000114487905-312024Q3false00011448792023-06-012024-02-2900011448792024-04-08xbrli:shares00011448792024-02-29iso4217:USD00011448792023-05-310001144879us-gaap:NonrelatedPartyMember2024-02-290001144879us-gaap:NonrelatedPartyMember2023-05-310001144879us-gaap:RelatedPartyMember2024-02-290001144879us-gaap:RelatedPartyMember2023-05-31iso4217:USDxbrli:shares0001144879us-gaap:NonrelatedPartyMember2023-12-012024-02-290001144879us-gaap:NonrelatedPartyMember2022-12-012023-02-280001144879us-gaap:NonrelatedPartyMember2023-06-012024-02-290001144879us-gaap:NonrelatedPartyMember2022-06-012023-02-280001144879us-gaap:RelatedPartyMember2023-12-012024-02-290001144879us-gaap:RelatedPartyMember2022-12-012023-02-280001144879us-gaap:RelatedPartyMember2023-06-012024-02-290001144879us-gaap:RelatedPartyMember2022-06-012023-02-2800011448792023-12-012024-02-2900011448792022-12-012023-02-2800011448792022-06-012023-02-280001144879srt:AffiliatedEntityMember2023-12-012024-02-290001144879srt:AffiliatedEntityMember2022-12-012023-02-280001144879srt:AffiliatedEntityMember2023-06-012024-02-290001144879srt:AffiliatedEntityMember2022-06-012023-02-280001144879us-gaap:CommonStockMember2023-11-300001144879us-gaap:TreasuryStockCommonMember2023-11-300001144879us-gaap:AdditionalPaidInCapitalMember2023-11-300001144879us-gaap:RetainedEarningsMember2023-11-300001144879us-gaap:ParentMember2023-11-300001144879us-gaap:NoncontrollingInterestMember2023-11-3000011448792023-11-300001144879us-gaap:CommonStockMember2023-12-012024-02-290001144879us-gaap:AdditionalPaidInCapitalMember2023-12-012024-02-290001144879us-gaap:ParentMember2023-12-012024-02-290001144879us-gaap:TreasuryStockCommonMember2023-12-012024-02-290001144879us-gaap:RetainedEarningsMember2023-12-012024-02-290001144879us-gaap:CommonStockMember2024-02-290001144879us-gaap:TreasuryStockCommonMember2024-02-290001144879us-gaap:AdditionalPaidInCapitalMember2024-02-290001144879us-gaap:RetainedEarningsMember2024-02-290001144879us-gaap:ParentMember2024-02-290001144879us-gaap:NoncontrollingInterestMember2024-02-290001144879us-gaap:CommonStockMember2022-11-300001144879us-gaap:TreasuryStockCommonMember2022-11-300001144879us-gaap:AdditionalPaidInCapitalMember2022-11-300001144879us-gaap:RetainedEarningsMember2022-11-300001144879us-gaap:ParentMember2022-11-300001144879us-gaap:NoncontrollingInterestMember2022-11-3000011448792022-11-300001144879us-gaap:CommonStockMember2022-12-012023-02-280001144879us-gaap:AdditionalPaidInCapitalMember2022-12-012023-02-280001144879us-gaap:ParentMember2022-12-012023-02-280001144879us-gaap:NoncontrollingInterestMember2022-12-012023-02-280001144879us-gaap:RetainedEarningsMember2022-12-012023-02-280001144879us-gaap:CommonStockMember2023-02-280001144879us-gaap:TreasuryStockCommonMember2023-02-280001144879us-gaap:AdditionalPaidInCapitalMember2023-02-280001144879us-gaap:RetainedEarningsMember2023-02-280001144879us-gaap:ParentMember2023-02-280001144879us-gaap:NoncontrollingInterestMember2023-02-2800011448792023-02-280001144879us-gaap:CommonStockMember2023-05-310001144879us-gaap:TreasuryStockCommonMember2023-05-310001144879us-gaap:AdditionalPaidInCapitalMember2023-05-310001144879us-gaap:RetainedEarningsMember2023-05-310001144879us-gaap:ParentMember2023-05-310001144879us-gaap:NoncontrollingInterestMember2023-05-310001144879us-gaap:CommonStockMember2023-06-012024-02-290001144879us-gaap:AdditionalPaidInCapitalMember2023-06-012024-02-290001144879us-gaap:ParentMember2023-06-012024-02-290001144879us-gaap:TreasuryStockCommonMember2023-06-012024-02-290001144879us-gaap:RetainedEarningsMember2023-06-012024-02-290001144879us-gaap:NoncontrollingInterestMember2023-06-012024-02-290001144879us-gaap:CommonStockMember2022-05-310001144879us-gaap:TreasuryStockCommonMember2022-05-310001144879us-gaap:AdditionalPaidInCapitalMember2022-05-310001144879us-gaap:RetainedEarningsMember2022-05-310001144879us-gaap:ParentMember2022-05-310001144879us-gaap:NoncontrollingInterestMember2022-05-3100011448792022-05-310001144879us-gaap:CommonStockMember2022-06-012023-02-280001144879us-gaap:AdditionalPaidInCapitalMember2022-06-012023-02-280001144879us-gaap:ParentMember2022-06-012023-02-280001144879us-gaap:TreasuryStockCommonMember2022-06-012023-02-280001144879us-gaap:RetainedEarningsMember2022-06-012023-02-280001144879us-gaap:NoncontrollingInterestMember2022-06-012023-02-28apld:segment0001144879us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2024-02-290001144879us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2023-05-310001144879apld:ElectricGenerationAndTransformersMember2024-02-290001144879apld:ElectricGenerationAndTransformersMember2023-05-310001144879us-gaap:BuildingMember2024-02-290001144879us-gaap:BuildingMember2023-05-310001144879us-gaap:LandMember2024-02-290001144879us-gaap:LandMember2023-05-310001144879us-gaap:LandImprovementsMember2024-02-290001144879us-gaap:LandImprovementsMember2023-05-310001144879srt:MinimumMemberus-gaap:LeaseholdImprovementsMember2024-02-290001144879us-gaap:LeaseholdImprovementsMembersrt:MaximumMember2024-02-290001144879us-gaap:LeaseholdImprovementsMember2024-02-290001144879us-gaap:LeaseholdImprovementsMember2023-05-310001144879us-gaap:ConstructionInProgressMember2024-02-290001144879us-gaap:ConstructionInProgressMember2023-05-310001144879srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2024-02-290001144879srt:MaximumMemberus-gaap:FurnitureAndFixturesMember2024-02-290001144879us-gaap:FurnitureAndFixturesMember2024-02-290001144879us-gaap:FurnitureAndFixturesMember2023-05-310001144879apld:AbandonedEquipmentMember2023-12-012024-02-290001144879apld:OperatingLeaseRightOfUseMember2023-12-012024-02-290001144879apld:CustomerAMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-29xbrli:pure0001144879apld:CustomerAMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerAMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerAMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879apld:CustomerBMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-290001144879apld:CustomerBMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerBMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerBMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879apld:CustomerCMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-290001144879apld:CustomerCMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerCMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerCMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879apld:CustomerDMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-290001144879apld:CustomerDMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerDMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerDMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879apld:CustomerEMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-290001144879apld:CustomerEMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerEMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerEMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879apld:CustomerFMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-290001144879apld:CustomerFMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerFMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerFMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879apld:CustomerGMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-12-012024-02-290001144879apld:CustomerGMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-12-012023-02-280001144879apld:CustomerGMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2023-06-012024-02-290001144879apld:CustomerGMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2022-06-012023-02-280001144879us-gaap:NonrelatedPartyMember2023-02-280001144879apld:CustomerDMemberus-gaap:RelatedPartyMember2023-12-012024-02-290001144879apld:CustomerDMemberus-gaap:RelatedPartyMember2022-12-012023-02-280001144879apld:CustomerDMemberus-gaap:RelatedPartyMember2023-06-012024-02-290001144879apld:CustomerDMemberus-gaap:RelatedPartyMember2022-06-012023-02-280001144879us-gaap:RelatedPartyMemberapld:CustomerEMember2023-12-012024-02-290001144879us-gaap:RelatedPartyMemberapld:CustomerEMember2022-12-012023-02-280001144879us-gaap:RelatedPartyMemberapld:CustomerEMember2023-06-012024-02-290001144879us-gaap:RelatedPartyMemberapld:CustomerEMember2022-06-012023-02-280001144879apld:CustomerDMember2023-06-012024-02-290001144879apld:CustomerEMember2023-06-012024-02-290001144879apld:CustomerEByIndividualMember2023-06-012024-02-290001144879apld:CustomerDMemberus-gaap:RelatedPartyMember2024-02-290001144879apld:CustomerDMemberus-gaap:RelatedPartyMember2023-05-310001144879us-gaap:RelatedPartyMemberapld:CustomerEMember2024-02-290001144879us-gaap:RelatedPartyMemberapld:CustomerEMember2023-05-310001144879us-gaap:MediumTermNotesMemberapld:BRileyLoanAndSecurityAgreementMember2023-06-012024-02-290001144879us-gaap:NotesPayableOtherPayablesMemberapld:AIBridgeLoanMember2024-01-300001144879us-gaap:NotesPayableOtherPayablesMemberapld:AIBridgeLoanMember2024-01-302024-01-300001144879apld:AIBridgeLoanMember2024-02-290001144879us-gaap:RelatedPartyMemberapld:ConstructionAndConsultingCostsMember2023-12-012024-02-290001144879us-gaap:RelatedPartyMemberapld:ConstructionAndConsultingCostsMember2023-06-012024-02-290001144879apld:SoftwareLicenseFeesMemberus-gaap:RelatedPartyMember2023-12-012024-02-290001144879apld:SoftwareLicenseFeesMemberus-gaap:RelatedPartyMember2023-06-012024-02-290001144879apld:ConsultingFeesMemberus-gaap:RelatedPartyMember2023-06-012024-02-290001144879apld:ConsultingFeesMemberus-gaap:RelatedPartyMember2023-12-012024-02-290001144879us-gaap:MediumTermNotesMemberapld:TheStarionLoanAgreementMember2024-02-290001144879us-gaap:MediumTermNotesMemberapld:TheStarionLoanAgreementMember2023-05-310001144879apld:VantageGardenCityLoanAgreementMemberus-gaap:MediumTermNotesMember2024-02-290001144879apld:VantageGardenCityLoanAgreementMemberus-gaap:MediumTermNotesMember2023-05-310001144879apld:EllendaleLoanAgreementMemberus-gaap:MediumTermNotesMember2024-02-290001144879apld:EllendaleLoanAgreementMemberus-gaap:MediumTermNotesMember2023-05-310001144879us-gaap:MediumTermNotesMemberapld:VantageTransformerLoanMember2024-02-290001144879us-gaap:MediumTermNotesMemberapld:VantageTransformerLoanMember2023-05-310001144879us-gaap:MediumTermNotesMemberapld:OtherLongTermDebtMember2024-02-290001144879us-gaap:MediumTermNotesMemberapld:OtherLongTermDebtMember2023-05-310001144879us-gaap:MediumTermNotesMember2024-02-290001144879us-gaap:MediumTermNotesMember2023-05-310001144879apld:CornerstoneBankLoanMember2024-02-280001144879us-gaap:MediumTermNotesMemberapld:CornerstoneBankLoanMember2024-02-280001144879us-gaap:MediumTermNotesMemberapld:VantageTransformerLoanMember2024-02-0800011448792021-10-09apld:plan0001144879apld:RestrictedStockUnitsRSUsAndRestrictedStockAwardsRSAsMember2024-02-290001144879apld:RestrictedStockUnitsRSUsAndRestrictedStockAwardsRSAsMember2023-12-012024-02-290001144879apld:RestrictedStockUnitsRSUsAndRestrictedStockAwardsRSAsMember2023-06-012024-02-290001144879us-gaap:RestrictedStockMember2023-05-310001144879us-gaap:RestrictedStockMember2023-06-012024-02-290001144879us-gaap:RestrictedStockMember2024-02-290001144879us-gaap:RestrictedStockUnitsRSUMember2023-05-310001144879us-gaap:RestrictedStockUnitsRSUMember2023-06-012024-02-290001144879us-gaap:RestrictedStockUnitsRSUMember2024-02-2900011448792023-08-312023-08-310001144879us-gaap:ParentMember2023-08-312023-08-310001144879us-gaap:FairValueInputsLevel3Member2024-02-290001144879srt:MinimumMemberus-gaap:MeasurementInputDiscountRateMember2024-02-290001144879us-gaap:MeasurementInputDiscountRateMembersrt:MaximumMember2024-02-290001144879srt:MinimumMember2024-02-290001144879srt:MaximumMember2024-02-290001144879us-gaap:EnergyServiceMember2024-02-290001144879us-gaap:SettledLitigationMemberapld:SettlementOfPotentialClaimMemberapld:FormerExecutiveMember2023-09-012023-11-300001144879apld:HPCHostingSegmentMemberus-gaap:OperatingSegmentsMember2023-06-012024-02-290001144879apld:HPCHostingSegmentMemberus-gaap:OperatingSegmentsMember2022-06-012023-02-280001144879apld:HPCHostingSegmentMemberus-gaap:OperatingSegmentsMember2023-12-012024-02-290001144879apld:HPCHostingSegmentMemberus-gaap:OperatingSegmentsMember2022-12-012023-02-280001144879apld:DatacenterHostingSegmentMemberus-gaap:OperatingSegmentsMember2023-12-012024-02-290001144879apld:DatacenterHostingSegmentMemberus-gaap:OperatingSegmentsMember2022-12-012023-02-280001144879apld:DatacenterHostingSegmentMemberus-gaap:OperatingSegmentsMember2023-06-012024-02-290001144879apld:DatacenterHostingSegmentMemberus-gaap:OperatingSegmentsMember2022-06-012023-02-280001144879us-gaap:OperatingSegmentsMemberapld:CloudServicesSegmentMember2023-12-012024-02-290001144879us-gaap:OperatingSegmentsMemberapld:CloudServicesSegmentMember2022-12-012023-02-280001144879us-gaap:OperatingSegmentsMemberapld:CloudServicesSegmentMember2023-06-012024-02-290001144879us-gaap:OperatingSegmentsMemberapld:CloudServicesSegmentMember2022-06-012023-02-280001144879us-gaap:OperatingSegmentsMember2023-12-012024-02-290001144879us-gaap:OperatingSegmentsMember2022-12-012023-02-280001144879us-gaap:OperatingSegmentsMember2023-06-012024-02-290001144879us-gaap:OperatingSegmentsMember2022-06-012023-02-280001144879us-gaap:CorporateNonSegmentMember2023-12-012024-02-290001144879us-gaap:CorporateNonSegmentMember2022-12-012023-02-280001144879us-gaap:CorporateNonSegmentMember2023-06-012024-02-290001144879us-gaap:CorporateNonSegmentMember2022-06-012023-02-280001144879us-gaap:CorporateNonSegmentMemberus-gaap:CorporateAndOtherMember2023-12-012024-02-290001144879us-gaap:CorporateNonSegmentMemberus-gaap:CorporateAndOtherMember2022-12-012023-02-280001144879us-gaap:CorporateNonSegmentMemberus-gaap:CorporateAndOtherMember2023-06-012024-02-290001144879us-gaap:CorporateNonSegmentMemberus-gaap:CorporateAndOtherMember2022-06-012023-02-280001144879apld:DatacenterHostingSegmentMemberus-gaap:OperatingSegmentsMember2024-02-290001144879apld:DatacenterHostingSegmentMemberus-gaap:OperatingSegmentsMember2023-05-310001144879us-gaap:OperatingSegmentsMemberapld:CloudServicesSegmentMember2024-02-290001144879us-gaap:OperatingSegmentsMemberapld:CloudServicesSegmentMember2023-05-310001144879apld:HPCHostingSegmentMemberus-gaap:OperatingSegmentsMember2024-02-290001144879apld:HPCHostingSegmentMemberus-gaap:OperatingSegmentsMember2023-05-310001144879us-gaap:OperatingSegmentsMember2024-02-290001144879us-gaap:OperatingSegmentsMember2023-05-310001144879us-gaap:CorporateNonSegmentMemberus-gaap:CorporateAndOtherMember2024-02-290001144879us-gaap:CorporateNonSegmentMemberus-gaap:CorporateAndOtherMember2023-05-310001144879apld:MaraGardenCityFacilityMemberus-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2024-03-140001144879apld:MaraGardenCityFacilityMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2023-06-012024-02-290001144879apld:MaraGardenCityFacilityMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2023-12-012024-02-290001144879apld:MaraGardenCityFacilityMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2024-02-290001144879apld:MaraGardenCityFacilityMemberus-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2024-03-142024-03-140001144879apld:AIBridgeLoanMemberus-gaap:MediumTermNotesMemberus-gaap:SubsequentEventMember2024-03-012024-03-010001144879us-gaap:NotesPayableOtherPayablesMemberapld:AIBridgeLoanMemberus-gaap:SubsequentEventMember2024-04-100001144879us-gaap:NotesPayableOtherPayablesMemberapld:PromissoryNotesMember2024-01-300001144879apld:PromissoryNotesMemberus-gaap:SubsequentEventMemberus-gaap:UnsecuredDebtMember2024-03-27apld:note0001144879apld:PromissoryNotesMemberus-gaap:SubsequentEventMemberapld:DebtRedemptionTermOneMemberus-gaap:UnsecuredDebtMember2024-03-270001144879apld:PromissoryNotesMemberus-gaap:SubsequentEventMemberapld:DebtRedemptionTermOneMemberus-gaap:UnsecuredDebtMember2024-03-272024-03-270001144879apld:PromissoryNotesMemberus-gaap:SubsequentEventMemberapld:DebtRedemptionTermTwoMemberus-gaap:UnsecuredDebtMember2024-03-270001144879apld:PromissoryNotesMemberus-gaap:SubsequentEventMemberapld:DebtRedemptionTermTwoMemberus-gaap:UnsecuredDebtMember2024-03-272024-03-27apld:day0001144879us-gaap:SubsequentEventMember2024-03-27

