APPLIED BLOCKCHAIN, INC. – 10-K – Management’s Discussion and Analysis of Financial Condition and Results of Operations – InsuranceNewsNet

You ought to learn the next dialogue and evaluation of our monetary situation
and outcomes of operations along with our consolidated monetary statements
and the associated notes showing elsewhere on this Annual Report on type 10-K.
Some of the data contained on this dialogue and evaluation or set forth
elsewhere on this Annual Report, together with data with respect to our plans
and technique for our enterprise, consists of forward-looking statements that contain
dangers and uncertainties. You ought to learn the sections titled "Risk Factors" and
"Forward-Looking Statements" for a dialogue of vital elements that might
trigger precise outcomes to vary materially from the outcomes described in or
implied by the forward-looking statements contained within the following dialogue
and evaluation.
Business Overview

We design, construct, and function Next-Gen datacenters that are designed to offer
huge computing energy and assist high-compute functions. Our first
facility was constructed in North Dakota with 100 MW of capability. We signed an
vitality providers settlement with a utility to energy this facility. We present
energized area for purchasers to host computing gear. Initially, these
datacenters will primarily host servers securing the Bitcoin community, however these
amenities may host {hardware} for different functions corresponding to synthetic
intelligence, protein sequencing, drug discovery, machine studying and
further blockchain networks and functions. We are mid-construction on our
second facility in Garden City, Texas, and are within the growth stage of the
Company's third facility, situated in North Dakota. We have a colocation enterprise
mannequin the place our prospects place {hardware} they personal into our amenities and we
present full operational and upkeep providers for a set price. We usually
enter into long-term fastened fee contracts with our prospects.

Trends and Uncertainties
Regulatory Matters

Our prospects' companies are topic to intensive legal guidelines, guidelines, rules,
insurance policies and authorized and regulatory steerage, together with these governing
securities, commodities, cryptoasset custody, alternate and switch, knowledge
governance, knowledge safety, cybersecurity and tax. Many of these authorized and
regulatory regimes have been adopted previous to the appearance of the Internet, cell
applied sciences, cryptoassets and associated applied sciences. As a outcome, they don't
ponder or handle distinctive points related to the crypto economic system, are
topic to important uncertainty, and fluctuate broadly throughout U.S. federal, state
and native and worldwide jurisdictions. These authorized and regulatory regimes,
together with the legal guidelines, guidelines and rules thereunder, evolve regularly and could
be modified, interpreted and utilized in an inconsistent method from one
jurisdiction to a different, and could battle with each other. Moreover, the
complexity and evolving nature of our enterprise and the numerous uncertainty
surrounding the regulation of the crypto economic system requires us to train our
judgement as as to if sure legal guidelines, guidelines and rules apply to us or our
prospects, and it's potential that governmental our bodies and regulators could
disagree with our or our prospects' conclusions.

To the extent we or our prospects haven't complied with such legal guidelines, guidelines and
rules, we may very well be topic to important fines and different regulatory
penalties, which might adversely have an effect on our enterprise, prospects or
operations. As cryptoassets have grown in reputation and in market dimension, the
Federal Reserve Board, U.S. Congress and sure U.S. businesses (e.g., the
Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement
Network and the Federal Bureau of Investigation) have begun to look at the
operations of cryptoasset networks, cryptoasset customers and cryptoasset alternate
markets. Other nations world wide are likewise reviewing and, in some
circumstances, rising regulation of the cryptoasset trade. For occasion, on
September 24, 2021, China imposed a ban on all crypto transactions and mining.

Ongoing and future regulatory actions might successfully forestall our prospects'
mining operations and our ongoing or deliberate co-hosting operations, limiting or
stopping future income era by us or rendering our operations and
crypto mining gear out of date. Such actions might severely affect our skill
to proceed to function and our skill to proceed as a going concern or to
pursue our technique in any respect, which might have a fabric antagonistic impact on our
enterprise, prospects or operations.


