What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-01-14 compared with 2024-10-09 · 413 added, 253 removed, 500 unchanged (57% of the section changed)

3 unchanged sentences

(In thousands, except share and par value data)

August 31, 2024 May 31, 2024

November 30, 2024 May 31, 2024

Current assets:

18 unchanged sentences

Current portion of debt, at fair value

30,464 35,836

Customer deposits 16,125 13,819

11 unchanged sentences

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

Series E preferred stock, $ 0.001 par value, 2,000,000 shares authorized, 301,673 shares issued and outstanding at November 30, 2024, and no shares authorized, issued or outstanding at May 31, 2024

Series F preferred stock, $ 0.001 par value, 53,191 shares authorized and issued, 43,000 outstanding at November 30, 2024, and no shares authorized, issued or outstanding at May 31, 2024

Series E-1 preferred stock, $ 0.001 , 62,500 shares authorized, 6,359 shares issued and outstanding at November 30, 2024, and no shares authorized, issued or outstanding at May 31, 2024

Stockholders' equity:

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

Common stock, $ 0.001 par value, 400,000,000 shares authorized, 225,846,268 shares issued and 216,555,069 shares outstanding at November 30, 2024, and 144,083,944 shares issued and 139,051,142 shares outstanding at May 31, 2024

Treasury stock, 9,291,199 shares at November 30, 2024 and 5,032,802 shares at May 31, 2024, at cost

( 31,400 ) ( 62 )

2 unchanged sentences

Total stockholders’ equity attributable to Applied Digital Corporation 434,572 124,830

TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS' EQUITY

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

$ 1,543,169 $ 762,867

3 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended

August 31, 2024 August 31, 2023

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Revenue $ 63,868 $ 38,569 $ 122,646 $ 70,708

5 unchanged sentences

29,789 20,266 44,129 36,437

Gain on classification of held for sale (2)

Loss/(gain) on classification of held for sale (2)

192 — ( 24,616 ) —

Loss on abandonment of assets 141 — 769 —

1 unchanged sentence

Total costs and expenses 82,483 50,115 133,703 93,807

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

Operating loss ( 18,615 ) ( 7,912 ) ( 9,131 ) ( 15,280 )

Interest expense, net (3)

7,482 2,617 14,790 4,750

Loss on conversion of debt

25,410 — 33,612 —

Loss on change in fair value of debt 87,218 — 85,439 —

6 unchanged sentences

Net loss attributable to Common Stockholders $ ( 139,355 ) $ ( 10,529 ) $ ( 143,646 ) $ ( 21,986 )

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

Basic and diluted net loss per share attributable to common stockholders $ ( 0.66 ) $ ( 0.10 ) $ ( 0.80 ) $ ( 0.21 )

Basic and diluted weighted average number of shares outstanding 209,560,339 109,663,030 179,119,398 105,067,375

(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.

(1) Includes related party selling, general and administrative expense of $ 0.1 million and $ 0.2 million for the three months ended November 30, 2024 and November 30, 2023, respectively, and $ 0.1 million and $ 0.3 million for the six months ended November 30, 2024 and November 30, 2023, respectively.

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

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

(2) Includes $ 25 million received in connection with the sale of our Garden City facility for the six months ended November 30, 2024.

See Note 10 - 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.

(3) Includes related party interest expense of $ 0.7 million for the three and six months ended November 30, 2023.

There was no related party debt outstanding during the three and six months ended November 30, 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.

2 unchanged sentences

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

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

For the Three Months ended November 30, 2024 and November 30, 2023

(In thousands, except share data)

Temporary Equity

Permanent Equity

Preferred Stock

Temporary Equity Permanent Equity

Preferred Stock Series F

Preferred Stock Series E-1

Preferred Stock Common Stock Treasury Stock Additional

Stockholders’

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 Amount Shares Amount Shares Amount Shares Amount Shares Amount

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

Shares issued in offering, net of costs — — — — — — 49,382,720 49 — — 149,768 — 149,817

Shares issued from awards vesting

— — — — 769,908 1 — — ( 1 ) — —

Issuance of common stock from stock plans — — — — — — 497,271 1 — — ( 1 ) — —

Conversions of debt — — — — — — 7,657,226 8 — — 48,736 — 48,744

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 )

Issuance of shares — — — — — — 528,541 1 — — ( 1 ) — —

Issuance of warrants, at fair value — — — — — — — — — — 7,636 — 7,636

Conversion of warrants — — — — — — 3,853,605 4 — — ( 4 ) — —

Preferred Series F Stock issuance costs — — — — — — — — — — ( 4,841 ) — ( 4,841 )

Preferred Series E-1 Stock, net of issuance costs — — — — 6,359 5,850 — — — — — — —

Preferred Stock Dividends — — — — — — — — — — ( 672 ) 44 ( 628 )

— — — — — — — — ( 44 ) — ( 44 )

Conversion of preferred stock — — ( 10,191 ) ( 5,350 ) — — 1,455,857 1 — — 10,190 — 10,191

Stock-based compensation — — — — — — — — — — 3,461 — 3,461

Share repurchase — — — — — — — ( 4 ) ( 4,258,397 ) ( 31,338 ) — — ( 31,342 )

Purchase of capped call options — — — — — — — — — — ( 51,750 ) — ( 51,750 )

