UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the quarterly period ended |
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the transition period from ________ to ________. |
Commission file number 1-12711
AULT GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
94-1721931 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
11411 Southern Highlands Pkwy #240
Las Vegas, NV 89141
(Address of principal executive offices)
(949) 444-5464
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.001 par value | DPW | NYSE American |
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 monthsyear (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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataDate File required to be submitted and posted 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 and post such files).
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,”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. ☐¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-212b-2 of the Exchange Act). Yes ☐¨ No ☑þ
At November 17, 2017May 20, 2021 the registrant had outstanding 15,817,39349,774,538 shares of common stock.
AULT GLOBAL HOLDINGS, INC.
TABLE OF CONTENTS
Page | ||||
PART I – FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements | |||
Condensed Consolidated Balance Sheets as of 31, 2020 (Unaudited) | ||||
Condensed Consolidated Statements of for the three | ||||
Condensed Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 2021 and 2020 (Unaudited) | F-4 – F-5 | |||
Condensed Consolidated Statements of Cash Flows for the March 31, 2021 and | ||||
Notes to | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||
Item 4. | Controls and Procedures | |||
PART II – OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | |||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 3. | Defaults Upon Senior Securities | |||
Item 4. | 12 | |||
Item 5. | Other Information | |||
Item 6. | Exhibits | |||
13 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will,"“anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” "should,"“should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended December 31, 2016,2020, particularly the "Risk Factors"“Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of November 20, 2017.May 24, 2021. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaimsdisclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 107,801,265 | $ | 18,679,848 | ||||
Marketable equity securities | 18,153,863 | 2,562,983 | ||||||
Securities purchased under agreement to resell | 33,647,059 | — | ||||||
Accounts receivable | 3,506,451 | 3,852,033 | ||||||
Accounts and other receivable, related party | 1,196,379 | 1,196,379 | ||||||
Accrued revenue | 1,533,215 | 1,695,905 | ||||||
Inventories | 3,476,512 | 3,373,851 | ||||||
Prepaid expenses and other current assets | 2,918,284 | 2,988,080 | ||||||
TOTAL CURRENT ASSETS | 172,233,028 | 34,349,079 | ||||||
Intangible assets, net | 4,240,420 | 4,390,388 | ||||||
Goodwill | 9,466,577 | 9,645,686 | ||||||
Property and equipment, net | 6,288,714 | 2,122,730 | ||||||
Right-of-use assets | 4,816,798 | 4,317,778 | ||||||
Investment in promissory notes, related parties | 13,467,783 | 10,668,470 | ||||||
Investments in derivatives and common stock, related parties | 14,822,439 | 6,139,391 | ||||||
Investments in debt and equity securities | 2,320,539 | 261,767 | ||||||
Investment in limited partnership | 1,869,000 | 1,869,000 | ||||||
Loans receivable | 596,568 | 750,174 | ||||||
Other investments, related parties | 3,465,000 | 802,500 | ||||||
Other assets | 443,543 | 326,419 | ||||||
TOTAL ASSETS | $ | 234,030,409 | $ | 75,643,382 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 9,020,134 | $ | 10,579,501 | ||||
Securities purchase consideration payable | 33,310,589 | — | ||||||
Accounts payable and accrued expenses, related party | 32,569 | 35,687 | ||||||
Operating lease liability, current | 855,933 | 524,326 | ||||||
Revolving credit facility | 117,215 | 125,188 | ||||||
Notes payable, net | 2,154,676 | 4,048,009 | ||||||
Notes payable, related parties | 149,489 | 187,818 | ||||||
Convertible notes payable, related party | 400,000 | 400,000 | ||||||
Warrant liability | 4,870,821 | 4,192,052 | ||||||
Other current liabilities | 1,836,937 | 1,789,825 | ||||||
TOTAL CURRENT LIABILITIES | 52,748,363 | 21,882,406 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 314 | $ | 996 | ||||
Accounts receivable, net | 2,892 | 1,439 | ||||||
Inventories, net | 1,858 | 1,122 | ||||||
