Applied Digital Corp 10-Q for FY2022 Q3

Applied Digital Corp. (APLD)

10-Q 2022-05-13 For: 2022-02-28

Added on April 09, 2026

About this 10-Q

Applied Digital Corp filed this 10-Q on May 13, 2022, covering the quarter ended February 28, 2022 (FY2022 Q3).

Headline figures

Quarter ended February 28, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.03M; compared with $0 a year earlier
Net loss: $6.45M; compared with a net loss of $77K a year earlier
Diluted EPS: -$0.12; compared with -$0.05 a year earlier

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Nevada			95-4863690
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3811 Turtle Creek, Blvd., Suite 2125, Dallas, TX			75219
(Address of Principal Executive Offices)			(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	APLD	Nasdaq Global Select Market


		Page
Part I - Financial Information

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market	36
Item 4.	Controls and Procedures	36

Part II - Other Information

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		40


	February 28, 2022		May 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	11,961	$	11,750
Accounts receivable	1,038		—
Prepaid expenses and other current assets	2,096		5
Current assets of discontinued operations	3,573		—
Total current assets	18,668		11,755

Right of use asset, net	1,207		—
Deposit on equipment	—		3,277
Property and equipment, net	43,619		20
TOTAL ASSETS	$	63,494	$	15,052

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	13,038	$	248
Accrued dividends	—		116
Current portion of lease liability	211		—
Related party notes payable	—		2,135
Customer deposits	5,645		—
Deferred revenue	3,909		—
Other current liabilities	16		—
Total current liabilities	22,819		2,500
Deferred tax liability	274		—
Long-term portion of lease liability	1,009		—
Other Long Term Liabilities	50
Total liabilities	24,152		2,500
Commitments and contingencies (Note 12)
Mezzanine equity:
Series C, convertible redeemable preferred stock, $.001 par value, 676,086 and 660,000 shares authorized, issued and outstanding, respectively	$	15,537	$	15,135
Series D, convertible redeemable preferred stock, $.001 par value, 1,413,624 and 0 shares authorized, issued, and outstanding, respectively	32,414		—
Total mezzanine' equity	47,951		15,135
Shareholders' equity (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, 166,666,666 shares authorized, 53,396,920 and 1,511,061 shares issued and outstanding	320		9
Additional paid in capital	43,657		13,874
Treasury stock, 36,300 shares, at cost	(62)		(62)
Accumulated deficit	(52,524)		(21,623)
Total shareholders' deficit	(8,609)		(2,583)
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' DEFICIT	$	63,494	$	15,052


	Three Months Ended				Nine Months Ended
	February 28, 2022		February 28, 2021		February 28, 2022		February 28, 2021
Revenues:
Hosting revenue	$	1,026	$	—	$	1,026	$	—
Total revenue, net	$	1,026	$	—	$	1,026	—

Cost of revenues	$	2,073	$	—	$	2,073	$	—
Gross Profit	(1,047)		—		(1,047)		—
Costs and expenses:
Selling, General and Administrative	1,356		—		3,234		—
Stock-based compensation for service agreement	—		—		12,337		—
Depreciation	14		—		14		—
Total costs and expenses	1,370		—		15,585		—
Operating loss	(2,417)		—		(16,632)		—
Other income (expense):
Interest Expense	—		(77)		0		(223)
Gain on Extinguishment of Accounts Payable	80		—		405		—
Loss on Extinguishment of Debt	—		—		(1,342)		—
Income Tax Expenses	(60)		—		(274)		—
Total Other Income (Expense)	20		(77)		(1,211)		(223)
Net Loss from continuing Operations	(2,397)		(77)		(17,843)		(223)
Net Loss from discontinued Operations	(4,048)		—		(2,870)		—
Total Net Loss	$	(6,445)	$	(77)	$	(20,713)	$	(223)

Basic and diluted net loss per share:
Continuing Operations	$	(0.04)	$	(0.05)	$	(0.35)	$	(0.15)
Discontinued Operations	$	(0.08)	$	—	$	(0.06)	$	—
Basic and diluted net loss per share	$	(0.12)	$	(0.05)	$	(0.41)	$	(0.15)
Basic and diluted weighted average number of shares outstanding	53,396,920		1,511,061		50,546,048		1,511,061


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Three Months Ended February 28, 2022