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
________________________
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2024
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ and __________
Commission file number: 001-31968
________________________
APPLIED DIGITAL CORPORATION
(Exact name of registrant as specified in its charter)
________________________
Nevada95-4863690
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3811 Turtle Creek Boulevard, Suite 2100, Dallas, Texas
75219
(Address of Principal Executive Offices)(Zip Code)
(214) 427-1704
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareAPLDNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes    x    No  o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o    No x
As of April 8, 2024, 122,739,540 shares of Common Stock, $0.001 par value, were outstanding.




Table of Contents
Page
Item 6.


Table of Contents
Part I - Financial Information
Item 1. Financial Statements
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and par value data)
February 29, 2024May 31, 2023
ASSETS
Current assets:
Cash and cash equivalents$4,435 $28,999 
Restricted cash29,545 14,575 
Accounts receivable225 82 
Prepaid expenses and other current assets6,127 2,012 
Current assets held for sale
65,369  
Total current assets105,701 45,668 
Property and equipment, net211,172 195,593 
Operating lease right of use assets, net95,429 1,290 
Finance lease right of use assets, net189,627 14,303 
Other assets41,239 7,103 
TOTAL ASSETS$643,168 $263,957 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$93,918 $6,446 
Accrued liabilities27,545 9,960 
Current portion of operating lease liability13,023 320 
Current portion of finance lease liability86,438 5,722 
Current portion of debt19,329 7,950 
Customer deposits
32,410 32,560 
Related party customer deposits
3,810 3,810 
Deferred revenue
63,121 47,168 
Related party deferred revenue
1,287 1,524 
Current liabilities held for sale
8,279  
Total current liabilities349,160 115,460 
Long-term portion of operating lease liability69,260 1,005 
Long-term portion of finance lease liability63,803 8,334 
Long-term debt24,845 33,222 
Long-term related party loan17,612 35,257 
Other long-term related party liabilities 1,000 
Total liabilities524,680 194,278 
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 166,666,667 shares authorized, 127,486,937 shares issued and 122,417,839 shares outstanding at February 29, 2024, and 100,927,358 shares issued and 95,925,630 shares outstanding at May 31, 2023
127 101 
Treasury stock, 5,069,098 shares at February 29, 2024 and 5,001,728 shares at May 31, 2023, at cost
(62)(62)
Additional paid in capital303,963 160,194 
Accumulated deficit(185,540)(100,716)
Total stockholders’ equity attributable to Applied Digital Corporation118,488 59,517 
Noncontrolling interest 10,162 
Total stockholders' equity including noncontrolling interest118,488 69,679 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$643,168 $263,957 
See accompanying notes to the condensed consolidated financial statements
1

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share data)
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Revenue:
Revenue$40,284 $10,054 $110,993 $23,139 
Related party revenue3,064 4,036 10,883 10,215 
Total revenue43,348 14,090 121,876 33,354 
Costs and expenses:
Cost of revenues (1)
47,061 10,533 102,051 28,450 
Selling, general and administrative (2)
30,386 10,546 67,142 42,779 
Loss on classification as held for sale
21,723  21,723  
Loss from legal settlement  2,380  
Total costs and expenses99,170 21,079 193,296 71,229 
Operating loss(55,822)(6,989)(71,420)(37,875)
Interest expense, net (3)
4,404 352 8,836 1,061 
Loss on change in fair value of related party debt2,612  2,612  
Loss on extinguishment of debt (4)
  2,353 94 
Net loss before income tax expenses(62,838)(7,341)(85,221)(39,030)
Income tax benefit   (280)
Net loss(62,838)(7,341)(85,221)(38,750)
Net loss attributable to noncontrolling interest (316)(397)(577)
Net loss attributable to Applied Digital Corporation$(62,838)$(7,025)$(84,824)$(38,173)
Basic and diluted net loss per share attributable to Applied Digital Corporation$(0.52)$(0.07)$(0.77)$(0.41)
Basic and diluted weighted average number of shares outstanding121,426,622 94,119,944 110,500,556 93,545,687 
(1)Includes cost of revenues attributable to related party revenues of $2.5 million and $3.1 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $6.6 million and $8.8 million for the nine months ended February 29, 2024 and February 28, 2023, respectively.
(2)Includes related party selling, general and administrative expense of $0.1 million and $0.5 million for the three and nine months ended February 29, 2024, respectively. There was no related party selling, general and administrative expense incurred during the three and nine months ended February 28, 2023.
(3)Includes related party interest expense of $0.2 million and $0.8 million for the three months ended and nine months ended February 29, 2024, respectively. There was no related party debt issued during three and nine months ended February 28, 2023 and as such, no interest expense was incurred related to related party debt.
(4)Amounts included in the nine months ended February 29, 2024 are related to the extinguishment of related party debt.
See Note 5 - Related Party Transactions for further discussion of related party transactions.
See accompanying notes to the condensed consolidated financial statements
2

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months ended February 29, 2024 and February 28, 2023
(In thousands, except share data)
(Unaudited)
Common StockTreasury Stock
Additional
Paid in
Capital
Accumulated
Deficit
Stockholders’
Equity
Noncontrolling interest
Total Equity
SharesAmountSharesAmount
Balance, November 30, 2023122,734,060$123 (5,001,728)$(62)$278,299 $(122,702)$155,658 $ $155,658 
Shares issued in offering, net of costs4,158,243423,07623,080 23,080
Shares issued from awards vesting594,634— 
Tax payments for restricted stock upon vesting(606)(606)(606)
Share cancellations(67,370)— 
Stock-based compensation3,1943,194 3,194
Net loss(62,838)(62,838)(62,838)
Balance, February 29, 2024127,486,937$127 (5,069,098)$(62)$303,963 $(185,540)$118,488 $ $118,488 

Common StockTreasury Stock
Additional
Paid in
Capital
Accumulated
Deficit
Stockholders’
Equity
Noncontrolling interest
Total Equity
SharesAmountSharesAmount
Balance, November 30, 202298,948,082$99 (5,001,728)$(62)$150,690 $(87,218)$63,509 $8,461 $71,970 
Shares issued from awards vesting523,0461(1)
Tax payments for restricted stock upon vesting— — — — (114)— (114)(114)
Stock-based compensation— — — — 4,480 — 4,480 4,480 
Capital contribution to noncontrolling interest— — — — — — — 2,4002,400 
Net loss— — — — — (7,025)(7,025)(316)(7,341)
Balance, February 28, 202399,471,128$100 (5,001,728)$(62)$155,055 $(94,243)$60,850 $10,545 $71,395 
See accompanying notes to the condensed consolidated financial statements
3

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended February 29, 2024 and February 28, 2023
(In thousands, except share data)
(Unaudited)

Common StockTreasury Stock
Additional
Paid in
Capital
Accumulated
Deficit
Stockholders’
Equity
Noncontrolling interest
Total Equity
SharesAmountSharesAmount
Balance, May 31, 2023100,927,358$101 $(5,001,728)$(62)$160,194 $(100,716)$59,517 $10,162 $69,679 
Shares issued in offering, net of costs18,945,841 20 — — 120,982 — 121,002— 121,002
Shares issued from awards vesting6,129,471 5 — — (5)— — 
Tax payments for restricted stock upon vesting— — — — (606)— (606)— (606)
Share cancellations— — (67,370)— — — — 
Stock-based compensation— — — — 13,634 — 13,634— 13,634
Net loss— — — — — (84,824)(84,824)(397)(85,221)
Extinguishment of noncontrolling interest1,484,267 1 — — 9,764 — 9,765(9,765)
Balance, February 29, 2024127,486,937$127 (5,069,098)$(62)$303,963 $(185,540)$118,488 $ $118,488 

