Applied Digital Corp S-1, filed Nov 22, 2021

Applied Digital Corp. (APLD)

S-1 2021-11-22

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Added on October 15, 2026

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	Large accelerated filer ☐			Accelerated filer ☐
	Non-accelerated filer ☒			Smaller reporting company ☒
				Emerging growth company ☐


Title of Securities being Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee
Common stock, par value $0.001 per share(2)	$75,000,000	$6,952.50

	ABOUT THIS PROSPECTUS					ii
	MARKET AND INDUSTRY DATA					ii
	GLOSSARY FOR CRYPTOASSETS					ii
	PROSPECTUS SUMMARY					1
	RISK FACTORS					9
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS					34
	USE OF PROCEEDS					36
	DIVIDEND POLICY					37
	CAPITALIZATION					38
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS					41
	BUSINESS					45
	DESCRIPTION OF PROPERTIES					55
	LEGAL PROCEEDINGS					56
	MANAGEMENT					57
	EXECUTIVE AND DIRECTOR COMPENSATION					63
	CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS					73
	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT					74
	DESCRIPTION OF CAPITAL STOCK					76
	SHARES ELIGIBLE FOR FUTURE SALE					82
	SALE PRICE HISTORY OF OUR CAPITAL STOCK					84
	CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK					85
	UNDERWRITING (Conflicts of Interest)					90
	LEGAL MATTERS					97
	EXPERTS					98
	ADDITIONAL INFORMATION					99
	INDEX TO CONSOLIDATED FINANCIAL STATEMENTS					101

	As of August 31, 2021
	Actual			Pro Forma As Adjusted
	(in thousands)
Cash and cash equivalents		$	28,929
Mezzanine equity:
Series C convertible and redeemable preferred stock, $.001 par value, 660,000 shares authorized, issued and outstanding and 0 shares outstanding			15,135
Series D convertible and redeemable preferred stock, $.001 par value, 1,304,000 shares authorized, issued and not outstanding			29,902
Stockholders’ equity
Series A, convertible preferred stock, $.001 par value, authorized 70,000 shares, 27,195 shares issued and outstanding			—
Series B, convertible preferred stock, $.001 par value, authorized 50,000 shares, 17,087 shares issued and outstanding			—
Common stock, $.001 par value, 1,000,000,000 shares authorized, 320,381,519 and 9,066,363 shares issued and outstanding			3,122
Additional paid-in capital			40,856
Treasury Stock, 36,300 shares, at cost			(62)
Accumulated deficit			(44,667)
Total stockholders’ equity			(751)
Total capitalization			(44,286)

Assumed public offering price per share			$
Historic net tangible book value per share as of August 31, 2021	$	0.001
Increase in net tangible book value per share attributable to new investors in this offering
As adjusted net tangible book value per share after this offering
Dilution in net tangible book value per share to new investors in this offering			$

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent		Average Price Per Share
Existing stockholders %			%		$		%		$
New investors %			%				%
Total			100.0%		$		100.0%		$

Name	Age	Position(s)	Period of Service
Executive Officers
Wes Cummins	44	Chief Executive Officer, Secretary, Treasurer, Chairman of the Board	Director from February 2007 to December 2020 and March 2021 to Present Sole officer from March 2012 to December 2020 and CEO, Secretary and Treasurer from March 2021 to Present
David Rench	44	Chief Financial Officer	March 2021 to Present
Regina Ingel	34	Executive Vice President of Operations	April 2021 to Present
Non-Employee Directors
Chuck Hastings(1)(3)	43	Director	April 2021 to Present
Kelli McDonald(2)(3)	43	Director	April 2021 to Present
Douglas Miller(1)(2)	64	Director	April 2021 to Present
Virginia Moore(2)(3)	48	Director	April 2021 to Present
Richard Nottenburg(1)(2)	67	Director	June 2021 to Present
Jason Zhang	28	Director	April 2021 to Present

Name and position	Year		Salary ($)		Bonus ($)		Total ($)(a)
Wes Cummins		2021		52,083		—		52,083
CEO, President, Secretary and Treasurer		2020		—		—		—
David Rench,		2021		41,667		—		41,667
Chief Financial Officer		2020		—		—		—
Regina Ingel		2021		12,500		—		12,500
Vice President of Operations		2020		—		—		—

