apld-20220831

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ and __________

Commission file number 001-31968

________________________

APPLIED BLOCKCHAIN, INC.

(Exact name of registrant as specified in its charter)

________________________


Nevada			95-4863690
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3811 Turtle Creek, Blvd., Suite 2125, Dallas, TX			75219
(Address of Principal Executive Offices)			(Zip Code)

(214) 556-2465

Registrant's telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	APLD	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of October 12, 2022, 94,238,937 shares of Common Stock, $0.001 par value, were outstanding.

Table of Contents

APPLIED BLOCKCHAIN, INC. AND SUBSIDIARIES

Consolidated Financial Statements

Periods Ended August 31, 2022, and 2021

Table of Contents


		Page
Part I - Financial Information

Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Consolidated Statements of Changes in Stockholders’ Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to the Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 4.	Controls and Procedures	22

Part II - Other Information

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

Part I - Financial Information

Item 1. Financial Statements

APPLIED BLOCKCHAIN, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(In thousands, except number of shares and par value data)


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

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

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

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

See Accompanying Notes to the Financial Statements

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)


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

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

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

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

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

See Accompanying Notes to the Financial Statements

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands, except share data)


Three Months Ended August 31, 2022

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


Three Months Ended August 31, 2021

	Series C Convertible Redeemable Preferred Stock		Series D Convertible Redeemable Preferred Stock		Total Mezzanine Equity	Series A Convertible Preferred Stock		Series B Convertible Preferred Stock		Common Stock			Additional Paid in Capital	Treasury Stock	Accumulated Deficit	Total Shareholders Equity	Total Equity
	Shares	Amount	Shares	Amount	Amount	Shares	Amount	Shares	Amount	Shares	Amount
Balance, May 31, 2021	660,000	15,135	—	—	15,135	27,195	3,370	17,087	1,849	1,511,061	1		13,882	(62)	(21,623)	(2,583)	12,552
Extinguishment of Debt	—	—	—	—	—	—	—	—	—	5,083,828	5		3,473	—	—	3,478	3,478
Issuance of Dividends to Preferred Stock	—	—	—	—	—	60,822	6,082	29,772	2,979	—	—		—	—	(8,946)	115	115
Conversion of Preferred Stock	—	—	—	—	—	(88,017)	(9,452)	(46,859)	(4,828)	28,765,308	29		14,251	—	—	—	—
Service agreement stock compensation	—	—	—	—	—	—	—	—	—	18,036,723	18		12,319	—	—	12,337	12,337
Issuance of Preferred Stock	—	—	1,304,000	32,600	32,600	—	—	—	—	—	—		—	—	—	—	32,600
Issuance Costs of Preferred Stock	—	—	—	(2,698)	(2,698)	—	—	—	—	—	—		—	—	—	—	(2,698)
Net Loss	—	—	—	—	—	—	—	—	—	—	—		—	—	(14,097)	(14,097)	(14,097)
Balance, August 31, 2021	660,000	15,135	1,304,000	29,902	45,037	—	—	—	—	53,396,920	$	53	43,925	(62)	(44,666)	(750)	44,286

See Accompanying Notes to the Financial Statements

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands of dollars)


	Three Months Ended
	August 31, 2022		August 31, 2021
CASH FLOW FROM OPERATING ACTIVITIES
Net loss attributable to Applied Blockchain	$	(4,531)	$	(14,097)
Net gain from discontinued operations, net of income taxes	—		(243)
Net Loss attributable to noncontrolling interest	(128)		—
Net Income (loss) from continuing operations	(4,659)		(14,340)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and Amortization	1,136		3
Gain on extinguishment of accounts payable	—		(40)
Loss on extinguishment of debt	94		1,342
Stock-Based Compensation	579		12,337

Deferred Tax	32		—
Changes in assets and liabilities:
Accounts receivable	177		—
Utility Deposits	—		(773)
Prepaid expenses and other current assets	(164)		(770)
Customer deposits	4,587		—
Deferred revenue	15,316		—
Accounts payable and accrued liabilities	196		368



Net cash provided by (used in) operating activities of continuing operations	17,294		(1,870)
Net cash provided by operating activities of discontinued operations	—		435
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	17,294		(1,435)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment	(31,673)		(988)


Deposit on equipment	—		(10,300)

Net cash used in investing activities of continuing operations	(31,673)		(11,288)
Net cash used in investing activities of discontinued operations	—		—
NET CASH USED IN INVESTING ACTIVITIES	(31,673)		(11,288)
CASH FLOW FROM FINANCING ACTIVITIES



