Applied Digital Corp 10-Q for FY2023 Q1

Applied Digital Corp. (APLD)

10-Q 2022-10-12 For: 2022-08-31

Added on April 09, 2026

About this 10-Q

Applied Digital Corp filed this 10-Q on October 12, 2022, covering the quarter ended August 31, 2022 (FY2023 Q1).

Headline figures

Quarter ended August 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.92M; compared with $0 a year earlier
Net loss: $4.53M; compared with a net loss of $14.1M a year earlier
Diluted EPS: -$0.05; compared with -$0.31 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
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Consolidated Statements of Changes in Stockholders’ Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to the Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 4.	Controls and Procedures	22

Part II - Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6.	Exhibits	24
Signatures		25


	August 31, 2022		May 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	40,830	$	46,299
Accounts receivable	50		227
Prepaid expenses and other current assets	1,500		1,336
Total current assets	42,380		47,862
Property and equipment, net	95,095		64,260
Right of use asset, net	6,995		6,408

Utility deposits	1,450		1,450
TOTAL ASSETS	$	145,920	$	119,980

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	13,456	$	13,260
Current portion of lease liability	1,371		1,004
Current portion of term loan	2,587		1,333
Customer deposits	14,111		9,524
Current deferred revenue	17,142		3,877

Total current liabilities	48,667		28,998
Deferred tax liability	572		540
Long-term deferred revenue	2,051		—
Long-term portion of lease liability	5,620		5,310
Long-term term loan	12,109		5,897
Total liabilities	$	69,019	$	40,745
Commitments and contingencies (Note 12)
Shareholders' equity (deficit):
Common stock, $0.001 par value, 166,666,667 shares authorized, 92,872,271 shares issued and 92,835,974 shares outstanding at August 31, 2022, and 97,837,703 shares issued and outstanding at May 31, 2022	$	93	$	98
Additional paid in capital	128,877		128,293
Treasury stock, 36,300 shares at August 31, 2022 and May 31, 2022, at cost	(62)		(62)
Accumulated deficit	(60,601)		(56,070)
Total stockholders’ equity attributable to Applied Blockchain, Inc.	68,307		72,259
Noncontrolling interest	8,594		6,976
Total Stockholders' equity (deficit) including noncontrolling interest	$	76,901	$	79,235
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	145,920	$	119,980


	Three Months Ended
	August 31, 2022		August 31, 2021
Revenues:
Hosting revenue	$	6,924	$	—

Cost of revenues	$	6,093	$	—
Gross profit	831		—

Costs and expenses:
Selling, general and administrative	$	4,131	$	698
Stock-based compensation	579		12,337
Depreciation and amortization	298		3
Total costs and expenses	$	5,008	$	13,038
Operating loss	$	(4,177)	$	(13,038)

Other income (expense):
Interest Expense	$	(356)	$	—
Gain on extinguishment of accounts payable	—		40
Loss on extinguishment of debt	(94)		(1,342)
Total other expense, net	(450)		(1,302)
Net loss from continuing operations before income tax expenses	(4,627)		(14,340)
Income tax expenses	(32)		—
Net loss from continuing operations	(4,659)		(14,340)
Net gain from discontinued operations, net of income taxes	—		243
Net loss including noncontrolling interests	(4,659)		(14,097)
Net loss attributable to noncontrolling interest	(128)		—
Net loss attributable to Applied Blockchain	$	(4,531)	$	(14,097)

Basic and diluted net (loss) gain per share:
Continuing Operations	$	(0.05)	$	(0.32)
Discontinued Operations	$	—	$	0.01
Basic and diluted net loss per share	$	(0.05)	$	(0.31)
Basic and diluted weighted average number of shares outstanding	93,105,835		44,937,269