                                       21
--------------------------------------------------------------------------------

Hosting Operation Highlights

On January 6, 2022, we and Antpool Capital Asset Investment, L.P., an affiliate
of Bitmain Technologies Holding Company, entered right into a three way partnership within the
type of 1.21 Gigawatts, LLC, pursuant to which we and Antpool contributed $8
million and $2 million, respectively, and will initially personal 80% and 20% of 1.21
Gigawatts, respectively. 1.21 Gigawatts will develop, purchase, assemble,
finance, function, preserve and personal a number of Next-Gen datacenters with
initially as much as 1.5GW of capability for internet hosting blockchain infrastructure. We are
the managing member of 1.21 Gigawatts and are liable for all web site
growth, building and operations of the datacenters. However, sure
actions of 1.21 Gigawatts and its subsidiaries, if any, require the vote of
90% of the then excellent items of every such entity. As lengthy as Antpool owns
10% or extra of the overall issued and excellent items of 1.21 Gigawatts, Antpool
could appoint a person with trade experience to function an advisor to 1.21
Gigawatts. 1.21 Gigawatts can pay charges to such advisor as fairly decided
by us as managing member. Transfers by members of items of 1.21 Gigawatts are
prohibited with out approval of 90% of items then excellent, which consent could
be granted or withheld for any motive and transfers of such items to
non-affiliates, after acquiring consent, are topic to a proper of first refusal
of different members to buy some or all of such items. Additionally, Antpool
has the proper at any time to transform all or any portion of its 1.21 Gigawatts
items right into a quantity of shares of our Common Stock equal to the capital
contributions by Antpool in reference to the acquisition of such items
divided by $7.50, which is able to lead to a rise in our possession proportion
of 1.21 Gigawatts.

On February 2, 2022, we introduced our first North Dakota facility on-line as to the
preliminary 55 MW, and as of May 31, 2022, there was roughly 90 MW of energy
on-line at this facility.

Sale of Crypto Mining Equipment
On March 9, 2022, we ceased all crypto mining operations and accomplished the sale
of all crypto mining gear in service. Total proceeds from the sale of the
gear have been $1.6 million. We acknowledged a loss of $2.9 million within the sale of
the gear throughout the quarter and 12 months ended May 31, 2022. We don't have any plans
to return to crypto mining operations sooner or later as we develop our co-hosting
operations. The outcomes of our crypto mining operations have been accounted for
as discontinued operations in our consolidated monetary statements as of and
for the 12 months ended May 31, 2022. This resolution could lower liquidity and our
obtainable capital assets, which can adversely have an effect on us.

Expansion Opportunities

On November 24, 2021, we entered right into a letter of intent to develop a facility
in Texas utilizing 200 MW of wind energy. On April 13, 2022, the Company entered into
a 99-year floor lease in Garden City, TX, with the intent to construct our second
datacenter facility on this web site. On April 25, 2022 the Company started
building on this web site. This facility is collocated with a wind farm and upon
completion is predicted to offer 200 MW of energy to internet hosting prospects. The
facility is predicted to start working in calendar This fall of 2022 and the 200 MW
capability is totally contracted with our prospects.

As our internet hosting operations increase, we consider our enterprise construction will develop into
conducive to a REIT construction, akin to Digital Realty Trust (NYSE: DLR) and
Equinix, Inc. (NASDAQ: EQIX), every of which is a conventional datacenter operator
and Innovative Industrial Properties, Inc. (NYSE: IIPR), a specialty REIT that
equally providers a brand new progress trade. We have begun to analyze the
chance, prices and advantages of changing to a REIT construction.

Public Offering and Changes to Equity

On August 13, 2021, the Company filed a registration assertion for the resale by
sure promoting stockholders of shares of Common Stock with the SEC (Reg. No.
333-258818) (the "Resale Registration Statement") and obtained a discover of
effectiveness for such registration assertion on April 12, 2022. On November 22,
2021, the Company filed a registration assertion for the sale by the Company of
shares of Common Stock with the SEC (Reg. No. 333-261278) (the "IPO Registration
Statement") and obtained a discover of effectiveness for such registration
assertion on April 12, 2022. On April 11, 2022, the Company filed a registration
assertion for the Common Stock
                                       22
--------------------------------------------------------------------------------

below the Securities Exchange Act of 1934, as amended, with the SEC which turned
efficient routinely on April 12, 2022.

On April 12, 2022, concurrent with receipt of the discover of effectiveness for
the Resale Registration Statement, all excellent shares of Series C Preferred
Stock and Series D Preferred Stock have been routinely transformed (with out cost
of further consideration) into totally paid and non-assessable shares of Common
Stock, per the Series C and Series D Preferred Stock phrases. All
rights with respect to the Series C and Series D Preferred Stock terminated upon
conversion.

