024 August 31, 2023

Customer A 48 % 68 %

Customer B — % 10 %

Customer C — % 26 % — % 31 %

Customer D — % 16 % — % 17 %

Customer E — % 13 % — % 14 %

Customer F — % 13 % — % 13 %

Customer G 16 % — %

Deferred Revenue

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

Changes in the Company's deferred revenue balances for the three months ended August 31, 2024 and August 31, 2023, respectively, are shown in the following table (in thousands):

Three Months Ended

August 31, 2024 August 31, 2023

Balance, beginning of period $ 39,366 $ 48,692

5 unchanged sentences

Customer Deposits

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

Changes in the Company's customer deposits balances for the three months ended August 31, 2024 and August 31, 2023, respectively, are shown in the following table (in thousands):

Three Months Ended

August 31, 2024 August 31, 2023

Balance, beginning of period $ 15,367 $ 36,370

Customer deposits received 2,849 —

Other adjustments ( 8,547 ) ( 135 )

Customer deposits refunded ( 1,549 ) —

Customer deposits applied

Related party balances — ( 3,811 )

Balance, end of period $ 13,676 $ 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 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

The following table illustrates related party revenue for the three months ended August 31, 2024 and August 31, 2023 (in thousands):

Three Months Ended

August 31, 2024 August 31, 2023

Customer D* $ 992 $ 2,332

Customer E** $ 678 $ 1,852

* Customer D is a subsidiary of an entity which is deemed to beneficially own over 5 % of the Company's outstanding common stock

** 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 February 29, 2024 and May 31, 2023 (in thousands):

* Customer D is a subsidiary of an entity which, during the first fiscal quarter of 2024, was deemed to beneficially own over 5 % of the Company's outstanding common stock.

As of July 25, 2024, the controlling individual of the entity filed a

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

Schedule 13G to report the fact that as of the date thereof, the entity has ceased to be a beneficial owner of more than 5 % of such class of securities.

** Customer E is 60 % owned by an individual who, during the first fiscal quarter of 2024, was deemed to beneficially own over 5 % of the Company's outstanding common stock.

As of July 25, 2024, the individual filed a Schedule 13G to report the fact that as of the date thereof, the individual has ceased to be a beneficial owner of more than 5 % of such class of securities.

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

Customer D balances as of Customer E balances as of

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

August 31, 2024 May 31, 2024 August 31, 2024 May 31, 2024

Deferred revenue $ — $ 993 $ — $ 699

Customer deposits

$ — $ 895 $ — $ 654

Related Party Sublease Income

The Company receives sublease income from B.

The Company received sublease income from B.

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

2 unchanged sentences

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

The following table illustrates related party sublease income for the three months ended August 31, 2024 and August 31, 2023 (in thousands):

Three Months Ended

August 31, 2024 August 31, 2023

Sublease Income $ — $ 23

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.

Other Related Party Transactions

Related party transactions included within selling, general, and administrative expense on the unaudited condensed consolidated statement of operations include the following:

• construction and consulting costs of $ 0.1 million during the three months ended August 31, 2023 were incurred with a company owned by a family member of the Company’s Chief Financial Officer.

There were no transactions with this related party during the three months ended August 31, 2024.

• software license fees of $ 0.1 million and $ 48 thousand, during the three months ended August 31, 2024 and August 31, 2023, respectively, were incurred with a company whose chairman is also a member of the Company’s Board of Directors.

• salaries, wages, benefits, and stock-based compensation expense of $ 0.1 million and $ 0.1 million during the three months ended August 31, 2024 and August 31, 2023, respectively, were incurred for six employees that are family members of the Company’s Chief Executive Officer.

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.