Purchase of prepaid forward contract — — — — — — — — — — ( 52,736 ) — ( 52,736 )

Reclass of conversion option — — — — — — — — — — 252,900 — 252,900

Net loss — — — — — — — — — — — ( 138,726 ) ( 138,726 )

Balance, November 30, 2024 301,673 $ 6,932 43,000 $ 43,000 6,359 $ 5,850 225,846,268 $ 222 ( 9,291,199 ) $ ( 31,400 ) $ 858,713 $ ( 392,963 ) $ 434,572

Common Stock Treasury Stock Additional

Stockholders’

Shares Amount Shares Amount

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

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

Issuance of common stock from stock plans 5,004,105 5 — — ( 5 ) — — —

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

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

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

See accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

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

For the Six Months ended November 30, 2024 and November 30, 2023

(In thousands, except share data)

Temporary Equity Permanent Equity

Preferred Stock Series F

Preferred Stock Series E-1

Preferred Stock Common Stock Treasury Stock Additional

Stockholders’

Shares Amount 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 — — — — — — 55,506,938 55 — — 180,783 — 180,838

Issuance of common stock from stock plans — — — — — — 1,267,179 2 — — ( 2 ) — —

Conversions of debt — — — — — — 19,050,204 19 — — 104,926 — 104,945

Issuance of shares — — — — — — 628,541 1 — — 518 — 519

Issuance of warrants, at fair value — — — — — — — — — — 44,115 — 44,115

Conversion of warrants — — — — — — 3,853,605 4 — — ( 4 ) — —

Preferred Series E Stock, net of issuance costs 301,673 6,932 — — — — — — — — 6 — 6

Preferred Series F Stock, net of issuance costs — — 53,191 48,350 — — — — — — — — —

Preferred Series F Stock issuance costs — — — — — — — — — — ( 4,841 ) — ( 4,841 )

Preferred Series E-1 Stock, net of issuance costs — — — — 6,359 5,850 — — — — — — —

Preferred Stock Dividends — — — — — — — — — — ( 672 ) — ( 672 )

Conversion of preferred stock — — ( 10,191 ) ( 5,350 ) — — 1,455,857 1 — — 10,190 — 10,191

Stock-based compensation — — — — — — — — — — 542 — 542

Share repurchase — — — — — — — ( 4 ) ( 4,258,397 ) ( 31,338 ) — — ( 31,342 )

Purchase of capped call options — — — — — — — — — — ( 51,750 ) — ( 51,750 )

Purchase of prepaid forward contract — — — — — — — — — — ( 52,736 ) — ( 52,736 )

Reclass of conversion option — — — — — — — — — — 252,900 — 252,900

Net loss — — — — — — — — — — — ( 142,973 ) ( 142,973 )

Balance, November 30, 2024 301,673 $ 6,932 43,000 $ 43,000 6,359 $ 5,850 225,846,268 $ 222 ( 9,291,199 ) $ ( 31,400 ) $ 858,713 $ ( 392,963 ) $ 434,572

Common Stock Treasury Stock Additional

7 unchanged sentences

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, 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

Net loss — — — — — ( 21,986 ) ( 21,986 ) ( 397 ) ( 22,383 )

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

s ee accompanying notes to the unaudited condensed consolidated financial statements

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

1 unchanged sentence

(In thousands)

Three Months Ended

August 31, 2024 August 31, 2023

Six Months Ended

November 30, 2024 November 30, 2023

CASH FLOW FROM OPERATING ACTIVITIES

8 unchanged sentences

Gain on classification of held for sale

Loss on conversion of debt

Loss on change in fair value of debt 85,439 —

11 unchanged sentences

Lease assets and liabilities ( 19,382 ) ( 19,198 )

Sales and use tax payable

Other assets ( 1,058 ) ( 1,040 )

13 unchanged sentences

Payment of deferred financing costs ( 28,927 ) —

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

Proceeds from issuance of common stock

191,590 98,156

Common stock issuance costs ( 10,233 ) ( 234 )

3 unchanged sentences

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

Repurchase of shares

Proceeds from convertible notes 450,000 —

Purchase of capped call options

Purchase of prepaid forward contract

CASH FLOW PROVIDED BY FINANCING ACTIVITIES 618,584 47,611

6 unchanged sentences

(In thousands)

Six Months Ended

November 30, 2024 November 30, 2023

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Three Months Ended

August 31, 2024 August 31, 2023

Interest paid $ 33,144 $ 4,370

6 unchanged sentences

Loss from legal settlement $ — $ 2,300

Issuance of warrants to CIM, at fair value

Conversion of preferred stock to common stock $ 10,191 $ —

Cashless exercise of warrants $ 4 $ —

Issuance of warrants, at fair value $ 44,115 $ —

See accompanying notes to the unaudited condensed consolidated financial statements

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three Months Ended August 31, 2024

For the Three and Six Months Ended November 30, 2024

Business and Organization

30 unchanged sentences

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the Three Months Ended August 31, 2024

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

The Company has identified three reportable segments:

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

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

2 unchanged sentences

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 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.

The Cloud Services Business operates through our wholly-owned subsidiary, Applied Digital Cloud Corporation, and provides cloud services to customers at third party colocation centers located in Colorado, Minnesota, Nevada and Utah, 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.

The HPC Hosting Business designs, builds, and operates data centers which are being 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.