The Company's board of administrators accepted a reverse cut up of shares of the
Company's frequent inventory on a one-for-six foundation, which was effected on April 12,
2022 (the "Reverse Stock Split"). All references to Common Stock, choices to
buy frequent inventory, restricted inventory items, share knowledge, per share knowledge and
associated data contained within the condensed consolidated monetary statements
have been retrospectively adjusted to mirror the impact of the Reverse Stock
Split for all intervals offered. No fractional shares of the Company's frequent
inventory have been issued in reference to the Reverse Stock Split. Any fractional
share ensuing from the Reverse Stock Split was rounded right down to the closest
complete share and the affected holder obtained money in lieu of such fraction
share. Any fractional share ensuing from the Reverse Stock Split was rounded
right down to the closest complete share.

On April 13, 2022, the Company introduced its preliminary public providing of 8
million shares of its Common Stock at $5.00 per share. The shares started buying and selling
on the Nasdaq Global Select Market on April 13, 2022, below the ticker image
"APLD."

On April 18, 2022, the Company accomplished its preliminary public providing. The web
proceeds obtained by the Company from the providing (after deducting underwriting
reductions and fee and estimated providing bills) have been roughly $36
million. The Company intends to make use of the web proceeds to lease or buy
further property on which to construct further co-hosting amenities, to
assemble these amenities, to enter into further vitality service agreements
for every further web site and for funding its working capital and normal
company functions.

Loans

On March 11, 2022, the Company and Applied Hosting, LLC ("Hosting"), a
wholly-owned subsidiary of the Company, entered right into a time period mortgage settlement (the
"VBT Loan Agreement") by and amongst Hosting, because the borrower, Vantage Bank Texas,
as lender (the "VBT Lender") and the Company as guarantor. Pursuant to the Loan
Agreement, on March 11, 2022, Hosting entered right into a promissory notice settlement
(the " VBT Note") and borrowed $7.50 million for a 5 (5)) 12 months time period with an
rate of interest of 5 p.c (5%) every year (the "VBT Term Loan"). The proceeds
of the VBT Term Loan have been used for working capital wants for the operation of
Phase I of the internet hosting facility in Jamestown, North Dakota (the "Property").

The VBT Loan Agreement and VBT Note comprise customary representations and
warranties and occasions of default. In addition, the VBT Note accommodates sure
affirmative and unfavourable covenants and different phrases and situations for a facility
of this sort.

Also on March 11, 2022, the Company entered into a unbroken warranty settlement
(the "VBT Guaranty Agreement") with the VBT Lender, pursuant to which the
Company agreed to warranty Hosting's indebtedness and obligations below the VBT
Loan Agreement. The VBT Term Loan is secured by a mortgage on the Property
pursuant to a Mortgage, Security Agreement and Fixture Financing Statement (the
"VBT Mortgage"), dated March 11, 2022, by and between Hosting and the VBT
Lender, and a safety curiosity within the all accounts receivable, rents and
servicing agreements referring to the property and gear as set forth in or
required by the VBT Loan Agreement.

On July 25, 2022, Hosting entered right into a Loan Agreement with Starion Bank (the
"Starion Lender") and the Company as Guarantor (the "Starion Loan Agreement").
The Starion Loan Agreement offers for a time period mortgage (the "Starion Loan") within the
principal quantity of $15.0 million with a maturity date of July 25, 2027. The
Starion Loan Agreement accommodates customary covenants, representations and
warranties and occasions of default.
                                       23
--------------------------------------------------------------------------------

Advances on the Starion Loan shall not exceed the principal complete of $15.0
million. The first advance on the Starion Loan was made on the time the Loan was
entered into and was to not exceed 80% of the overall principal quantity of the
Loan, or $12.0 million. The remaining 20% stability of this Loan shall be
obtainable for advance following Borrower’s proof of 100% meant working
capability of the Property.

The Starion Loan Agreement offers for an rate of interest of 6.50% every year. The
proceeds of the Starion Loan will likely be used for (i) compensation of present
indebtedness below the VBT Loan Agreement and (ii) working capital wants and
normal company functions.

The City of Jamestown, North Dakota and Stutsman County's Economic Development
Fund offers a multimillion-dollar financial growth program, obtainable to
help with increasing or relocating companies. As half of monetary packages,
the Jamestown Stutsman Development Corporation (JSDC) makes direct loans, fairness
investments, and curiosity buy-downs to companies. Contingent upon such
incentives, the Company expects the efficient rate of interest of the Loan to be
lower than 6.50% every year after totally different state funds are utilized to the Loan,
pending remaining approval.