Name	New Salary			Effective Date
Wes Cummins		$	300,000		November 1, 2021
David Rench		$	240,000		November 1, 2021
Regina Ingel		$	120,000		November 1, 2021

	Per Share Bid Price
	High			Low
Annual
Year Ended May 31, 2021		$	2.25		$	0.0071
Quarterly
Year Ended May 31, 2021
First Quarter		$	0.025		$	0.0071
Second Quarter		$	0.03		$	0.0085
Third Quarter		$	0.3499		$	0.0153
Fourth Quarter		$	2.25		$	0.14
Year Ending May 31, 2022
First Quarter		$	2.63		$	0.6275

Audited Consolidated Financial Statements:	Page
Report of Registered Independent Public Account Firm		F-1
Consolidated Balance Sheets as of May 31, 2021 and 2020		F-2
Consolidated Statements of Operations for the Annual Period ended May 31, 2021, and 2020		F-3
Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Deficit for the Annual Period ended May 31, 2021, and 2020		F-4
Consolidated Statements of Cash Flows for the Annual Period ended May 31, 2021, and 2020		F-5
Notes to Consolidated Financial Statements for the Annual Period ended May 31, 2021, and 2020		F-6

Unaudited Consolidated Financial Statements:	Page
Unaudited Consolidated Balance Sheets as of August 31, 2021 and May 31, 2020		F-16
Unaudited Consolidated Statements of Operations for the Quarterly Period ended August 31, 2021, and 2020		F-17
Unaudited Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Deficit for the Quarterly Period ended August 31, 2021, and May 31, 2020		F-18
Unaudited Consolidated Statements of Cash Flows for the Quarterly Period ended August 31, 2021, and 2020		F-19
Notes to Unaudited Consolidated Financial Statements for the Quarterly Period ended August 31, 2021, and 2020		F-20

	May 31, 2021			May 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents		$	11,750		$	—
Prepaid expenses and other current assets						—
Total current assets			11,750			—
Deposit on equipment			3,282			—
Property and equipment, net			20			—
TOTAL ASSETS		$	15,052		$	—
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities		$	249		$	—
Accrued dividends			116			116
Related party notes payable			2,135			1,899
Total current liabilities			2,500			2,015
Commitments and contingencies (Note 10)
Mezzanine equity:
Series C, convertible and redeemable preferred stock, $.001 par value, 660,000 shares authorized, issued and outstanding			15,135			—
Stockholders’ deficit:
Series A, convertible preferred stock, $.001 par value, authorized 70,000 shares, 27,195 issued and outstanding		$	3,370		$	3,370
Series B convertible preferred stock, $.001 par value, authorized 50,000 shares, 17,087 issued and outstanding			1,849			1,849
Common stock, $.001 par value, 500,000,000 shares authorized, 39,569,335 and 9,066,363 shares issued and outstanding, respectively			9			9
Additional paid in capital			13,874			13,874
Treasury stock, 36,300 shares, at cost			(62)			(62)
Accumulated deficit			(21,623)			(21,055)
Total stockholders’ deficit			(2,583)			(2,015)
Total Mezzanine equity and stockholders’ deficit			12,552			(2,015)
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT		$	15,052		$	—

	Fiscal Year Ended
	May 31, 2021			May 31, 2020
Total Revenue		$	—		$	—
Costs and expenses:
Selling, General and Administrative			(331)			—
Depreciation			(1)			—
Total costs and expenses			(332)
Operating income (loss)			(332)
Other income (expense)
Interest Expense			(236)			(263)
Total Other Income (Expense)			(236)			(263)
Net Income (loss) attributable to Common Shareholders		$	(568)		$	(263)
Basic and Diluted net loss per share			(0.06)			(0.03)
Basic and Diluted weighted average number of shares outstanding			9,066,363			9,066,363

