Applied Digital

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From Potatoes to AI: The Unique Formation of Applied Digital

The company was created in a very unconventional manner, which remains both interesting and worth describing. My personal background is important because it builds an understanding towards what played an immense role in the life cycle of the publicly listed stock, as well as the creation of the business known as Applied Digital Corporation today.

Born and raised in a small town in Southern Idaho, my childhood was spent working on my parents’ potato farm. Eventually, I left Idaho to attend Washington University in St. Louis where I played football for two years before landing an internship at Kennedy Capital Management. This was my introduction to investing and stock picking. It was 1999, and I focused my time on Tech stocks. I graduated in May of 2000 with a BSBA (Bachelor of Science in Business Administration).

I moved to New York and joined a boutique investment bank named Needham & Company where I published research on wireless hardware companies. After a few years, I wanted to move back West and decided to join B. Riley & Co. in February 2002, to publish my research on technology companies. B. Riley was a small company at the time (less than 20 employees) so there was opportunity for me to become more of a generalist with my research. In less than a year, I became Director of Research. As the firm grew and expanded into investment banking, I became Director of Capital Markets and later President before departing to join a hedge fund in 2011. Spending 10 years working at two different funds, I eventually started my own fund in 2020. In 2021, this all came full circle when B. Riley purchased my hedge fund and I became President of B. Riley Asset Management.

How is this pertinent to Applied Digital? I believe it’s important to explain the difference between the history of the listed stock (NASDAQ: APLD) and the current business of Applied Digital. The inception of the current business began inside a listed company that was once a “shell company”, meaning it had no real operating business at the time. This was a company I controlled due to my majority shareholding.

The history of the shell company and my involvement with it started around 2005, when I personally invested in a company named Flight Safety Technologies (FLT: Ticker). At that time, the stock was trading below the value of the cash it had on its balance sheet, but the company did not possess much business momentum. FLT’s only business, at that time, was developing a laser-based listening device for NASA, but that contract eventually came to an end without a viable product. Formally joining the Board of Directors, I was involved in changing the management and business redirection. The company focused on developing a medical device for the treatment of chronic wounds using a plasma technology from the University of Tennessee. The company raised additional capital to fund the development, but capital became scarce after the Great Financial Crisis. To continue funding the development, I sold a potato processing plant to the company in exchange for stock which provided cash flow. It was a bit strange to have a potato business and a medical device business in the same company, nonetheless, served the purpose of funding the development. The company ended up unsuccessful with the device and I decided to close the operations and the company had been dormant since.

The current Applied Digital business started from an idea developed in December 2020. I spent time researching the publicly traded bitcoin miners while speaking to other people involved in the industry. It became apparent that a large-scale GPU based mining operation would be viable. After being connected to Jason Zhang, it was clear that it was a match. With his connections in the industry, we partnered with Sparkpool, the largest Ethereum mining pool in the world at the time. We were able to start the business within the former shell company and raise capital to fund the infrastructure build-out. Changing the name of the company to Applied Blockchain, we took our first round of financing ($16.5M) in April 2021. We used the funding to purchase and deploy GPUs. It was not until six weeks later when China banned crypto mining. This drastic industry change, presented an opportunity for us to build and operate large data centers in the US for bitcoin miners. Since inception, the company has executed on that opportunity and once all facilities are operational, we will have brought nearly 500MWs of capacity online in less than 24 months.

In the middle of 2022, we explored other business lines that could utilize our large power sites, and develop a path for high-power density datacenters offering high-performance computing (HPC). This move was reflected in our decision to change the company’s name, which was announced in August and ratified at our shareholder meeting in November 2022. Our team started developing a proprietary datacenter designed to provide low-cost digital infrastructure for certain HPC workloads. Construction started in December 2022, and the first portion of the facility came online in May 2023.

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