The Starion Loan is secured by a mortgage on the Property, and a safety
curiosity within the considerably all of the property of Hosting as set forth within the
Security Agreement dated as of July 25, 2022 by and between Hosting and the
Starion Lender (the "Hosting Starion Security Agreement") and a safety
curiosity within the type of a collateral task of Company's rights and
pursuits in a grasp internet hosting settlement associated to the Property and information and
knowledge relating thereto as set forth within the Security Agreement dated as of July
25, 2022 by and amongst Hosting, the Company, as Grantor, and the Starion Lender
(the "Company Starion Security Agreement"). In addition, the Company
unconditionally assured Hosting's obligations to the Starion Lender,
together with below the Starion Loan, pursuant to an Unlimited Commercial Corporate
Guaranty of the Company dated as of July 25, 2022.

On August 5, 2022, the VBT Term Loan was paid off in full and the VBT Term Loan
Agreement and the related VBT Mortgage have been terminated.

Results of Operations for the fiscal 12 months ended May 31, 2022 (fiscal 12 months 2022)
in comparison with fiscal 12 months ended May 31, 2021

                                       24
--------------------------------------------------------------------------------

                                                                                         Fiscal Year Ended
                                                                         May 31, 2022         May 31, 2021

Hosting income                                                       $      8,549          $         -

Cost of revenues                                                      $      9,506          $         -
Gross loss                                                            $       (957)         $         -

Costs and bills:
Selling, normal and administrative                                   $      7,555          $       332
Stock-based compensation                                                    12,337                    -
Depreciation and amortization                                                   49                    -
Total prices and bills                                              $     19,941          $       332
Operating loss                                                        $    (20,898)         $      (332)

Other (expense) earnings:
Interest expense                                                      $       (112)         $      (236)
Gain on extinguishment of accounts payable                                     406                    -
Loss on extinguishment of debt                                              (1,342)                   -

Total different expense                                                   $     (1,048)         $      (236)
Net loss from persevering with operations earlier than earnings tax bills             (21,946)                (568)
Income tax bills                                                           (540)                   -
Net loss from persevering with operations                                   $    (22,486)         $      (568)
Net loss from discontinued operations, web of earnings taxes                  (1,044)                   -
Net Loss together with noncontrolling pursuits                                (23,530)                (568)
Net Loss attributable to noncontrolling curiosity                                10                    -
Net loss attributable to Applied Blockchain                                (23,520)                (568)

Adjusted Amounts (a)
Adjusted Operating Loss from Continuing Operations                           $(6,222)               $(332)
Adjusted Operating Margin from Continuing Operations                         (72.8) %                 -  %
Adjusted Net Loss from Continuing Operations                                 $(7,810)               $(568)
Other Financial Data (a)
EBITDA                                                                      $(20,714)               $(332)
as a proportion of revenues                                                 (242.3) %                 -  %
Adjusted EBITDA                                                              $(6,038)               $(332)
as a proportion of revenues                                                  (70.6) %                 -  %


(a) Adjusted Amounts and Other Financial Data are non-GAAP efficiency measures.
A reconciliation of reported quantities to adjusted quantities will be discovered within the
"Non-GAAP Measures and Reconciliation" part of the MD&A.

Revenues

Hosting revenues elevated $8.5 million, or 100%, from the 12 months ended May 31,
2021 to May 31, 2022. Hosting revenues for the quarter-ended May 31, 2021 have been
$0, in comparison with $7.5 million for the quarter-ended May 31, 2022 The enhance in
internet hosting revenues was pushed by our completion of our first internet hosting facility in
Jamestown, North Dakota, which was introduced on-line in phases between the third
and fourth fiscal quarters of fiscal 12 months 2022.

Cost of Revenues

Cost of revenues elevated $9.5 million, or 100%, from the 12 months ended May 31,
2021 to May 31, 2022. The enhance in price of revenues was primarily pushed by
the initiation of our Co-hosting enterprise in fiscal 12 months 2022, which characterize
all of our persevering with operations. Cost of revenues for the 12 months ended May 31,
2022 consists of $986,000 of depreciation and amortization expense attributable
to the property, plant and gear at our Jamestown, ND
                                       25
--------------------------------------------------------------------------------

internet hosting facility, $8.1 million of vitality prices used to generate our internet hosting
revenues, and $414,000 of personnel bills for workers immediately working at
the internet hosting facility.