Prepaid expenses and other current assets | 603 | 285 | ||||||
TOTAL CURRENT ASSETS | 5,667 | 3,842 | ||||||
Intangible assets | 420 | — | ||||||
Goodwill | 6,490 | — | ||||||
Property and equipment, net | 603 | 570 | ||||||
Investments - related parties, net of original issue discount of $127 | ||||||||
and $45, respectively, at September 30, 2017 and December 31, 2016 | 3,782 | 1,036 | ||||||
Other investments | 679 | — | ||||||
Other investments, related parties | 354 | — | ||||||
Other assets | 265 | 24 | ||||||
TOTAL ASSETS | $ | 18,260 | $ | 5,472 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 5,460 | $ | 1,231 | ||||
Accounts payable and accrued expenses, related party | 104 | — | ||||||
Advances on future receipts, net of discount of $671 | 1,475 | — | ||||||
Revolving credit facility | 310 | — | ||||||
Notes payable | 1,609 | — | ||||||
Notes payable, related parties | 274 | 250 | ||||||
Convertible notes payable, net | 465 | — | ||||||
Other current liabilities | 144 | 398 | ||||||
TOTAL CURRENT LIABILITIES | 9,841 | 1,879 | ||||||
LONG TERM LIABILITIES | ||||||||
Notes payable | 659 | — | ||||||
Notes payable, related parties | 132 | — | ||||||
Convertible notes payable, related party, net of discount of $364 | ||||||||
and $496, respectively, at September 30, 2017 and December 31, 2016 | 166 | 34 | ||||||
TOTAL LIABILITIES | $ | 10,798 | $ | 1,913 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | 4,020,877 | 3,854,573 | ||||||
Notes payable | 319,047 | 336,500 | ||||||
Notes payable, related parties | 66,083 | 51,537 | ||||||
Convertible notes payable | 406,327 | 386,283 | ||||||
TOTAL LIABILITIES | 57,560,697 | 26,511,299 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Series A Convertible Preferred Stock, $25.00 stated value per share, | 7 | 7 | ||||||
$0.001 par value – 1,000,000 shares authorized; 7,040 shares | ||||||||
issued and outstanding at March 31, 2021 and December 31, 2020, | ||||||||
respectively (redemption amount and liquidation preference of $176,000 | ||||||||
as of March 31, 2021 and December 31, 2020) | ||||||||
Series B Convertible Preferred Stock, $10 stated value per share, | 125 | 125 | ||||||
share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued | ||||||||
and outstanding at March 31, 2021 and December 31, 2020 (liquidation | ||||||||
preference of $1,250,000 at March 31, 2021 and December 31, 2020) | ||||||||
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized; | 49,499 | 27,754 | ||||||
49,498,676 and 27,753,562 shares issued and outstanding at March 31, 2021 | ||||||||
and December 31, 2020, respectively | ||||||||
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; | - | - | ||||||
nil shares issued and outstanding at March 31, 2021 and December 31, 2020 | ||||||||
Additional paid-in capital | 292,763,040 | 171,397,199 | ||||||
Accumulated deficit | (119,403,734 | ) | (121,396,715 | ) | ||||
Accumulated other comprehensive income (loss) | 1,158,542 | (1,717,934 | ) | |||||
TOTAL DPW HOLDINGS STOCKHOLDERS’ EQUITY | 174,567,479 | 48,310,436 | ||||||
Non-controlling interest | 1,902,233 | 821,647 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 176,469,712 | 49,132,083 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 234,030,409 | $ | 75,643,382 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
COMMITMENTS AND CONTINGENCIES | — | — | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Series A Redeemable Convertible Preferred Stock, no par value – | — | — | ||||||
500,000 shares authorized; nil shares issued and outstanding at | ||||||||
September 30, 2017 and December 31, 2016 | ||||||||
Series B Redeemable Convertible Preferred Stock, $10 stated value per | — | — | ||||||
share, no par value – 500,000 shares authorized; 100,000 and nil | ||||||||
shares issued and outstanding at September 30, 2017 and December 31, | ||||||||
2016, respectively (liquidation preference of $1,000 and nil at | ||||||||
September 30, 2017 and December 31, 2016, respectively) | ||||||||
Series C Redeemable Convertible Preferred Stock, $2.40 stated value | — | — | ||||||
per share, no par value – 460,000 shares authorized; 455,002 and | ||||||||
nil shares issued and outstanding at September 30, 2017 and December | ||||||||
31, 2016, respectively (liquidation preference of $1,092 and nil at | ||||||||
September 30, 2017 and December 31, 2016, respectively) | ||||||||
Series D Redeemable Convertible Preferred Stock, $0.01 stated value | — | — | ||||||
