Any disruption of service experienced by certain of our third-party service providers, or our failure to manage and maintain existing relationships or identify and engage or hire other qualified third-party service providers or employees to perform similar functions, or other events could harm our business, financial condition, operating results, cash flows, and prospects.
We may depend upon outside advisors who may not be available on reasonable terms as needed. To supplement the business experience of our officers and directors, we may be required to employ technical experts, appraisers, attorneys, or other consultants or advisors. Our management, with approval of our board of directors (“Board”) in certain cases, without any input from stockholders, will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to us. In the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able to provide the required services.
On March 19, 2021, we entered into the Services Agreement with GMR Limited, a British Virgin Islands limited liability company (“GMR”), Xsquared Holding Limited, a British Virgin Islands limited liability company (“SparkPool”) and Valuefinder, a British Virgin Islands limited liability company (“Valuefinder” and, together with GMR and SparkPool, each a “Service Provider” and collectively, the “Service Providers”). Pursuant to the Services Agreement, we engaged the Service Providers to provide cryptoasset mining management and analysis and to secure equipment to be purchased by us as consideration for 44,640,8897,440,148 shares of common stock to be issued to each of GMR and SparkPool or their designees and 18,938,5593,156,426 shares of common stock to be issued to Valuefinder or its designee, in each case upon the occurrence of certain events. On March 25, 2021, we filed a certificate of amendment to our Second Amended and Restated Articles of Incorporation (as amended from time to time, our “Articles”) with the Secretary of State of the State of Nevada to change our name to Applied Blockchain, Inc. By July 2021, we had purchased crypto mining equipment, taken delivery of such equipment, installed such equipment at a cohosting location and began mining and generating revenue. Each of these Service Providers assisted in the creation of our crypto mining operations, which we then terminated on March 9, 2022. Each of them also advised us in connection with the design and buildout of our co-hosting operations. GMR and SparkPool have since become customers of our co-hosting operations. In July 2021, we added a strategic partner, Bitmain Technologies Limited (“Bitmain”), a producer of products for blockchain and artificial intelligence (AI) applications, to assist in the operation and development of our mining and co-hosting business as well as the identification of other strategic business initiatives.
On January 6, 2022, we and Antpool, an affiliate of Bitmain Technologies Holding Company, entered into a Limited Liability Company Agreement of 1.21 Gigawatts, LLC, pursuant to which we and Antpool contributed $8,000 and $2,000, respectively, and will initially own 80% and 20% of 1.21 Gigawatts, respectively. 1.21 Gigawatts will develop, acquire, construct, finance, operate, maintain and own one or more Next-Gen
datacenters with up to 1.5GW of capacity for hosting blockchain infrastructure. We are the managing member of 1.21 Gigawatts and are responsible for all site development, construction and operations of the datacenters. However, certain activities of 1.21 Gigawatts and its subsidiaries require the vote of 90% of the then outstanding units of each such entity. As long as Antpool owns 10% or more of the total issued and outstanding units of 1.21 Gigawatts, Antpool may appoint an individual with industry expertise to serve as an advisor to 1.21 Gigawatts. 1.21 Gigawatts will pay fees to such advisor as reasonably determined by us as managing member. Transfers by members of units of 1.21 Gigawatts are prohibited without approval of 90% of units then outstanding, which consent may be granted or withheld for any reason and transfers of such units to non-affiliates, after obtaining consent, are subject to a right of first refusal of other members to purchase some or all of such units. Additionally, Antpool has the right at any time to convert all or any portion of its 1.21 Gigawatts units into a number of shares of our common stock equal to the capital contributions by Antpool in connection with the acquisition of such units divided by $1.25 (or $7.50, after adjustment for the Reverse Stock Split), which will result in an increase in our ownership percentage of 1.21 Gigawatts.
If these third parties or other outside advisors experience difficulty providing the services we require, or if they experience disruptions or financial distress or cease operations temporarily or permanently, it could make it difficult for us to operate our cryptoasset mining operations. If we are unsuccessful in identifying or finding highly qualified third-party service providers or employees, if we fail to negotiate cost-effective relationships with them or if we are ineffective in managing and maintaining these relationships, it could materially and adversely affect our cryptoasset mining business and our financial condition, operating results, cash flows, and prospects.
We may also experience disruptions due to mechanical failure, power outage, human error, physical or electronic security breaches, war, terrorism, fire, earthquake, pandemics, hurricane, flood and other natural disasters, sabotage and vandalism. Our systems may be susceptible to damage, interference, or interruption from modifications or upgrades, power loss, telecommunications failures, computer viruses, ransomware attacks, computer denial of service attacks, phishing schemes, or other attempts to harm or access our systems. Such disruptions could materially and adversely affect our business and our financial condition, operating results, cash flows, and prospects.
Various actual and potential conflicts of interest may be detrimental to stockholders.
Certain conflicts of interest may exist, or be perceived to exit, between certain of our directors or officers and us, including, direct and indirect relationships between certain of our officers and directors with entities that are, or are under common control with, B. Riley Securities, Inc., representative of the underwriters for this offering. Mr. Cummins and certain of our directors have other business interests to which they also must devote time, resources and attention. These other interests may conflict with such officer’s or director’s interest in us, including conflicting with interests in allocating resources, time and attention to our business and impacting decisions made on our behalf with respect to such entities, their affiliates or competitors.
Our Service Providers, and Bitmain, operate businesses related to crypto mining. Specifically, GMR and Bitmain actively mine cryptoassets. Although SparkPool ceased its operations as a result of China’s ban on cryptoasset mining, SparkPool is moving its mining business outside of China. SparkPool and Valuefinder each consult with and advise other cryptoasset-related companies. Our Service Providers’ and Bitmain’s interest in their own business and that of entities they advise may conflict with our interests and may impact the advice provided to us or our competitors such that our business, operations and financial results may be negatively impacted.
We do not have specific procedures in place with respect to potential conflicts of interest, however, in determining to engage with potential competitors and entities with whom our officers or directors may have relationships, we considered the risks and risk mitigation factors, including requiring that transactions with entities that are related to our officers and directors be approved or ratified by our Audit Committee, and recognizing that Mr. Cummins holds over 24% of our common stock, calculated as if the Series C Preferred Stock and Series D Preferred Stock were converted, and our Service Providers, on an as-if converted basis, hold between 1.3% and 9% of our common stock. All of them therefore have a financial interest in the success of our operations. Additionally, none of our Service Providers or Bitmain operate in the co-hosting business. We have also included more than a majority of independent directors on our Board
We are dependent on third-party brokers to source our miners, and failure to properly manage these relationships, or the failure of these brokers to perform as expected, could have a material adverse effect on our business, prospects or operations.
We currently rely on third-party brokers to source our miners. We have no assurance that business interruptions will not occur as a result of the failure by these brokers to perform as expected, including the failure to locate acceptable or sufficient miners for our purchase. Many of the competitors in our industry have also been purchasing mining equipment at scale, which has caused a world-wide shortage of mining equipment and extended the corresponding delivery schedules for new miner purchases. We cannot ensure that our brokers will continue to perform services to our satisfaction or on commercially reasonable terms. The recent increased demand for miners has also limited the supply of miners that brokers may source for us. Our brokers may also decline our orders to fulfill those of our competitors, putting us at competitive harm. There are no assurances that any miner manufacturers will be able to keep pace with the surge in demand for mining equipment. If our brokers are not able to provide the agreed services at the level of quality and quantity we require or become unable to handle the volume of miners we seek, we may not be able to replace such broker in a timely manner. Any delays, interruption or increased costs could have a material adverse effect on our business, prospects or operations.
We may depend upon outside advisors who may not be available on reasonable terms as needed.
To supplement the business experience of our officers and directors, we may be required to employ technical experts, appraisers, attorneys, or other consultants or advisors. Our management, with our board of directors (“Board”) approval in certain cases, without any input from stockholders will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to us. In the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able to provide the required services.
COVID-19 or any pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business.
The COVID-19 virus has had unpredictable and unprecedented impacts in the United States and around the world. The World Health Organization has declared the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease. Many countries around the world have imposed quarantines and restrictions on travel and large gatherings to slow the spread of the virus. In the United States, federal, state and local governments have enacted restrictions on travel, gatherings, and workplaces, with exceptions made for essential workers and businesses. We are still assessing potential effects on our business from COVID-19 and any actions implemented by the federal, state and local governments. Although in the United States work-from-home and shelter-in-place recommendations and requirements are beginning to be removed, any future variant of COVID-19, or another epidemic, could cause such measures to be reinstated. We may experience disruptions to our business operations resulting from such quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs. If we are unableSuch restrictions could impact our ability to construct our co-hosting facilities or take delivery of, or effectively service and maintain our customers’ crypto mining equipment, our ability to mine cryptoassets will be adversely affected, which would have an adverse effect on our business and the results of our operations.