For the Three Months Ended August 31, 2024

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

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

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

Vantage Garden City loan 6.15 % April 26, 2028 12,757 10,074

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

Interest Rate Maturity Date August 31, 2024 May 31, 2024

CIM Promissory Loan (1)

12 % June 2027 105,000 —

Starion Ellendale Loan (2)

7.48 % February 2028 15,214 16,145

Vantage Transformer Loan 6.50 % February 2029 — 3,609

Cornerstone Bank Loan (3)

8.59 % March 2029 14,923 15,576

Yorkville Convertible Debt

— % April and June 2025

Starion Term Loan (4)

6.50 % July 2027 9,298 10,021

Other long-term debt (5)

Deferred financing costs, net of amortization

Current portion of term loan ( 19,329 ) ( 7,950 )

( 43,601 ) ( 501 )

Current portion of debt

( 6,892 ) ( 45,918 )

Long-term debt, net $ 106,227 $ 79,472

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

(1) Pursuant to a parent guarantee, the CIM Promissory Loan is guaranteed by the Company, and is secured by a continuing security interest in substantially all of its respective assets except for Excluded Assets (as defined in the Guarantee and Collateral Agreement).

(2) The Starion Ellendale Loan is guaranteed by APLD ELN-01 LLC, a wholly-owned subsidiary of the Company, and is secured by the Ellendale facility, a security interest in substantially all of the assets of APLD ELN-01 LLC, and a security interest in the form of a collateral assignment of the Company’s rights and interests in all master hosting agreements related to the Ellendale Facility.

(3) The Cornerstone Bank Loan is guaranteed by APLD GPU-01, LLC, a wholly-owned subsidiary of the Company, and is secured by a security interest in multiple Terms of Service Agreements for HPC based systems related to AI Cloud Computing Services, which are to be serviced at the Jamestown hosting facility.

(4) The Starion Term Loan is guaranteed by APLD Hosting, LLC, a wholly-owned subsidiary of the Company, and is secured by the Jamestown hosting facility, a security interest in substantially all of the assets of APLD Hosting LLC, and interests in all master hosting agreements related to the Jamestown hosting facility.

(5) Inclusive in this number is $ 12.0 million of proceeds from the issuance of two SAFE agreements which were accounted for as liabilities.

See further discussion below.

Remaining Principal Payments

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

Below is a summary of the remaining principal payments due over the life of the term loans as of August 31, 2024 (in thousands):

Remainder of FY25 $ 7,296

Thereafter (1)

Total $ 156,719

(1) Represents $ 12.0 million of proceeds from the issuance of two SAFE agreements which were accounted for as liabilities.

See further discussion below.

Letters of Credit

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.

As of August 31, 2024, the Company had letters of credit totaling $ 28.3 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

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

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

Yorkville Convertible Debt

During the fiscal year ended May 31, 2024, the Company entered into two prepaid advance agreements with YA II PN, LTD.

(“YA Fund”) for promissory notes totaling $92.1 million (“YA Notes”).

The YA Notes are convertible into shares of the Company’s common stock.

During the three months ended August 31, 2024, $ 48 million of the YA notes were converted into approximately 11.4 million shares of common stock.

See “Note 14 - Subsequent Events” for discussion about conversions subsequent to August 31, 2024.

The Company has elected to present the Yorkville Convertible Debt at fair value on the unaudited condensed consolidated balance sheets (see "Note 9 - Fair Value Measurements" for further discussion).

CIM Arrangement & Warrants

During the three months ended August 31, 2024, APLD Holdings 2 LLC (the “Borrower”), a subsidiary of the Company, entered into a promissory note (the “CIM Promissory Note”) with CIM APLD Lender Holdings, LLC, a Delaware limited liability company (the “Lender”).

The CIM Promissory Note provides for borrowings up to $ 125 million and includes an accordion feature that allows for up to an additional $ 75 million of borrowings.

As of August 31, 2024, the total balance outstanding under the CIM Promissory Note was $ 105 million.

Pursuant to the CIM Promissory Note, the Company issued warrants to purchase up to 9,265,366 shares of Common Stock (the “CIM Warrants”).

The CIM Warrants were issuable in two tranches for the purchase of up to 6,300,449 Common Shares (the “Initial Warrants”) and 2,964,917 Common Shares (the “Additional Warrants”), respectively.

The Initial Warrants were issued June 17, 2024 and the Additional Warrants were issued August 11, 2024.

The CIM Warrants are exercisable upon issuance and have a five-year term.