	Series C Convertible Redeemable Preferred Stock			Series D Convertible Redeemable Preferred Stock			Total Mezzanine Equity	Series A Convertible Preferred Stock			Series B Convertible Preferred Stock			Common Stock			Additional Paid in Capital		Treasury Stock		Accumulated Deficit		Total Shareholders Deficit
	Shares	Amount		Shares	Amount		Amount	Shares		Amount	Shares		Amount	Shares	Amount
Balance, November 30, 2021	660,000	15,135		1,380,000	31,574		46,709	—		—	—		—	53,396,920	320		43,657		(62)		(44,837)		(922)
Issuance of Preferred Stock	—	—		—	—		—	—		—	—		—	—	—		—		—		—		—
Issuance Costs of Preferred Stock	—	—		—	—		—	—		—	—		—	—	—		—		—		—		—
Preferred Stock Dividends Accrued	16,086	402		33,624	840		1,242	—		—	—		—	—	—		—		—		(1,242)		(1,242)
Net Income (Loss)	—	—		—	—		—	—		—	—		—	—	—		—		—		(6,445)		(6,445)
Balance, February 28, 2022	676,086	$	15,537	1,413,624	$	32,414	47,951	$	—	—	$	—	—	53,396,920	$	320	$	43,657	$	(62)	$	(52,524)	$	(8,609)


Three Months Ended February 28, 2021

	Series C Convertible Redeemable Preferred Stock			Series D Convertible Redeemable Preferred Stock			Total Mezzanine Equity		Series A Convertible Preferred Stock			Series B Convertible Preferred Stock			Common Stock			Additional Paid in Capital		Treasury Stock		Accumulated Deficit		Total Shareholders Deficit
	Shares	Amount		Shares	Amount		Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance, November 30, 2020	—	$	—	—	$	—	$	—	27,195	$	3,370	17,087	$	1,849	1,511,061	$	9	$	13,874	$	(62)	$	(21,201)	$	(2,161)
Net Income (Loss)	—	—		—	—		—		—	—		—	—		—	—		—		—		$	(77)	$	(77)
Balance, February 28, 2021	—	$	—	—	$	—	$	—	27,195	$	3,370	17,087	$	1,849	1,511,061	$	9	$	13,874	$	(62)	$	(21,278)	$	(2,238)


Nine Months Ended February 28, 2022

	Series C Convertible Redeemable Preferred Stock			Series D Convertible Redeemable Preferred Stock			Total Mezzanine Equity		Series A Convertible Preferred Stock			Series B Convertible Preferred Stock			Common Stock			Additional Paid in Capital		Treasury Stock		Accumulated Deficit		Total Shareholders Deficit
	Shares	Amount		Shares	Amount		Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance, May 31, 2021	660,000	$	15,135	—	$	—	$	15,135	27,195	$	3,370	17,087	$	1,849	1,511,061	$	9	$	13,874	$	(62)	$	(21,623)	$	(2,583)
Extinguishment of Debt	—	—		—	—		—		—	—		—	—		5,083,828	31		3,446		—		—		3,477
Issuance of Dividends to Preferred Stock	—	—		—	—		—		60,822	6,082		29,772	2,979		—	—		—		—		(8,946)		115
Conversion of Preferred Stock	—	—		—	—		—		(88,017)	(9,452)		(46,859)	(4,828)		28,765,308	172		14,108		—		—		—
Service Agreement	—	—		—	—		—		—	—		—	—		18,036,723	108		12,229		—		—		12,337
Issuance of Preferred Stock	—	—		1,380,000	34,500		34,500		—	—		—	—		—	—		—		—		—		—
Issuance Costs of Preferred Stock	—	—		—	(2,926)		(2,926)		—	—		—	—		—	—		—		—		—		—
Preferred Stock Dividends Accrued	16,086	402		33,624	840		1,242									—		—				(1,242)		(1,242)
Net Income (Loss)	—	—		—	—		—		—	—		—	—		—	—		—		—		$	(20,713)	$	(20,713)
Balance, February 28, 2022	676,086	15,537		1,413,624	32,414		47,951		—	—		—	—		53,396,920	320		43,657		(62)		(52,524)		(8,609)


Nine Months Ended February 28, 2021

	Series C Convertible Redeemable Preferred Stock			Series D Convertible Redeemable Preferred Stock			Total Mezzanine Equity		Series A Convertible Preferred Stock			Series B Convertible Preferred Stock			Common Stock			Additional Paid in Capital		Treasury Stock		Accumulated Deficit		Total Shareholders Deficit
	Shares	Amount		Shares	Amount		Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance, May 31, 2020	—	$	—	—	$	—	$	—	27,195	$	3,370	17,087	$	1,849	1,511,061	$	9	$	13,874	$	(62)	$	(21,055)	$	(2,015)
Net Income (Loss)	—	—		—	—		—		—	—		—	—		—	—		—		—		$	(223)	(223)
Balance, February 28, 2021	—	$	—	—	$	—	$	—	27,195	$	3,370	17,087	$	1,849	1,511,061	$	9	$	13,874	$	(62)	$	(21,278)	$	(2,238)