Reclassifications

Balance Sheet

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

1 unchanged sentence

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.

Additionally, we have reclassified certain amounts of “Selling, general and administrative” expense and “Cost of revenues” to “Interest expense, net.” We have also condensed the presentation of segment revenue into a single “Revenue” caption as segment disclosures are presented in Note 11 - Business Segments.

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

4 unchanged sentences

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

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, 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 November 30, 2024 and May 31, 2024 were as follows (in thousands):

November 30, 2024 May 31, 2024

Cash and cash equivalents $ 286,237 $ 3,339

2 unchanged sentences

Total cash, cash equivalents, and restricted cash $ 314,579 $ 31,688

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

As noted above, the Company had a working capital deficit of $ 96.0 million which raises substantial doubt about the Company's ability to continue as a going concern.

1 unchanged sentence

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 August 31, 2024 and May 31, 2024 (in thousands):

Estimated Useful Life August 31,

Property and equipment consisted of the following as of November 30, 2024 and May 31, 2024 (in thousands):

Estimated Useful Life November 30,

Networking equipment, electrical equipment, and software

11 unchanged sentences

Property and equipment, net $ 772,664 $ 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 Months Ended August 31, 2024

Depreciation expense totaled $ 3.1 million and $ 6.1 million for the three and six months ended November 30, 2024, respectively, and $ 2.6 million and $ 4.9 million for the three and six months ended November 30, 2023, respectively.

Revenue from Contracts with Customers

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

Three Months Ended

August 31, 2024 August 31, 2023

Below is a summary of the Company’s revenue concentration by major customers for the three and six months ended November 30, 2024 and November 30, 2023, respectively.

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Customer A 51 % 70 % 49 % 69 %

Customer B — % 10 %

Customer G 16 % 11 % 16 % — %

Customer H 28 % — % 27 % — %

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

Deferred Revenue

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

Changes in the Company's deferred revenue balances for the six months ended November 30, 2024 and November 30, 2023, respectively, are shown in the following table (in thousands):

Six Months Ended

November 30, 2024 November 30, 2023

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

5 unchanged sentences

Customer Deposits

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

Changes in the Company's customer deposits balances for the six months ended November 30, 2024 and November 30, 2023, respectively, are shown in the following table (in thousands):

Six Months Ended

November 30, 2024 November 30, 2023

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

6 unchanged sentences

Related Party Revenue

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

The following table illustrates related party revenue for the three and six months ended November 30, 2024 and November 30, 2023 (in thousands):

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Customer D* $ — $ 1,986 $ 992 $ 4,319

Customer E** $ — $ 1,648 $ 678 $ 3,500

* 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

* Customer D is a subsidiary of an entity which, during the first quarter of fiscal year 2025, 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 Schedule 13G to report the fact that as of the date thereof, the entity had 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 quarter of fiscal year 2025, 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 had ceased to be a beneficial owner of more than 5 % of such class of securities.

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):

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

The following table illustrates related party deferred revenue and deposits balances as of November 30, 2024 and May 31, 2024 (in thousands):

Customer D balances as of Customer E balances as of

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

November 30, 2024 May 31, 2024 November 30, 2024 May 31, 2024

Deferred revenue $ — $ 993 $ — $ 699

6 unchanged sentences

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.

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

Riley ceased being a related party as of May 31, 2024.

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

Related party sublease income for the three and six months ended November 30, 2023 was $ 24,000 and $ 47,100 , respectively.

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 Months Ended August 31, 2024

• construction and consulting costs of $ 0.1 million and $ 0.2 million during the three and six months ended November 30, 2023 were incurred with a company owned by a family member of the Company’s Chief Administrative Officer.

There were no transactions with this related party during the three and six months ended November 30, 2024.

• software license fees of $ 0.1 million and $ 0.1 million, during the three and six months ended November 30, 2024, respectively, and $ 60.8 thousand and $ 0.1 million during the three and six months ended November 30, 2023, respectively, were incurred with a company whose chairman is also a member of the Company’s Board of Directors.

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

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

CIM Promissory Loan (1)

Interest Rate Maturity Date November 30, 2024 May 31, 2024

Senior Unsecured Convertible Notes

2.75 % June 2030

Macquarie Promissory Note (1)

0.25 % May 2026

Starion Ellendale Loan (2)

13 unchanged sentences

Long-term debt, net $ 468,244 $ 79,472

(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).

(1) The Macquarie Promissory Note is guaranteed by APLD Holdings 2 LLC, a wholly-owned subsidiary of the Company, and is secured by a continuing security interest in all of the membership interests of the borrower, APLD ELN-02 Holdings LLC, and all related proceeds.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

(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.

4 unchanged sentences

Remaining Principal Payments

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

Below is a summary of the remaining principal payments due over the life of the term loans as of November 30, 2024 (in thousands):

Remainder of FY25 $ 4,913

1 unchanged sentence

Total $ 665,833

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

(1) Includes $ 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 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

As of November 30, 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 agreements.

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.

1 unchanged sentence

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).

(“YA Fund”) for promissory notes totaling $ 92.1 million (collectively the “YA Notes”), issued on March 27, 2024 (the “March Note”), April 24, 2024, and May 24, 2024 (the “May PPA”).