	Series A Convertible Preferred Stock					Series B Convertible Preferred Stock					Common Stock					Additional Paid in Capital			Treasury Stock			Accumulated Deficit			Stockholders’ Equity
	Shares		Amount			Shares		Amount			Shares		Amount			Additional Paid in Capital			Treasury Stock			Accumulated Deficit			Stockholders’ Equity
Balance, May 31, 2019		27,195		$	3,370		17,087		$	1,849		9,066,363		$	9		$	13,874		$	(62)		$	(20,792)		$	(1,752)
Net Income (Loss)		—			—		—			—		—			—			(263)			(263)			(263)			(263)
Balance, May 31, 2020		27,195		$	3,370		17,087		$	1,849		9,066,363		$	9		$	13,874		$	(62)		$	(21,055)		$	(2,015)
Net Income (Loss)		—			—		—			—		—			—			—			—		$	(568)		$	(568)
Balance, May 31, 2021		27,195		$	3,370		17,087		$	1,849		9,066,363		$	9		$	13,874		$	(62)		$	(21,623)		$	(2,583)

Underwriters			Number of Shares
B. Riley Securities, Inc.



Total

	Fiscal Years Ended
	May, 31, 2021			May, 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(568)		$	(263)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1			—
Accrued paid in kind interest			236			263
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities			248			—
NET CASH USED BY OPERATING ACTIVITIES			(83)			—
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment			(20)			—
Deposit on equipment			(3,282)			—
NET CASH USED IN INVESTING ACTIVITIES			(3,302)			—
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of preferred stock			16,500			—
Issuance cost for preferred stock			(1,365)			—
NET CASH PROCEEDS FROM FINANCING ACTIVITIES			15,135			—
NET INCREASE IN CASH AND CASH EQUIVALENTS			11,750			—
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			—			—
CASH AND CASH EQUIVALENTS, END OF YEAR		$	11,750		$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	—		$	—

Holder	Interest Rate		Status		Principal Amount			May 31, 2021 Accrued Interest Payable			Total
Related Party		16%		Default		$	220		$	828		$	1,048
Non-Related Party		16%		Default			250			837			1,087
Total						$	470		$	1,665		$	2,135

Holder	Interest Rate		Status		Principal Amount			May 31, 2020 Accrued Interest Payable			Total
Related Party		16%		Default		$	220		$	713		$	933
Non-Related Party		16%		Default			250			717			967
Total						$	470		$	1,429		$	1,899

Class of Stock	Common Share Conversion Ratio	Shares	May 31, 2021	May 31, 2020
Convertible Series A preferred shares	1 to 1429	27,195	38,861,655	38,861,655
Convertible Series B preferred shares	1 to 1000	17,087	17,087,000	17,087,000
Convertible and Redeemable Series preferred shares	1 to 200	660,000	132,000,000	—
Total			187,948,655	55,948,655

	May 31 2021			May 31 2020
Office and computer equipment		$	21		$	—
Total cost of property and equipment			21
Accumulated depreciation			(1)
Property and equipment, net		$	20		$	—

	May 31, 2021		May 31, 2020
Expected income tax expense (benefit) at U.S. statutory rate		21%		21%
State Tax Expense		0%		0%
Change in Valuation Allowance		-21%		-21%
Income Tax Expense / (Benefit)		0%		0%

	May 31, 2021			May 31, 2020
Deferred Tax Assets:
Federal Net Operating Loss		$	175		$	55
Valuation Allowance			(175)			(55)
Total Net Deferred Tax Assets/(Liabilities)		$	—		$	—

Class of Stock	Ranking	Liquidation Preferences
Redeemable and Convertible Series C shares	Priority 1	Cash equal to $25 per share plus accrued or unpaid Paid in Kind dividends	Ratably share in distribution of assets in proportion to preferential entitled amounts
Convertible Series A preferred shares	Priority 2	Cash equal to $100 per share plus declared or accrued and unpaid dividends	Ratably share in distribution of assets in proportion to preferential entitled amounts
Convertible Series B preferred shares	Priority 3	Cash equal to $100 per share plus declared or accrued and unpaid dividends	Ratably share in distribution of assets in proportion to preferential entitled amounts

Class of Stock	Carrying Value			Accrued Dividends			Accumulating Dividends not Declared			Liquidation Amount
Redeemable and Convertible Series C shares		$	16,500,000		$	—		$	—		$	16,500,000
Convertible Series A preferred shares		$	2,719,500		$	70,821		$	767,500		$	3,557,821
Convertible Series B preferred shares		$	1,708,700		$	45,279		$	402,400		$	2,156,379