The CIM Warrants have an exercise price of $ 4.8005 per share, which exercise price may be paid in cash, by net settlement or by a combination of cash and net settlement but must be exercised by net settlement if no registration covering the exercise of the Warrants remains effective.

The CIM Warrants were measured at fair value using a Black-Scholes Option Pricing model.

Inherent in pricing models are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield, which are considered Level 3 inputs.

The estimated fair value of the CIM Warrants was based on the following significant inputs:

Initial Warrants

Additional Warrants

Warrant issue date

June 17, 2024 August 11, 2024

Contractual term

Volatility 105 % 110 %

Risk-free rate 4.25 % 3.76 %

Dividend yield — % — %

The fair value of the Initial Warrants and Additional Warrants was $ 4.36 and $ 3.04 per warrant, respectively.

The total fair value of the CIM Warrants was $ 36.5 million and was recorded in the unaudited condensed consolidated statement of stockholders' equity.

The Company deferred the recognition of the fair value of the Initial and Additional Warrants as a reduction in the net carrying amount of the CIM Promissory Note and subsequently will amortize this balance in interest expense using the effective interest rate method.

Yorkville Amendment

In connection with the CIM Promissory Note, the Company also entered into a Consent, Waiver and First Amendment to Prepaid Advance Agreements (the “Consent”) with YA Fund.

In exchange for giving its consent to the transaction with the CIM Lender, the Company agreed to issue an aggregate of 100,000 shares of common stock to YA Fund and to conditionally lower the floor price from $ 3.00 to $ 2.00 so long as the daily Volume Weighted Average Price (“VWAP”) is

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

less than $ 3.00 per share of common stock for five out of seven trading days.

The Company further agreed to deliver a security agreement whereby its subsidiary, Applied Digital Cloud Corporation, would grant a springing lien on substantially all of its assets subject to customary carve-outs to secure the YA notes issued in favor of YA Fund.

Pursuant to the Consent, YA Fund also consented to future project-level financing at the HPC Ellendale facility.

In addition, pursuant to the terms of the Consent, certain provisions of the March PPA and the May PPA were amended.

Upon issuance of the 100,000 shares, the Company recorded the value of the shares at their grant date fair value as an increase in the loss on change in fair value of debt caption on the unaudited condensed consolidated statements of operations.

During the three months ended August 31, 2024, Applied Digital Cloud Corporation (“ADCC”), a wholly-owned subsidiary of the Company, entered into two SAFE agreements totaling $ 12.0 million with an investor (the “Investor”).

Under the terms of the SAFE agreements, the Investor has the right to certain shares of ADCC’s preferred stock.

If an equity financing transaction occurs before the termination of the SAFE agreements, the SAFE agreements will automatically convert into the number of shares of preferred stock equal to the purchase amount divided by the discount price, which will be the lowest price per share of the preferred stock sold in the equity financing transaction multiplied by the discount rate (90%).

If there is a liquidity event before the termination of the SAFE agreements, the Investor will automatically be entitled to receive a portion of proceeds, due and payable to the Investor immediately prior to, or concurrent with, the occurrence of such liquidity event, equal to the greater of (i) the purchase amount or (ii) the amount payable on the number of shares of common stock equal to the purchase amount divided by the liquidity price (the price per share equal to the fair market value of the common stock at the time of the liquidity event, as determined by reference to the purchase price payable in connection with such liquidity event, multiplied by the discount rate).

If there is a dissolution event before the termination of the SAFE agreements, the Investor will automatically be entitled to receive a portion of proceeds equal to the purchase amount, due and payable to the Investor immediately prior to the occurrence of the dissolution event.

In a liquidity or dissolution event, the SAFE agreements are intended to operate like standard non-participating preferred stock.

The Investor’s right to receive the purchase amount is junior to payments for outstanding indebtedness and creditor claims, on par with payments for other SAFE agreements and preferred stock, and senior to payments for common stock.

The SAFE agreements will automatically terminate immediately following the earliest to occur of:

(i) the issuance of capital stock to the Investor pursuant to the automatic conversion of the SAFE agreements;

or (ii) the payment, or setting aside for payment, of amounts due the Investor.