Issuance of preferred stock	—		32,600
Repayment of finance leases	(209)		—
Preferred stock issuance costs	—		(2,698)

Term loan paydown	(7,056)		—
Proceeds from issuance of term loan	15,000		—
Term Loan Issuance Costs	(140)		—
Loan principal payments	(432)		—
Equity contributions to subsidiaries	1,747		—
Net cash provided by financing activities of continuing operations	8,910		29,902
Net cash provided by financing activities of discontinued operations	—		—
CASH FLOW PROVIDED BY FINANCING ACTIVITIES	8,910		29,902
NET (DECREASE ) INCREASE IN CASH AND CASH EQUIVALENTS	(5,469)		17,179
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	46,299		11,750
CASH AND CASH EQUIVALENTS, END OF PERIOD	40,830		28,929
Less: cash and cash equivalents of discontinued operations	—		—
Cash and cash equivalents of continuing operations	$	40,830	$	28,929

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid	$	356	$	—

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

Right-of-use asset obtained by lease obligation	$	922	$	1,291
Fixed assets in accounts payable	$	8,352	$	4,391

See Accompanying Notes to the Financial Statements

Table of Contents

APPLIED BLOCKCHAIN INC. AND Subsidiaries

Notes to Consolidated Financial Statements

For the Three Month Periods Ended August 31, 2022

1.BUSINESS AND ORGANIZATION

Applied Blockchain, Inc. (the “Company”) is a builder and operator of next-generation data centers across North America, which provide substantial computing power to blockchain infrastructure and support Bitcoin mining. The Company has a colocation business model where customers place hardware they own into the Company’s facilities and the Company provides full operational and maintenance services for a fixed fee. The Company typically enters into long term fixed rate contracts with its customers.

During the three month period ended August 31, 2022, the Company formed ELN-01, LLC, which is a Delaware limited liability company formed to build and operate a co-hosting facility.

Reverse Stock Split

The Company’s board of directors approved a reverse split of shares of the Company’s common stock on a one-for-six (1:6) basis, which was effected on April 12, 2022 (the “Reverse Stock Split”). All references to Common Stock, options to purchase common stock, restricted stock units, share data, per share data and related information contained in the condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. No fractional shares of the Company’s common stock were issued in connection with the Reverse Stock Split. Any fractional share resulting from the Reverse Stock Split was rounded down to the nearest whole share and the affected holder received cash in lieu of such fraction share.

2.LIQUIDITY AND FINANCIAL CONDITION

As of August 31, 2022, the Company had approximate cash and cash equivalents of $40.8 million and negative working capital of $6.3 million. Historically the Company has incurred losses and has relied on equity financings to fund its operations. Based on analysis of cash flows, current net working capital, and expected operations revenue, the Company believes its current cash on hand is sufficient to meet its operating and capital requirement for at least next twelve months from the date these financial statements are issued.

3.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The accompanying interim Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of May 31, 2022 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2022 filed with the SEC on August 29, 2022.

Significant Accounting Policies and Use of Estimates:

There were no material changes in the Company’s significant accounting policies for the three months ended August 31, 2022 as compared to the year ended May 31, 2022. See Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year-ended May

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three Month Period Ended August 31, 2022

31, 2022, as filed with the SEC, for additional information regarding the Company’s significant accounting policies and use of estimates.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates associated with asset valuations, and the valuation allowance associated with the Company’s deferred tax assets.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. The Company’s cash equivalents in excess of federally insured limits potentially subject us to concentrations of credit risk, although the Company believes it is subject to minimal risk.

The Company has restricted cash related to its letter of credit totaling $7.5 million. The company is required to keep this balance in a separate account for the duration of the letter of credit agreement, which lasts through January 2024. The following tables reconciles cash and cash equivalents and restricted cash to presentation on the balance sheet as of August 31, 2022, and May 31, 2022.


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

Recent Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.

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 instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company has adopted ASU and determined that the adoption had no material impact on its financial statements and related disclosures.

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three Month Period Ended August 31, 2022

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 guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP; and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, this ASU requires that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of June 1, 2023. Early adoption will continue to be permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.

4.PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of August 31, 2022, and May 31, 2022:


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

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

Depreciation expense from continuing operations totaled $838,000 and $3,000 for the three-month periods ended August 31, 2022 and 2021, respectively.