Service Provider	Common Stock Shares Committed
Valuefinder		18,938,559
SparkPool		44,640,889
GMR		44,649,889
Total		108,220,337

Agreement Date*	Purchase Commitment			Deposit Paid			Expected Shipping
May 27, 2021		$	4,968		$	—
April 13, 2021		$	8,512		$	3,277	August 2021 – July 2022
Total		$	13,480			3,277

Lease Period	Monthly Base Rent
Months 1 – 13		$	25,856
Months 14 – 25		$	26,525
Months 26 – 37		$	27,193
Months 38 – 49		$	27,862
Months 50 – 61		$	28,531
Month 62 – (10/31/26)		$	29,199

	August 31, 2021			May 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents		$	28,929		$	11,750
Prepaid expenses and other current assets			164			5
Cryptoassets			437			—
Total current assets			29,530			11,755
Right of use asset, net			1,262			—
Deposit on equipment			13,577			3,277
Deposits and other assets			773			—
Property and equipment, net			5,224			20
TOTAL ASSETS		$	50,366		$	15,052
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities		$	4,807		$	248
Accrued dividends			—			116
Current portion of operating lease liability			168			—
Related party notes payable			—			2,135
Other current liabilities			7			—
Total current liabilities			4,982			2,500
Long-term portion of operating lease liability			1,097			—
Total liabilities			6,079			2,500
Commitments and contingencies (Note 10)
Mezzanine equity:
Series C convertible and redeemable preferred stock, $.001 par value, 660,000 shares authorized, issued and outstanding		$	15,135		$	15,135
Series D convertible and redeemable preferred stock, $.001 par value, 1,304,000 shares authorized, issued, and outstanding			29,902			—
Total mezzanine equity			45,037			15,135
Stockholders’ deficit
Series A convertible preferred stock, $.001 par value, authorized 70,000 shares, 0 and 27,195 shares issued and outstanding, respectively		$	—		$	3,370
Series B convertible preferred stock, $.001 par value, authorized 50,000 shares, 0 and 17,087 shares issued and outstanding, respectively			—			1,849
Common stock, $.001 par value, 1,000,000,000 shares authorized, 320,381,519 and 9,066,363 shares issued and outstanding			3,122			9
Additional paid in capital			40,856			13,874
Treasury stock, 36,300 shares, at cost			(62)			(62)
Accumulated deficit			(44,666)			(21,623)
Total Stockholders’ deficit			(751)			(2,583)
Total Mezzanine equity and Stockholders’ deficit			44,286			12,552
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT		$	50,366		$	15,052

	Three Months Ended
	August 31, 2021			August 31, 2020
Revenues:
Cryptocurrency mining revenue, net		$	612		$	—
Cost of revenues			349			—
Gross profit			263			—
Costs and expenses:
Selling, general and administrative			698			—
Impairment of cryptocurrency assets			(20)			—
Stock-based compensation for service agreement			12,337			—
Depreciation			3			—
Total costs and expenses			13.058			—
Operating income (loss)			(12,795)			—
Other income (expense):
Interest Expense			—			(72)
Gain/Loss on extinguishment of accounts payable			40			—
Gain/Loss on extinguishment of debt			(1,342)			—
Total Other Income (Expense)			(1,302)			(72)
Net Income (loss) attributable to common shareholders		$	(14,097)		$	(72)