China has also prohibited the shipment of cryptoasset related products in and out of its borders, which could negatively impact our ability to receive mining equipment from China-based suppliers.suppliers on behalf of our customers. Third-party manufacturers, suppliers, sub-contractors and customers have been and willcould continue to be disrupted by worker absenteeism, quarantines, restrictions on employees’ ability to work, office
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), applicable restrictions could make it impractical for us to continue our business as currently contemplated and could have a material adverse effect on our business, financial condition and results of operations.
Under Sections 3(a)(1)(A) and (C) of the Investment Company Act, a company generally will be deemed to be an “investment company” for purposes of the Investment Company Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily,current labor shortages in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securitiesUnited States, are currently not predictable, and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the Investment Company Act.
Additionally, we believe that we are not engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities. As a result of our investments and our cryptoasset mining activities, it is possible that the investment securities we hold in the future financial impacts could exceed 40% of our total assets, exclusive of cash items and, accordingly, we could determine that we have become an inadvertent investment company. To date the U.S. Securities and Exchange Commission (the “SEC”) staff have treated Bitcoin as a commodity, but it is possible that the SEC may deem Bitcoin, Ethereum and other cryptoassets an investment security in the future, although we do not believe any of the cryptoasset we will acquire or mine are securities. An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the Investment Company Act. One such exclusion, Rule 3a-2 under the Investment Company Act, allows an inadvertent investment company a grace period of one yearvary from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. At this time, we do not believe we are an inadvertent investment company. If we do become an inadvertent investment company in the future, we may take actions to cause the investment securities held by us to be less than 40% of our total assets, which may include acquiring assets with our cash and cryptoasset on hand or liquidating our investment securities or cryptoasset or seeking a no-action letter from the SEC if we are unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner. Liquidating our investment securities or cryptoasset could result in losses.
As the Rule 3a-2 exception is available to a company no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within the 40% limit for at least three years after we cease being an inadvertent investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities.
Classification as an investment company under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and would require a restructuring of our operations, and we would be very constrained in the kind of business we could do as a registered investment company. Further, we would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime. The cost of such compliance would result in us incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact to conduct our operations. Furthermore, our classification as an investment company could adversely affect our ability to engage in future combinations, acquisitions or other transactions on a tax-free basis.those foreseen.
The cryptoeconomy is novel and has little to no access to policymakers or lobbying organizations, which may harm our ability to effectively react to proposed legislation and regulation of cryptoassets or cryptoasset platforms adverse to our business.
As cryptoassets have grown in both popularity and market size, various U.S. federal, state, and local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining
and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies are being subject to heightened scrutiny by regulators and the public. Further, there have been limited precedents for the financial accounting of cryptoassets and related valuation and revenue recognition, and no official guidance has been provided by the FASB or the SEC. As such, there remains significant uncertainty on how companies can account for cryptoasset transactions, cryptoassets, and related revenue. Uncertainties or changes in regulatory or financial accounting standards could result in the need to change our accounting methods and restate our financial statements and impair our ability to provide timely and accurate financial information, which could adversely affect our financial statements, result in a loss of investor confidence, and more generally impact our business, operating results, and financial condition.
WeOur customers may not adequately respond to rapidly changing technology or methods of, rules of, or access to, platforms which may negatively affect our business. Rapidly changing technology or platform methods, rules and access may render our crypto mining and related equipment and facilities obsolete, unprofitable or unusable.
Competitive conditions within the cryptoasset industry require that weour customers use sophisticated technology in the operation of ourtheir business. The industry for blockchain technology is characterized by rapid technological changes, new product introductions, enhancements and evolving industry standards. New technologies, techniques or products could emerge that might offer better performance than the software and other technologies we currently utilize, and we may have to manage transitions to these new technologies to remain competitive. WeOur customers may not be successful, generally or relative to our competitors in the cryptoasset industry, in timely implementing new technology into ourtheir systems, or doing so in a cost-effective manner. During the course of implementing any such new technology into ourtheir operations, wethey may experience system interruptions and failures and may find existing crypto mining equipment and infrastructure investments become obsolete. Furthermore, there can be no assurances that wethey will recognize, in a timely manner or at all, the benefits that wethey may expect as a result of our implementing new technology into our operations. Additionally, the methods, rules and access to the platforms which wethey mine change rapidly and could result in the platforms becoming obsolete or unusable by us.them. As a result of such changes to technology and/or platforms, our customers’ and our business and operations may suffer, and there may be adverse effects on the value of our securities.
Our future success will depend upon the value of Bitcoin, Ether and other cryptoassets; the value of such cryptoasset may be subject to pricing risk and has historically been subject to wide swings.
Our operating results will depend on the value of Bitcoin, Ether and other cryptoassets we mine. Specifically, our revenues from our mining operations are based on two factors: (1) the number of Ether/Bitcoin rewards and other cryptoassets we successfully mine and (2) the value of the same. In addition, our operating results are directly impacted by changes in the value of Ether/Bitcoin, because under the value measurement model, both realized and unrealized changes will be reflected in our statement of operations (i.e., we will be marking cryptoasset to fair value each quarter). This means that our operating results will be subject to swings based upon increases or decreases in the value of the cryptoassets we mine. Further, our mining equipment is principally utilized for mining Ether and Bitcoin. If other cryptoassets were to achieve acceptance at the expense of Ethereum/Bitcoin causing the value of our Ether/Bitcoin and other cryptoassets to decline, or if Ethereum/Bitcoin were to switch its proof of work encryption algorithm to one for which our miners are not specialized, or the value of Ether/Bitcoin and our other cryptoassets were to decline for other reasons, particularly if such decline were significant or over an extended period of time, our operating results would be adversely affected, and there could be a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects or operations, and harm investors.
Cryptoasset market prices, which have historically been extremely volatile and are impacted by a variety of factors (including those discussed herein), are determined primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than business activities, which could be subjected tosuffer.
additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of Bitcoin, Ether or other cryptoassets we mine, or our share price, inflating and making their market prices more volatile or creating “bubble” type risks for both our cryptoasset and shares of our securities.
If the award of Ether/Bitcoin reward for solving blocks and transaction fees, is not sufficiently high, weour customers may not have an adequate incentive to continue mining and may cease mining operations, which will likelycould lead to our failure to achieve profitability.
If the number of Ether/Bitcoin awarded for solving a block in a blockchain decreases, our customers’ ability to achieve profitabilityearn revenue worsens. Decreased use and demand for Ether/Bitcoin rewards may adversely affect ourtheir incentive to expend processing power to solve blocks. If the award of Ether/Bitcoin rewards for solving blocks and transaction fees are not sufficiently high, wethey may not have an adequate incentive to continue mining and may cease our mining operations. MinersAdditionally, miners ceasing operations would reduce the collective processing power on the network, which would adversely affect the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are added to a blockchain until the next scheduled adjustment in difficulty for block solutions) and make the Ethereum network more vulnerable to a malicious actor or botnet obtaining control in excess of 50 percent of the processing power active on a blockchain, potentially permitting such actor or botnet to manipulate a blockchain in a manner that adversely affects our activities. A reduction in confidence in the confirmation process or processing power of the network could result and be irreversible. Such events could have a material adverse effect on our and our customers’ ability to continue to pursue our strategy at all, which could have a material adverse effect on our customers’ and our business, prospects or operations and potentially the value of any cryptoasset we mine or otherwise acquire or hold formined prior to cessation of our own account.mining operations. In addition, such events could have a material adverse effect on the usefulness of our crypto mining equipment and co-hosting facilities, particularly any investment or commitments made by us for co-hosting facilities.
If the number of Ether/Bitcoin token rewards awarded for solving a block in a blockchain decreases, the incentive for miners to continue to contribute to the network may transition from a set reward to transaction fees. In order to incentivize miners to continue to contribute to the network, the network may either formally or informally transition from a set reward to transaction fees earned upon solving a block. This transition could be accomplished by miners independently electing to record in the blocks they solve only those transactions that include payment of a transaction fee. If transaction fees paid for transactions become too high, the marketplace may be reluctant to accept Bitcoin, Ether or other cryptoassets as a means of payment and existing users may be motivated to switch from Bitcoin, Ether and other cryptoassets to another cryptoasset or to fiat currency. Either the requirement from miners of higher transaction fees in exchange for recording transactions in a blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for Ether or Bitcoin and prevent the expansion of these networks to retail merchants and commercial businesses, resulting in a reduction in the price of Bitcoin, Ether and other cryptoassets that could adversely impact an investment in our securities. Decreasedthe price of and decreased use and demand for Bitcoin, Ether or other cryptoassets that our customers mine or that we have accumulated prior to cessation of our mining operations which may adversely affect their value, our customers’ business, our business and may adversely impact an investment in us.