	Three Months Ended				Nine Months Ended
(in thousands)	February 28, 2022		February 28, 2021		February 28, 2022		February 28, 2021
Balance, beginning of the period	$	526	$	—	$	—	$	—
Invoiced hosting revenue	5,544		—		6,070		—
Recognized hosting revenue	1,026		—		1,026		—
Balance, end of the period	$	3,909	$	—	$	3,909	$	—


	Estimated Useful Life	February 28, 2022		May 31, 2021
Hosting Equipment
Electric Generation and Transformers	15 years	$	4,172	$—

Office and computer equipment
Software	5 years	41		—
Computer Equipment	5 years	17		17
Furniture and Fixtures	7 years	432		4
Construction in Progress		4,677		—
Autos	5 years	135		—
General Equipment	5 years	8,955		—
Land & Building
Land		1,074		—
Land Improvements	15 years	1,180		—
Building	39 years	23,181		—
Total cost of property and equipment		$	43,864	$	21
Accumulated Depreciation		(245)		(1)
Property Plant and Equipment, Net		$43,619		$	20


Customer	Three Months Ended February 28, 2022		Three Months Ended February 28, 2021
Customer A	62	%	—	%
Customer B	16	%	—	%
Customer C	13	%	—	%


	Nine Months Ended Period Ended February 28, 2022
	2022		2021
Current expense (benefit) - Continuing Operations
Federal	$	—	$	—
State	$	—	$	—
Total current expense	$	—	$	—

Deferred expense (benefit)
Federal	$	274	$	—
State	$	—	$	—
Total deferred expense (benefit)	$	274	$	—
Total income tax expense (benefit)	$	274	$	—


Class of Stock	Ranking	Liquidation Preferences
Redeemable and Convertible Series C shares	Priority 1	Cash equal to $25 per share plus accrued or unpaid PIK dividends	Ratably share in distribution of assets in proportion to preferential entitled amounts
Redeemable and Convertible Series D shares	Priority 1	Cash equal to $25 per share plus accrued or unpaid PIK dividends	Ratably share in distribution of assets in proportion to preferential entitled amounts


Scenario	Weight
Public Company scenario (“listing scenario”) through a traditional IPO	95	%
Remain a private Company scenario (“private scenario”)	5	%


Service Provider			Common Stock Shares Committed
ValueFinder			3,156,427
SparkPool			7,440,148
GMR			7,441,648
Total			18,038,223


Class of Stock	Option Pricing Fair Value		Weight
Common Stock	$	0.402	8	%
Conversion Price of Series C Shares	0.780		92	%
	$	0.750


	February 28, 2022		February 28, 2021
Expected income tax expense (benefit) at U.S. statutory rate	21.00	%	21.00	%
Extinguishment of Debt	-0.79	%
State Tax Expense	0.00	%	0	%
Change in Valuation Allowance	-21.68	%	-21.00	%
Income Tax Expense / (Benefit)	-1.47	%	0	%


Class of Stock	Original Proceeds, Net		Accrued Dividends		Redemption Amount		Liquidation Amount
Redeemable and Convertible Series C shares	$	15,135,023	$	402,150	$	15,537,173	$	16,500,000
Redeemable and Convertible Series D shares	$	31,574,000	$	840,300	$	32,414,600	$	34,500,000


Lease Type	Consolidated Balance Sheet Location	February 28, 2022
Operating Lease Assets	Right of use asset, net	$	1,142
Finance lease assets	Right of use asset, net	$	65
Total lease assets		$	1,207

Operating Lease liabilities	Current portion of operating lease liability	$	185
Operating Lease liabilities	Long-term Portion of Lease Liability	$	969
Total Operating Lease Liabilties		$	1,154
Finance lease liabilities	Current portion of lease liability	$	26
Finance Lease liabilities	Long-term portion of lease liability	$	40
Total Finance Lease Liabilities		$	66
Total lease liabilities		$	1,220


		3 Months Ended		9 Months Ended
Lease Type	Consolidated Statements of Income Location	February 28, 2022		February 28, 2022
Operating lease expense	Selling, General and Administrative	$	78	$	243
Finance lease expense	Selling, General and Administrative	$	2	$	2
Short-term lease expense	Selling, General and Administrative	$	20	$	39
Total Lease Cost		$	100	$	284


Year	Operating Leases		Finance Leases		Total
FY22	$	78	$	7	$	85
FY23	318		29		347
FY24	326		29		355
FY25	334		6		340
FY26	342		—		342
Beyond	176		—		176
Total	$	1,574	$	71	$	1,645
Present Value of lease liabilities	$	1,154	$	66	$	1,220
Less Current portion of lease liability	$	185	$	26	$	211
Long-term portion of lease liability	$	969	$	40	$	1,009