☒			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 August 31, 2022

	Common Stock		Additional Paid in Capital	Treasury Stock	Accumulated deficit	Total Shareholders Equity	Noncontrolling Interest	Total Equity
	Shares	Amount
Balance, May 31, 2022	97,837,703	98	128,293	(62)	(56,070)	72,259	6,976	79,235
Stock based compensation	—	—	579	—	—	579	—	579
Capital contribution to noncontrolling interest	—	—	—	—	—	—	1,746	1,746
Stock Cancellation	(4,965,432)	(5)	5			—	—	—
Net Loss	—	—	—	—	(4,531)	(4,531)	(128)	(4,659)
Balance, August 31, 2022	92,872,271	93	128,877	(62)	(60,601)	68,307	8,594	76,901


Three Months Ended August 31, 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 Equity	Total Equity
	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	1		13,882	(62)	(21,623)	(2,583)	12,552
Extinguishment of Debt	—	—	—	—	—	—	—	—	—	5,083,828	5		3,473	—	—	3,478	3,478
Issuance of Dividends to Preferred Stock	—	—	—	—	—	60,822	6,082	29,772	2,979	—	—		—	—	(8,946)	115	115
Conversion of Preferred Stock	—	—	—	—	—	(88,017)	(9,452)	(46,859)	(4,828)	28,765,308	29		14,251	—	—	—	—
Service agreement stock compensation	—	—	—	—	—	—	—	—	—	18,036,723	18		12,319	—	—	12,337	12,337
Issuance of Preferred Stock	—	—	1,304,000	32,600	32,600	—	—	—	—	—	—		—	—	—	—	32,600
Issuance Costs of Preferred Stock	—	—	—	(2,698)	(2,698)	—	—	—	—	—	—		—	—	—	—	(2,698)
Net Loss	—	—	—	—	—	—	—	—	—	—	—		—	—	(14,097)	(14,097)	(14,097)
Balance, August 31, 2021	660,000	15,135	1,304,000	29,902	45,037	—	—	—	—	53,396,920	$	53	43,925	(62)	(44,666)	(750)	44,286


(in thousands)	August 31, 2022		May 31, 2022
Net Cash & Equivalents	$	33,330	$	38,798
Restricted Cash	$	7,500	$	7,501
Total Cash & Cash Equivalents	$	40,830	$	46,299


(in thousands)	Estimated Useful Life	August 31, 2022		May 31, 2022
Hosting Equipment
Electric Generation and Transformers	15 years	4,376		4,338

Other Equipment and Fixtures	5 years-7 years	588		588
Construction in Progress		46,086		18,305
Information Systems and Software	5 years	9,675		9,608
Land & Building
Land		2,125		1,074
Land Improvements	15 years	1,259		1,180
Building	39 years	32,833		30,176
Total cost of property and equipment		96,942		65,269
Accumulated Depreciation		(1,847)		(1,009)
Property Plant and Equipment, Net		$	95,095	$	64,260


	Three Months Ended August 31,
Customer	2022		2021
Customer A	35.5	%	—	%
Customer B	21.0	%	—	%
Customer C	16.5	%	—	%
Customer D	14.4	%	—	%
Customer E	12.6	%	—	%


Balance at May 31, 2022	$	3,877	Balance at May 31, 2021	$	—
Advance billings	22,240		Advance billings	—
Revenue recognized	(6,924)		Revenue recognized	—
Other adjustments	$	—	Other adjustments	$	—
Balance at August 31, 2022	$	19,193	Balance at August 31, 2021	$	—


Year	Principal Payments (in thousands)
FY23	$	1,923
FY24	2,726
FY25	2,923
FY26	3,134
FY27	3,361
Thereafter	583
Total Term Loan Remaining Payments	$	14,650


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding as of May 31, 2022	1,366,665	$	8.04
Granted	—	$	—
Vested	—	$	—
Forfeited	—	$	—
Outstanding as of August 31, 2022	1,366,665	$	8.04


Date:	October 12, 2022	By:	/s/ Wesley Cummins
			Wesley Cummins, Chief Executive Officer, Treasurer, Chairperson of the Board and Director (Principal Executive Officer)


Date:	October 12, 2022	By:	/s/ David Rench
			David Rench, Chief Financial Officer (Principal Financial and Accounting Officer)


Date:	October 12, 2022	By:	/s/ Wesley Cummins
			Chief Executive Officer, Treasurer, Chairperson of the Board and Director (Principal Executive Officer)