Operating Expenses

Selling, normal and administrative expense elevated $7.2 million, or 2177%,
from the 12 months ended May 31, 2021 to May 31, 2022. This enhance is pushed by the
initiation of our co-hosting enterprise in fiscal 12 months 2022, which represents our
sole persevering with operations. The two major drivers of Selling, normal and
administrative expense are $2.3 million of worker salaries and advantages
expense, and $2.4 million of skilled service bills incurred to assist
the expansion of the enterprise.

Stock-based compensation for service settlement elevated $12.3 million, or 100%,
from the 12 months ended May 31, 2021 to May 31, 2022. The expense was associated to our
service agreements with strategic companions, who supplied advisory and consulting
providers in alternate for shares of frequent inventory we issued to them. These
providers have been totally rendered inside the first quarter of fiscal 12 months 2022.

Other Expense

Interest expense decreased by $124,000, or 52%, from the 12 months ended May 31, 2021
to May 31, 2022. This lower was pushed by the change in our debt obligations.
Interest expense for the 12 months ended May 31, 2021 was incurred on associated occasion
notes, which bore curiosity at a annual fee of 16%. These notes have been
extinguished by means of a conversion to frequent inventory which occurred on June 12,
2021. Interest expense in fiscal 12 months 2022 pertains to our VBT Term Loan which we
entered into on March 11, 2022.

Loss on extinguishment of debt elevated $1.3 million, or 100% from the 12 months
ended May 31, 2021 to May 31, 2022. This enhance was pushed by the
extinguishment of our associated occasion notes payable by conversion to frequent inventory.
The extinguishment loss displays the distinction within the carrying worth of the
notes and accrued curiosity and the honest worth of the frequent inventory issued in
alternate for the debt.

Income tax expense elevated by $540,000, or 100% from the 12 months ended May 31,
2021 to May 31, 2022. This enhance is a outcome of the graduation of our
internet hosting operations within the third quarter of fiscal 12 months 2022.

Loss from Discontinued Operations

Beginning within the quarter ended August 31, 2021 (the primary quarter of fiscal 12 months
2022), we started cryptoasset mining operations, utilizing Nvidia GPU miners which we
hosted at a facility operated by Coinmint. In fiscal 12 months 2022, we made the
strategic resolution to discontinue our mining operations and deal with internet hosting
operations sooner or later. As a outcome of this strategic shift, our mining
operations have been reclassified as discontinued operations.

Loss from discontinued operations totaled $1.0 million for the year-ended May
31, 2022, and consists of $3.0 million of mining revenues and a $1.2 million
achieve on the acquisition and subsequent resale of miners, offset by $1.6 million of
recurring mining prices and $393,000 in cryptocurrency impairment expenses, and
losses of $2.9 million and $327,000 within the write-down of mining property and
property bought from Bitmain, respectively, because of this of presenting these
property as held-for sale inside discontinued operations. As of May 31, 2022, the
Company now not generates revenues from mining operations.











                                       26

--------------------------------------------------------------------------------

Non-GAAP Measures
                                                     Fiscal Year Ended                                      Quarter Ended
$ in 1000's                              May 31, 2022             May 31, 2021               May 31, 2022               May 31, 2021
Adjusted Operating Loss
Operating loss from persevering with
operations (GAAP)                                  $(20,898)                  $(332)                      $(4,266)                  $(332)
Add: Stock-based compensation for
service settlement                                     12,337                       -                             -                       -
Add: Gain on extinguishment of accounts
payable                                                (406)                       -                             -                       -
Add: Loss on extinguishment of debt                    1,342                       -                             -                       -
Add: Non-recurring skilled service
prices                                                  1,310                       -                           240                       -
Add: Other non-recurring bills                         93                       -                            93                       -
Adjusted Operating Loss from persevering with
operations (Non-GAAP)                               $(6,222)                  $(332)                      $(3,933)                  $(332)
Adjusted working margin from
persevering with operations                               (72.8) %                    -  %                      (52.3) %                    -  %