The Investor shall have the right, but not the obligation, to purchase up to its Pro Rata Share (the ratio of (i) the purchase amount of the SAFE agreements to (ii) the aggregate purchase amounts of all SAFE agreements issued by ADCC prior to the equity financing transaction) of the securities issued in the equity financing transaction, on the same terms, conditions and pricing afforded to the other investors participating in the equity financing transaction.

The SAFE agreements were accounted in accordance with ASC 480:

Distinguishing Liabilities from Equity.

Per the SAFE agreements, as the underlying share class has not been issued yet and as such, equity classification cannot be determined based on redemption rights, these agreements were classified as liabilities and included in long-term debt at their face value on the Company’s unaudited condensed consolidated balance sheets.

Stockholders' Equity

Increase In Authorized Shares

On June 11, 2024, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Second Amended and Restated Articles of Incorporation, as amended (the “Articles of Incorporation”).

Pursuant to the Certificate of Amendment, the number of authorized shares of Common Stock was increased to 300,000,000 .

The Certificate of Amendment became effective upon filing on June 11, 2024.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

Roth Capital Partners LLC

On May 6, 2024, the Company began sales of common stock under a "at the market" sale agreement with Roth Capital Partners, LLC pursuant to which the Company could sell up to $ 25 million in aggregate proceeds of common stock.

During the quarter ended August 31, 2024, the Company sold approximately 3.1 million shares for net proceeds of approximately $ 14.6 million with commission and legal fees related to the issuance of approximately $ 0.5 million.

As of August 31, 2024, this offering was completed.

At-the-Market Sales Agreement

On July 9, 2024, the Company entered into a Sales Agreement (the “Sales Agreement”) with B.

Riley Securities, Inc., BTIG, LLC, Lake Street Capital Markets, LLC, Northland Securities, Inc.

and Roth Capital Partners, LLC (collectively, the “Agents”), pursuant to which the Company may offer and sell, from time to time, through the Agents, up to $ 125,000,000 in shares of the Company’s common stock.

As of August 31, 2024, approximately 3.0 million shares of the Company’s common stock has been issued and sold under the Sales Agreement for proceeds of $ 16.4 million net of issuance costs of $ 0.5 million.

As of August 31, 2024, this offering was no longer active.

Standby Equity Purchase Agreement ("SEPA")

On August 28, 2024, the Company entered into the SEPA with YA Fund, which was amended on August 29, 2024.

Pursuant to the SEPA, subject to certain conditions and limitations, the Company has the option, but not the obligation, to sell to YA Fund, and YA Fund must subscribe for, an aggregate amount of up to $ 250.0 million of common stock, at the Company’s request any time during the commitment period commencing on September 30, 2024, and terminating on October 1, 2027.

In connection with the execution of the SEPA, the Company agreed to pay a structuring fee (in cash) to YA Fund in the amount of $ 25,000 .

Additionally, the Company agreed to pay a commitment fee of $ 2,125,000 to YA Fund, payable on the date of the SEPA, in the form of the issuance of 456,287 shares of common stock (the “Commitment Shares”), representing $ 2,125,000 divided by the average of the daily VWAPs of the common stock during the three trading days immediately prior to August 28, 2024.

Pursuant to the SEPA, the Company agreed to file a registration statement with the SEC for the resale under the Securities Act by YA Fund of the common stock issued under the SEPA, including the Commitment Shares.

The Company shall not have the ability to request any advances under the SEPA until such resale registration statement is declared effective by the SEC.

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, 2024, the Company had issued awards of approximately 9.6 million shares of common stock of the Company under the plans.

The Company recognized $( 2.9 ) million and $ 5.6 million of stock based compensation during the three months ended August 31, 2024 and 2023, respectively.

During the three months ended August 31, 2024, the Board determined that the performance criteria associated with certain performance stock units granted to certain executives in the third fiscal quarter of 2024 were not met.

As such, the respective performance stock unit awards were cancelled and the Company recognized a reversal of the expense previously recognized for the awards of approximately $6.0 million.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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.