Because the number of Bitcoin awarded for solving a block in the Bitcoin network blockchain continually decreases, miners must invest in increasing processing power to maintain their yield of Bitcoins, which might make Bitcoin mining uneconomical for us.our customers.
The award of new Bitcoin for solving blocks continually declines, so that Bitcoin miners must invest in increasing processing power in order to maintain or increase their yield of Bitcoin. If the pricing of Bitcoin were to decline significantly, there can be no assurance that we would be able to recover our investment in the computer hardware and processing power required to upgrade our mining operations. There can, moreover, be no assurance that wecustomers will have the resources to upgrade ourtheir processing power in order to maintain the continuing profitabilityrevenue production of ourtheir mining operations. Also, the developers of the Bitcoin network or other programmers could propose amendments to the network’s protocols and software that, if accepted, might require usour customers to modify ourtheir Bitcoin operations, and increase ourtheir investment in Bitcoin, in order to maintain profitability.revenue production. There can be no assurance, however, that wethey will be able to do so. In addition, anyAny decrease in
There are risks related to technological obsolescence, the vulnerability of the global supply chain to cryptoasset hardware disruption, and our customers’ difficulty in obtaining new hardware which may have a negative effect on our business.
Our customers’ mining operations can only be successful and ultimately profitable if the costs, including hardware and electricity costs, associated with mining Bitcoin, Ether and other cryptoassets are lower than the price of the Bitcoin, Ether and/or other cryptoassets. As our customers’ mining facilityequipment operates, our miners experienceit experiences ordinary wear and tear and general hardware breakdown, and may also face more significant malfunctions caused by a number of extraneous factors beyond our or their control. The physical degradation of ourtheir miners will require usthem to, over time, replace those miners which are no longer functional. Additionally, as the technology evolves, wethey may be required to acquire newer models of miners to remain competitive in the market. The cost and availability of new machines is unpredictable. As a result, at times, wethey may obtain miners and other hardware from third parties at premium prices, to the extent they are available. In order to keep pace with technological advances and competition from other mining companies, it will be necessary to purchase new miners, which will eventually need to be repaired or replaced along with other equipment from time to time to stay competitive. This upgrading process requires substantial capital investment, and weour customers may face challenges in doing so on a timely and cost-effective basis. Also, because we expect to depreciate all new miners, our reported operating results will be negatively affected.
The global supply chain for mining equipment is presently constrained due to unprecedented demand coupled with a global semiconductor shortage, with a significant portion of available miners being acquired by companies with substantial resources. Prices for both new and older models of miners have been on the rise and these supply constraints are expected to continue for the foreseeable future. China, a major supplier of cryptoasset miners, has seen a production slowdown as a result of COVID-19. Should similar outbreaks or other disruptions to the China-based global supply chain for hardware occur, weour customers may not be able to obtain adequate replacement parts for ourtheir existing miners or to obtain additional miners on a timely basis, if at all, or wethey may only be able to acquire miners at premium prices. Such events could have a material adverse effect on our ability to pursue our strategy, which could have a material adverse effect on our business and the value of our securities.
We may not be able to realize the benefits of forks. Forks in a cryptoasset network may occur in the future which may affect the value of cryptoassets held by us.
To the extent that a significant majority of users and miners on a cryptoasset network install software that changes the cryptoasset network or properties of a cryptoasset, including the irreversibility of transactions and limitations on the mining of new cryptoasset, the cryptoasset network would be subject to new protocols and software. However, if less than a significant majority of users and miners on the cryptoasset network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the cryptoasset running in parallel, yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original asset and which is the new asset. Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a cryptoasset, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the Ethereum network could adversely affect an investment in our securities or our ability to operate.
We may not be able to realize the economic benefit of a fork, either immediately or ever, which could adversely affect an investment in our securities. If we hold Bitcoin, Ether or other cryptoassets at the time of a hard fork into two cryptoassets, industry standards would dictate that we would be expected to hold an equivalent amount of the old and new assets following the fork. However, we may not be able, or it may not be practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, we may determine that there is no safe or practical way to custody the new asset, that trying to do so may pose an unacceptable risk to our holdings in the old asset, or that the costs of taking possession and/or maintaining ownership of the new cryptoasset exceed the benefits of owning the new cryptoasset. Additionally, laws, regulation or other factors may prevent us from benefitting from the new asset even if there is a safe and practical way to custody and secure the new asset.
the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for the redemption of such stockholder’s shares.
Nevada’s control share law may have the effect of discouraging takeovers of the corporation.
In addition to the control share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and “interested stockholders” for two years after the “interested stockholder” first becomes an “interested stockholder,” unless our Board approves the combination in advance or thereafter by both the Board and 60% of the disinterested stockholders. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquiror to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our Board.
The regulation of penny stocks by the SEC and FINRA may have an effect on the tradability of our securities.
Our shares of common stock are currently listed for trading on the OTC Pink Market. Our common stock is subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000).
For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of sellers to sell their securities in any market that might therefore develop.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks.” Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules may further affect the ability of owners of our common stock to sell our securities in any market that might develop for them.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
•
our future financial performance, including our expectations regarding our net revenue, operating expenses, and our ability to achieve and maintain future profitability;
•
our business plan and our ability to effectively manage our growth;
•
anticipated trends, growth rates, and challenges in our business, the cryptoeconomy, and in the markets in which we operate;
•
further development and market acceptance of cryptoasset networks and other cryptoassets;
•
further development of our co-hosting facilities and customer base for co-hosting services;
•
beliefs and objectives for future operations;
•
our cryptoassets may be subject to loss, damage, theft or restriction on access;
•
the value of Bitcoin, Ether and other cryptoassets, which may be subject to pricing risk has historically been subject to wide swings;
•
our expectations concerning relationships with third parties;
•
the effects of increased competition in our markets and our ability to compete effectively;
•
our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
•
economic and industry trends, projected growth, or trend analysis;
•
trends in revenue, cost of revenue, and gross margin;
•
trends in operating expenses, including technology and development expenses, sales and marketing expenses, and general and administrative expenses, and expectations regarding these expenses as a percentage of revenue;
•
increased expenses associated with being a public company; and
•
other statements regarding our future operations, financial condition, and prospects and business strategies.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our operating results, financial condition, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe
DILUTION
The difference between the public offering price per share of our common stock and the pro forma net tangible book value per share after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities, by the number of outstanding shares of common stock.
On a historical actual basis as of November 30, 2021, our net tangible book value was approximately $(0.92) million, or approximately $(0.02) per share.
On a pro forma basis as of November 30, 2021, our net tangible book value would have been approximately $47.8 million, or approximately $0.52 per share, after giving effect to our issuance of an aggregate of 1,366,666 shares of restricted stock to our executive officers and directors, the automatic conversion of all outstanding shares of our Series C Preferred Stock and Series D Preferred Stock and PIK Dividends thereon into common stock, for an aggregate of 36,441,489 shares of our common stock and our Reverse Stock Split, as if such conversions, issuance and Reverse Stock Split had occurred on November 30, 2021.
On a pro forma as adjusted basis as of November 30, 2021, our net tangible book value would have been $102.4 million, or approximately $1.03 per share, after giving further effect to the sale of the shares of common stock offered in this prospectus at an assumed public offering price of $7.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and the deduction of the underwriting discount and estimated offering expenses payable by us. The difference between the pro forma and pro forma as adjusted net tangible book value represents an immediate dilution of 85% per share, or $5.97, to new investors.
The following table illustrates the dilution to the new investors on a per-share basis:
| | Assumed public offering price | | | | | | | | | | $ | 7.00 | | |
| | Historical actual net tangible book value before this offering | | | | $ | (0.02) | | | | | | | | |
| | Increase attributable to pro forma adjustment | | | | $ | 0.54 | | | | | | | | |
| | Pro forma net tangible book value before this offering | | | | $ | 0.52 | | | | | | | | |
| | Increase in pro forma net tangible book value attributable to new investors | | | | $ | 0.51 | | | | | | | | |
| | Pro forma as adjusted net tangible book value after this offering | | | | | | | | | | $ | 1.03 | | |
| | Dilution to new investors | | | | | | | | | | $ | 5.97 | | |
Each $1.00 increase (decrease) in the assumed public offering price of $7.00 per share would increase (decrease) our pro forma as adjusted net tangible book value per share to new investors by $0.08, and would increase (decrease) dilution per share to new investors in this offering by $0.92, assuming the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same. In addition, to the extent any RSUs that we granted to certain of our consultants in January 2022 vest, new investors would experience further dilution.