Common StockTreasury Stock
Additional
Paid in
Capital
Accumulated
Deficit
Stockholders’
Equity
Noncontrolling interest
Total Equity
SharesAmountSharesAmount
Balance, May 31, 202297,837,703$98 (36,296)$(62)$128,293 $(56,070)$72,259 $6,976 $79,235 
Shares issued from awards vesting1,633,425 2 — — (2)— 
Tax payments for restricted stock upon vesting— — — — (114)— (114)(114)
Stock-based compensation— — — — 26,878 — 26,87826,878
Capital contribution to noncontrolling interest— — — — — — 4,1464,146
Common stock forfeited— — (4,965,432)— — — 
Net loss— — — — — (38,173)(38,173)(577)(38,750)
Balance, February 28, 202399,471,128$100 (5,001,728)$(62)$155,055 $(94,243)$60,850 $10,545 $71,395 
See accompanying notes to the condensed consolidated financial statements
4

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Ended
February 29, 2024February 28, 2023
CASH FLOW FROM OPERATING ACTIVITIES
Net loss$(85,221)$(38,750)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization12,899 2,580 
Stock-based compensation13,634 26,878 
Lease expense
41,473 2,296 
Deferred income taxes (280)
Loss on extinguishment of debt2,353 94 
Amortization of debt issuance costs498  
Loss on classification as held for sale
21,723  
Loss on change in fair value of related party debt2,612  
Changes in operating assets and liabilities:
Accounts receivable(143)145 
Prepaid expenses and other current assets(4,115)(266)
Customer deposits
(150)24,584 
Related party customer deposits
 2,262 
Deferred revenue
15,953 42,261 
Related party deferred revenue
(237)1,481 
Accounts payable55,464 (10,019)
Accrued liabilities8,191 1,562 
Lease assets and liabilities(35,675)(580)
Other assets(1,363)(104)
CASH FLOW PROVIDED BY OPERATING ACTIVITIES47,896 54,144 
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment and other assets(86,996)(96,214)
Finance lease prepayments(35,132) 
Purchases of investments(390)(100)
CASH FLOW USED IN INVESTING ACTIVITIES(122,518)(96,314)
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of finance leases(27,527)(1,635)
Borrowings of long-term debt8,422 25,567 
Borrowings of related party debt23,000  
Repayments of long-term debt(6,763)(8,839)
Repayment of related party debt(45,500) 
Payment of deferred financing costs (333)
Tax payments for restricted stock upon vesting(606)(114)
Noncontrolling interest contributions 4,146 
Proceeds from issuance of common stock, net of costs121,002  
CASH FLOW PROVIDED BY FINANCING ACTIVITIES72,028 18,792 
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(2,594)(23,378)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD43,574 46,299 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD$40,980 $22,921 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid$9,121 $1,118 
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Operating right-of-use assets obtained by lease obligation$95,018 $ 
Finance right-of-use assets obtained by lease obligation$219,268 $8,693 
Property and equipment in accounts payable and accrued liabilities
$41,100 $9,384 
Extinguishment of non-controlling interest
$9,765 $ 
See accompanying notes to the condensed consolidated financial statements
5

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (unaudited)
For the Three and Nine Months Ended February 29, 2024

1.    Business and Organization
Applied Digital Corporation (the “Company”), is a designer, builder, and operator of digital infrastructure providing cost-competitive solutions to customers. The Company has three reportable segments. Financial information for each segment is contained in Note 11 - Business Segments.
2.    Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The condensed consolidated balance sheet as of May 31, 2023 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements.
In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. For further information, please refer to and read these interim unaudited condensed consolidated financial statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2023 filed with the SEC on August 2, 2023.
Significant Accounting Policies and Use of Estimates
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements is in conformity with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates of the valuation allowance associated with the Company’s deferred tax assets.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers.
Datacenter Hosting Revenue
The Company provides energized space to customers who locate their hardware within the Company’s co-hosting facility. All Datacenter hosting performance obligations are achieved simultaneously by providing the hosting environment for the customers’ operations. Customers pay a fixed rate to the Company in exchange for a managed hosting environment supported by customer-provided equipment. Revenue is recognized based on the contractual fixed rate, net of any credits for non-performance, over the term of the agreements. Any ancillary revenue for other services is generally recognized at a point in time when the services are complete. Customer contracts include advance payment terms. All advanced service payments are recorded as deferred revenue and are recognized as revenue once the related service is provided.
Cloud Services Revenue
The Company also provides managed cloud infrastructure services to customers, such as artificial intelligence and machine learning developers, to help develop their advanced products. Customers pay a fixed rate to the Company in exchange for managed cloud services supported by Company-provided equipment. Revenues are recognized based on the fixed rate, net of any credits for non-performance, over the term of the agreements.
6

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company will update its assumptions each reporting period based on new developments and will calculate fair value based on the revised assumptions, as applicable. See Note 8 - Fair Value Measurements for further discussion of the Company’s fair value measurements.
Segments
The Company has identified three reportable segments: cloud services (“Cloud services”), high-performance compute hosting (“HPC hosting”), and datacenter hosting (“Datacenter hosting”). The Company’s chief operating decision-maker evaluates performance, makes operating decisions and allocates resources on both a consolidated basis and on the basis of these three reportable segments. Intercompany transactions between segments are excluded for management reporting purposes.
The Datacenter hosting segment operates datacenters to provide energized space to crypto mining customers. Customer-owned hardware is installed in the Company’s facilities and the Company provides operational and maintenance services for a fixed fee.
The Cloud services segment operates through our Sai Computing brand and provides cloud services to customers, such as artificial intelligence and machine learning developers, to develop their advanced products. Customers pay a fixed rate to the Company in exchange for a managed hosting environment supported by Company-provided equipment.
The HPC hosting segment designs, builds, and operates datacenters which are designed to support high-compute applications using advanced and sophisticated infrastructures to provide services to customers.
See Note 3 - Basis of Presentation and Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2023, as filed with the SEC, for additional information regarding the Company’s significant accounting policies and use of estimates.
Assets Held For Sale
The Company generally considers assets to be held for sale when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) management has initiated an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group, (iv) the sale of the property within one year is considered probable, (iv) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value and (vi) significant changes to the plan to sell are not expected. Property classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell in accordance with ASC 360, Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets.
7

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
Reclassifications
Balance Sheet
We have reclassified certain prior period amounts in our condensed consolidated balance sheets to conform to our current period presentation. Specifically, we have reclassified “Accounts payable and accrued expenses” to separate captions of “Accounts payable” and “Accrued expenses.” We have also reclassified the presentations of restricted cash from “Prepaid expenses and other current assets” to its own caption of “Restricted cash” and security deposits from “Prepaid expenses and other current assets” to “Other assets.” Finally, we have condensed “Sales and use tax payable” into “Accrued expenses.”
Income Statement
We have reclassified certain prior period revenue amounts from “Revenue” to “Related party revenue” and have reclassified interest income from “Selling, general and administrative” expense to “Interest expense, net” in our condensed consolidated statement of operations to conform to our current period presentation.
These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.
Cash, Cash Equivalents, and Restricted Cash
The Company has restricted cash related to its letters of credit totaling $36.5 million, which is held in money market funds. The Company is required to keep these balances in separate accounts for the duration of the letter of credit agreements, which have terms of up to two years. These letters of credit were issued in lieu of security deposits. The Company considers the money market funds to be Level 1 which the Company believes approximates fair value.
Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of February 29, 2024 and May 31, 2023 were as follows (in thousands):
February 29, 2024May 31, 2023
Cash and cash equivalents$4,435 $28,999 
Restricted cash29,545 14,575 
Restricted cash included in other assets7,000  
Total cash, cash equivalents, and restricted cash$40,980 $43,574 
3.    Property and Equipment
Property and equipment consisted of the following as of February 29, 2024, and May 31, 2023 (in thousands):
Estimated Useful LifeFebruary 29,
2024
May 31,
2023
Networking equipment, electrical equipment, and software
5 years$31,003 $21,173 
Electric generation and transformers15 years5,983 4,655 
Land and building
Building39 years103,624 63,350 
Land6,205 2,152 
Land improvements15 years1,380 1,293 
Leasehold improvements
3 years - 7 years
468  
Construction in progress67,297 106,226 
Other equipment and fixtures
5 years - 7 years
6,781 1,684 
Total cost of property and equipment222,741 200,533 
Accumulated depreciation(11,569)(4,940)
Property and equipment, net$211,172 $195,593 
8