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

During the three months ended November 30, 2024, $ 23.3 million of the YA Notes were converted into approximately 7.7 million shares of common stock and during the six months ended November 30, 2024, $ 71.3 million of the YA Notes were converted into approximately 19.1 million shares of common stock.

The Company recorded a loss on conversion of debt of $ 25.4 million and $ 33.6 million during the three and six months ended November 30, 2024, respectively, in its unaudited condensed consolidated statements of operations.

The fair value of the YA Notes was calculated on an as-converted basis using quoted market prices of the Company's outstanding common stock;

however, as of November 30, 2024, YA Fund had converted the maximum amount of shares allowable under Nasdaq rules and regulations and as such, the remaining balance of $ 4.8 million under the March Note was payable in cash.

Subsequent to the quarter end, the Company repaid the $ 4.8 million in full, including all outstanding and unpaid principal, accrued interest, fees, and expenses, as well as the $ 2.1 million Commitment Fee under SEPA (as defined below).

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

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.

On June 7, 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.

During the six months ended November 30, 2024, the total amount borrowed under the CIM Promissory Note was $ 125 million.

On November 27, 2024, in connection with the issuance of the Macquarie Promissory Note and receipt by the Company of the proceeds related thereto (as described below), the Company repaid the CIM Promissory Note in full, including all outstanding and unpaid principal, accrued interest, fees, and expenses.

The associated extinguishment costs were capitalized directly into Construction in Progress (CIP), as the CIM Promissory Note was tied to the ELN-02 Project and was therefore considered part of the construction cost.

As of November 30, 2024, the CIP balance includes $ 9.4 million related to the extinguishment of the CIM Promissory Note.

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

15 unchanged sentences

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

The total fair value of the CIM Warrants was $ 36.5 million and was recorded in the unaudited condensed consolidated statements of changes in temporary equity and 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.

After the repayment of the CIM Promissory Note, the remaining value of the CIM Warrants recorded as a reduction of the CIM Promissory Note was capitalized to CIP.

During the quarter ended November 30, 2024, 7.0 million of the CIM Warrants were exercised on a cashless basis for approximately 3.9 million shares of the Company’s common stock in a net settlement transaction.

As of November 30, 2024, approximately 2.3 million of Additional Warrants are outstanding.

Yorkville Amendments

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.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

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”).

On October 16, 2024, the Company entered into a letter agreement with YA Fund, whereby the Company agreed to satisfy its obligations with respect to the Commitment Fee (as defined below) in cash by increasing the principal amount due under the March Note in an equivalent amount, instead of issuing the Commitment Shares (as defined below).

The Commitment Fee has been paid in full subsequent to November 30, 2024 as part of the repayment by the Company of the March Note.

On October 29, 2024, the Company entered into certain amendments to the March prepaid advance agreement and the March Note.

The amendments (i) provided consent to the Convertible Notes (as defined below) offering and share repurchase transactions (as described below) and (ii) removed certain prior restrictions on redemption of the March Note before January 1, 2025.

In the first fiscal quarter of 2025, 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 an equity financing transaction is completed by ADCC 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).

9 unchanged sentences

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.

Senior Unsecured Convertible Notes

On November 4, 2024, the Company issued $ 450.0 million aggregate principal amount of 2.75 % Senior Unsecured Convertible Notes due June 2030 (the “Convertible Notes”).

The net proceeds from the sale of the Convertible Notes was approximately $ 435.2 million after deducting the initial purchasers’ discounts and commissions and estimated offering

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

expenses payable by the Company.

The Company used approximately $ 84 million of the net proceeds from the offering to fund share repurchases of common stock in connection with the offering including (i) $ 52.7 million to fund the cost of entering into a prepaid forward repurchase transaction (as described below) and (ii) $ 31.3 million to repurchase shares of common stock with which the Company repurchased approximately 4.3 million shares at $ 7.36 a share, the stock price on October 30, 2024, the trading day preceding the transaction close.

In addition, approximately $ 51.8 million of the net proceeds from the offering were used to pay the cost of the capped call transactions (as described below) and the remainder of the net proceeds were used for general corporate purposes.

Also on November 4, 2024, the Company entered into an indenture with respect to the Convertible Notes with Wilmington Trust, National Association, as trustee (the “Indenture”).

The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 2.75 % per year payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2025.

The Convertible Notes will mature on June 1, 2030, unless earlier converted, redeemed or repurchased in accordance with terms described below.

Prior to March 1, 2030, the Convertible Notes are convertible only upon the occurrence of certain events.

On or after March 1, 2030 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders may convert the Convertible Notes at any time (the “Conversion Option”).

The Convertible Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election, subject to certain restrictions.

The initial conversion rate is 102.5431 shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ 9.75 per share of common stock).

The conversion rate is subject to customary anti-dilution adjustments.

In addition, following certain events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption.

Prior to December 1, 2027, the Company may not redeem the Convertible Notes.

On or after December 1, 2027, the Company may redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The redemption price will be equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

If the Company undergoes a “fundamental change,” as defined in the Indenture, prior to maturity, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Indenture contains customary terms and covenants, including certain events of default.

In accounting for the issuance of the Convertible Notes, the Conversion Option of the Convertible Notes was deemed an embedded derivative requiring bifurcation from the Convertible Notes (the “host contract”) and separate accounting as an embedded derivative liability, resulting from the Company not having the necessary number of authorized but unissued shares of its common stock available to settle the Conversion Option of the Convertible Notes in shares on the date of issuance.