For the Three Months Ended August 31, 2024

Restricted Stock Awards

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

The following is a summary of the activity and balances for unvested restricted stock awards granted for the three months ended August 31, 2024:

Number of Shares Weighted Average Grant Date Fair Value Per Share

1 unchanged sentence

638,895 $ 4.01

Granted 315,265 4.94

Vested ( 391,416 ) 2.30

Forfeited — —

Outstanding as of February 29, 2024

Outstanding as of August 31, 2024

638,895 $ 4.01

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.

As of August 31, 2024, total remaining expense to be recognized related to these awards was $ 1.7 million and the weighted average remaining recognition period for the unvested awards was 1.9 years.

Restricted Stock Units

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

The following is a summary of the activity and balances for unvested restricted stock units granted during the three months ended August 31, 2024:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 2,908,728 ) 2.27

Outstanding as of February 29, 2024

Outstanding as of August 31, 2024

5,818,801 $ 4.35

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 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, 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.

As of August 31, 2024, total remaining expense to be recognized related to these awards was $ 20.1 million and the weighted average remaining recognition period for the unvested awards was 1.8 years.

Temporary Equity

Preferred Stock

Series E Redeemable Preferred Stock

During the three months ended August 31, 2024, the Company closed on four offerings of the Series E Redeemable Preferred Stock (the “Series E Preferred Stock”).

The Company sold total shares of 301,673 for proceeds of $ 6.9 million net of issuance costs of $ 0.6 million.

The shares of Series E Preferred Stock have no voting or conversion rights.

Holders of the Series E Preferred Stock are entitled to receive cumulative dividends at a fixed rate of 9.0 % per annum.

Dividends are calculated based on a 360-day year, declared and accrued monthly, and payable at the discretion of the Board of Directors out of legally available funds.

Dividends must be fully paid for all past periods before any distributions can be made to common stockholders or any junior series of equity securities.

During the three months ended August 31, 2024, the Company declared and paid approximately $ 44,000 of dividends related to Series E preferred stock as presented on the unaudited condensed consolidated statement of operations.

The Series E Preferred Stock ranks senior to all classes of common stock and junior to all existing and future debt of the Company.

Additionally, it is on parity with any future series of preferred stock with substantially identical terms but may rank junior to any future series of preferred stock if the holders of such series are entitled to rights and preferences with priority over the holders of the Series E Preferred Stock.

In the event of liquidation, holders are entitled to receive $ 25.00 per share (the “Series E Stated Value”) plus any accrued but unpaid dividends before any distributions are made to

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three and Nine Months Ended February 29, 2024

For the Three Months Ended August 31, 2024

common stockholders.

The Series E Preferred Stock has no stated maturity and remains outstanding indefinitely unless redeemed or repurchased by the Company.

Holders may require the Company to redeem any portion of their Series E Preferred Stock at any time for a "Settlement Amount" calculated as the Series E Stated Value plus any unpaid dividends, less a Holder Optional Redemption Fee, equal to a percentage of the Series E Stated Value based on the year when the redemption occurs as follows:

9.00 % prior to the first anniversary of the respective tranche closing date (the "Original Issuance Date");

7.00 % on or after the first anniversary but prior to the second anniversary of the Original Issuance Date;

5.00 % on or after the second anniversary but prior to the third anniversary of the Original Issuance Date:

and 0.00 % on or after the third anniversary of the Original Issuance Date.

The Settlement Amount can be settled in cash or shares of common stock, subject to a share cap, which limits the total shares deliverable upon redemption to 19.99 % of the common stock outstanding prior to the Series E Preferred Stock offering ( 25,475,751 shares, the “Share Cap”).

Any portion of the Settlement Amount exceeding this cap will be settled in cash.

The Company may also redeem shares of Series E Preferred Stock after the second anniversary of the original issuance date, with a minimum notice of 10 days, at the Company Optional Redemption Settlement Amount, which is equal to the Series E Stated Value per share plus any unpaid and accrued dividends.

If the Company elects to pay the redemption amount in shares, then the number of shares to be delivered will be calculated as the Company Optional Redemption Settlement Amount divided by the closing price per share of the common stock on the date of the Company Optional Redemption exercise, subject to the Share Cap.

The Series E Preferred Stock offering was terminated on August 9, 2024.