Adjusted Net Loss
Net loss from persevering with operations
(GAAP)                                             $(22,486)                  $(568)                      $(4,643)                  $(345)
Add: Stock-based compensation for
service settlement                                     12,337                       -                             -                       -
Add: Gain on extinguishment of accounts
payable                                                (406)                       -                             -                       -
Add: Loss on extinguishment of debt                    1,342                       -                             -                       -
Add: Non-recurring skilled service
prices                                                  1,310                       -                           240                       -
Add: Other non-recurring bills                         93                       -                            93                       -
Adjusted Net Loss from persevering with
operations (Non-GAAP)                               $(7,810)                  $(568)                      $(4,310)                  $(345)

EBITDA and Adjusted EBITDA
Net loss from persevering with operations
(GAAP)                                             $(22,486)                  $(568)                      $(4,643)                  $(345)
Add: Interest expense                                    112                     236                           112                      13
Add: Income tax expense                                  540                       -                           266                       -
Add: Depreciation and amortization                     1,120                       -                           875                       -
EBITDA (non-GAAP)                                  $(20,714)                  $(332)                      $(3,390)                  $(332)
Add: Stock-based compensation for
service settlement                                     12,337                       -                             -                       -
Add: Gain on extinguishment of accounts
payable                                                (406)                       -                             -                       -
Add: Loss on extinguishment of debt                    1,342                       -                             -                       -
Add: Non-recurring skilled service
prices                                                  1,310                       -                           240                       -
Add: Other non-recurring bills                         93                       -                            93                       -
Adjusted EBITDA (Non-GAAP)                          $(6,038)                  $(332)                      $(3,057)                  $(332)



EBITDA and Adjusted EBITDA

"EBITDA" is outlined as earnings earlier than curiosity, taxes, and depreciation and
amortization. "Adjusted EBITDA" is outlined as EBITDA adjusted for stock-based
compensation, achieve on extinguishment of accounts payable, loss on extinguishment
of debt, one-time skilled service prices in a roundabout way associated to the
firm's providing and due to this fact not deferred below the steerage in ASC 340 and
SAB Topic 5A, and different one-time bills. These prices have been adjusted as
they don't seem to be indicative of enterprise operations. Adjusted EBITDA is meant as a
supplemental measure of Applied Blockchain's efficiency that's neither
required by, nor offered in accordance with, GAAP. Applied Blockchain believes
that the use of EBITDA and Adjusted EBITDA offers an extra instrument for
traders to make use of in evaluating ongoing working outcomes and traits and in
evaluating its monetary measures with these of comparable firms, which can
current comparable non-GAAP monetary measures to traders. However, you have to be
conscious that when evaluating EBITDA and Adjusted EBITDA, Applied Blockchain could
incur future bills just like these excluded when calculating these measures.
In addition, Applied Blockchain's presentation of these measures shouldn't be
construed as an inference that its future outcomes will likely be unaffected by uncommon
or non-recurring objects. Applied Blockchain's computation of Adjusted EBITDA could
not be corresponding to
                                       27
--------------------------------------------------------------------------------

different equally titled measures computed by different firms, as a result of all
firms could not calculate Adjusted EBITDA in the identical trend.

Because of these limitations, EBITDA and Adjusted EBITDA shouldn't be
thought-about in isolation or as an alternative choice to efficiency measures calculated
in accordance with GAAP. Applied Blockchain compensates for these limitations by
relying totally on its GAAP outcomes and utilizing EBITDA and Adjusted EBITDA on a
supplemental foundation. You ought to evaluate the reconciliation of web loss to EBITDA
and Adjusted EBITDA beneath and not depend on any single monetary measure to
consider Applied Blockchain's enterprise.

Liquidity and Capital Resources

Sources of Liquidity

We have generated money from the sale of our fairness securities, the sale of Ether
generated from our discontinued mining operations, and the receipt of
contractual deposits, income and pre-payments from internet hosting prospects, and
proceeds from loans. Since December 2020, after we started planning to accumulate or
construct an operational enterprise, now we have raised mixture gross proceeds of $51
million from issuances of our convertible most popular inventory. On April 15, 2021, we
obtained $16.5 million in gross proceeds from the issuance of our Series C
Convertible Redeemable Preferred Stock and on July 30, 2021, we obtained $34.5
million in gross proceeds from the issuance of our Series D Preferred Stock.