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
Depreciation expense totaled $7.9 million and $12.9 million for the three and nine months ended February 29, 2024 and $0.9 million and $2.6 million for the three and nine months ended February 28, 2023.
During the three months ended February 29, 2024, the Company recognized $2.8 million of accelerated depreciation expense related to the abandonment of certain transformers and $1.4 million of accelerated amortization on the related right of use assets. These expenses relate primarily to transformers at the Company’s Ellendale datacenter hosting facility that required additional repairs and upgrades. The accelerated expense amount is presented within Cost of revenues in the accompanying Condensed Consolidated Statements of Operations.
4.    Revenue from Contracts with Customers
Below is a summary of the Company’s revenue concentration by major customers for the three and nine months ended February 29, 2024 and February 28, 2023, respectively.
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Customer A68 % %69 % %
Customer B %26 % %23 %
Customer C %26 % %31 %
Customer D %16 % %17 %
Customer E %13 % %14 %
Customer F %13 % %13 %
Customer G10 % % % %
Deferred Revenue
Changes in the Company's deferred revenue balances for the nine months ended February 29, 2024 and February 28, 2023, respectively, are shown in the following table (in thousands):
Nine Months Ended
February 29, 2024February 28, 2023
Balance, beginning of period$48,692 $3,877 
Advance billings129,044 76,961 
Revenue recognized(121,875)(33,354)
Other adjustments8,547 135 
Less: Related party balances(1,287)(2,435)
Balance, end of period$63,121 $45,184 
Customer Deposits
Changes in the Company's customer deposits balances for the nine months ended February 29, 2024 and February 28, 2023, respectively, are shown in the following table (in thousands):
Nine Months Ended
February 29, 2024February 28, 2023
Balance, beginning of period$36,370 $9,524 
Customer deposits received8,397 26,980 
Other adjustments(8,547)(135)
Less: Related party balances(3,810)(3,810)
Balance, end of period$32,410 $32,559 
9

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
5.    Related Party Transactions
Related Party Revenue
The following table illustrates related party revenue for the three and nine months ended February 29, 2024 and February 28, 2023 (in thousands):
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Customer D*$1,662 $2,250 $5,980 $5,690 
Customer E**$1,402 $1,786 $4,903 $4,525 
*Customer D is a subsidiary of an entity which is deemed to beneficially own over 5% of the Company's outstanding common stock
**Customer E is 60% owned by an individual who is deemed to beneficially own over 5% of the Company's outstanding common stock
The following table illustrates related party deferred revenue and deposits balances as of February 29, 2024 and May 31, 2023 (in thousands):
Customer D balances as ofCustomer E balances as of
February 29, 2024May 31, 2023February 29, 2024May 31, 2023
Deferred revenue$895 $1,474 $392 $50 
Customer Deposits$2,450 $2,450 $1,360 $1,360 
Related Party Sublease Income
The Company receives sublease income from B. Riley Asset Management, which is also a wholly-owned subsidiary of B. Riley Financial, Inc. As previously disclosed, the Company’s Chairman and Chief Executive Officer, served as the President of B. Riley Asset Management, and effective February 5, 2024, resigned from that position. Sublease income is included in selling, general and administrative expenses in our condensed consolidated statements of operations. The following table illustrates related party sublease income for the three and nine months ended February 29, 2024 and February 28, 2023 (in thousands):
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Sublease Income$23 $23 $70 $81 
B. Riley Loan
During the nine months ended February 29, 2024, the Company borrowed an additional $8.0 million and early repaid the total outstanding balance of $44.5 million. Interest expense and deferred issuance cost amortization associated with the loan was $0.7 million for the nine months ended February 29, 2024. The Company recognized a $2.4 million loss on debt extinguishment associated with the early repayment of the outstanding balance for the nine months ended February 29, 2024.
On February 5, 2024, the Company entered into a Termination of Loan and Security letter with B. Riley Commercial Capital, LLC and B. Riley Securities, Inc. which terminated the Loan and Security Agreement dated as of May 23, 2023, as amended, among the parties. At the time of the Termination Letter, all principal, interest and fees under the Loan and Security Agreement had been paid in full. No early termination penalty was paid in connection with the Termination of Loan and Security letter.
10

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
AI Bridge Loan
On January 30, 2024, the Company issued an Unsecured Promissory Note (the “AI Bridge Loan”) payable to AI Bridge Funding LLC (the “Lender”), providing for an unsecured loan in the aggregate principal amount of up to $20.0 million, of which $15.0 million was available immediately and funded upon the execution of the AI Bridge Loan. The obligation of the Lender to advance the remaining $5.0 million shall be in the Lender’s sole discretion. The AI Bridge Loan will mature on January 30, 2026 and bears interest at a rate of 12.5% per annum.
Additionally, upon the receipt by the Company or any of its subsidiaries of any cash proceeds from either the incurrence of any indebtedness (other than the AI Bridge Loan) or the issuance of any equity interests in the Company, which net proceeds total more than $35.0 million, the Company shall apply such net proceeds toward the prepayment of the outstanding principal of the AI Bridge Loan. Pursuant to the terms of the AI Bridge Loan, the Company is obligated to pay to the Lender a repayment fee in an amount sufficient for the Lender to receive an aggregate amount equal to 1.25x the aggregate principal amount funded as loans by the Lender to the Company.

As of February 29, 2024, the total outstanding balance under the AI Bridge Loan was $15.0 million. The Company has elected to recognize the entire note at fair value under ASC 815, Derivatives and Hedging. During the three and nine months ended February 29, 2024, the Company recognized a $2.6 million loss on change in fair value of debt associated with such election which is included in our condensed consolidated statements of operations. See Note 8 - Fair Value Measurements for further discussion on the Company’s fair value considerations.

Affiliates of the Lender are both an investor in B. Riley Financial, Inc. and also an investment management client of B. Riley Asset Management. As previously disclosed, the Company’s Chairman and Chief Executive Officer, served as the President of B. Riley Asset Management, and effective February 5, 2024, resigned from that position.
Other Related Party Transactions
During the three and nine months ended February 29, 2024, the Company paid construction and consulting costs of $44.4 thousand and $0.3 million, respectively, to a company owned by a family member of the Company’s Chief Financial Officer.
During the three and nine months ended February 29, 2024, the Company paid software license fees of $0.1 million and $0.2 million, respectively, to a company whose chairman is also a member of the Company’s Board of Directors.
During the three and nine months ended February 29, 2024, the Company paid $23 thousand in consulting fees to a Board of Director member for sales consulting work.
The Company did not make any payments to these related parties during the three and nine months ended February 28, 2023.
6.    Debt
Long-term debt consisted of the following components (in thousands):
Interest RateMaturity DateFebruary 29, 2024May 31, 2023
Starion term loan6.50%July 25, 2027$10,730 $12,786 
Vantage Garden City loan6.15%April 26, 202812,757 10,074 
Starion Ellendale loan7.48%February 3, 202817,079 19,728 
Vantage transformer loan6.50%February 8, 20293,660  
Other long-term debt
373 354 
Deferred financing costs, net of amortization(425)(1,770)
Less: Current portion of term loan(19,329)(7,950)
Long-term debt, net$24,845 $33,222 
11