5.REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company recognizes revenue when promised services are transferred to customers in an amount that reflects the consideration to which the Company expects to be received in exchange for those services. The Company notes all revenue recognized from continuing operations during the quarter was received through hosting revenue.

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three Month Period Ended August 31, 2022

Below is a summary of the Company’s revenue concentration by major customer for the three-month periods ended August 31, 2022 and 2021, respectively.


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

Remaining Performance Obligations

As of August 31, 2022, the Company had $19.2 million in deferred revenue, which represents the Company’s remaining performance obligations. The Company expects to recognize $17.1 million within the next 12 months.

Deferred Revenue

Changes in the Company's deferred revenue balances from hosting operations for the three-month periods ended August 31, 2022 and 2021, respectively, are shown in the following table:


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

Customer Deposits

Changes in the Company's customer deposits balances for the three-month periods ended August 31, 2022 and 2021, respectively, are shown in the following table:


Balance at May 31, 2022	$	9,524	Balance at May 31, 2021	$	—
Customer deposits received	4,587		Customer deposits received	—
Customer deposits refunded	—		Customer deposits refunded	—
Balance at August 31, 2022	$	14,111	Balance at August 31, 2021	$	—

6.RELATED PARTY TRANSACTIONS

Related Party Policy

Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all material related party transactions.

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three Month Period Ended August 31, 2022

Related Party Note Payable

During the three month period ended August 31, 2021, a related party note payable was held by the CEO of the Company. During this period, the outstanding debt principal of $470,000 and accrued interest of $1.6 million was converted to 5.1 million shares of Common Stock with a fair value of $0.75 per share which resulted in a loss on extinguishment of $1.3 million. Upon the consummation of the Exchange Agreement, the note payable was surrendered and cancelled; all rights including rights to accrued interest due were extinguished.

Related Party Revenue

One of the Company's major customers is an entity that is the parent company of the minority member of the 1.21 Gigawatts joint venture. The Company recognized $2.5 million and no revenue from this customer for the three-month periods ended August 31, 2022 and 2021, respectively. The Company had $2.0 million and no advance billings from this customer and $1.7 million and no deposits from this customer as of August 31, 2022 and May 31, 2022, respectively.

7.DEBT

Letter of Credit

As of August 31, 2022 and May 31, 2022, the Company had a letter of credit totaling $7.5 million. As discussed in Footnote 3, the Company is required to maintain this amount in a separate cash balance, and therefore the cash is restricted. Further, the Company has no unused lines of credit as of August 31, 2022 or May 31, 2022, respectively.

Term Loan

On July 25, 2022, the Company entered into a Loan Agreement with Starion Bank (“Starion Lender”) and the Company as Guarantor (the “Starion Loan Agreement”). The Starion Loan Agreement provides for a term loan (the “Starion Term Loan”) in the principal amount of $15 million with a maturity date of July 25, 2027. The Starion Loan Agreement provides for an interest rate of 6.50% per annum. The Starion Loan Agreement contains customary covenants, representations and warranties and events of default. The Company is not subject to financial covenants until May 31, 2024. At this time, the Company will be subject to a debt service coverage ratio. Deferred financing costs related to the Starion Term Loan totals $142,000. The effective interest rate was 7.0% as of August 31, 2022.

Below is a summary of the term loan balance, including current debt and deferred financing fees as of August 31, 2022 and May 31, 2022.


(in thousands)
	August 31, 2022	May 31, 2022
Term Loan Balance	$14,790	$7,324
Less: Deferred Issuance Costs	(140)	(94)
Less: Current portion of Term Loan	(2,587)	(1,333)
Long-term Portion of Term Loan	$12,063	$5,897

APPLIED BLOCKCHAIN INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three Month Period Ended August 31, 2022

Below is a summary of the remaining principal payments due over the life of the Starion Loan Agreement note as of August 31, 2022.


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

In connection with the Starion Loan Agreement, the Company repaid all of the outstanding balance on the March 11, 2022 agreement between the Company and Vantage Bank Texas. This agreement included a promissory note agreement for $7.5 million for a five year term with an interest rate of 5% per annum.

8. SHAREHOLDERS’ EQUITY (DEFICIT)

Common Stock

The Company is authorized to issue 166,666,667 shares of Common Stock at $0.001 par value per share. As of August 31, 2022, 92,872,271 shares of Common Stock were issued and 92,835,974 shares were outstanding and as of May 31, 2022, 97,837,703 shares of Common Stock were issued and outstanding. Note that all shares o

SEC Form 10-Q filed by Applied Blockchain Inc.