If the underwriters exercise in full the option to purchase additional shares to cover over-allotments, the pro forma as adjusted net tangible book value per share of our common stock after giving effect to this offering would be approximately $1.10 per share, and the dilution in pro forma as adjusted net tangible book value per share to investors in this offering would be approximately $5.90 per share of common stock.
The dilution to new investors presented above excludes the effect of:
•
the issue of 1,791,666 shares of our common stock underlying RSUs previously granted to certain of our consultants in January 2022; and
•
the issue of 15,666,666 shares of our common stock reserved, but not subject to outstanding awards under our incentive plans.
The following table sets forth purchase price information with respect to (i) our initial stockholders including an aggregate of 1,366,666 shares of restricted stock to our executive officers and directors, the
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Trends and Uncertainties
In June 2021, we began our crypto mining operations. Prior to that time, we had no operating business or revenues since 2014. As a result, we are currentlywere deemed to be a shell company.company until November 30, 2021. During June 2021, we also began planning and executing a strategy to develop co-hosting operations to meet the changing challenges and needs of the cryptoasset industry. As our business operations continue orto commence and grow, and because of the rapidly changing nature of our industry, our business will continue to change. The regulatory framework in which we operate may change. In the year ended May 31, 2021, we did not have cryptoasset related operations. In the future we will account for such operations as set forth below. These accounting rules and regulations we follow are likely to change in the future as discussed below.
Sale of Crypto Mining Equipment
On March 9, 2022, we ceased all crypto mining operations and completed the sale of all crypto mining equipment in service. We still own some mining equipment. However, the equipment is either not online or was previously purchased but has yet to be delivered. We intend to sell this equipment as soon as possible and have no plans to bring the equipment online or use it for mining purposes. Total proceeds from the sale of the equipment were $1.6 million. We will recognize a loss of $2.9 million in the sale of the equipment during the quarter ended May 31, 2022. We have no plans to return to crypto mining operations in the future as we grow our co-hosting operations. The results of our crypto mining operations will be accounted for as discontinued operations in our consolidated financial statements as of and for the period ended February 28, 2022. This decision may decrease liquidity and our available capital resources, which may adversely affect us.
Loans
On March 11, 2022, we entered into a term loan agreement as guarantor with Applied Hosting, LLC, or Hosting, our wholly-owned subsidiary, as the borrower, and Vantage Bank Texas, as lender. Pursuant to the loan agreement, on March 11, 2022, Hosting entered into a promissory note agreement, or Note and borrowed $7,500,000 for a five-year term with an interest rate of 5% per annum. The proceeds of the term loan will be used for working capital needs for the operation of Phase I of the hosting facility in Jamestown, North Dakota. The loan agreement and Note contain customary covenants, representations and warranties and events of default.
Also on March 11, 2022, we entered into a continuing guaranty agreement with the lender, pursuant to which we agreed to guaranty Hosting’s indebtedness and obligations under the loan agreement. The term loan is secured by a mortgage on the real property constituting Phase I of the Jamestown, North Dakota property pursuant to a Mortgage, Security Agreement and Fixture Financing Statement, dated March 11, 2022, by and between Hosting and the lender, and a security interest in the accounts receivable, rents and servicing agreements relating to the property, and equipment as set forth in or required by the loan agreement.
Regulatory Matters
Our business iscustomers’ businesses are subject to extensive laws, rules, regulations, policies and legal and regulatory guidance, including those governing securities, commodities, cryptoasset custody, exchange and
Third-party manufacturers, suppliers, sub-contractors and customers have been and will continue to be disrupted by worker absenteeism, quarantines, restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our supply chain, shipments of parts for our customers’ existing miners as well as any new equipment we purchase, may be delayed. As our customers’ equipment requires repair or becomes obsolete and requires replacement, our and their ability to obtain adequate replacements or repair parts from their manufacturer may therefore be hampered. Supply chain disruptions could therefore negatively impact our operations.
The implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain. The economic effects of the pandemic and any recovery and resulting societal changes, including the impact of current labor shortages in the United States, are currently not predictable, and the future financial impacts could vary from those foreseen.
To the extent we are providing maintenance and repair services to our customers, our ability to provide such services may also be hampered by supply chain and labor disruptions.
Future Expense of RSUs and Restricted Stock
We granted an aggregate of 1,791,666 restricted stock units (‘‘RSUs’’) to certain of our consultants with different vesting schedules based on occurrence of certain events which we cannot predict. Assuming that such RSUs vest in the amounts and during the quarters set forth in the table below, such table details the vesting shares and implied expenses in each relevant fiscal quarter.
| | | | After Giving Effect to the
Reverse Stock Split | |
| Fiscal Quarter End | | | RSUs Vested | | | Implied Expense | |
| May 31, 2022 | | | | | 441,666 | | | | | $ | 3,551,000 | | |
| August 31, 2022 | | | | | 800,000 | | | | | $ | 6,432,000 | | |
| November 30,2022 | | | | | 550,000 | | | | | $ | 4,422,000 | | |
We granted an aggregate of 600,000 shares of restricted stock (“Restricted Stock”) to our non-employee directors. The Restricted Stock vests one half on each of April 1, 2022, or the date, if later, on which the SEC declares effective a registration statement covering the resale of the shares of the Restricted Stock (the “Later Date”) and April 1, 2023. The following table details the vesting shares and implied expenses in each relevant fiscal quarter.
| Fiscal Quarter End | | | Vesting
Restricted
Stock | | | Implied
Expense | |
| May 31, 2022 | | | | | 300,000 | | | | | $ | 2,412,000 | | |
| August 31, 2022 | | | | | 75,000 | | | | | $ | 603,000 | | |
| November 30, 2022 | | | | | 75,000 | | | | | $ | 603,000 | | |
| February 28, 2023 | | | | | 75,000 | | | | | $ | 603,000 | | |
| May 31, 2023 | | | | | 75,000 | | | | | $ | 603,000 | | |
We granted an aggregate of 766,666 shares of restricted stock (“Restricted Stock”) to three of our employees. The Restricted Stock vests one half on April 1, 2022, or, if later, the Later Date, and one-quarter of the remaining unvested shares vest on each of July 1, 2022, October 1, 2022, January 1, 2023 and April 1, 2023, or, in each case, if later, the Later Date. The following table details the vesting shares and implied expenses in each relevant fiscal quarter.
On November 24, 2021, we entered into a letter of intent to develop a facility in Texas with 200MW of wind power. The arrangement is subject to entry into definitive agreements by the parties. There can be no assurance that we will enter into such agreements in a particular time period or at all.
On January 6, 2022, we and Antpool, an affiliate of Bitmain Technologies Holding Company, entered into a Limited Liability Company Agreement of 1.21 Gigawatts, LLC, pursuant to which we and Antpool contributed $8,000 and $2,000, respectively, and will initially own 80% and 20% of 1.21 Gigawatts, respectively. 1.21 Gigawatts will develop, acquire, construct, finance, operate, maintain and own one or more Next-Gen datacenters with up to 1.5GW of capacity for hosting blockchain infrastructure. We are the managing member of 1.21 Gigawatts and are responsible for all site development, construction and operations of the datacenters. However, certain activities of 1.21 Gigawatts and its subsidiaries require the vote of 90% of the then outstanding units of each such entity. As long as Antpool owns 10% or more of the total issued and outstanding units of 1.21 Gigawatts, Antpool may appoint an individual with industry expertise to serve as an advisor to 1.21 Gigawatts. 1.21 Gigawatts will pay fees to such advisor as reasonably determined by us as managing member. Transfers by members of units of 1.21 Gigawatts are prohibited without approval of 90% of units then outstanding, which consent may be granted or withheld for any reason and transfers of such units to non-affiliates, after obtaining consent, are subject to a right of first refusal of other members to purchase some or all of such units. Additionally, Antpool has the right at any time to convert all or any portion of its 1.21 Gigawatts units into a number of shares of our common stock equal to the capital contributions by Antpool in connection with the acquisition of such units divided by $1.25 (or $7.50, after adjustment for the Reverse Stock Split), which will result in an increase in our ownership percentage of 1.21 Gigawatts.
As our co-hosting operations expand, we believe our business structure will become conducive to a REIT structure, comparable to Digital Realty Trust (NYSE: DLR) and Equinix, Inc. (NASDAQ: EQIX), each of which is a traditional datacenter operator and Innovative Industrial Properties, Inc. (NYSE: IIPR), a specialty REIT that similarly services a new growth industry. We have begun to investigate the possibility, costs and benefits of converting to a REIT structure.