On April 18, 2022, we obtained $40.0 million in gross proceeds from the issuance
of 8 million shares of the Company's Common Stock at the side of the
closing of our preliminary public providing. During the 12 months ended May 31, 2021, we
didn't generate any income from crypto mining, co-hosting or in any other case. We
have incurred web losses from operations. In June 2021, because of this of
graduation of our crypto mining operations, we started to generate income. As
of May 31, 2022 and May 31, 2021, we had money of $46.3 million and $11.8 million
respectively, and an collected deficit of $56.1 million and $21.6 million,
respectively. On March 11, 2022, we entered into the VBT Loan Agreement for $7.5
million for a time period of 5 years with an rate of interest of 5% every year. On
August 5, 2022, the VBT Term Loan was paid off in full and the VBT Term Loan
Agreement and the related VBT Mortgage have been terminated.

On July 25, 2022, Hosting entered into the Starion Loan Agreement. The Starion
Loan Agreement offers for the Starion Loan within the principal quantity of $15
million with a maturity date of July 25, 2027. The Starion Loan Agreement
accommodates customary covenants, representations and warranties and occasions of
default, and offers for an rate of interest of 6.50% every year.

Funding Requirements

Having ceased our operations in 2014, now we have skilled web losses by means of our
fiscal 12 months ended May 31, 2022. Our transition to profitability depends on
the profitable operation of our co-hosting amenities. We consider that quantities
we obtained from our April 2021 and July 2021 gross sales of convertible most popular
inventory, from our crypto mining operations, previous to cessation of such operations
on March 9, 2022, proceeds from time period mortgage, proceeds from our preliminary public
providing, and income now we have begun to realize in our co-hosting operations
since our first co-hosting facility was introduced on-line as to 92MW as of May 31,
2022, after deliberate expenditures to construct our co-hosting operations, will likely be
enough to satisfy our working capital wants for a minimum of the following 12 months.

We anticipate that our normal and administrative bills and our working
expenditures will proceed to extend as we proceed to increase our operations
and as we bear the prices of being a public firm. We anticipate important
will increase in our funding in property and gear as we increase our
co-hosting capability. We additionally anticipate that our revenues will enhance as we
proceed to carry on-line further capability, notably at our Jamestown, ND,
and Garden City, TX places. We anticipate to want further capital to fund
continued progress, which we could acquire by means of a number of fairness choices, debt
financings or different third-party funding. Because of the quite a few dangers and
uncertainties related to the crypto mining trade, we're unable to
estimate the quantity of elevated
                                       28
--------------------------------------------------------------------------------

capital we may have to lift to proceed to construct further co-hosting
amenities and we could use our obtainable capital sooner that we at the moment anticipate.

We consider that our present money, along with the anticipated revenues from
present operations and debt funding alternatives, will allow us to fund our
working expense necessities by means of a minimum of 12 months. We have primarily based our
estimates as to how lengthy we anticipate we will fund our operations on
assumptions which will show to be unsuitable, and we might use our obtainable capital
assets earlier than we at the moment anticipate, by which case, we'd be required
to acquire further financing earlier than at the moment projected, which might not be
obtainable to us on acceptable phrases, or in any respect. Our failure to lift capital as
and when wanted would have a unfavourable affect on our monetary situation and our
skill to pursue our enterprise technique.

Cash Flows

For the 12 months ended May 31, 2022, we used $0.9 million in money from working
actions from persevering with operations. Significant reconciling objects between our
web loss and our web money inflows from operations embrace the $12.3 million
stock-based working expense described above, and our $1.3 million loss
incurred upon the conversion of our associated occasion notes payable to frequent inventory.
Our working capital additionally fluctuated, with accounts receivable and pay as you go
bills rising by $227,000 and $1.3 million, respectively , and accounts
payable and accrued bills rising by $6.7 million. These fluctuations have been
the outcome of the conventional timing variations accrual-basis income & bills and
money funds and receipts. In addition, money outflows associated to our
discontinued operations have been $10.1 million.

For the 12 months ended May 31, 2022, we had $45.9 million of money outflows from
investing actions from persevering with operations, which primarily consisted of
$58.3 million of money paid for property, plant, and gear for our internet hosting
amenities, partially offset by $3.3 million of a lower in deposits on
gear as these have been utilized towards gear purchases. These are partially
offset by $9.1 million in web inflows associated to our discontinued operations,
which consist of gross sales of mining gear and Ether.