Series F Convertible Preferred Stock

On August 29, 2024, the Company entered into a securities purchase agreement for the private placement of 53,191 shares of Series F Convertible Preferred Stock, par value $ 0.001 per share, including 3,191 shares representing an original issue discount of 6 %.

The transaction closed on August 30, 2024, for total proceeds of $ 50.0 million, prior to fees paid to Northland Securities, Inc.

for their role as placement agent in an amount equal to 3.5 % of the total proceeds.

The shares of Series F Convertible Preferred Stock are convertible into shares of common stock only upon the receipt of shareholder approval.

Holders of the Series F Convertible Preferred Stock are entitled to cumulative preferential dividends at an annual rate of 8.0 % of the Stated Value of $ 1,000 per share (the “Series F Stated Value”), payable quarterly in arrears.

Dividends are calculated based on a 360-day year, declared and accrued quarterly, and payable at the discretion of the Board of Directors out of legally available funds.

Dividends must be fully paid for all past periods before any distributions can be made to common stockholders or any junior series of equity securities.

The Series F Convertible Preferred Stock ranks senior to all classes of common stock and junior to all existing and future debt of the Company.

In the event of liquidation, holders are entitled to receive the Series F Stated Value plus any accrued but unpaid dividends before any distributions are made to common stockholders.

Series F Convertible Preferred Stock is on parity with the Series E Preferred Stock and any future series of preferred stock with substantially identical terms.

The holders of the Series F Convertible Preferred Stock have no voting rights, unless and until the receipt of shareholder approval.

Upon the receipt of shareholder approval, the Series F Convertible Preferred Stock will vote on an as-converted basis, subject to a cap equal to the greater of (x) the conversion price then in effect or (y) $ 4.0638 .

Holders have the right to require the Company to redeem the Series F Convertible Preferred Stock under certain conditions, including a Change of Control or Trading Failure, each as defined in the Series F Convertible Preferred Stock certificate of designation.

If there is a Change of Control, the redemption price is the greater of the Series F Stated Value or the amount that would have been received if the Series F Convertible Preferred Stock had been converted into common stock immediately prior to the redemption event.

If there is a Trading Failure, the redemption price is the greater of the Series F Stated Value or the product of the lowest conversion price during the period beginning on the date immediately preceding the Trading Failure and ending on the date the holder delivers a Redemption Notice, multiplied by the number of shares of common stock into which the preferred stock is convertible at the then-effective conversion price.

Additionally, holders have a one-time right to require the Company to redeem their shares between December 31, 2024, and January 10, 2025 in which case the redemption price is the Series F Stated Value.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

Further, upon receipt of shareholder approval of the conversion feature of the Series F Convertible Preferred Stock, if the VWAP for any 20 Trading Days during any 30 consecutive trading day period, beginning with the original issuance date of the applicable preferred stock, exceeds two hundred percent ( 200 %) of the conversion price then in effect, the Company may, at any time cause the holder to convert all or part of the holder’s preferred stock.

Fair Value Measurements

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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

No such triggering events were identified during the three months ended August 31, 2024.

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

August 31, 2024

Debt instrument Fair Value Hierarchy Outstanding Principal Fair Value

AI Bridge Loan Level 3

Yorkville convertible debt

$ 28,132 $ 30,463

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.

The fair value of the Yorkville convertible debt was calculated on an as-converted basis using quoted market prices of the Company's outstanding common stock as of August 31, 2024.

In assuming full conversion of the outstanding debt balance, the Company used the same terms as the Yorkville Convertible Debt, including a 5 % discount on the lowest daily volume weighted average price for the five days preceding August 31, 2024.

Outstanding Principal as of August 31, 2024 (in thousands)

Conversion price $ 3.37

Number of shares to be issued 8,346,164

Stock price on August 31, 2024

Fair Value as of August 31, 2024 (in thousands)

The Company recorded a loss on the change in fair value of debt of $ 6.4 million in its unaudited condensed consolidated statements of operations.

The Company enters into leases for equipment, office space and co-location space.