Mining Operation
Our initial mission was to quickly scale a large mining operation focused on mining Bitcoin and Ethereum (Ether). With a specialized algorithm and advice provided by strategic partners and mining pool managers, we are able to mine the most profitable cryptoassets in the market and adjust in real-time. As a result of changes to Chinese regulations of cryptoasset mining, ultimately leading to the crackdown on mining facilities in locations across the country, this pushed us to explore other co-hosting locations outside of China. By July 2021, we had entered into a co-hosting agreement with Coinmint LLC, had our initial order of mining equipment delivered and installed at Coinmint's co-hosting facility and began our mining operations. We also determined that constructing our own co-hosting facilities would enable us to generate a stable cash flow stream through long-term hosting agreements, lower the cost of power for our own mining operations and eliminate risks to us of relying on a third-party host. During the building of our co-hosting operations, we determined that it would be beneficial to our stockholders to focus more of our resources on building our co-hosting operations than on expanding our mining operations. Accordingly, in December 2021, we began selling our crypto mining equipment. On March 9, 2022 we ceased all crypto mining operations and completed the sale of all crypto mining equipment in service. We still own some mining equipment. However, the equipment is either not online or was previously purchased but has yet to be delivered. We intend to sell this equipment as soon as possible and have no plans to bring the equipment online or use it for mining purposes. We have no plans to return to crypto mining operations in the future.
We do not intend to accept digital assets as payment for services. We do intend to hold digital assets we mined prior to cessation of our mining operations for investment or conversion into fiat currency for working capital purposes.
Company History
Applied Blockchain, Inc. was incorporated in Nevada in May 2001 under the name of Reel Staff, Inc. to provide staffing services to film, video and television production companies. In September 2002, in connection with a share exchange with the stockholders of Flight Safety Technologies, Inc. (“FSTO”), we
otherwise build, an operating business. We determined to build a business focused on cryptoassets, and specifically participate in Ethereum (Ether) mining. In March 2021, the Companywe executed a strategy planning and portfolio advisory services agreement (“Services Agreement”) with GMR Limited, a British Virgin Island limited liability company (“GMR”), Xsquared Holding Limited, a British Virgin Island limited liability company (“SparkPool”) and Valuefinder, a British Virgin Islands limited liability company (“Valuefinder”) and, together with GMR and SparkPool, the “Service Providers”). Jason Zhang, aone of our board member of the Company,members, is the sole equity holder and manager, of Valuefinder and a related party. Pursuant to the Services Agreement, the Service Providers agreed to provide cryptoasset mining management and analysis and to assist the Companyus in securing difficult to obtain equipment and the Companywe agreed to issue 44,640,8897,440,148 shares of the Company’sour common stock to GMR or its designees, 44,640,8897,440,148 shares of the Company’sour common stock to SparkPool or its designees and 18,938,5593,156,426 shares of the Company’sour common stock to Valuefinder or its designees. Each Service Provider has provided such services to the Companyus which services commenced in June 2021. Each of these Service Providers assisted in the creation of our crypto mining operations, which we then terminated on March 9, 2022. Each of them also advised us in connection with the design and buildout of our co-hosting operations. GMR and SparkPool have since become customers of our co-hosting operations. In July 2021, after clearance of the Company’sour name change by FINRA and receipt of additional information from the Service Providers required by the transfer agent, the Companywe issued 44,640,8897,440,148 shares of the Company’sour common stock to each of GMR and SparkPool and 18,938,5593,156,426 shares of the Company’sour common stock to Jason Zhang, Valuefinder’s designee.
On April 7, 2021, we filed a certificate of amendment to our Articles with the Secretary of State of Nevada, to, among other things, change our name to Applied Blockchain, Inc.
To raise funds to purchase crypto mining equipment and begin building our business, on April 15, 2021, we filed our Articles with the Secretary of State of Nevada, to, among other things, establish Series C Convertible Redeemable Preferred Stock and to file the Certificate of Designations related thereto. Also on April 15, 2021, we entered into that certain placement agent agreement, dated as of April 7, 2021, by and between us and B. Riley Securities, Inc. Pursuant to such agreement, on July 16, 2021 we issued 660,000 shares of Series C Convertible Redeemable Preferred Stock (the “Series C Preferred Stock”) to certain investors for gross proceeds of $16,500,000. We used the net proceeds from the offering, among other things, to purchase cryptoasset mining equipment and pay for co-hosting services from Coinmint, LLC. The Series C Preferred Stock is not subject to the Reverse Stock Split except by adjustment to the conversion price.
Also on April 15, 2021 holders of a majority of the shares of Series A Preferred Stock and Series B Preferred Stock opted to convert such shares which triggered a mandatory conversion of all outstanding Series A Convertible Preferred Stock and Series B Convertible Preferred Stock into an aggregate of 172,591,84928,765,292 shares of our common stock which shares were issued on July 2, 2021. Additionally, on April 15, 2021, we entered into an Exchange Agreement with certain noteholders, including Wes Cummins, our chairman of the Board, chief executive officer, secretary and treasurer, pursuant to which we agreed to exchange all outstanding notes for an aggregate of 30,502,9705,038,827 shares of our common stock, which shares were issued on July 2, 2021.
In June 2021, we entered into a Co-Hosting and Services Agreement with Coinmint, LLC pursuant to which Coinmint hosts certain of our crypto mining equipment. We subsequently took delivery of our crypto mining equipment, installed the equipment at Coinmint’s co-hosting facility and began mining operations in June 2021.
On July 29, 2021, we filed a certificate of amendment to our Articles with the Secretary of State of Nevada, to increase our authorized capital stock to 1,005,000,000 shares (or 171,666,666 shares after giving effect to the Reverse Stock Split) and designate 1,000,000,000 as common stock.stock (or 166,666,666 after giving effect to the Reverse Stock Split). On the same day, we filed with the Secretary of State of Nevada the certificate of designations to establish Series D Convertible Redeemable Preferred Stock (the “Series D Preferred Stock”).
To raise funds to lease or purchase property, purchase and install a physical building on such land to house our co-hosting facility, make deposits for our energy services agreement and purchase additional crypto mining equipment to continue to expand our mining business and build our co-hosting business, on August 4 and 5, 2021, pursuant to that certain placement agent agreement, dated as of July 30, 2021, by and between us and B. Riley Securities, Inc. (the “Placement Agent Agreement”), we issued 1,300,000 shares of Series D Preferred Stock to certain investors for gross proceeds of $32,500,000. On August 25, 2021, pursuant to that certain placement agent agreement, dated as of July 30, 2021, we issued an additional 4,000 shares of Series D Preferred Stock to an investor for gross proceeds of $100,000. On October 7, 2021, we amended the Placement Agent Agreement to extend the duration during which previously unsold shares of Series D Preferred Stock could be sold and issued the remaining 76,000 unsold shares of Series D Preferred Stock to
On January 6, 2022, we and Antpool, an affiliate of Bitmain Technologies Holding Company, entered into a Limited Liability Company Agreement of 1.21 Gigawatts, pursuant to which we own 80% and Antpool owns 20% of 1.21 Gigawatts. 1.21 Gigawatts will develop, acquire, construct, finance, operate, maintain and own one or more Next-Gen datacenters with up to 1.5 GW of capacity for hosting blockchain infrastructure.
During the building of our co-hosting operations, we determined that it would be beneficial to our stockholders to focus more of our resources on building our co-hosting operations than on expanding our mining operations. Accordingly, in December 2021, we began selling our crypto mining equipment. On March 9, 2022, we ceased all crypto mining operations and completed the sale of all crypto mining equipment in service. We still own some mining equipment. However, the equipment is either not online or was previously purchased but has yet to be delivered. We intend to sell this equipment as soon as possible and have no plans to bring the equipment online or use it for mining purposes. We have no plans to return to crypto mining operations in the future.