per share, no par value – 378,776 shares authorized; 378,776 and | ||||||||
nil shares issued and outstanding at September 30, 2017 and December | ||||||||
31, 2016, respectively (liquidation preference of $0.01 per share) | ||||||||
Series E Redeemable Convertible Preferred Stock, $45 stated value per | — | — | ||||||
share, no par value – 10,000 shares authorized; 10,000 and nil shares | ||||||||
issued and outstanding at September 30, 2017 and December 31, 2016, | ||||||||
respectively (liquidation preference of $0.01 per share) | ||||||||
Preferred Stock, no par value – 151,224 shares authorized; nil shares | — | — | ||||||
issued and outstanding at September 30, 2017 and December 31, 2016 | ||||||||
Common Stock, no par value – 30,000,000 shares authorized; 14,150,154 | ||||||||
and 7,677,637 shares issued and outstanding at September 30, 2017 and | — | — | ||||||
December 31, 2016, respectively | ||||||||
Additional paid-in capital | 24,667 | 16,537 | ||||||
Accumulated deficit | (17,212 | ) | (12,158 | ) | ||||
Accumulated other comprehensive loss | (722 | ) | (820 | ) | ||||
TOTAL DIGITAL POWER STOCKHOLDERS' EQUITY | 6,733 | 3,559 | ||||||
Non-controlling interest | 729 | — | ||||||
TOTAL EQUITY | 7,462 | 3,559 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 18,260 | $ | 5,472 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME AND COMPREHNSIVE LOSS
For the Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Revenue | $ | 7,904,511 | $ | 5,569,282 | ||||
Revenue, cryptocurrency mining | 129,896 | — | ||||||
Revenue, lending and trading activities | 5,210,222 | 36,152 | ||||||
Total revenue | 13,244,629 | 5,605,434 | ||||||
Cost of revenue | 5,107,908 | 3,853,435 | ||||||
Gross profit | 8,136,721 | 1,751,999 | ||||||
Operating expenses | ||||||||
Engineering and product development | 601,918 | 440,626 | ||||||
Selling and marketing | 1,241,542 | 338,163 | ||||||
General and administrative | 5,092,268 | 2,902,994 | ||||||
Provision for credit losses | — | 1,000,000 | ||||||
Total operating expenses | 6,935,728 | 4,681,783 | ||||||
Income (loss) from continuing operations | 1,200,993 | (2,929,784 | ) | |||||
Other income (expenses) | ||||||||
Interest income | 36,923 | 320 | ||||||
Interest expense | (313,934 | ) | (1,086,163 | ) | ||||
Change in fair value of marketable equity securities | 1,959,791 | (365,359 | ) | |||||
Realized gain on marketable securities | 397,331 | — | ||||||
Gain (loss) on extinguishment of debt | 481,533 | (463,134 | ) | |||||
Change in fair value of warrant liability | (678,769 | ) | 4,411 | |||||
Total other income (expenses), net | 1,882,875 | (1,909,925 | ) | |||||
Income (loss) from continuing operations before income taxes | 3,083,868 | (4,839,709 | ) | |||||
Income tax (expense) benefit | (5,901 | ) | 5,905 | |||||
Net income (loss) from continuing operations | 3,077,967 | (4,833,804 | ) | |||||
Net loss from discontinued operations, net of taxes | — | (1,697,744 | ) | |||||
Net income (loss) | 3,077,967 | (6,531,548 | ) | |||||
Less: Net income attributable to non-controlling interest | (1,080,586 | ) | — | |||||
Net income (loss) attributable to Ault Global Holdings | 1,997,381 | (6,531,548 | ) | |||||
Preferred dividends | (4,400 | ) | (4,460 | ) | ||||
Net income (loss) available to common stockholders | $ | 1,992,981 | $ | (6,536,008 | ) | |||
Basic net income (loss) per common share: | ||||||||
Continuing operations | $ | 0.05 | $ | (1.07 | ) | |||
Discontinued operations | — | (0.37 | ) | |||||
Net income (loss) per common share | $ | 0.05 | $ | (1.44 | ) | |||
Diluted net income (loss) per common share: | ||||||||
Continuing operations | $ | 0.05 | $ | (1.07 | ) | |||
Discontinued operations | — | (0.37 | ) | |||||
Net income (loss) per common share | $ | 0.05 | $ | (1.44 | ) | |||
Weighted average basic common shares outstanding | 39,256,336 | 4,533,217 | ||||||
Weighted average diluted common shares outstanding | 40,202,443 | 4,533,217 | ||||||
Comprehensive income (loss) | ||||||||
Income (loss) available to common stockholders | $ | 1,992,981 | $ | (6,536,008 | ) | |||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (92,694 | ) | (148,607 | ) | ||||
Net unrealized gain (loss) on derivative securities of related party | 2,969,170 | (1,242,094 | ) | |||||
Other comprehensive income (loss) | 2,876,476 | (1,390,701 | ) | |||||
Total comprehensive income (loss) | $ | 4,869,457 | $ | (7,926,709 | ) |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 3,220 | $ | 1,826 | $ | 6,670 | $ | 5,603 | ||||||||
