Applied Digital (APLD) risk factors, FY2025 10-K

Risks Related to Our Business and Operations

1. 01We are at an early stage of development of our business, currently have limited sources of revenue, and may not be profitable in the future
2. 02from our hosting operations when our first co-hosting facility came online in February 2022. Accordingly, we have only a limited history upon which an evaluation of our prospects and future performance can be made
3. 03We may be unable to access sufficient additional capital needed to grow our business
4. 04Our level of debt may negatively impact our liquidity, restrict our operations and ability to respond to business opportunities, and increase our vulnerability to adverse economic and industry conditions
5. 05Our existing indebtedness arrangements contain several restrictive covenants and events of default that limit our corporate activities
6. 06We may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness
7. 07result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase
8. 08Data Center Hosting Business
9. 09Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results, and financial condition
10. 10We are subject to a highly evolving regulatory landscape and any adverse changes to certain laws or regulations could adversely affect our customers and our business, prospects or operations
11. 11Our business depends upon the demand for data centers
12. 12Any delays or unexpected costs developing our existing space, developable land and newly acquired properties may delay and harm our growth prospects, future operating results and financial condition
13. 13Our inability to market and close the sale of our Cloud Services Business that is currently held for sale and treated as discontinued operations may have a material adverse impact on our business and financial condition
14. 14We have concentrated our operations in the state of North Dakota and, thus, are particularly exposed to the regulatory framework and changes in the regulatory environment, market conditions and natural disasters in that state
15. 15Our success depends on external factors in the crypto mining industry
16. 16We may be unable to lease vacant or development space, renew leases, or re-lease space as leases expire
17. 17Failure to attract, grow and retain a diverse and balanced customer base, including key anchor customers, could harm our business and operating results
18. 18We are continuing to invest in our expansion efforts but may not have sufficient customer demand in the future to realize expected returns on these investments
19. 19Our new services and changes to existing services could fail to attract or retain users or generate revenue and profits, or otherwise adversely affect our business
20. 20We are subject to risks associated with our need for significant electrical power
21. 21We depend upon third-party suppliers for power, and we are vulnerable to service failures and price increases by such suppliers and to volatility in the supply and price of power in the open market
22. 22Our operations could be materially adversely affected by prolonged power outages at any of our facilities
23. 23Any failure of our physical or information technology or operational technology infrastructure or services could lead to significant costs and disruptions
24. 24Any disruption of service experienced by certain of our third-party service providers, or our ineffective management of relationships with third-party service providers could harm our business, financial condition, operating results, cash flows, and prospects
25. 25If we incorrectly estimate our hosting capacity requirements and related capital expenditures, our results of operations could be adversely affected
26. 26We depend on third parties to provide network connectivity to the customers in our data centers and any delays or disruptions in connectivity may materially adversely affect our operating results and cash flow
27. 27Certain natural disasters or other external events, including climate change or mechanical failures, could harm our business, financial condition, results of operations, cash flows, and prospects
28. 28Joint ventures, joint ownership arrangements and other projects pose unique challenges and we may not be able to fully implement or realize synergies, expected returns or other anticipated benefits associated with such projects
29. 29If we fail to effectively manage our growth, our business, financial condition and results of operations could be harmed
30. 30A decline in the price of cryptoassets could lead to a reduction in the usage of mining equipment at our facilities
31. 31We have an evolving business model which is subject to various uncertainties
32. 32Even if we have additional space available for lease at any one of our data centers, our ability to lease this space to existing or new customers could be constrained by our ability to provide sufficient electrical power
33. 33Various actual and potential conflicts of interest may be detrimental to our stockholders
34. 34We may become subject to regulatory inquiry relating to trading activity and/or short selling strategies in our common stock
35. 35We are, and may in the future be, the subject of unfavorable allegations made by short sellers. For example, in 2023, short sellers published reports that contained certain allegations against us that we believe to be misleading
36. 36We and our third-party providers may be vulnerable to cyberattacks and security breaches that could materially disrupt or compromise our operations, data and results
37. 37The loss of any of our management team, our inability to execute an effective succession plan, or our inability to attract and retain qualified personnel, could adversely affect our business
38. 38We may become involved in litigation arising in the ordinary course of our business that may materially adversely affect us
39. 39Employee disputes or litigation and related unfavorable publicity may negatively affect our future business, financial condition, and operating results
40. 40Scrutiny and changing expectations from stakeholders with respect to our environmental, social, and governance (“ESG”) practices and the impacts of climate change may result in additional costs or risks
41. 41We could incur significant costs related to environmental matters, including from government regulation, private litigation, and existing conditions at some of our properties
42. 42We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance
43. 43Our customers frequently make advance deposits based on anticipated future usage
44. 44We may not be able to compete with other companies, some of which have greater resources and experience
45. 45If we cannot adapt to evolving technology or customer demands in a timely and cost-effective manner, our ability to sustain and grow our business may be adversely affected
46. 46If one of our customers were to obtain exclusive rights to the technologies we employ across our businesses, our ability to realize significant operating efficiencies could be jeopardized
47. 47Our and our customer's operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in Bitcoin and other cryptoassets
48. 48The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives
49. 49The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies. If financial accounting standards undergo significant changes, our operating results could be adversely affected
50. 50If the award of Bitcoin reward for solving blocks and transaction fees is not sufficiently high, our customer may not have an adequate incentive to continue mining and may cease mining operations, which would have an adverse effect on our business and results of operations
51. 51our business, prospects or operations. In addition, such events could have a material adverse effect on our co-hosting facilities, particularly any investment or commitments made by us for co-hosting facilities
52. 52Because 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 our customer
53. 53We may be exposed to liabilities under the Foreign Corrupt Practices Act (“FCPA”), and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business
54. 54Intellectual property rights claims may adversely affect the operation of some or all cryptoasset networks
55. 55As we are establishing data centers in areas with lower populations, recruiting and retaining the necessary staff to operate our locations may pose a challenge