Our Competitive Strengths
Premier strategic partnerships with leading industry participants. We believe that our partnerships with SparkPool, GMR and Bitmain have provided, and certain partners continue to provide, us with a significant competitive advantage. SparkPool operated one of the largest Ethereum mining pools in the world, and was one of the leading software developers for mining software globally. SparkPool provided us mining software, hardware selection, analytics, and purchasing power. SparkPool also assists us in engineering and designing our sites. SparkPool is currently in the process of shutting down its operations and is assisting us in a transition to a new Ether mining pool manager, Ethermine. We have also entered into a new agreement with SparkPool pursuant to which SparkPool will advise us on operating our own Ether mining pool for our own mining activities and, should we determine to do so in the future, as a service to third parties. GMR has deep crypto mining experience, in particular with Ether and Bitcoin, and advises us, based on its proprietary algorithm, as to distribution of our resources among different cryptoassets to optimize our mining activities in real-time. GMR also provides us with mining asset selection, asset management and trading services. GMR has also been a proponent of our hosting strategy, having signed a contract for approximately 50% of our 100MW capacity as part of our hosting operation under development. Bitmain, our newest partner, provides us with preferred access to Bitcoin mining equipment as well as leads for potential hosting customers. SparkPool, GMR, and Bitmain are each strategic equity investors in our company. Each of these Service Providers assisted in the creation of our crypto mining operations, which we then terminated on March 9, 2022. Each of them also advised us in connection with the design and buildout of our co-hosting operations. GMR, SparkPool and Bitmain have since become customers of our co-hosting operations.
Access to low-cost power with long-term services agreement. One of the main benefits of our Amended and Restated Electric Service Agreement is the low cost of power for mining. Even prior to the crypto mining restrictions in China, power capacity available for Bitcoin mining was scarce, especially at scalable sites with over 100MW+100MW of potential capacity. This scarcity of mining power allows us to realize attractive hosting rates in the current market, in particular given our ability to provide long-term (5-year) hosting contracts. For the first 100MW buildout, we secured 5-years of power from a utility that pre-filled the 100MW of planned capacity before breaking ground.
AccessBenefits of Next-Gen datacenters compared to mining equipment during shortagetraditional datacenters.. Independent Next-Gen datacenters are optimized for large computing power and require more power than traditional datacenters that are optimized for data retention and retrieval. As a result, Next-Gen datacenters are more power intensive than traditional datacenters. Next-Gen datacenters and traditional datacenters also have very different layouts, internet connection requirements and cooling designs to accommodate the different power demands and customer requirements. Traditional datacenters cannot easily convert to Next-Gen datacenter facilities like ours because of our Bitmain partnership, we secured an order for Nvidia GPUs fromthese differences. Geographically, traditional datacenters are at a third-party. The new Bitmain partnership has only reinforced our access to mining equipment, as evidenced by our order through Bitmain for 200PH of mining equipment due latedisadvantage because they require fiber bases, low-latency connections and connection redundancies that are usually found in calendar year 2021. As we continue to scale our operations, we expect to leverage our strategic partnerships in order to ensure that we receive timely access to the highest quality equipment.high-cost areas with high-density populations.
Hosting provides predictable, stickyrecurring revenue and cash flow to complement more volatile mining operations. The financial performance of mining operations is linked to the value of the underlying cryptocurrencies mined, which can result in volatility in financial results. However, through the recently executedour Amended and Restated Electric Service Agreement with a utility in the upper Midwest, we have locked in a ceiling for our energy costs. The Electric Service Agreement has also enabled us to launch our hosting business with long-term customer contracts. Cambridge Bitcoin Electricity Consumption Index reported that as of February 1, 2021 more than 6GW of Bitcoin was mined in China (or $4.3 billion of power cost, assuming $0.08 per kWh average hosting cost). China has since banned cryptoasset mining related activity. We expect much of the demand for hosting locations previously met in China will move to the United States due to its reliable power options. We intend for the steady cash flows generated by our hosting operations to be reinvested into the hosting business or re-deployed into our mining business in order to opportunistically mine the most profitable crypto currencies.business.
the Service Providers required by the transfer agent, the Company issued 44,640,8897,440,148 shares of our common stock to each of GMR and SparkPool and 18,938,5593,156,426 shares of our common stock to Jason Zhang, Valuefinder’s designee. In July 2021, we added a strategic partner, Bitmain Technologies Limited (“Bitmain”), a producer of products for blockchain and artificial intelligence (AI) applications. Bitmain has assisted us in the identification and analysis of other strategic business initiatives.
Company’s Crypto Mining
The strategic relationships between APLD, SparkPool, GMR and Bitmain have provided APLD access to difficult to acquire hardware needed to begin and grow our mining operations and advice about our mining focus and business plans. SparkPool is currently in process of shutting down its operations and is assisting us in a transition to a new Ether mining pool manager, Ethermine. The terms of mining pool management arrangements with SparkPool and Ethermine are substantially similar, not subject to contracts and may be terminated by us at any time. Accordingly, we do not expect any negative adverse effects on our business as a result of the change of Ether mining pool managers. As we purchase Bitcoin mining hardware and establish our co-hosting business, SparkPool’s advice and assistance acquiring Ether mining hardware which were instrumental in our ability to commence our mining business is becoming less significant to us. GMR’s proprietary algorithm optimizes mining in real-time to maximize return on deployment assets. The GMR team provides services to us with respect to mining asset selection, asset management, trading, etc. We have also entered into an agreement with Bitmain Technologies Limited from whom we are purchasing additional mining equipment. Additionally, several of these strategic partners have invested in us and have, or are expected to, become our co-hosting customers.
Company’s Hosting Operations
Valuefinder and Bitmain have provided advice on commencing a co-hosting business in addition to our mining business. On September 12, 2021, we entered into an Amended and Restated Energy Services Agreement with respect to 100 megawatts to be used by us and our co-hosting customers. We have also entered into agreements with several of our Service Providers, or entities introduced to us by them, for our co-hosting services, which will account for greater than 90%100% of the available energy under the Amended and Restated Energy Services Agreement.Agreement available at our first co-hosting facility and 85MW at our second facility once built and subject to an energy services agreement.
In October and November 2021, we formed 1.21 Gigawatts, APLD-Rattlesnake Den I, LLC and APLD-Rattlesnake Den II, LLC in Delaware to develop, acquire, construct, finance, operate, maintain and own one or more datacenters designed for hosting computers, servers and related technology and equipment, including for use in mining or development of cryptoassets, blockchain-based technologies or other encrypted digital public ledgers of transactions.
On January 6, 2022, we and Antpool, an affiliate of Bitmain Technologies Holding Company, entered into a Limited Liability Company Agreement of 1.21 Gigawatts, LLC, pursuant to which we and Antpool contributed $8,000 and $2,000, respectively, and will initially own 80% and 20% of 1.21 Gigawatts, respectively. 1.21 Gigawatts will develop, acquire, construct, finance, operate, maintain and own one or more Next-Gen datacenters with up to 1.5GW of capacity for hosting blockchain infrastructure. We are the managing member of 1.21 Gigawatts and are responsible for all site development, construction and operations of the datacenters. However, certain activities of 1.21 Gigawatts and its subsidiaries require the vote of 90% of the then outstanding units of each such entity. As long as Antpool owns 10% or more of the total issued and outstanding units of 1.21 Gigawatts, Antpool may appoint an individual with industry expertise to serve as an advisor to 1.21 Gigawatts. 1.21 Gigawatts will pay fees to such advisor as reasonably determined by us as managing member. Transfers by members of units of 1.21 Gigawatts are prohibited without approval of 90% of units then outstanding, which consent may be granted or withheld for any reason and transfers of such units to non-affiliates, after obtaining consent, are subject to a right of first refusal of other members to purchase some or all of such units. Additionally, Antpool has the right at any time to convert all or any portion of its 1.21 Gigawatts units into a number of shares of our common stock equal to the capital contributions by Antpool in connection with the acquisition of such units divided by $1.25 (or $7.50, after adjustment for the Reverse Stock Split), which will result in an increase in our ownership percentage of 1.21 Gigawatts.
Future Business Expansion
Our expectations for our future business expansion are:
Fiscal yearCalendar Year 2022
:First-Second Quarter
•
In the third or fourth quarter of fiscal year 2022, complete installation ofWe brought our first facility and have customer equipment andin Jamestown, ND online as to the first 55MW on February 2, 2022.
•
Bring the remaining 45MW online at our own equipment installedfirst facility in our facility, together utilizing 100% of the capacity of the firstJamestown, ND.
•
Lease or purchase land in Texas on or near a wind farm. Enter into an energy services agreement for 200MW colocated with a wind power generating facility.
•
Continue negotiating and entering additionalto enter into customer agreementscontracts for additional capacityour co-hosting services at our second facility and beyond.existing or planned facilities.
•
Begin construction of our second facility and enter into an energy services agreement with respect to such location.
•
Purchase and install additional mining equipment.
•
Assess the state of our mining operations and purchase additional mining equipment if feasible and beneficial. The cryptoasset mining market changes quickly and future expansion of the mining business will depend on then current status of the market and technology.