The proceeds from the Convertible Notes were first allocated to the embedded derivative liability and the remaining proceeds were then allocated to the host contract.

On November 4, 2024, the issuance date, the fair value of the embedded derivative liability representing the Conversion Option was $ 149.9 million and the remaining $ 286.6 million was allocated to the host contract.

As such, the Company recognized a $ 13.5 million gain on change in fair value of debt at issuance.

Subsequently, on November 20, 2024, the stockholders of the Company approved an increase to the number of authorized shares of common stock to an amount sufficient to settle the Conversion Option of the Convertible Notes fully in shares.

As a result of the increase to the number of authorized shares of common stock, the Company revalued the Conversion Option to its fair value as of November 20, 2024 of $ 252.9 million and reclassified the embedded derivative to additional

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

paid-in capital on its unaudited condensed consolidated balance sheets.

In doing so, the Company recognized a $ 103.0 million loss on change in fair value of debt as of November 20, 2024.

This loss combined with the gain recognized at issuance resulted in a total loss on fair value of debt of $ 89.6 million which is included on the unaudited condensed consolidated statements of operations.

As of November 30, 2024, the embedded Conversion Option derivative is included in additional paid-in capital in the unaudited condensed consolidated balance sheets and is not required to be remeasured provided the requirements to qualify for the scope exception in ASC 815-10-15-74(a) continue to be met.

Prepaid Forward Repurchase Transaction

In connection with the offering of the Convertible Notes, the Company entered into a privately negotiated prepaid forward repurchase transaction (the “Prepaid Forward”) with one of the initial purchasers (the “Forward Counterparty”).

Pursuant to the Prepaid Forward and the Indenture, the Company used approximately $ 52.7 million of the net proceeds from the offering of the Convertible Notes to fund the Prepaid Forward.

The initial aggregate number of shares of common stock underlying the Prepaid Forward was approximately 7.2 million shares of common stock.

The maturity date for the Prepaid Forward is November 3, 2025, although it may be settled earlier in whole or in part.

As of November 30, 2024, the purchase price of the Prepaid Forward is included in additional paid-in capital in the unaudited condensed consolidated balance sheets and is not required to be remeasured provided the requirements to qualify for the scope exception in ASC 815-10-15-74(a) continue to be met.

Capped Call Transaction

In connection with the offering of the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped Call Transactions”) with certain financial institutions (the “Option Counterparties”).

In addition, in connection with the initial purchasers’ exercise of their option to purchase additional Convertible Notes, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions,” and, together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the Option Counterparties.

The Company used approximately $ 51.8 million of the net proceeds from the offering of the Convertible Notes to pay the cost of the Capped Call Transactions.

The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of common stock that initially underlie the Convertible Notes, and are expected generally to reduce potential dilution to the common stock upon any conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions, which is defined as $ 14.72 .

The Capped Call Transactions are separate transactions entered into by the Company and are not part of the terms of the Convertible Notes.

As of November 30, 2024, the purchase price of the Capped Call Transaction is included in additional paid-in capital in the unaudited condensed consolidated balance sheets and is not required to be remeasured provided the requirements to qualify for the scope exception in ASC 815-10-15-74(a) continue to be met.

Macquarie Promissory Note

On November 27, 2024, APLD ELN-02 Holdings LLC, a wholly-owned subsidiary of the Company, entered into a promissory note with Macquarie Equipment Capital, Inc.

(the “Macquarie Promissory Note”).

The Macquarie Promissory Note provides for a loan of $ 150 million and matures on the earlier of (i) the date of acceleration of the loan or (ii) May 27, 2026.

However, to the extent that the ELN-02 Project (as defined therein) is not completed by December 6, 2025, the Company must repay the full outstanding principal balance of the Macquarie Promissory Note together with accrued interest and any other amounts then due and payable.

Additionally, the Macquarie Promissory Note has a multiple on invested capital (“MOIC”) of (i) 1.11 to 1.00 if such prepayment occurs on or prior to the date that is four months after the closing date, (ii) 1.20 to 1.00 if such prepayment occurs after the date that is four months after the closing date but on or prior to the date that is seven months after the closing date, or (iii) 1.35 to 1.00 if such prepayment occurs after the date that is seven months after the closing date.

The same 1.35 x return hurdle applies to repayment at maturity.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

anticipates repaying the Macquarie Promissory Note at maturity and as such, has recorded a MOIC liability of $ 16.5 million, representing the value of the MOIC liability as of the quarter ended November 30, 2024.

Proceeds of the loan under the Macquarie Promissory Note were used, in part, to repay in full and terminate the CIM Promissory Note.

Commensurate with the use of proceeds associated with construction from the Macquarie Promissory Note, the Company will capitalize approximately 90 % of the interest expense recognized each period.

Additionally, proceeds were used to satisfy remaining obligations of the Company under the March Note.

As partial consideration for the Macquarie Promissory Note, the Company issued warrants (the “Macquarie Warrants”) to purchase up to 1,035,197 shares of common stock.

The Macquarie Warrants will be exercisable from and after the date that is six months following the date of issuance thereof and will have a five and one-half-year term and an exercise price of $ 9.66 per share, which exercise price must be paid in cash.