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

The Company presents operating and finance right of use assets and liabilities separately on the balance sheet as their own captions, with the liabilities split between current and long-term, respectively.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

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

Three Months Ended Nine Months Ended

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

Three Months Ended

August 31, 2024 August 31, 2023

Operating lease cost:

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Amortization of right-of-use assets (1)

18,350 1,017 34,840 2,051

Interest on lease liabilities 4,356 1,082

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Total net lease cost $ 44,643 $ 7,294

(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:

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

The following table represents the Company’s future minimum lease payments as of August 31, 2024:

Operating Leases Finance Leases Total

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

Nine Months Ended

February 29, 2024 February 28, 2023

Three Months Ended

August 31, 2024 August 31, 2023

Weighted-average years remaining (in years):

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The Company has entered into leases which are executed but not yet commenced with total minimum payments of approximately $ 18.9 million.

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

The payments are for various leases with terms of 2 years.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

Commitments and Contingencies

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.

The Company has a minimum commitment of approximately $ 68.1 million related to the energy services agreement for its Jamestown, North Dakota co-hosting facility with a remaining term of approximately 2.4 years as of August 31, 2024.

Construction Contracts

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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.

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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.

Specifically, the complaint asserts claims pursuant to Section 10(b) and 20(a) 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 Data Center 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 May 22, 2024, the court appointed Lead plaintiff and approved lead counsel, and on July 22, 2024, Lead Plaintiff filed an amended complaint which asserts the same claims based on similar allegations in the original complaint.

On September 20, 2024, the defendants filed a motion to dismiss the amended complaint.

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.

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

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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 complaint asserts claims for breach of fiduciary duties, corporate waste and unjust enrichment based upon allegations that the defendants caused or allowed the Company to make materially false and misleading statements regarding the Company’s business, operations, and compliance policies.

Specifically, the complaint alleged that the Company overstated the profitability of the Data Center Hosting Business and its ability to successfully transition into a low-cost cloud services provider and that the Board was not “independent” within the meaning of NASDAQ listing rules.

On February 27, 2024, the derivative plaintiff filed an amended complaint asserting the same claims as the original complaint.

On June 5, 2024, following briefing and argument on the defendants’ motion to dismiss, the Court entered an order granting the defendants’ motion without prejudice and dismissing all claims against all defendants, including the Company, on the grounds that the plaintiff failed to plead (1) demand futility as to each of plaintiff’s claims or (2) a claim for breach of fiduciary duty.

The order dismissed all claims against all defendants, including the Company.

The plaintiff can seek leave to file an amended complaint but to date has not done so.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 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.

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.

As of August 31, 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.

Settlement of Potential Claim

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.

Garden City Release of Escrow Funds

On July 30, 2024, the Company announced that it had met the conditional approval requirements related to the release of the escrowed funds from the sale of its Garden City hosting facility.

As of the date of this report, the Company has received the remaining $ 25 million of the purchase price held in escrow pending such conditional approval which was included in gain on classification of held for sale in its unaudited condensed consolidated statements of operations.

Business Segments

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

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

Cloud services segment

Three Months Ended

August 31, 2024 August 31, 2023

Data center hosting segment

$ 34,849 $ 34,171

Cloud services segment

Total revenue $ 60,704 $ 36,323

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 Nine Months Ended

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

Segment loss:

Datacenter hosting segment (1)

Three Months Ended

August 31, 2024 August 31, 2023

Segment profit (loss)

Data center hosting segment (1)

$ 35,851 $ 9,001

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HPC hosting segment ( 2,944 ) ( 754 )

Total segment loss ( 47,453 ) ( 3,876 ) ( 48,447 ) ( 18,977 )

Total segment profit 17,096 842

( 7,613 ) ( 8,210 )

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

Operating income (loss) 9,483 ( 7,368 )

Interest expense, net 7,308 2,133

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

Loss on change in fair value of debt 6,422 —

Loss on debt extinguishment — 2,353

Net loss before income tax expenses $ ( 4,247 ) $ ( 11,854 )

(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.

(1) The three months ended August 31, 2024 includes $ 25 million gain on classification of held for sale related to the satisfaction of a contingency associated with the sale of the Garden City facility.