Fiscal year 2023:Third-Fourth Quarter
•
Complete construction of additional buildings on our Jamestown, ND property, enter into a second facility and install customer equipment and our own equipment in our secondenergy services agreement for an additional 100MW for this facility.
•
Lease or purchase another property in Texas. Enter into an energy services agreement for 200MW of wind power for this facility.
•
Enter into an energy services agreement for 150MW of power in Oklahoma.
•
Enter into an energy services agreement for 180MW of power in North Dakota.
•
Continue to enter into agreements with customers for our co-hosting services at existing or planned facilities.
Calendar Year 2023
•
Enter into agreements with additional customers for any additional capacity not already contracted for at the second facility.existing four and any planned facilities.
•
Begin constructionContinue to lease or purchase additional land on which to construct additional facilities and construct additional facilities to build out the remainder of our third facility.the planned 1.5GW of capacity.
•
Enter into additional energy services agreements with respect to the remainder of the 1.5GW of planned capacity.
Calendar Year 2024 through Calendar Year 2026
•
Enter into agreements with respect to a third co-hosting facility location, installadditional customers for any additional capacity not already contracted for at the facilityexisting and customer equipment.planned facilities.
•
Assess the state of our mining operations and purchase additional mining equipment if feasible and beneficial. The crypto asset mining market changes quickly and future expansion of the mining business will depend on then current status of the market and technology.
Fiscal year 2024 and beyond
•
Continue to expandlease or purchase additional land on which to construct additional facilities and construct additional facilities to build out the number of facilities we operate and our own mining operations. However, the crypto asset mining market changes quickly and future expansion of our business will depend on then current statusremainder of the market and technology.planned 5GW of capacity.
•
We may consider new linesEnter into additional energy services agreements with respect to the remainder of cryptoasset related businesses.the 5GW of planned capacity.
Why EthereumSite Selection Criteria
Our site selection criteria considers geographic diversity, attractive return on investment, and environmental impact.
Geographic Diversity: Geographic diversity minimizes the risk to us of any event in a particular region that may impact our facilities in that geographic area. We expect to choose locations in environments that are policy and regulation friendly, and find sites with less expensive stable energy.
Enables New Version of the Internet: Global distributed computing network and growing demand for permissionless platforms without centralized toll takers.
Use of Non Fungible Tokens (“NFTs”)Attractive Return on Ethereum is rising: represents anything digitally unique and scarce, with current excitement centered around digital art. NFTs are unique and verifiable on the blockchain, they are permanent and programmable and it is a digital ownership that is freely tradable.
Diverse Altcoin Opportunity: there is a multitude of Altcoins that can be mined on the Ethereum network.
Why Bitcoin
Diversifying our Cryptoasset opportunity: Mining Bitcoin in addition to Ether provides us more diversity, allowing us to rely less on one type of cryptoasset and alleviating the risk of our business being unable to continue mining if one platform becomes unusable. For instance, Ethereum may move to a proof of stake consensus mechanism. If that happens, mining Ethereum will become obsolete at which point we can become a validator on the network. Mining Bitcoin allows us to continue mining if and when we stop mining Ether.
Largest Market Cap: Bitcoin has the largest market cap of all cryptocurrency.
AccessInvestment: We expect to achieve attractive return on investments in low-cost renewable assets with strict underwriting standards to achieve targeted returns. Moreover, we aim to have access to Bitcoin mining hardware through our strategic relationshipa balanced mix of high-volume, blue-chip customers and higher margin, smaller scale customers with Bitmain.one anchor blue-chip customer at each facility that has signed a 3 – 5 year long-term contract at each site and filling the rest of the facility with customers with 18 – 36 month terms.
Wide Acceptance:Environmental Impact Bitcoin is the most widely adopted cryptocurrency: We are doing our part to be as environmentally conscious as possible when choosing sites for development by institutional and retail investors.
•
reviewing related party transactions that are material or otherwise implicate disclosure requirements; and
•
approving or, as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm.
Compensation committee
Our compensation committee is comprised of Ms. McDonald, Mr.Ms. Moore and Messrs. Miller and Ms. Moore.Nottenburg. Ms. McDonald is the chairperson of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current NYSE AmericanNasdaq Global Select Market listing standards and SEC rules and regulations. Each member of this committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things:
•
reviewing and approving, or recommending that our Board approve, the compensation and the terms of any compensatory agreements of our executive officers;
•
reviewing and recommending to our Board the compensation of our directors;
•
administering our stock and equity incentive plans;
•
reviewing and approving, or making recommendations to our Board with respect to, incentive compensation and equity plans; and
•
establishing our overall compensation philosophy.
Nominating and corporate governance committee
Our nominating and corporate governance committee is comprised of Ms. Moore, Ms. McDonald and Mr. Hastings. Ms. Moore is the chairperson of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets the requirements for independence under the current NYSE AmericanNasdaq listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things:
•
identifying and recommending candidates for membership on our Board;
•
recommending directors to serve on board committees;
•
reviewing and recommending our corporate governance guidelines and policies;
•
reviewing succession plans for senior management positions, including the chief executive officer;
•
reviewing proposed waivers of the code of business conduct and ethics for directors, executive officers, and employees (with waivers for directors or executive officers to be approved by the Board);
•
evaluating, and overseeing the process of evaluating, the performance of our Board and individual directors; and
•
advising our Board on corporate governance matters.
Board’s Role in Risk Oversight
Our Board of directors is primarily responsible for overseeing our risk management processes. Our Board, as a whole, determines our appropriate level of risk, assesses the specific risks that we face, and
The Cummins Employment Agreement requires Mr. Cummins to devote his full-time efforts to his employment duties and obligations, and provides that Mr. Cummins will be entitled to participate in all benefit plans provided to our employees in accordance with our applicable plan, policy or practices, as well as in any long-term incentive program established by us. It also provides for unlimited annual paid vacation, and reimbursement of reasonable business expenses, and provides that either party may terminate the employment arrangement pursuant to the notice requirements set forth in the Cummins Employment Agreement.
The Cummins Employment Agreement contains restrictive covenants prohibiting Mr. Cummins from disclosing our confidential information at any time, from competing with us in any geographic area where we do business during his employment, and from soliciting our employees, contractors or customers, during his employment and for one year thereafter.
Rench Agreement
David Rench is our Chief Financial Officer. On January 4, 2022, we and Mr. Rench entered into an Employment Agreement, effective as of November 1, 2021 (the “Rench Employment Agreement”).
Pursuant to the Rench Employment Agreement, Mr. Rench receives a base salary of $240,000 per annum, subject to annual review, and shall also be eligible for an annual bonus of up to 75% of his base salary, to be determined at our sole discretion. The term of the Rench Employment Agreement ends on October 31, 2024, with automatic one (1) year extensions unless notice not to renew is given by either party at least 60 days prior to the relevant end date.
The Rench Employment Agreement grants Mr. Rench an incentive award of 166,666 shares of Restricted Stock. The Restricted Stock will vest in accordance with the following schedule:
| Number of Shares | | | Vesting Date* | |
| 83,333 | | | | | 4/1/2022 | | |
| 20,833 | | | | | 7/1/2022 | | |
| 20,833 | | | | | 10/20/311/2022 | | | | 1,500,000 vest on 4/1/22375,000 vest on
each of 7/1/22, 10/1/22, 1/1/23 and
4/1/23 | |
David Rench20,833 | | | | | 1,000,0001/1/2023 | | |
| 20,834 | | | | | 4/1/2023 | | |
*
Shares will vest on such date or the Later Date, if later.
The Rench Employment Agreement requires Mr. Rench to devote forty (40) hours per week to his employment duties and obligations, and provides that Mr. Rench will be entitled to participate in all benefit plans provided to our employees in accordance with our applicable plan, policy or practices, as well as in any long-term incentive program established by us. It also provides for unlimited annual paid vacation, and reimbursement of reasonable business expenses, and provides that either party may terminate the employment arrangement pursuant to the notice requirements set forth in the Rench Employment Agreement.
The Rench Employment Agreement contains restrictive covenants prohibiting Mr. Rench from disclosing our confidential information at any time, from competing with us in any geographic area where we do business during his employment, and from soliciting our employees, contractors or customers, during his employment and for one year thereafter.
Ingel Agreement
Regina Ingel is our Vice President of Operations. On January 4, 2022, we and Ms. Ingel entered into an Employment Agreement, effective as of November 1, 2021 (the “Ingel Employment Agreement”).