Date:	October 12, 2022	By:	/s/ David Rench
			Chief Financial Officer Chief Financial Officer (Principal Financial and Accounting Officer)


in thousands	As of
	August 31, 2022	August 31, 2021
Stock-based compensation expense	$579	$12,337


Basic and diluted loss per share:	Quarterly Period Ended
	August 31, 2022		August 31, 2021
Net loss from continuing operations	$	(4,659)	$	(14,340)
Net gain from discontinued operations, net of income taxes	—		243
Net loss including noncontrolling interests	(4,659)		(14,097)
Net loss attributable to noncontrolling interest	(128)		—
Net loss attributable to Applied Blockchain	$	(4,531)	$	(14,097)

Basic and diluted net (loss) gain per share:
Continuing Operations	$	(0.05)	$	(0.32)
Discontinued Operations	$	—	$	0.01
Basic and diluted net loss per share	$	(0.05)	$	(0.31)
Basic and diluted weighted average number of shares outstanding	93,105,835		44,937,269


	Three Months Ended
$ in thousands	August 31, 2022			August 31, 2021
Adjusted operating loss
Operating Loss from Continuing Operations (GAAP)	$	(4,177)		$	(13,038)
Add: Stock-based compensation for service agreement	579			12,337
Add: Gain on Extinguishment of Accounts Payable	—			(40)
Add: Loss on Extinguishment of Debt	94			1,342
Add: Non-recurring professional service costs	408
Add: Other non-recurring expenses	200			—
Adjusted Operating Loss from Continuing Operations (Non-GAAP)	$	(2,896)		$	601
Adjusted operating margin from Continuing Operations	(41.8)		%	—		%

Adjusted net loss
Net Loss from Continuing Operations (GAAP)	(4,659)			(14,340)
Add: Stock-based compensation for service agreement	579			12,337
Add: Gain on Extinguishment of Accounts Payable	—			(40)
Add: Loss on Extinguishment of Debt	94			1,342
Add: Non-recurring professional service costs	408
Add: Other non-recurring expenses	200			—
Adjusted net loss from Continuing Operations (Non-GAAP)	$	(3,378)		$	(701)

EBITDA and Adjusted EBITDA
Net Loss from Continuing Operations (GAAP)	$	(4,659)		$	(14,340)
Add: Interest Expense	356			—
Add: Income Tax Expense	32			—
Add: Depreciation	1,136			3
EBITDA (Non-GAAP)	$	(3,135)		$	(14,337)
Add: Stock-based compensation for service agreement	579			12,337
Add: Gain on Extinguishment of Accounts Payable	—			(40)
Add: Loss on Extinguishment of Debt	94			1,342
Add: Non-recurring professional service costs	408
Add: Other non-recurring expenses	200			—
Adjusted EBITDA (Non-GAAP)	$	(1,854)		$	(698)

Adjusted Gross Profit
Gross profit (GAAP)	$	831		$	—
Add: Depreciation in cost of revenues	836			—
Adjusted Profit (Non-GAAP)	$	1,667		$	—


Exhibit Number						Description of Document
3.1						Second Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Compan y ’s Annual Report on Form 10-K filed with the SEC on August 29, 2022)
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)
10.1						Letter between Applied Blockchain, Inc. and Xsquared Holding Limited dated June 6, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 8, 2022)
10.2						Loan Agreement, dated as of July 25, 2022, by and among APLD Hosting, LLC, Starion Bank, and Applied Blockchain, Inc. as Guarantor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2022)
10.3						Security Agreement, dated as of July 25, 2022, by and between APLD Hosting, LLC and Starion Bank (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2022)
10.4						Security Agreement, dated as of July 25, 2022, by and among APLD Hosting, LLC, Applied Blockchain, Inc. as Grantor, and Starion Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2022)
10.5						Unlimited Commercial Corporate Guaranty of Applied Blockchain, Inc. dated as of July 25, 2022 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2022)
10.6*						Hosting Agreement, dated as of July 12, 2022, by and between Marathon Digital Holdings, Inc. and Applied Blockchain, Inc.
31.1*						Chief Executive 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).