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
Remaining Principal Payments
Below is a summary of the remaining principal payments due over the life of the term loans as of February 29, 2024 (in thousands):
Remainder of FY24$14,429 
FY256,946 
FY268,555 
FY279,172 
FY285,492 
Thereafter5 
Total$44,599 
Letters of Credit
As of February 29, 2024, the Company had letters of credit totaling $36.5 million. The Company has restricted cash related to its letters of credit and is required to keep these balances in separate accounts for the duration of the letter of credit agreements. The Company presents all restricted cash amounts with letter of credit term of 12 months or less within the Restricted Cash caption within current assets and any amounts with a related letter of credit term of over 12 months in Other Assets.
Vantage Garden City Loan
During the third quarter of fiscal year 2024, the Company approved plans to sell its Garden City facility. In accordance with the original loan agreement, the sale of the Garden City facility will cause the associated loan to become immediately callable by the lender as those assets were pledged as collateral for the loan. As such, the Company has reclassified the outstanding balance on the loan of $12.8 million to Current portion of long-term debt on its condensed consolidated balance sheets as of February 29, 2024.
Cornerstone Bank Loan
On February 28, 2024, APLD GPU-01, LLC, a wholly-owned subsidiary of the Company, entered into a Loan Agreement with Cornerstone Bank and the Company as Guarantor (the “Cornerstone Bank Loan”). The Cornerstone Bank Loan provides for a term loan in the principal amount of $16.0 million with a maturity date of March 1, 2029. The Cornerstone Bank Loan contains customary covenants, representations, warranties and events of default. The Cornerstone Bank Loan provides for an interest rate of 8.59% per annum. The proceeds of the Cornerstone Bank Loan will be used to finance, in part, existing improvements to real property. As of February 29, 2024, the Company had not received funding from the Cornerstone Bank Loan and accordingly, no amounts have been included in the tables above.
Vantage Transformer Loan
On February 8, 2024, APLD ELN-02 LLC, a wholly-owned subsidiary of the Company, entered into a Loan Agreement with Vantage Bank and the Company as Guarantor (the “Vantage Transformer Loan”). The Vantage Transformer Loan provides for a term loan in the principal amount of $3.7 million with a maturity date of February 8, 2029. The Loan Agreement contains customary covenants, representations, warranties and events of default. The Vantage Transformer Loan provides for an interest rate of 6.50% per annum. The proceeds of the Vantage Transformer Loan were used to fund a transformer for its HPC location in Ellendale. As of February 29, 2024, there was $3.7 million outstanding on the loan.
7.    Stockholders' Equity
Equity Plans
On October 9, 2021, the Company’s Board of Directors approved two equity incentive plans, which the Company’s stockholders approved on January 20, 2022. The two plans consist of the 2022 Incentive Plan, previously referred to in the Company’s SEC filings as the 2021 Incentive Plan (the “Incentive Plan”), which provides for grants of various equity awards to the Company’s employees and consultants, and the 2022 Non-Employee Director Stock Plan previously referred to in the Company’s SEC filings as the 2021 Non-Employee Director Stock Plan (the “Director Plan” and, together with
12

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
the Incentive Plan, the “Plans”), which provides for grants of restricted stock to non-employee directors and for deferral of cash and stock compensation if such deferral provisions are activated at a future date. As of February 29, 2024, the Company had issued awards for approximately 15.1 million shares of common stock of the Company under the plans. During the three and nine months ended February 29, 2024 the Company recognized $3.2 million and $13.6 million in stock-based compensation, respectively.
Restricted Stock Awards
The following is a summary of the activity and balances for unvested restricted stock awards granted for the nine months ended February 29, 2024:
Number of SharesWeighted Average Grant Date Fair Value Per Share
Outstanding as of May 31, 2023
380,955 $2.22 
Granted315,265 4.94 
Vested(391,416)2.30 
Forfeited(67,370)4.75 
Outstanding as of February 29, 2024
237,434 $4.98 
As of February 29, 2024, total remaining expense to be recognized related to these awards was $1.0 million and the weighted average remaining recognition period for the unvested awards was 1.4 years.
Restricted Stock Units
The following is a summary of the activity and balances for unvested restricted stock units granted for the nine months ended February 29, 2024:
Number of SharesWeighted Average Grant Date Fair Value Per Share
Outstanding as of May 31, 2023
12,465,935 $2.53 
Granted2,278,400 6.81 
Vested(5,920,463)2.68 
Forfeited(314,575)2.49 
Outstanding as of February 29, 2024
8,509,297 $3.62 
As of February 29, 2024, total remaining expense to be recognized related to these awards was $29.6 million and the weighted average remaining recognition period for the unvested awards was 2.0 years.
Public Offering
During the nine months ended February 29, 2024, the Company completed sales of common stock under an "at the market" sale agreement pursuant to which the Company could sell up to $125 million in aggregate proceeds of common stock. The Company sold approximately 18.9 million shares for net proceeds of approximately $121.0 million in total. Commission and legal fees related to the issuance were $0.7 million and $4.0 million for the three and nine months ended February 29, 2024, respectively.
Extinguishment of Noncontrolling Interest
On August 31, 2023, pursuant to the joint venture agreement, the minority partner in 1.21 Gigawatts LLC exercised the option to exchange their interest in the joint venture for approximately 1.5 million shares, or a value of $9.8 million, of the Company’s common stock. The Company is now the sole member of 1.21 Gigawatts LLC and will report all activity as attributable to the Company in future periods.
13

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
8.    Fair Value Measurements
The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature.
The majority of the Company’s non-financial instruments, which include lease assets and property and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur, a non-financial instrument is required to be evaluated for impairment. If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value. No such triggering events were identified during the three and nine months ended February 29, 2024.
The Company’s debt outstanding under the AI Bridge Loan (See Note 5 - Related Party Transactions for further discussion) contains an accelerated redemption feature and the Company has elected to measure the entire note at fair value. The Company has not elected to measure its other existing long-term debt instruments at fair value. The Company engaged a third party valuation specialist to assist management in its determination of the fair value of the AI Bridge Loan. Changes in the fair value of debt are disclosed in loss on change in fair value of debt on the condensed consolidated statements of operations.
Fair value of debt is determined on a recurring basis, which results are summarized as follows (in thousands):
February 29, 2024
Debt instrumentFair Value HierarchyOutstanding PrincipalFair Value
AI Bridge Loan
Level 3
$15,000 $17,612 
The fair value of the AI Bridge Loan was estimated using a discounted cash flow method applied to the remaining quarterly payments using a credit-adjusted discount rate calculated based on a risk-free rate derived from the U.S. yield curve for a similar term plus a credit risk adjustment derived from an estimated credit rating of CCC and above and which ranged from 5.31% to 5.71%. The resulting fair value represents a Level 3 fair value measurement.
9.    Leases
The Company enters into leases for equipment, office space and land. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. 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.
Components of lease expense were as follows (in thousands):
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Operating lease cost:
Operating lease expense$5,203$82$8,174$246
Short-term lease expense1211852341
Total operating lease cost5,2152008,226587
Finance lease expense:
Amortization of right-of-use assets(1)
18,3501,01734,8402,051
Interest on lease liabilities3,2532245,994516
Total finance lease cost21,6031,24140,8342,567
Variable lease cost48125
Sublease Income(23)(23)(70)(81)
Total net lease cost$26,843$1,418$49,115$3,073
(1)    Amortization of right-of-use assets is included within cost of revenues and selling, general and administrative expense in the condensed consolidated statements of operations.
14

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
The following table represents the Company’s future minimum lease payments as of February 29, 2024:
Operating LeasesFinance LeasesTotal
Remainder of FY24$4,574 $24,119$28,693 
FY2518,833 96,099114,932 
FY2619,514 45,22064,734 
FY2719,868 1419,882 
FY2820,290 120,291 
Thereafter16,029 16,029 
Total lease payments99,108 165,453264,561 
Less: imputed interest(16,825)(15,212)(32,037)
Total lease liabilities82,283150,241232,524 
Less: Current portion of lease liability(13,023)(86,438)(99,461)
Long-term portion of lease liability$69,260 $63,803$133,063 
Supplemental cash flow and other information related to leases is as follows:
Nine Months Ended
February 29, 2024February 28, 2023
Weighted-average years remaining (in years):
Finance leases2.5 years28.6 years
Operating leases5.3 years3.9 years
Weighted-average discount rate:
Finance leases10.7 %8.0 %
Operating leases7.6 %12.5 %
The Company has entered into leases which are executed but not yet commenced with total minimum payments of approximately $120.7 million. The payments are for various leases with terms ranging from 2 years to 6.7 years.
10.    Commitments and Contingencies
Commitments
Energy Contracts
The Company has a minimum commitment of approximately $82.2 million related to the energy services agreement for its Jamestown, North Dakota co-hosting facility with a remaining term of approximately 2.9 years as of February 29, 2024.
Construction Contracts
The Company routinely engages with construction vendors for the construction of our facilities. These engagements are governed by contracts containing standard terms and conditions, including certain milestones that obligate the Company to pay as work is completed. In the event of termination of any of these contracts by the Company, the Company would be liable for all work that has been completed or in process, plus any applicable fees. The Company generally has the right to cancel these open purchase orders prior to delivery or terminate the contracts without cause.
Claims and Litigation
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
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.
15