Cost of revenue | 2,124 | 1,123 | 4,136 | 3,526 | ||||||||||||
Gross profit | 1,096 | 703 | 2,534 | 2,077 | ||||||||||||
Operating expenses | ||||||||||||||||
Engineering and product development | 306 | 147 | 798 | 511 | ||||||||||||
Selling and marketing | 423 | 235 | 1,045 | 723 | ||||||||||||
General and administrative | 1,685 | 404 | 4,240 | 1,115 | ||||||||||||
Total operating expenses | 2,414 | 786 | 6,083 | 2,349 | ||||||||||||
Loss from operations | (1,318 | ) | (83 | ) | (3,549 | ) | (272 | ) | ||||||||
Interest (expense) income, net | (753 | ) | 23 | (1,367 | ) | 85 | ||||||||||
Loss before income taxes | (2,071 | ) | (60 | ) | (4,916 | ) | (187 | ) | ||||||||
Income tax benefit | — | 22 | — | 22 | ||||||||||||
Net loss | $ | (2,071 | ) | $ | (38 | ) | $ | (4,916 | ) | $ | (165 | ) | ||||
Less: Net loss attributable to non-controlling interest | 104 | — | 216 | — | ||||||||||||
Net loss attributable to Digital Power Corp | (1,967 | ) | (38 | ) | (4,700 | ) | (165 | ) | ||||||||
Preferred deemed dividends | — | — | (319 | ) | — | |||||||||||
Preferred dividends | (27 | ) | — | (35 | ) | — | ||||||||||
Loss available to common shareholders | $ | (1,994 | ) | $ | (38 | ) | $ | (5,054 | ) | $ | (165 | ) | ||||
Basic and diluted net loss per common share | $ | (0.15 | ) | $ | (0.01 | ) | $ | (0.46 | ) | $ | (0.02 | ) | ||||
Basic and diluted weighted average common shares outstanding | 13,745,540 | 6,775,971 | 10,884,948 | 6,775,971 | ||||||||||||
Comprehensive Loss | ||||||||||||||||
Loss available to common shareholders | $ | (1,994 | ) | $ | (38 | ) | $ | (5,054 | ) | $ | (165 | ) | ||||
Other comprehensive income (loss) | ||||||||||||||||
Change in net foreign currency translation adjustments | 42 | (55 | ) | 141 | (265 | ) | ||||||||||
Net unrealized loss on securities available-for-sale, net of income taxes | (43 | ) | — | (43 | ) | — | ||||||||||
Other comprehensive income (loss) | (1 | ) | (55 | ) | 98 | (265 | ) | |||||||||
Total Comprehensive loss | $ | (1,995 | ) | $ | (93 | ) | $ | (4,956 | ) | $ | (430 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
Three Months Ended March 31, 2021
Accumulated | ||||||||||||||||||||||||||||||||||||
Series A & B | Additional | Other | Total | |||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Non-Controlling | Stockholders' | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Interest | Equity | ||||||||||||||||||||||||||||
BALANCES, January 1, 2021 | 132,040 | $ | 132 | 27,753,562 | $ | 27,754 | $ | 171,397,199 | $ | (121,396,715 | ) | $ | (1,717,934 | ) | $ | 821,647 | $ | 49,132,083 | ||||||||||||||||||
Stock based compensation: | ||||||||||||||||||||||||||||||||||||
Options | — | — | — | — | 19,602 | — | — | — | 19,602 | |||||||||||||||||||||||||||
Issuance of common stock for cash | — | — | 21,561,900 | 21,562 | 124,961,743 | — | — | — | 124,983,305 | |||||||||||||||||||||||||||
Issuance of common stock for conversion | ||||||||||||||||||||||||||||||||||||
of convertible notes payable | — | — | 183,214 | 183 | 449,333 | — | — | — | 449,516 | |||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | — | — | — | — | (4,064,837 | ) | — | — | — | (4,064,837 | ) | |||||||||||||||||||||||||
Net income | — | — | — | — | 1,997,381 | — | — | 1,997,381 | ||||||||||||||||||||||||||||
Preferred dividends | — | — | — | — | — | (4,400 | ) | — | — | (4,400 | ) | |||||||||||||||||||||||||
Net unrealized gain on derivatives | ||||||||||||||||||||||||||||||||||||
in related party | — | — | — | — | — | — | 2,969,170 | — | 2,969,170 | |||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | (92,694 | ) | — | (92,694 | ) | |||||||||||||||||||||||||
Net income attributable to non-controlling interest | 1,080,586 | 1,080,586 | ||||||||||||||||||||||||||||||||||
BALANCES, March 31, 2021 | 132,040 | $ | 132 | 49,498,676 | $ | 49,499 | $ | 292,763,040 | $ | (119,403,734 | ) | $ | 1,158,542 | $ | 1,902,233 | $ | 176,469,712 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
Three Months Ended March 31, 2020
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Non-Controlling | Stockholders' | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Equity | ||||||||||||||||||||||||||||
BALANCES, January 1, 2020 | 132,040 | $ | 132 | 3,318,390 | $ | 3,318 | $ | 101,099,347 | $ | (88,650,465 | ) | $ | (5,511,624 | ) | $ | 8,242 | $ | 6,948,950 | ||||||||||||||||||
Stock based compensation: | ||||||||||||||||||||||||||||||||||||
Options | — | — | — | — | 19,956 | — | — | — | 19,956 | |||||||||||||||||||||||||||