The Macquarie 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 Macquarie Warrants was based on the following significant inputs:

Macquarie Warrants

Contractual term

Volatility 95 %

Risk-free rate 4.08 %

Dividend yield — %

The fair value of the Macquarie Warrants was $ 7.38 per warrant, totaling $ 7.6 million which was recorded as additional paid-in capital on the Company’s unaudited condensed consolidated balance sheets.

The Company deferred the recognition of the fair value of the Macquarie Warrants as a reduction in the net carrying amount of the Macquarie Promissory Note and subsequently will amortize this balance into interest expense or CIP, as noted above, using the effective interest rate method.

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”).

Increases In Authorized Shares

On June 11, 2024, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to its 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

Additionally, on November 20, 2024, the Company filed an amendment to its Articles of Incorporation, increasing the number of shares of common stock authorized for issuance to 400,000,000 shares and the number of shares of preferred stock authorized for issuance to 10,000,000 shares.

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.

On May 6, 2024, the Company began sales of common stock under an "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.

3 unchanged sentences

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.

and Roth Capital Partners, LLC (collectively, the

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

“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.

During the fiscal quarter ended 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.

On October 30, 2024, the Company terminated its Sales Agreement with the Agents.

Standby Equity Purchase Agreement ("SEPA")

2 unchanged sentences

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.

Additionally, the Company agreed to pay a commitment fee of $ 2,125,000 to YA Fund, (the Commitment Fee”), in the form 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 the date of the SEPA.

On October 16, 2024, the Company entered into a letter agreement with YA Fund, whereby the Company agreed to satisfy its obligations with respect to the Commitment Fee in cash by increasing the principal amount due under the March Note in an equivalent amount, instead of issuing the Commitment Shares.

The Commitment Fee has been paid in full subsequent to November 30, 2024 as part of the repayment by the Company of the March Note.

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.

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.

As of the date of this report, the Company has not filed such a registration statement.

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 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.

During the quarter ended November 30, 2024, the Private Placement closed with aggregate gross proceeds to the Company of approximately $ 160 million, before deducting offering expenses.

On October 8, 2024, the Company’s Board of Directors approved the Applied Digital Corporation 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), which the Company’s stockholders approved on November 20, 2024.

The 2024 Plan provides for grants of various equity awards for eligible employees, officers, non-employee directors and other service providers.

Upon stockholder approval of the 2024 Plan, the Plans (as defined below) were terminated;

provided that all awards (as defined in the Plans) outstanding under the 2022 Incentive Plan and the 2022 Non-Employee Director Stock Plan shall continue in effect in accordance with their terms.

As of November 30, 2024, there were no awards granted under the 2024 Plan.

On October 9, 2021, the Company’s Board of Directors (the “Board”) 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 Months Ended August 31, 2024

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

As of November 30, 2024, the Company had issued awards of approximately 20.4 million shares of common stock of the Company under the Plans.

The Company recognized $ 3.5 million and $ 0.5 million of stock based compensation during the three and six months ended November 30, 2024, respectively, and $ 4.8 million and $ 10.4 million during the three and six months ended November 30, 2023, respectively.

As such, 2.8 million 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.

Restricted Stock Awards

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

The following is a summary of the activity and balances for unvested restricted stock awards granted for the six months ended November 30, 2024:

Number of Shares Weighted Average Grant Date Fair Value Per Share

1 unchanged sentence

638,895 $ 4.01

Vested ( 142,565 ) 4.96

Forfeited — —

Outstanding as of August 31, 2024

Outstanding as of November 30, 2024

496,330 $ 3.73

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.

As of November 30, 2024, total remaining expense to be recognized related to these awards was $ 1.4 million and the weighted average remaining recognition period for the unvested awards was 2.1 years.

Restricted Stock Units

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

The following is a summary of the activity and balances for unvested restricted stock units granted during the six months ended November 30, 2024:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 3,659,213 ) 2.27

Outstanding as of August 31, 2024

Outstanding as of November 30, 2024

7,100,315 $ 5.50

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.

As of November 30, 2024, total remaining expense to be recognized related to these awards was $ 33.9 million and the weighted average remaining recognition period for the unvested awards was 2.2 years.

Temporary Equity

1 unchanged sentence

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”).

During the six months ended November 30, 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.

3 unchanged sentences

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.

During the three and six months ended November 30, 2024, the Company declared and

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

paid approximately $ 0.2 million and $ 0.3 million, respectively, of dividends related to Series E Preferred Stock as presented on the unaudited condensed consolidated statements 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 Months Ended August 31, 2024

common stockholders.

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 common stockholders.

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

10 unchanged sentences

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 %.

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 (the “Series F Convertible Preferred Stock”), 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.

The shares of Series F Convertible Preferred Stock are convertible into shares of common stock only upon the receipt of shareholder approval, which was received on November 20, 2024.

Holders of the Series F Convertible Preferred Stock are entitled to cumulative 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.

During the three and six months ended November 30, 2024, the Company declared and paid approximately $ 0.4 million, respectively, of dividends related to the Series F Convertible Preferred Stock as presented on the unaudited condensed consolidated statements of operations.

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 .

Series F Convertible Preferred Stock is on parity with the Series E Preferred Stock, Series E-1 Preferred Stock and any future series of preferred stock with substantially identical terms.

Upon the receipt of shareholder approval on November 20, 2024, the Series F Convertible

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

Preferred Stock votes 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.