For the 12 months ended May 31, 2022, we had $81.3 million of money inflows from
financing actions, which primarily consisted of inflows of $40.0 million from
our preliminary public providing of frequent inventory, $34.5 million from the location of
Class D most popular inventory, and $7.3 million from time period mortgage proceeds, much less issuance
prices of $2.9 million and $4.3 million associated to those fairness choices.

For the 12 months ended May 31, 2021, money outflows from working actions was
$83,000 , which was primarily pushed by accrued paid in form curiosity and
modifications in accounts payable and accrued liabilities. Net money outflows from
investing actions was $3.3 million, which was primarily pushed by funds
for deposits on gear. Net money outflows from financing actions was
$15.1 million, which was primarily pushed by the issuance of most popular inventory,
partially offset by issuance prices for most popular inventory.

Off Balance Sheet Arrangements

None.

Significant Accounting Pronouncements

None.

Recent Accounting Pronouncements

We regularly assess any new accounting pronouncements to find out their
applicability. When it's decided {that a} new accounting pronouncement impacts
our monetary reporting, we undertake a examine to find out the results of
the change to its consolidated monetary statements and assures that there are
correct controls in place to establish that our consolidated monetary statements
correctly mirror the change.


                                       29

--------------------------------------------------------------------------------

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity, which simplifies accounting for
convertible devices by eradicating main separation fashions required below
present GAAP. The ASU removes sure settlement situations which are required
for fairness contracts to qualify for the spinoff scope exception, and it additionally
simplifies the diluted earnings per share calculation in sure areas. This ASU
is efficient for annual reporting intervals starting after December 15, 2021,
together with interim intervals inside these fiscal years. Early adoption is
permitted, however no sooner than fiscal years starting after December 15, 2020.
This replace permits the use of both the modified retrospective or totally
retrospective methodology of transition. We are at the moment evaluating the affect this
ASU may have on its consolidated monetary statements and associated disclosures.

In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU
2016-13 amends steerage on reporting credit score losses for property held at amortized
price foundation and obtainable on the market debt securities. For property held at amortized
price foundation, ASU 2016-13 eliminates the possible preliminary recognition threshold in
present GAAP; and as a substitute requires an entity to mirror its present estimate of
all anticipated credit score losses. The allowance for credit score losses is a valuation
account that's deducted from the amortized price foundation of the monetary property
to current the web quantity anticipated to be collected. For available-for-sale debt
securities, credit score losses ought to be measured in a way just like present
GAAP; nevertheless, this ASU requires that credit score losses be offered as an allowance
quite than as a write-down. ASU 2016-13 impacts firms holding monetary
property and web funding in leases that aren't accounted for at honest worth
by means of web earnings. The ASU 2016-13 amendments have an effect on loans, debt securities,
commerce receivables, web investments in leases, off balance-sheet credit score
exposures, reinsurance receivables, and every other monetary property not excluded
from the scope which have the contractual proper to obtain money. ASU 2016-13 was
initially efficient for fiscal years starting after December 15, 2019, and
interim intervals inside these fiscal years, with early adoption permitted. In
November 2019, the FASB accepted a delay of the required implementation date of
ASU 2016-13 for smaller reporting firms, together with the Company, leading to
a required implementation date for the Company of January 1, 2023. Early
adoption will proceed to be permitted. We are at the moment evaluating the affect
this ASU may have on its consolidated monetary statements and associated
disclosures.

Critical Accounting Estimates

Our consolidated monetary statements are ready in accordance with accounting
rules typically accepted in the United States of America ("GAAP"). In
reference to the preparation of our monetary statements, we're required to
make assumptions and estimates about future occasions and apply judgments that
have an effect on the reported quantities of property, liabilities, income, bills and the
associated disclosures. We base our assumptions, estimates and judgments on
historic expertise, present traits and different elements that administration believes
to be related on the time our consolidated monetary statements are ready.
On an everyday foundation, administration critiques the accounting insurance policies, assumptions,
estimates and judgments to make sure that our monetary statements are offered
pretty and in accordance with GAAP. However, as a result of future occasions and their
results can't be decided with certainty, precise outcomes might differ from
our assumptions and estimates, and such variations may very well be materials.

Our important accounting insurance policies are mentioned in Note 3 – Basis of
Presentation and Significant Accounting Policies, of the Notes to Consolidated
Financial Statements of this Annual Report on Form 10-K.