Common stock | — | — | 65,000 | 65 | 73,385 | — | — | — | 73,450 | |||||||||||||||||||||||||||
Issuance of common stock in payment of | ||||||||||||||||||||||||||||||||||||
short term advances, related party | — | — | 660,667 | 661 | 739,287 | — | — | — | 739,948 | |||||||||||||||||||||||||||
Issuance of common stock in payment of | ||||||||||||||||||||||||||||||||||||
accrued liabilities | — | — | 12,500 | 13 | 73,141 | — | — | — | 73,154 | |||||||||||||||||||||||||||
Issuance of common stock for conversion | ||||||||||||||||||||||||||||||||||||
of debt | — | — | 1,345,164 | 1,345 | 2,118,617 | — | — | — | 2,119,962 | |||||||||||||||||||||||||||
Beneficial conversion feature in connection | ||||||||||||||||||||||||||||||||||||
with convertible notes | — | — | — | — | 20,345 | — | — | — | 20,345 | |||||||||||||||||||||||||||
Fair value of warrants issued in connection | ||||||||||||||||||||||||||||||||||||
with convertible notes | — | — | — | — | 414,895 | — | — | — | 414,895 | |||||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (6,531,548 | ) | — | — | (6,531,548 | ) | ||||||||||||||||||||||||||
Preferred dividends | — | — | — | — | — | (4,460 | ) | — | — | (4,460 | ) | |||||||||||||||||||||||||
Net unrealized loss on derivatives | ||||||||||||||||||||||||||||||||||||
in related party | — | — | — | — | — | — | (1,242,094 | ) | — | (1,242,094 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | (148,607 | ) | — | (148,607 | ) | |||||||||||||||||||||||||
BALANCES, March 31, 2020 | 132,040 | $ | 132 | 5,401,721 | $ | 5,402 | $ | 104,558,973 | $ | (95,186,473 | ) | $ | (6,902,325 | ) | $ | 8,242 | $ | 2,483,951 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | 3,077,967 | $ | (6,531,548 | ) | |||
Less: Net loss from discontinued operations | — | (1,697,744 | ) | |||||
Net income (loss) from continuing operations | 3,077,967 | (4,833,804 | ) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation | 161,713 | 174,947 | ||||||
Amortization | 104,130 | 83,285 | ||||||
Amortization of right-of-use assets | 228,703 | 122,034 | ||||||
Amortization, related party | 7,500 | 7,500 | ||||||
Interest expense – debt discount | 20,044 | 677,022 | ||||||
Gain on extinguishment of debt | (481,533 | ) | — | |||||
Change in fair value of warrant liability | 678,769 | (4,411 | ) | |||||
Accretion of original issue discount on notes receivable – related party | (3,870 | ) | — | |||||
Accretion of original issue discount on notes receivable | (64,596 | ) | (3,738 | ) | ||||
Increase in accrued interest on notes receivable – related party | (745 | ) | — | |||||
Stock-based compensation | 19,602 | 122,763 | ||||||
Realized losses on other investments | — | 27,500 | ||||||
Realized gains on sale of marketable securities | (4,891,601 | ) | (14,442 | ) | ||||
Unrealized (gains) losses on marketable equity securities | (2,259,739 | ) | 121,068 | |||||
Unrealized (gains) losses on equity securities – related party | (153,576 | ) | 181,990 | |||||
Unrealized (gains) losses on equity securities | (57,560 | ) | 92,930 | |||||
Provision for loan losses | - | 1,000,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Marketable equity securities | (8,869,664 | ) | — | |||||
Accounts receivable | 300,848 | (607,615 | ) | |||||
Accrued revenue | 104,231 | 403,955 | ||||||
Inventories | (117,654 | ) | 25,590 | |||||
Prepaid expenses and other current assets | (90,656 | ) | 103,636 | |||||
Other assets | (85,525 | ) | (46,813 | ) | ||||
Accounts payable and accrued expenses | (1,709,982 | ) | 894,001 | |||||
Accounts payable, related parties | (3,118 | ) | (9,725 | ) | ||||
Other current liabilities | 77,677 | 480,477 | ||||||
Lease liabilities | (229,812 | ) | (115,350 | ) | ||||
Net cash used in continuing operating activities | (14,238,447 | ) | (1,117,200 | ) | ||||
Net cash provided by discontinued operating activities | — | 1,246 | ||||||
Net cash used in operating activities | (14,238,447 | ) | (1,115,954 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (4,348,871 | ) | (155,981 | ) | ||||
Investment in promissory notes, related parties | (3,594,698 | ) | (50,661 | ) | ||||
Investments in derivative liabilities and common stock, related parties | (4,756,302 | ) | (1,413 | ) | ||||
Investment in real property, related party | (2,670,000 | ) | — | |||||
Purchase of marketable equity securities | - | — | ||||||
Sales of marketable equity securities | 430,124 | 106,589 | ||||||
Investments in debt and equity securities | (1,787,010 | ) | (510 | ) | ||||