2 unchanged sentences

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.

Further, upon receipt of shareholder approval of the conversion feature of the Series F Convertible Preferred Stock, which approval was received on November 20, 2024, 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.

During the three months ended November 30, 2024, 10,191 shares of Series F Convertible Preferred Stock were converted into approximately 1.5 million shares of the Company’s common stock.

Subsequent to the quarter end, the remaining 43,000 shares of the Series F Convertible Preferred Stock were converted into approximately 6.1 million shares of the Company’s common stock.

Series E-1 Preferred Stock

On September 23, 2024, the Company entered into a dealer manager agreement for the offering of up to 62,500 shares of Series E-1 Redeemable Preferred Stock, par value $ 0.001 per share (“Series E-1 Preferred Stock”), at a price per share of $ 1,000 (the “Series E-1 Stated Value”).

During the three months ended November 30, 2024, the Company closed on two offerings of the Series E-1 Preferred Stock in which the Company issued and sold 6,359 shares for gross proceeds of $ 6.4 million.

The Series E-1 Preferred Stock offering remains ongoing as of the date of this report.

The shares of Series E-1 Preferred Stock have no voting or conversion rights.

Holders of the Series E-1 Preferred Stock are entitled to receive cumulative dividends at a fixed rate of 9.0 % per annum of the Series E-1 Stated Value.

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 on the shares of Series E-1 Preferred Stock 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 and six months ended November 30, 2024, the Company declared and paid approximately $ 48,000 of dividends related to the Series E-1 Preferred Stock as presented on the unaudited condensed consolidated statements of operations.

The Series E-1 Preferred Stock ranks senior to all classes or series of common stock and junior to all existing and future debt of the Company.

Additionally, the Series E-1 Preferred Stock is on parity with the Series E Preferred Stock, the Series F Convertible Preferred Stock and 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-1 Preferred Stock.

In the event of liquidation, holders of the Series E-1 Preferred Stock and holders of shares of any other class or series of capital stock ranking senior to or on a parity with the Series E-1 Preferred Stock, are entitled to receive an amount per share equal to the Series E-1 Stated Value plus an amount per share that is issuable as a result of any accrued but unpaid dividends before any distributions are made to common stockholders.

The Series E-1 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-1 Preferred Stock at any time for a "Settlement Amount" calculated as the Series E-1 Stated Value plus any unpaid dividends, less a Holder Optional Redemption Fee

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

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

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

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

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

No such triggering events were identified during the three 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

Yorkville convertible debt

$ 28,132 $ 30,463

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.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

equal to a percentage of the Series E-1 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 — % on or after the third anniversary of the Original Issuance Date.

The Settlement Amount can be settled in cash or shares of common stock at the sole option of the Company, subject to a share cap (if required by Nasdaq rules and regulations), which limits the total shares deliverable upon redemption to 19.99 % of the common stock outstanding immediately prior to the Series E-1 Preferred Stock offering ( 25,889,470 shares, the “Share Cap”), unless approval by the Company’s stockholders is obtained to exceed the Share Cap.

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

Holders may not redeem any shares of Series E-1 Preferred Stock for common stock prior to the first anniversary of the Original Issuance Date.

The Company may also redeem shares of the Series E-1 Preferred Stock after the second anniversary of the Original Issuance Date, with a minimum notice of 10 days, at a redemption price equal to the Series E-1 Stated Value plus any accrued but unpaid 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 Settlement Amount divided by the closing price per share of the common stock on the last trading day prior to the date upon which notice was provided to the holder, subject to the Share Cap, if applicable.

From time to time, 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

August 31, 2024 August 31, 2023

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Operating lease cost:

4 unchanged sentences

Amortization of right-of-use assets (1)

23,381 10,860 54,651 16,490

Interest on lease liabilities 4,923 1,659 9,279 2,741

4 unchanged sentences

(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:

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

The following table represents the Company’s future minimum lease payments as of November 30, 2024:

Operating Leases Finance Leases Total

11 unchanged sentences

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

Three Months Ended

August 31, 2024 August 31, 2023

Six Months Ended

November 30, 2024 November 30, 2023

Weighted-average years remaining (in years):

6 unchanged sentences

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 $ 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.

As of November 30, 2024, the Company had a minimum commitment of approximately $ 61.1 million related to the energy services agreement for its Jamestown, North Dakota co-hosting facility payable over, approximately, the next 2.2 years.

Construction Contracts

5 unchanged sentences

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

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, et al.

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

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

Applied Digital Corporation, et al., Case No.

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

3 unchanged sentences

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.

On November 20, 2024, Lead Plaintiff filed his opposition to the Motion to Dismiss.

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

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.

Cummins, et al.

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

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

The complaint asserts claims for 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.

Cummins, et al., Case No.

A-23-881629-C in the District Court of Clark County, Nevada (the “Derivative Lawsuit”).

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

The complaint asserted 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.

On June 5, 2024, following briefing and argument on the defendants’ motion to dismiss the Derivative Lawsuit, 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 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.

As of November 30, 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.

2 unchanged sentences

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.