Risks Related to Our Industry

1. 56Uncertainty in the global economy and instability within international relations, including changes in governmental policies relating to technology, and any potential downturn in the semiconductor and electronics industries, may negatively impact our business
2. 57We are in the process of completing Polaris Forge 1. Fluctuations in long-term interest rates can materially impact the cost of capital required to finance the remainder of this and future projects
3. 58The use and continued pace of developments in AI are inherently uncertain. Failure by us to keep up with evolving data center requirements and regulatory frameworks for AI, could have a material adverse effect on our business and financial condition
4. 59AI does not develop to the extent we or our prospective tenants expect, our business, and financial condition may be adversely impacted
5. 60The price of Bitcoin may be affected by the sale of Bitcoin by other vehicles investing in Bitcoin or tracking Bitcoin markets
6. 61The lack of regulation of digital asset exchanges which Bitcoin, and other cryptocurrencies, are traded on may expose us to the effects of negative publicity resulting from fraudulent actors in the cryptocurrency space and can adversely affect an investment in the Company
7. 62Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in cryptocurrency-related activities, and turmoil among financial institutions arising from or relating to cryptoassets or in general can materially adversely affect us and our industry
8. 63provide cryptocurrency-related activities may continue to have difficulties in finding banks and financial institutions willing to provide them services which may decrease the usefulness of cryptocurrencies as a payment system and harm public perception of cryptocurrencies, and could decrease their usefulness
9. 64The impact of geopolitical and economic events on the supply and demand for cryptoassets is uncertain
10. 65Governmental actions may have a materially adverse effect on the cryptoasset mining industry as a whole, which would have an adverse effect on our business and results of operations
11. 66Acceptance and/or widespread use of Bitcoin and other cryptoassets is uncertain
12. 67It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoin or other cryptocurrencies, participate in blockchains or utilize similar Bitcoin assets in one or more countries, the ruling of which would adversely affect our and our customers’ business
13. 68Bitcoin is subject to halving, which may adversely affect our customers’ ability to continue mining at our facilities
14. 69We may face risks of Internet disruptions, which could have an adverse effect on the price of Bitcoin and other cryptoassets
15. 70There 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
16. 71If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any cryptoasset network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in us

Risks Related to Our Securities

1. 72Our stock price has been volatile and may continue to be volatile in the future; this volatility may affect your ability to, and the price at which you could, sell our common stock
2. 73We have financed much of our strategic growth through our at-the-market (“ATM”) offerings and issuances of our common stock and preferred stock
3. 74Our efforts to raise capital is for the purpose of executing on development plans and strategic growth opportunities as they arise; however, holders of our common stock may experience dilution as a result of our sales of newly issued shares of our common stock in such offerings
4. 75If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, its trading price and volume could decline
5. 76We do not expect to declare or pay dividends in the foreseeable future, which may limit the return our shareholders realize on their investment
6. 77Provisions in our Articles (as defined below), our Bylaws (as defined below), and Nevada law may discourage a takeover attempt even if a takeover might be beneficial to our stockholders
7. 78The price of our common stock could decline if there are substantial sales of shares of our common stock, if there is a large number of shares of our common stock available for sale, or if there is the perception that these sales could occur
8. 79The rights of holders of our Series E and E-1 Preferred Stock rank senior to the rights of the holders of our common stock
9. 80Our ability to redeem shares of Series E and E-1 Preferred Stock may be limited by our available funds, ability to issue the full amount of shares of common stock and applicable federal and Nevada law
10. 81The Convertible Notes may adversely affect the market price of our common stock
11. 82Conversion of the Convertible Notes will dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock
12. 83The prepaid forward transaction may affect the value of our common stock and may result in unexpected market activity in our common stock
13. 84expect, but are not required, to enter into one or more derivative transactions with respect to our common stock with the investors of the Convertible Notes concurrently with or after the pricing of the Convertible Notes
14. 85The capped call transactions may affect the value of the Convertible Notes and our common stock