Net cash used in investing activities | $ | (16,726,757 | ) | $ | (101,976 | ) |
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,916 | ) | $ | (165 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 128 | 123 | ||||||
Amortization | 6 | — | ||||||
Interest expense – debt discount | 1,239 | — | ||||||
Accretion of original issue discount on notes receivable – related party | (36 | ) | — | |||||
Interest expense on conversion of demand notes to common stock | 13 | — | ||||||
Stock-based compensation | 1,269 | 129 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (737 | ) | 82 | |||||
Inventories | 228 | 243 | ||||||
Prepaid expenses and other current assets | (166 | ) | (60 | ) | ||||
Other assets | (197 | ) | — | |||||
Accounts payable and accrued expenses | 2,083 | (101 | ) | |||||
Accounts payable, related parties | 104 | — | ||||||
Other current liabilities | (595 | ) | (113 | ) | ||||
Net cash (used in) provided by operating activities | (1,577 | ) | 138 | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (22 | ) | (78 | ) | ||||
Purchase of intangible asset | (50 | ) | — | |||||
Purchase of Power-Plus | (409 | ) | — | |||||
Sale of investment | — | 90 | ||||||
Investments – related party | (2,710 | ) | — | |||||
Investment in real property | (300 | ) | — | |||||
Investments – others | (25 | ) | — | |||||
Loans to related parties | (54 | ) | — | |||||
Loans to third parties | (814 | ) | — | |||||
Net cash (used in) provided by investing activities | (4,384 | ) | 12 | |||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of common stock and warrants | 745 | — | ||||||
Proceeds from issuance of preferred stock | 1,540 | — | ||||||
Financing cost in connection with sales of equity securities | (275 | ) | — | |||||
Proceeds from convertible notes payable | 1,514 | — | ||||||
Payments on convertible notes payable | (157 | ) | — | |||||
Proceeds from notes payable – related party | 350 | — | ||||||
Proceeds from notes payable | 785 | — | ||||||
Payments on notes payable | (30 | ) | — | |||||
Proceeds from advances on future receipts | 1,772 | — | ||||||
Payments on advances on future receipts | (439 | ) | — | |||||
Payments of preferred dividends | (8 | ) | — | |||||
Financing cost in connection with sales of debt securities | (122 | ) | — | |||||
Payments on revolving credit facilities, net | (481 | ) | — | |||||
Net cash provided by financing activities | 5,194 | — | ||||||
Effect of exchange rate changes on cash and cash equivalents | 85 | (99 | ) | |||||
Net (decrease) increase in cash and cash equivalents | (682 | ) | 51 | |||||
Cash and cash equivalents at beginning of period | 996 | 1,241 | ||||||
Cash and cash equivalents at end of period | $ | 314 | $ | 1,292 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)
For the Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of common stock and warrants | $ | 124,983,305 | $ | — | ||||
Financing cost in connection with sales of equity securities | (4,064,837 | ) | — | |||||
Proceeds from notes payable | — | 600,000 | ||||||
Proceeds from short-term advances – related party | — | 573,754 | ||||||
Payments on short-term advances – related party | — | (28,779 | ) | |||||
Payments on notes payable | (971,925 | ) | (80,782 | ) | ||||
Payments on advances on future receipts | — | (20,000 | ) | |||||
Payments of preferred dividends | (4,400 | ) | (4,460 | ) | ||||
Payments on revolving credit facilities, net | (7,973 | ) | 231,957 | |||||
Net cash provided by financing activities | 119,934,170 | 1,271,690 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 152,451 | 89,194 | ||||||
Net increase (decrease) in cash and cash equivalents | 89,121,417 | 142,954 | ||||||
Cash and cash equivalents at beginning of period | 18,679,848 | 483,383 | ||||||
Cash and cash equivalents at end of period | $ | 107,801,265 | $ | 626,337 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 658,042 | $ | 38,345 | ||||
Non-cash investing and financing activities: | ||||||||
Cancellation of notes payable into shares of common stock | $ | 449,516 | $ | 1,909,350 | ||||
Payment of accounts payable with digital currency | $ | 118,627 | $ | — | ||||
Cancellation of short term advances, related party into shares | ||||||||
of common stock | $ | — | $ | 739,948 | ||||
Purchase of marketable equity securities for future payment | $ | 33,647,059 | $ | — |
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 69 | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Cancellation of notes payable – related party into shares of common stock | $ | 100 | $ | - | ||||