(2) 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, 2024

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

Three Months Ended Nine Months Ended

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

Three Months Ended

August 31, 2024 August 31, 2023

Depreciation and amortization:

Datacenter hosting segment $ 9,162 $ 1,904 $ 16,902 $ 4,596

Cloud services segment

Data center hosting segment

$ 3,359 $ 3,351

Cloud services segment

HPC hosting segment 722 126

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

February 29, 2024 May 31, 2023

Datacenter hosting segment $ 218,698 $ 224,447

August 31, 2024 May 31, 2024

Data center hosting segment

$ 143,120 $ 145,222

Cloud services segment

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(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

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The table below shows the calculation for earnings per share:

Three Months Ended Nine Months Ended

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

Three Months Ended

August 31, 2024 August 31, 2023

Net loss $ ( 4,247 ) $ ( 11,854 )

Net loss attributable to noncontrolling interest — ( 397 )

Net loss attributable to Applied Digital Corporation $ ( 62,838 ) $ ( 7,025 ) $ ( 84,824 ) $ ( 38,173 )

Net loss attributable to Common Stockholders $ ( 4,291 ) $ ( 11,457 )

Basic and diluted net loss per share attributable to Applied Digital Corporation $ ( 0.03 ) $ ( 0.11 )

Basic and diluted weighted average number of shares outstanding 149,009,336 100,521,673

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

As of August 31, 2024 and 2023, the Company had approximately 6.5 million and 13.3 million shares, respectively, of granted but unvested restricted stock and restricted stock units that would have a potentially dilutive effect on earnings per share.

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

For the Three Months Ended August 31, 2024

As of August 31, 2024, the Company has approximately 18.0 million shares which have been excluded from the calculation of earnings per share because the effect of those shares would be antidilutive.

Approximately 8.3 million of those shares are associated with the Yorkville Convertible Debt, approximately 2.1 million of those shares are associated with Series E Preferred Stock, and approximately 7.6 million of those shares are associated with Series F Convertible Preferred Stock.

Additionally, the Company has 12.3 million warrants outstanding as of August 31, 2024 which have been excluded from the calculations of earnings per share because the effect of those shares would be antidilutive.

Subsequent Events

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 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.

Private Placement

On September 5, 2024, the Company entered into a securities purchase agreement with a group of institutional and accredited investors, NVIDIA and Related Companies, for the private placement (the “Private Placement”) of 49,382,720 shares (the “Shares”) of the Company’s common stock, par value $ 0.001 per share, at a purchase price of $ 3.24 per Share, representing the last closing price of the common stock on the Nasdaq Global Select Market on September 4, 2024.

As of the date of this report, the Private Placement closed with aggregate gross proceeds to the Company of approximately $ 160 million, before deducting offering expenses.

Yorkville Debt Conversions

Subsequent to the quarter ended August 31, 2024 and as of the date of this report, $ 17.8 million of the Initial YA Notes were converted into approximately 5.8 million shares of common stock as well as the remainder of the May Note, $ 4.1 million, was converted into approximately 1.4 million shares of common stock.

As of the date of this report, following the above referenced conversions, approximately $ 6.2 million remains outstanding across all of the YA Notes.

Series E-1 Preferred Stock

On September 23, 2024, we entered into the Dealer Manager Agreement with Preferred Capital Securities, LLC (the “Dealer Manager”) pursuant to which the Dealer Manager agreed to serve as our agent and dealer manager for the offering of up to 2,500,000 shares of our Series E-1 Redeemable Preferred Stock, par value $ 0.001 per share (“Series E-1 Preferred Stock”), at a price per share of $ 25.00 per share, pursuant to our Registration Statement on Form S-1, filed with the SEC on September 23, 2024.

CIM Arrangement

On October 8, 2024, the Company received the final $ 20.0 million of funding associated with the CIM Promissory Note.

As of the date of this report, the total balance outstanding under the CIM Promissory Note is approximately $ 125 million.

Other than the events described above and the events described in “Note 11 - Commitments and Contingencies”, there are no additional subsequent events through the date of issuance of these unaudited condensed consolidated financial statements which require adjustment or disclosure.

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