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

Business Segments

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

Three Months Ended

August 31, 2024 August 31, 2023

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Data center hosting segment

1 unchanged sentence

Cloud services segment

27,705 4,450 53,560 6,602

Total revenue $ 63,868 $ 42,203 $ 124,572 $ 78,527

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

Three Months Ended

August 31, 2024 August 31, 2023

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Segment profit (loss)

4 unchanged sentences

HPC hosting segment ( 5,839 ) ( 908 ) ( 8,784 ) ( 1,662 )

Total segment profit 17,096 842

Total segment profit (loss) 901 ( 1,571 ) 17,997 ( 729 )

( 19,516 ) ( 6,341 ) ( 27,128 ) ( 14,551 )

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

Operating loss ( 18,615 ) ( 7,912 ) ( 9,131 ) ( 15,280 )

Interest expense, net 7,482 2,617 14,790 4,750

Loss on conversion of debt

25,410 — 33,612 —

Loss on change in fair value of debt 87,218 — 85,439 —

1 unchanged sentence

Net loss before income tax expenses $ ( 138,725 ) $ ( 10,529 ) $ ( 142,972 ) $ ( 22,383 )

(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.

(1) The six months ended November 30, 2024 includes a $ 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

August 31, 2024 August 31, 2023

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Depreciation and amortization:

2 unchanged sentences

Cloud services segment

21,733 8,782 51,951 13,290

HPC hosting segment 1,353 184 2,074 311

61 93 124 119

Total depreciation and amortization (2)

2 unchanged sentences

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

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

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

August 31, 2024 May 31, 2024

November 30, 2024 May 31, 2024

Data center hosting segment

12 unchanged sentences

The table below shows the calculation for earnings per share:

Three Months Ended

August 31, 2024 August 31, 2023

Three Months Ended Six Months Ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

Net loss $ ( 138,726 ) $ ( 10,529 ) $ ( 142,973 ) $ ( 22,383 )

Net loss attributable to noncontrolling interest — — — ( 397 )

Preferred dividends

$ ( 629 ) $ — $ ( 673 ) $ —

Net loss attributable to Common Stockholders $ ( 139,355 ) $ ( 10,529 ) $ ( 143,646 ) $ ( 21,986 )

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

Basic and diluted net loss per share attributable to common stockholders $ ( 0.66 ) $ ( 0.10 ) $ ( 0.80 ) $ ( 0.21 )

Basic and diluted weighted average number of shares outstanding 209,560,339 109,663,030 179,119,398 105,067,375

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 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.

As of November 30, 2024 and 2023, the Company had approximately 7.6 million and 8.5 million shares, respectively, of granted but unvested restricted stock and restricted stock units that would have a potentially dilutive effect on earnings per share.

As of November 30, 2024, the Company had approximately 7.5 million shares associated with the Preferred Stock which have been excluded from the calculation of earnings per share because the effect of those shares would be antidilutive.

Additionally, the Company had approximately 6.3 million warrants outstanding as of November 30, 2024, which have been excluded from the calculations of earnings per share because the effect of those shares would be antidilutive.

Subsequent Events

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.

Unit Purchase Agreement

On January 13, 2025, APLD HPC Holdings LLC (“APLDH”), an indirect wholly owned subsidiary of the Company, entered into a Unit Purchase Agreement (the “Unit Purchase Agreement” or “UPA”) for its HPC Hosting Business with MIP VI HPC Holdings, LLC, which is an affiliate of funds and investment vehicles managed by entities within Macquarie Asset Management (“MAM”).

Pursuant to the terms of the UPA, MAM will invest up to $ 900 million to fund the equity portion of the construction costs for the Company’s 400 MW Ellendale, North Dakota datacenter campus (the “Ellendale Campus”), with the initial investment of $ 225 million payable at closing, and the remaining $ 675 million payable in

APPLIED DIGITAL CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended November 30, 2024

increments of $ 2.25 million for each executed lease of 1 MW of capacity.

MAM also has a right to invest up to an additional $ 4.1 billion in future HPC development projects.

MAM will receive preferred and common units for its investment.

The common units represent fifteen percent ( 15 %) of APLDH’s fully diluted common equity.

The preferred units will accrue a dividend at a rate of 12.75 % per annum, paid in stock or cash, at APLDH’s election, which will increase by 87.5 basis points on the fifth and sixth anniversaries of the closing, if still outstanding, and will carry a minimum 1.80x multiple of invested capital liquidation preference, inclusive of the value of the common equity.

The closing is conditioned upon, among other things, APLDH executing a lease with a hyperscaler for the first 100 MW on the Ellendale Campus, in a form acceptable to MAM, the parties finalizing and executing a limited liability company agreement for APLDH (the “LLCA”), for the Company and APLDH to carry out an internal restructuring to segregate the HPC Hosting Business’ assets and liabilities before closing, as well as other customary closing conditions.

In addition, the Unit Purchase Agreement provides for the Company to issue to MAM at closing two warrants to purchase 4,458,069 shares each, for a total of 8,916,138 shares of the Company’s common stock at the exercise price of $ 8.29 per share.

The common shares issuable upon exercise of the warrants are subject to customary registration rights pursuant to a registration rights agreement to be executed and delivered at closing.

The LLCA is expected to contain customary provisions for transactions of this nature, including, for example, co-sale rights, transfer restrictions, governance rights, redemption rights, forced sale rights, and step-in rights.

Other than the event described above and the events described in Note 6 - Debt, Note 7 - Stockholders' Equity and Note 8 - Temporary Equity, 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