Cancellation of notes payable into shares of common stock | $ | 648 | $ | - | ||||
Cancellation of note payable – related party into series B convertible preferred stock | $ | 500 | $ | - | ||||
Cancellation of convertible note payable into shares of common stock | $ | 145 | $ | - | ||||
In connection with the Company's acquisition of Microphase Corporation, equity instruments were issued and liabilities assumed during 2017 as follows: | ||||||||
Fair value of assets acquired | $ | 7,893 | ||||||
Equity instruments issued | (1,451 | ) | ||||||
Minority interest | (945 | ) | ||||||
Liabilities assumed | $ | 5,497 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT GLOBAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited
March 31, 2021
1. DESCRIPTION OF BUSINESS
Ault Global Holdings, Inc., a Delaware corporation (“Ault Global” or the “Company”), formerly known as DPW Holdings, was incorporated in 1969, under the General Corporation Law of the State of California. Digital Power and Digital Power Limited ("DP Limited"),September 2017. The Company is a wholly owned subsidiary, located in the United Kingdom, are currentlydiversified holding company owning subsidiaries engaged in the design, manufacturefollowing operating businesses: commercial and sale of switching power suppliesdefense solutions, commercial lending and converters. On November 30, 2016,advanced textile technology. The Company’s wholly-owned operating subsidiaries are Gresham Worldwide, Inc. (“GWW”), Coolisys Technologies Corp. (“Coolisys”), Gresham Power Electronics Ltd. (f/k/a Digital Power formedLimited) (“Gresham Power”), Relec Electronics Ltd. (“Relec”), Digital Power Lending, LLC (“(“DP Lending”), Ault Alliance, Inc. (“Ault Alliance”), Ault Disruptive Technologies Company, LLC and on April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”Tansocial LLC (“Tansocial”). Both DP LendingThe Company also has a controlling interest in Enertec Systems 2001 Ltd (“Enertec”), Microphase Corporation (“Microphase”) and Alliance Cloud Services, LLC (“Alliance Cloud Services”). The Company has three reportable segments:
· | GWW – defense solutions with operations conducted by Microphase, Enertec, Gresham Power and Relec, |
· | Coolisys – commercial electronics solutions, and |
· | Ault Alliance – commercial lending and digital learning through DP Lending, Alliance Cloud Services and Tansocial. |
During March 2020, the Company ceased restaurant operations at I.AM, Inc. (“I.AM”). Management determined that the permanent closing of the restaurant operations at I.AM, which owned and operated the Prep Kitchen brand restaurants located in the San Diego area, met the criteria for presentation as discontinued operations. Accordingly, the results of the restaurant operations segment are wholly-owned subsidiaries. DP Lending is engagedpresented as discontinued operations in providing commercial loans to companies throughoutour condensed consolidated statements of operations and comprehensive loss and are excluded from continuing operations for all periods presented. On November 2, 2020, I.AM filed a voluntary petition for bankruptcy under Chapter 7 in the United States to provide them with operating capital to finance the growth of their businesses. The loans will primarily be short-term, ranging from six to twelve months. The Company intends to operate its existing businessesBankruptcy Court in the customizedCentral District of California, Santa Ana Division, case number 8:20-bk-13076. As a result of I.AM’s bankruptcy filing on November 2, 2020, Ault Global ceded authority for managing the business to the Bankruptcy Court. For this reason, the Company concluded that Ault Global had lost control of I.AM, and flexible power system solutions forno longer had significant influence over I.AM. Therefore, the medical, military, telecom and industrial markets, other thanCompany deconsolidated I.AM effective with the European markets which are primarily served by DP Limited, in Coolisys. On June 2, 2017, Digital Power purchased 56.4%filing of the outstanding equity interestsChapter 11 bankruptcy in November 2020.
In March 2021, the Company resumed cryptocurrency mining operations due to several factors, which had positively affected the number of Microphase Corporation,active miners the Company operated, including the market prices of digital currencies, and favorable power costs available at the Michigan cloud data center purchased on January 29, 2021.