	Series A Convertible Preferred Stock					Series B Convertible Preferred Stock					Series C Convertible Preferred and Redeemable Stock					Series D Convertible Preferred and Redeemable Stock					Common Stock					Additional Paid in Capital			Treasury Stock			Accumulated Deficit			Mezzanine Equity and Shareholders’ Deficit
	Shares		Amount			Shares		Amount			Shares		Amount			Shares		Amount			Shares		Amount			Additional Paid in Capital			Treasury Stock			Accumulated Deficit			Mezzanine Equity and Shareholders’ Deficit
Balance, May 31, 2021		27,195		$	3,370		17,087		$	1,849		660,000		$	15,135		—		$	—		9,066,363		$	9		$	13,874		$	(62)		$	(21,623)		$	12,552
Extinguishment of Debt		—			—		—			—		—			—		—			—		30,502,970			305			3,173			—			—			3,478
Issuance of Dividends to Preferred Stock		60,822			6,082		29,772			2,979		—			—		—			—		—			—			—			—			(8,946)			116
Conversion of Preferred Stock		(88,017)			(9,452)		(46,859)			(4,828)		—			—		—			—		172,591,849			1,726			12,554			—			—			—
Service Agreement		—			—		—			—		—			—		—			—		108,220,337			1,082			11,255			—			—			12,337
Issuance of Preferred Stock		—			—		—			—		—			—		1,304,000			32,600		—			—			—			—			—		$	32,600
Issuance Costs of Preferred Stock		—			—		—			—		—			—		—			(2,698)		—			—			—			—			—		$	(2,698)
Net Income (Loss)		—			—		—			—		—			—		—			—		—			—			—			—			(14,097)		$	(14,098)
Balance, August 31, 2021		—		$	—		—		$	—		660,000		$	15,135		1,304,000		$	29,902		320,381,519		$	3,122		$	40,856		$	(62)		$	(44,666)		$	44,286

	August 31, 2021			May 31, 2021
Cryptocurrency mining equipment		$	5,181		$	—
Office and computer equipment			156			21
Autos			63			—
Total cost of property and equipment			5,400			21
Accumulated depreciation			(176)			(1)
Property and equipment, net		$	5,224		$	20

Beginning Balance – May 31, 2021	$	—
Cryptoassets earned through mining		618
Mining pool operating fees		(6)
Cryptoassets sold or converted		(155)
Impairment of cryptocurrencies		(20)
Ending Balance – August 31, 2021	$	437

Class of Stock	Option Pricing Fair Value			Weight
Common Stock		$	0.067		25%
Conversion Price of Series C Shares			0.130		75%
		$	0.114

	Weighted-average months remaining			62.4 months

	Weighted-average discount rate			12.50%

Year	Office Lease			Other Leases			Total
FY22		$	233		$	46		$	279
FY23			317			6			323
FY24			325			—			325
FY25			333			—			333
FY26			341			—			341
Beyond			203			—			203

	Quarterly Period Ended August 31,
	2021			2020
Net income (loss)		$	(14,098)		$	(72)
Basic and diluted weighted average number of shares outstanding			269,623,613			9,066,363
Basic and diluted net income (loss) per share		$	(0.05)		$	(0.01)

SEC Registration Fee	$	6,952.50
FINRA Filing Fee		*
Nasdaq Global Select Market Listing Fee		*
Printing Fees and Expenses		*
Accounting Fees and Expenses		*
Legal Fees and Expenses		*
Transfer Agent and Registrar Fees		*
Miscellaneous Fees and Expenses		*
Total		*

Exhibit No.			Description
1.1*			Form of Underwriting Agreement
3.1			Second Amended and Restated Articles of Incorporation, as amended from time to time (Incorporated by reference toExhibit 3.1 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC onAugust 13, 2021)
3.2			Amended and Restated Bylaws, as amended from time to time (Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC on August 13, 2021)
4.1			Registration Rights Agreement, dated April 15, 2021, by and between the Company and B. Securities, Inc., for the benefit of B. Riley Securities, Inc. and the Investors (Incorporated by reference to Exhibit 4.1 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC on August 13, 2021)
4.2			Registration Rights Agreement, dated July 30, 2021, by and between the Company and B. Securities, Inc., for the benefit of B. Riley Securities, Inc. and the Investors (Incorporated by reference to Exhibit 4.2 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC on August 13, 2021)
4.3			Right of First Refusal and Co-Sale Agreement, dated as of April 15, 2021, by and between the Company, the Key Holders and Investors (Incorporated by reference to Exhibit 4.3 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC on August 13, 2021)
4.4			Right of First Refusal and Co-Sale Agreement, dated as of July 30, 2021, by and between the Company, the Key Holders and Investors (Incorporated by reference to Exhibit 4.4 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC on August 13, 2021)
5.1*			Opinion of Snell & Wilmer L.L.P.
10.1			Services Agreement, dated March 19, 2021, by and among the Company, GMR Limited, Xsquared Holding Limited, and Valuefinder (Incorporated by reference to Exhibit 10.1 to the Company’s Form S-1 (Registration No. 333-258818), filed with the SEC on August 13, 2021)