Pursuant to the Ingel Employment Agreement, Ms. Ingel receives a base salary of $120,000 per annum, subject to annual review, and shall also be eligible for an annual bonus of up to 50% of her base salary, to be determined at our sole discretion. The term of the Ingel Employment Agreement ends on October 31,
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements discussed in the sections titled “Management” and “Executive Officer and Director Compensation,” the following is a description of each transaction since June 1, 2018 and each currently proposed transaction in which:
•
we have been or are to be a participant;
•
the amount involved exceeded or will exceed $120,000; and
•
any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
During 2009, we entered into notes payable with Mr. Wesley Cummins, our chairman of the Board, chief executive officer, president, secretary and treasurer, for $220,000. The notes had accrued interest of approximately $713,000$779,459 as of May 31, 2021. On April 15, 2021, we entered into an Exchange Agreement, with Mr. Cummins and the other holders of notes, pursuant to which we agreed to exchange the Notes for shares of our common stock. On July 7, 2021, we issued 14,277,9862,379,664 shares of our common stock to Mr. Cummins in satisfaction of the Exchange Agreement.
In March 2021, we executed a strategy planning and portfolio advisory services agreement (“Services Agreement”) with GMR Limited, a British Virgin Island limited liability company (“GMR”), Xsquared Holding Limited, a British Virgin Island limited liability company (“SparkPool”) and Valuefinder, a British Virgin Islands limited liability company (“Valuefinder”) and, together with GMR and SparkPool, the “Service Providers”). Jason Zhang, one of our board members, is the sole equity holder and manager, of Valuefinder and a related party. Pursuant to the Services Agreement, the Service Providers agreed to provide cryptoasset mining management and analysis and to assist us in securing difficult to obtain equipment and we agreed to issue 44,640,8897,440,148 shares of our common stock to GMR or its designees, 44,640,8897,440,148 shares of our common stock to SparkPool or its designees and 18,938,5593,156,426 shares of our common stock to Valuefinder or its designees. Each Service Provider has provided such services to us which services commenced in June 2021. In July 2021, after clearance of our name change by FINRA and receipt of additional information from the Service Providers required by the transfer agent, the Companywe issued 44,640,8897,440,148 shares of our common stock to each of GMR and SparkPool and 18,938,5593,156,426 shares of our common stock to Jason Zhang, Valuefinder’s designee.
In 2009, certain affiliates of B. Riley Securities, Inc., including members of senior management, purchased preferred shares of, and funded certain loans to, us. Such shares and loans have been converted into an aggregate of approximately 3.6 million shares of our common stock. In April 2021, certain employees of B. Riley Securities, Inc. purchased an aggregate of 67,400 shares of our Series C Preferred Stock. B. Riley Securities, Inc. provided investment banking services in connection with the offering of our Series C Preferred Stock. Additionally, in July 2021, certain employees of B. Riley Securities, Inc. purchased an aggregate of 85,960 shares of our Series D Preferred Stock. B. Riley Securities, Inc. provided investment banking services in connection with the offering of our Series D Preferred Stock. Our Series C Preferred Stock and Series D Preferred Stock are not subject to the Reverse Stock Split except by adjustment to each of their conversion prices.
Mr. Cummins, our Chairman of the Board, CEO, President, Secretary and Treasurer founded, and served as CEO of, 272 Capital LP, a registered investment advisor, which he sold to B. Riley Financial, Inc. (Nasdaq: RILY) in August 2021. Following the sale, Mr. Cummins became President of B. Riley Asset Management. Mr. Cummins intends to spend at least 40 hours per week on our business.
Review, Approval, or Ratification of Transactions with Related Parties
In July 2021, we adopted a charter of the audit committee, pursuant to which all related party transactions including those between us, our directors, executive officers, majority stockholders and each of our respective affiliates or family members will be reviewed and approved by our audit committee, or if no audit committee exists, by a majority of the independent members of our Board. Our existing policies are designed to comply with applicable rules and regulations of the SEC and the listing requirements and rules of the NYSE American.Nasdaq.
| | | | | | | | Percentage beneficially owned | | | Before Offering | | After Offering | |
Name and Address(a) | | Total (Common As-if Preferred
was Converted) | | Before offering(1) | | After offering(2) | | | Total Common | | Percentage
Beneficially
Owned | | Total
Common | | Percentage
Beneficially
Owned | |
GMR Limited
Trinity Chamber
PO BOX 4301
Tortola
British Virgin Islands | | | | 44,640,889(e) | | | | | 8.46% | | | | | 8.46% | | | |
Guo Chen
c/o GMR Limited
Trinity Chamber
PO BOX 4301
Tortola
British Virgin Islands | | | | | 7,440,148(l) | | | | | 8.16% | | | | | 7,440,148(l) | | | | | 7.46% | | |
*
Less than 1%.
(a)
Unless otherwise indicated, the business address of each person or entity named in the table is c/o Applied Blockchain, Inc., 3811 Turtle Creek Blvd., Suite 2100, Dallas, TX 75219.
(b)
Includes (i) 105,541,42817,590,238 shares of common stock held by Cummins Family Ltd, of which Mr. Cummins is the CEO, and (ii) 4,453,000742,166 shares of common stock held by Wesley Cummins IRA Account.Account and (iii) 500,000 shares of restricted common stock held directly by Mr. Cummins, of which 250,000 will vest on April 1, 2022, or, if later, the date a registration statement including the resale of such shares is declared effective by the SEC (the “Later Date”), and 62,500 will vest on each of July 1, 2022, October 1, 2022, January 1, 2023 and April 1, 2023, or in each case, if later, the Later Date.
(c)
Includes 166,666 shares of restricted common stock held directly by Mr. Rench, of which 83,333 will vest on April 1, 2022 or, if later, the Later Date, 20,833 will vest on each of July 1, 2022, October 1, 2022, January 1, 2023 and 20,834 will vest on April 1, 2023, or in each case, if later, the Later Date.
(d)
Includes 100,000 shares of restricted common stock held directly by Mr. Hastings, 50,000 of which will vest on each of (i) 357,455April 1, 2022 or, if later, the Later Date and (ii) April 1, 2023.
(e)
Includes 100,000 shares of restricted common stock held directly by Ms. McDonald, 50,000 of which will vest on each of (i) April 1, 2022 or, if later, the Later Date and (ii) April 1, 2023.
(f)
Includes 100,000 shares of restricted common stock held directly by Mr. Miller, 50,000 of which will vest on each of (i) April 1, 2022 or, if later, the Later Date and (ii) April 1, 2023.
(g)
Includes (i) 155,000 shares of common stock, and 458,163 shares of common stock issuable upon conversion of 46,560 shares of our Series D Preferred Stock, including PIK Dividends accrued through the effective date of our Resale Registration Statement, held or issuable toby B. Riley Securities, Inc., of which Andrew Moore, Ms. Moore’s spouse, is the Chief Executive Officer, of which 2,645,455 shares of common stock issuable upon the conversion of 46,560 shares of Series D Preferred Stock and (ii) 136,36423,617 shares of common stock issuable upon the conversion of 2,400 shares of Series D Preferred Stock, including PIK Dividends accrued through the effective date, held directly by Mr. Moore.Moore, (iii) 194,000 shares of common stock issuable upon conversion of 5,600 shares of Series C Preferred Stock, including PIK Dividends accrued through the effective date, held directly by Mr. Moore and (iv) 100,000 shares of restricted common stock held directly by Ms. Moore, 50,000 of which will vest on each of (i) April 1, 2022 or, if later, the Later Date and (ii) April 1, 2023.
(d)(h)
Includes 100,000 shares of restricted common stock held directly by Dr. Nottenburg, 50,000 of which will vest on each of (i) April 1, 2022 or, if later, the Later Date and (ii) April 1, 2023.
(i)
Includes 100,000 shares of restricted common stock held directly by Mr. Zhang, 50,000 of which will vest on each of (i) April 1, 2022 or, if later, the Later Date and (ii) April 1, 2023.
(j)
Includes 100,000 shares of restricted common stock held directly by Ms. Ingel, of which 50,000 will vest on April 1, 2022 or, if later, the Later Date and 12,500 will vest on each of July 1, 2022, October 1, 2022, January 1, 2023 and April 1, 2023, or in each case, if later, the Later Date.
(k)
Xin Xu, as sole director of Xsquared Holding Limited, has voting and dispositive power over the 44,640,8897,440,148 shares of our common stock held by Xsquared Holding Limited. Mr. Xu disclaims beneficial ownership of such shares.
(e)(l)
Guo Chen, as sole director of GMR Limited, has voting and dispositive power over the 44,640,8897,440,148 shares of our common stock held by GMR Limited. Mr. Chen disclaims beneficial ownership of such shares.
![[MISSING IMAGE: lg_appliedblock-bwlr.jpg]](https://files.docoh.com/S-1A/0001104659-22-044841/lg_appliedblock-bwlr.jpg)