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
Applied Digital Corporation, et al., Case No. 3:23-cv-1805, filed in August 2023 in the U.S. District Court for the Northern District of Texas (the “Securities Lawsuit”). Specifically, the complaint asserts claims pursuant to Section 10(b) of the Securities and Exchange Act of 1934 based on allegedly false or misleading statements regarding the company’s business, operations, and compliance policies, including claims that the Company overstated the profitability of its datacenter hosting business and its ability to successfully transition into a low-cost cloud services provider and that the Company’s board of directors was not “independent” within the meaning of NASDAQ listing rules. The case is in an early stage, and the Court has not appointed a lead plaintiff nor has any class been certified. The Company has not yet responded to the complaint and no response is currently due.
On November 15, 2023, a derivative action was filed in the matter styled, Weich v. Cummins, et al., Case No. A-23-881629-C in the District Court of Clark County, Nevada. The Weich complaint names as defendants certain members of the Company’s Board of Directors and its Chief Executive Officer Wesley Cummins and purports to name chief Financial Officer David Rench as a defendant. The complaint asserts claims for breaches of fiduciary duties, unjust enrichment, and corporate waste against the individual defendants largely based on the same fact allegations as the Securities Lawsuit. On February 27, 2024, the plaintiff filed an amended complaint, asserting the same causes of action against the same defendants as the original complaint. The deadline to file or otherwise respond the amended complaint is April 12, 2024.
The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this action. If an unfavorable action were to occur, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.
As of February 29, 2024, there were no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated operations. There are also no legal proceedings in which any of the Company’s management or affiliates is an adverse party or has a material interest adverse to the Company’s interest.
Settlement of Potential Claim
During the second quarter of fiscal year 2024, the Company entered into a settlement agreement with respect to employment-related claims by a former executive. The terms of the settlement included payment to the claimant of $2.3 million, which is included in loss on legal settlement on our condensed consolidated statements of operations.
11.    Business Segments
Revenue by segment (excluding HPC hosting as that segment has no revenue) was as follows (in thousands):
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Datacenter hosting segment$37,795 $14,090 $109,720 $33,354 
Cloud services segment
5,553  12,156  
Total revenue$43,348 $14,090 $121,876 $33,354 
16

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
Segment profit (loss) and a reconciliation to net loss before income tax expenses is as follows (in thousands):
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Segment loss:
Datacenter hosting segment (1)
$(24,443)$(3,117)$(4,647)$(18,218)
Cloud services segment
(21,565)(741)(40,694)(741)
HPC hosting segment(1,445)(18)(3,106)(18)
Total segment loss(47,453)(3,876)(48,447)(18,977)
Other (2)
(8,369)(3,113)(22,973)(18,898)
Operating loss(55,822)(6,989)(71,420)(37,875)
Interest expense, net4,404 352 8,836 1,061 
Loss on change in fair value of related party debt2,612  2,612  
Loss on debt extinguishment  2,353 94 
Net loss before income tax expenses$(62,838)$(7,341)$(85,221)$(39,030)
(1)The three and nine months ended February 29, 2024 includes $21.7 million loss on held for sale classification related to the sale of the Garden City facility, as well as $2.8 million of accelerated depreciation and $1.4 million of accelerated amortization related to damaged transformers at the Company’s Ellendale facility that have been rendered obsolete. See Note 13 - Assets Held for Sale and Note 3 - Property and Equipment, respectively, for further discussion of these events.
(2)Other includes corporate related items not allocated to reportable segments.
We also provide the following additional segment disclosures (in thousands):
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Depreciation and amortization:
Datacenter hosting segment$9,162 $1,904 $16,902 $4,596 
Cloud services segment
16,534 13 29,824 13 
HPC hosting segment407 1 717 1 
Other (1)
102 8 221 20 
Total depreciation and amortization (2)
$26,205 $1,926 $47,664 $4,630 
(1)Other includes corporate related items not allocated to reportable segments.
(2)Includes amortization of the finance lease right-of-use assets.

Information on segment assets and a reconciliation to consolidated assets are as follows (in thousands):
February 29, 2024May 31, 2023
Datacenter hosting segment$218,698 $224,447 
Cloud services segment
297,561 3,127 
HPC hosting segment103,896 10,949 
Total segment assets620,155 238,523 
Other (1)
23,013 25,434 
Total assets$643,168 $263,957 
(1) Other includes corporate related items not allocated to reportable segments.
17

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
12.    Earnings Per Share
Basic net income (loss) per share (“EPS”) of common stock is computed by dividing a company’s net earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if the securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Potentially dilutive securities are excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive. The table below shows the calculation for earnings per share:
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Net loss$(62,838)$(7,341)$(85,221)$(38,750)
Net loss attributable to noncontrolling interest (316)(397)(577)
Net loss attributable to Applied Digital Corporation$(62,838)$(7,025)$(84,824)$(38,173)
Basic and diluted net loss per share attributable to Applied Digital Corporation$(0.52)$(0.07)$(0.77)$(0.41)
Basic and diluted weighted average number of shares outstanding121,426,622 94,119,944 110,500,556 93,545,687 
13.    Assets Held for Sale
During the third quarter of fiscal 2024, the Company’s board approved plans to sell its Garden City facility. As such, the Company determined that the Garden City datacenter hosting facility met the “held for sale” classification as of February 29, 2024. On March 14, 2024, the Company entered into an agreement to sell the facility for a total potential cash consideration of $87.3 million (the “Cash Purchase Price”). As part of the agreement, the Company can earn additional consideration if it is able to assist the buyer in achieving regulatory approval for additional megawatt energization for the Garden City datacenter hosting facility within 120 days after the transaction closing (the “Contingent Amount”).
As such, the associated property, equipment, and lease assets and liabilities have been classified as “held for sale” and the Company recorded a charge of $21.7 million in loss on held for sale classification on its condensed consolidated statements of operations for the three and nine months ended February 29, 2024 to record the asset group at its fair value less costs to sell. The Company has determined that this disposal did not qualify as a discontinued operation as the sale of the Garden City Facility was determined to not be a strategic shift as it does not represent a change in services provided or a change to the Company’s customer base.
Assets and liabilities held for sale as of February 29, 2024 are as follows:
Assets held for sale
Property and equipment, net$57,260 
Finance lease right of use assets8,109 
Total assets held for sale$65,369 
Liabilities held for sale
Current portion of finance lease liability
$3,657 
Long-term portion of finance lease liability
4,622 
Total liabilities held for sale$8,279 
The Company has calculated the loss on assets held for sale as of February 29, 2024 based on the purchase price agreed upon with Marathon on March 14, 2024. The Company notes that the purchase agreement contains a $34.0 million
18

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
“holdover” amount that is conditionally owed to the Company if additional energy capacity at the facility receives regulatory approval within 120 days of closing. For purposes of applying the fair value as of February 29, 2024, the Company did not consider achievement of this approval probable, and therefore has not considered any of the holdover amount when calculating the implied purchase price and fair value.
Further, the Company notes that Marathon will release approximately $10.0 million of deferred revenue held by the Company in conjunction with the closing of the agreement. The Company also notes that Marathon will receive all assets related to the facility but is only assuming the ground lease liabilities, and the remaining $5.1 million of equipment lease liabilities are the responsibility of the Company to pay off at closing. Accordingly, the Company has excluded these lease liabilities in its calculation of fair value below. See below for the Company’s calculation of the implied transaction price and fair value and the resulting loss on the classification of assets as held for sale (in thousands):
Assets held for sale
Maximum Purchase Price
$87,329 
Less: Conditional Amount
(34,000)
Cash Consideration
53,329 
Lease Liabilities Assumed
3,207 
Deferred Revenue Released
9,971 
Implied Fair Value
66,507 
Less: Estimated Costs to Sell
(1,200)
Total fair value less costs to sell
$65,307 
Loss calculation
Carrying value of assets held for sale
$87,030 
Less: Fair value less costs to sell
65,307 
Loss on classification of held for sale
$21,723 
14.    Subsequent Events
Cornerstone Bank Loan Funding
On March 1, 2024, the Company received funding under the Cornerstone Bank Loan. The funding, net of issuance fees, totaled $15.7 million. See Note 6 - Debt for further discussion of the Cornerstone Bank Loan.
AI Bridge Loan
Subsequent to the quarter ended February 29, 2024, the Company borrowed the remaining $5 million in funds available under the existing AI Bridge Loan. This additional borrowing brings the total outstanding under the AI Bridge loan to $20.0 million.
On March 27, 2024, concurrent with the Yorkville Promissory Notes, the Company and the Lender entered into a Waiver, Consent and Amendment with respect to certain provisions of the AI Bridge Loan as set forth above (the “Amendment and Waiver”). Pursuant to the terms and conditions of the Amendment and Waiver, (i) the Lender agreed to waive the prepayment obligations of the Company that otherwise would have been triggered upon closing of the PPA and Promissory Notes described below, and (ii) the Company’s obligations with respect to the repayment fee due to the Lender were amended so that upon repayment the Lender would receive an aggregate amount equal to 1.30x the aggregate principal amount funded as loans by the Lender to the Company in accordance with the terms and provisions of the AI Bridge Loan.
Sale of Garden City Facility
On March 14, 2024, APLD – Rattlesnake Den I LLC, a Delaware limited liability company and a subsidiary of the Company, entered into a purchase and sale agreement with Mara Garden City LLC, a Delaware limited liability company
19