Weighted-average months remaining	55 months

Weighted-average discount rate	12.20		%

Cash flows from operating leases	$	233

Cash flows from finance leases	$	2


Basic and diluted income (loss) per share:	Quarterly Period Ended
	February 28, 2022		February 28, 2021
Net Income (loss) from continuing Operations	$	(2,397)	$	(77)
Net Income (loss) from discontinued Operations	$	(4,048)	$	—
Net Income (loss) attributable to Applied Blockchain	$	(6,445)	$	(77)
Continuing Operations	$	(0.04)	$	(0.05)
Discontinued Operations	$	(0.08)	$	—
Basic and diluted net loss per share	$	(0.12)	$	(0.05)
Basic and diluted weighted average number of shares outstanding	53,396,920		1,511,061


Basic and diluted income (loss) per share:	Year-to-Date Period Ended
	February 28, 2022		February 28, 2021
Net Income (loss) from continuing Operations	$	(17,843)	$	(223)
Net Income (loss) from discontinued Operations	$	(2,870)	$	—
Net Income (loss) attributable to Applied Blockchain	$	(20,713)	$	(223)
Continuing Operations	$	(0.35)	$	(0.15)
Discontinued Operations	$	(0.06)	$	—
Basic and diluted net loss per share	$	(0.41)	$	(0.15)
Basic and diluted weighted average number of shares outstanding	50,546,048		$	1,511,061


	Three Months		Nine Months
Beginning Balance - May 31, 2021	$	—	$	—
Cryptoassets earned through mining	916		2,975
Mining pool operating fees	(9)		(30)
Cryptoassets sold or converted	(1,133)		(3,336)
Impairment of Cryptocurrency Assets	226		390
Ending Balance - February 28, 2022	$	—	$	—


	Three Months Ended						Nine Months Ended
$ in thousands	February 28, 2022			February 28, 2021			February 28, 2022			February 28, 2021
Adjusted operating loss
Operating Loss from Continuing Operations (GAAP)	$	(2,417)		$	—		$	(16,632)		$	—
Add: Stock-based compensation for service agreement	—			—			12,337			—
Add: Gain on Extinguishment of Accounts Payable	(80)			—			(405)			—
Add: Loss on Extinguishment of Debt	—			—			1,342			—
Add: Non-deferred professional service costs	433			—			1,069			—
Adjusted Operating Loss from Continuing Operations (Non-GAAP)	$	(2,064)		$	—		$	(2,289)		$	—
Adjusted operating margin from Continuing Operations	(201.2)		%	—		%	(223.1)		%	—		%

Adjusted net income (loss)
Net Loss from Continuing Operations (GAAP)	$	(2,397)		$	(77)		$	(17,843)		$	(223)
Add: Stock-based compensation for service agreement	—			—			12,337			—
Add: Gain on Extinguishment of Accounts Payable	(80)			—			(405)			—
Add: Loss on Extinguishment of Debt	—			—			1,342			—
Add: Non-deferred professional service costs	433			—			1,069			—
Adjusted net loss from Continuing Operations (Non-GAAP)	$	(2,044)		$	(77)		$	(3,500)		$	(223)

EBITDA and Adjusted EBITDA
Net Loss from Continuing Operations (GAAP)	$	(2,397)		$	(77)		$	(17,843)		$	(223)
Add: Interest Expense	—			77			—			223
Add: Income Tax Expense	60			—			274			—
Add: Depreciation	245			—			245			—
EBITDA (Non-GAAP)	$	(2,092)		$	—		$	(17,324)		$	—
Add: Stock-based compensation for service agreement	—			—			12,337			—
Add: Gain on Extinguishment of Accounts Payable	(80)			—			(405)			—
Add: Loss on Extinguishment of Debt	—			—			1,342			—
Add: Non-deferred professional service costs	433			—			1,069			—
Adjusted EBITDA (Non-GAAP)	$	(1,739)		$	—		$	(2,981)		$	—


	Nine Months Ended February 28,
$ in thousands	2022		2021


Net cash provided by operating activities	$	4,113	$	—
Net cash used in investing activities	(35,588)		$	—
Net cash provided by financing activities	31,686		$	—
Net change in cash and cash equivalents	211		$	—
Cash and cash equivalents at beginning of year	11,750		$	—
Cash and cash equivalents at end of period	$	11,961	$	—


Exhibit Number						Description of Document
3.1						Second Amended and Restated Articles of Incorporation, as amended from time to time.
31.1						Chief E xecutive O fficer’s Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .
31.2						Chief Financial Officer’s Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).