Table of Contents
APPLIED DIGITAL CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended February 29, 2024
and a subsidiary of Marathon Digital Holdings, Inc., pursuant to which Rattlesnake Den I LLC agreed to sell to Mara Garden City LLC its datacenter facility located in Garden City, Texas (the “Garden City Transaction”). The Garden City Transaction closed on April 1, 2024.
Yorkville Convertible Notes
On March 27, 2024, the Company entered into a Prepaid Advance Agreement (the “PPA”) with YA II PN, LTD., a Cayman Islands exempt limited partnership (the “Investor”). In accordance with the terms of the PPA, the Investor has agreed to advance up to $50.0 million to the Company pursuant to two convertible unsecured promissory notes (the “Promissory Notes”). The Company issued the first Promissory Note on March 27, 2024, in the principal amount of $40.0 million, in consideration of a cash payment from the Investor of approximately $38.0 million, representing a five percent original issue discount. The second Promissory Note will be issued in the principal amount of $10.0 million, less a five percent original issue discount, within two trading days after a resale registration statement relating to the shares of common stock underlying the Promissory Notes is declared effective. The Promissory Notes are convertible into shares of the Company’s common stock, which have a par value of $0.001 per share.


20

Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will,” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.
Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:
labor and other workforce shortages and challenges;
our dependence on principal customers;
the addition or loss of significant customers or material changes to our relationships with these customers;
our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends;
our ability to timely and successfully build new hosting facilities with the appropriate contractual margins and efficiencies;
our ability to continue to grow sales in our hosting business;
concentration of customers in the crypto mining industry, which customer base may decline due to price volatility and uncertainties around regulation policy of cryptoasset prices; and
equipment failures, power or other supply disruptions.
You should carefully review the risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended May 31, 2023, which was filed on August 2, 2023, as well as any other cautionary language in this Quarterly Report on Form 10-Q, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.
Executive Overview
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.
Business Overview
We are a designer, builder, and operator of digital infrastructure providing cost-competitive solutions to customers in the high-performance compute hosting (“HPC hosting”), cloud services (“Cloud services”), and datacenter hosting (“Datacenter hosting”) industries.
Trends and Other Factors Affecting Our Business
Regulatory Environment
We have a material concentration of customers in the crypto mining industry. Our customers’ businesses are subject to extensive laws, rules, regulations, policies and legal and regulatory guidance, including those governing securities, commodities, cryptoasset custody, exchange and transfer, data governance, data protection, cybersecurity and tax. Many of these legal and regulatory regimes were adopted prior to the advent of the Internet, mobile technologies, cryptoassets and related technologies. As a result, they do not contemplate or address unique issues associated with the crypto economy, are subject to significant uncertainty, and vary widely across U.S. federal, state and local and international jurisdictions. These legal and regulatory regimes, including the laws, rules and regulations thereunder, evolve frequently and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another.
21

Table of Contents
Moreover, the complexity and evolving nature of our business and the significant uncertainty surrounding the regulation of the crypto economy requires us to exercise our judgement as to whether certain laws, rules and regulations apply to us or our customers, and it is possible that governmental bodies and regulators may disagree with our or our customers’ conclusions. To the extent we or our customers have not complied with such laws, rules and regulations, we could be subject to significant fines and other regulatory consequences, which could adversely affect our business, prospects or operations. As cryptoassets have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement Network and the Federal Bureau of Investigation) have begun to examine the operations of cryptoasset networks, cryptoasset users and cryptoasset exchange markets. Other countries around the world are likewise reviewing and, in some cases, increasing regulation of the cryptoasset industry. For instance, on September 24, 2021, China imposed a ban on all crypto transactions and mining.
Ongoing and future regulatory actions could effectively prevent our customers’ mining operations and our ongoing or planned co-hosting operations, limiting or preventing future revenue generation by us or rendering our operations and crypto mining equipment obsolete. Such actions could severely impact our ability to continue to operate and our ability to continue as a going concern or to pursue our strategy at all, which would have a material adverse effect on our business, prospects or operations.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our critical accounting policies and estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q.
Business Update
Datacenter Hosting
Our Datacenter hosting business operates datacenters to provide energized space to crypto mining customers.
The Company’s 100 MW facility in Jamestown, North Dakota operated at full capacity during the quarter ended February 29, 2024; however, the Company’s 180 MW facility in Ellendale, North Dakota experienced a power outage starting in January. In response to these challenges, our utility provider installed transformers to enable us to selectively power-down the affected portions of our site. Upon re-energization we have determined the failures were due to transformers not meeting industry standards. The Company has successfully procured new transformers and related components from North American manufacturers. As of the date of this report, the Ellendale facility has begun energization and has been re-energized to approximately 14% of its full capacity, or 25 MW. In addition, the Company anticipates that as new transformers are received and installed, the Ellendale facility will target operating capacity of approximately 65%-75% of full capacity by the end of May 2024.
During the quarter ended February 29, 2024, the Company increased its energy capacity at its 200 MW Garden City, Texas facility up to 132 MW. As of February 29, 2024, the Company determined the Garden City facility met the criteria for classification as held for sale. On March 14, 2024, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with Mara Garden City LLC, a Delaware limited liability company and a subsidiary of Marathon Digital Holdings, Inc. (“Marathon”), pursuant to which the Company and related subsidiaries agreed to sell to Mara Garden City LLC the Garden City hosting facility (“the Transaction”) for total cash consideration of up to of $87.3 million. The Company will also receive approximately $10.0 million in additional consideration at the closing of the Transaction (the “Closing”) in connection with the surrender of certain of Marathon’s revenue prepayments under its existing service agreements with the Company. The Company recognized a loss of approximately $21.7 million in connection with the classification of assets held for sale to recognize the assets at fair value less costs to sell, which was less than the asset’s carrying value at February 29, 2024.
22

Table of Contents
The Purchase and Sale Agreement contains customary representations and warranties made by the parties, covenants and agreements, and Closing conditions and post-Closing obligations. In addition, in the event the full intended additional megawatt energization for the Facility is not conditionally approved by the applicable regulatory authority within 120 days of the Closing, the total cash consideration is subject to a reduction of up to $34.0 million, depending on the amount of the additional megawatt energization that is not conditionally approved.
Cloud Services
Applied Digital’s Cloud Services business provides high-performance computing power for artificial intelligence and machine learning applications. The Company continues to seek and sign additional customers and the pipeline remains robust. Near the end of the quarter, equipment began generating revenue, which the Company expects will make a positive impact on the financial performance of this segment in the fiscal fourth quarter.
HPC Hosting
Applied Digital’s HPC hosting business designs, builds, and operates next-generation data centers, which are designed to provide massive computing power and support high-performance computing applications within a cost-effective model. During the fiscal second quarter, the Company broke ground on its first 100 MW high-performance compute facility in Ellendale, North Dakota. The new 342,000-square-foot building will provide ultra-low cost and highly efficient liquid-cooled infrastructure for HPC applications.
The Company has entered into exclusivity and executed an letter of intent with a US-based hyperscaler for a 400 MW capacity lease, inclusive of our current 100 MW facility and two forthcoming buildings in Ellendale, North Dakota. The Company is in advanced discussions with traditional financing counterparties for this investment-grade tenant. The exclusive negotiation period with the initial HPC anchor tenant identified for our Ellendale campus expired at the end of March.
23

Table of Contents
Results of Operations
Comparative Results for the Three and Nine Months Ended February 29, 2024 and February 28, 2023:
The following table sets forth key components of the results of operations (in thousands) during the three and nine months ended February 29, 2024 and February 28, 2023.
Three Months EndedNine Months Ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Revenues
Revenue$40,284$10,054$110,993$23,139
Related party revenue3,0644,03610,88310,215
Total revenue43,34814,090121,87633,354
Costs and expenses:
Cost of revenues (1)
47,06110,533102,05128,450
Selling, general and administrative (2)
30,38610,54667,142