On January 19, 2021, the Company changed its corporate name from DPW Holdings, Inc., to Ault Global Holdings, Inc. The name change was effected through a Delaware corporation (the “Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) delivering radio frequency (“RF”)parent/subsidiary short merger pursuant to an agreement and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assembliesplan of merger dated January 7, 2021. The merger and detector logarithmic video amplifiers (“DLVA”) toresulting name change do not affect the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut. Further, on September 1, 2017, Coolisys acquired allrights of security holders of the outstanding membership interests in Power-Plus Technical Distributors, LLC, a California limited liability company (“Power-Plus”). Power-Plus is an industrial distributor of value added power supply solutions, UPS systems, fans, filters, line cords, and other power-related components.Company. The Company’s results of operations includecommon stock continues to be quoted on the results of Microphase and Power-Plus from their respective acquisition dates forward. Digital Power, DP Limited, Microphase, Coolisys, Power-Plus and DP Lending (collectively,NYSE American under the “Company”) has two reportable geographic segments - North America (sales through Digital Power, Microphase, Coolisys, Power-Plus and DP Lending) and Europe (sales through DP Limited)symbol “DPW”.
2. LIQUIDITY GOING CONCERN AND MANAGEMENT’S PLANS
As of September 30, 2017,March 31, 2021, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212 and a negative$107.8 million, working capital of $4,174. The Company has incurred recurring losses$119.5 million and reported losses for the three and nine months ended September 30, 2017, totaled $1,967 and $4,700, respectively.total stockholders’ equity of $176.5 million. In the past, the Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below,the three months ended March 31, 2021, the Company continuescontinued to successfully obtain additional equity financing.
The Company believes its current cash on hand is sufficient to meet its operating and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“(“GAAP”). The Company has made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from our estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed with the Securities and Exchange Commission on April 10, 2017.15, 2021. The condensed consolidated balance sheet as of December 31, 20162020 was derived from the Company’s audited 20162020 financial statements contained in the above referenced Form 10-K. Results of the three and nine months ended September 30, 2017,March 31, 2021, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
Significant Accounting Policies
There have been eliminatedno material changes in consolidation.
Fair value of Financial Instruments
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.
The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputsinclude those that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2:
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations. All significant inputs used in our valuations are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets orLevel 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, tradeaccounts receivables and tradeaccounts and other receivable – related party, investments, notes receivable, trade payables and trade payables – related party approximate their fair value due to the short-term maturities of such instruments.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company has completed its evaluation process and the January 1, 2021 adoption did not have a material impact to the Company’s consolidated financial statements for the three months ended March 31, 2021.
4. Revenue Disaggregation
The following tables summarize disaggregated customer contract revenues and the source of September 30, 2017the revenue for the three months ended March 31, 2021 and December2020. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are not considered to be revenues from contracts with customers under GAAP.
The Company’s disaggregated revenues consist of the following for the three months ended March 31, 2016,2021 and 2020:
Three Months ended March 31, 2021 | ||||||||||||||||
GWW | Coolisys | Ault Alliance | Total | |||||||||||||
Primary Geographical Markets | ||||||||||||||||
North America | $ | 1,889,262 | $ | 1,207,400 | $ | 302,039 | $ | 3,398,701 | ||||||||
Europe | 1,910,002 | 109,141 | — | 2,019,143 | ||||||||||||
Middle East | 2,389,063 | — | — | 2,389,063 | ||||||||||||
Other | 161,692 | 65,808 | — | 227,500 | ||||||||||||
Revenue from contracts with customers | 6,350,019 | 1,382,349 | 302,039 | 8,034,407 | ||||||||||||
Revenue, lending and trading activities | 5,210,222 | 5,210,222 | ||||||||||||||
Total revenue | $ | 6,350,019 | $ | 1,382,349 | $ | 5,512,261 | $ | 13,244,629 | ||||||||
Major Goods | ||||||||||||||||
RF/Microwave Filters | $ | 1,214,901 | $ | — | $ | — | $ | 1,214,901 | ||||||||
Detector logarithmic video amplifiers | 71,070 | — | — | 71,070 | ||||||||||||
Power Supply Units | 238,423 | 1,382,349 | — | 1,620,772 | ||||||||||||
Power Supply Systems | 2,233,287 | — | — | 2,233,287 | ||||||||||||
Healthcare diagnostic systems | 184,725 | — | — | 184,725 | ||||||||||||
Defense systems | 2,407,613 | — | — | 2,407,613 | ||||||||||||
Digital currency mining | 129,896 | 129,896 | ||||||||||||||
Other | — | — | 172,143 | 172,143 | ||||||||||||
Revenue from contracts with customers | 6,350,019 | 1,382,349 | 302,039 | 8,034,407 | ||||||||||||
Revenue, lending and trading activities | 5,210,222 | 5,210,222 | ||||||||||||||
Total revenue | $ | 6,350,019 | $ | 1,382,349 | $ | 5,512,261 | $ | 13,244,629 | ||||||||
Timing of Revenue Recognition | ||||||||||||||||
Goods transferred at a point in time | $ | 3,757,681 | $ | 1,382,349 | $ | 302,039 | $ | 5,442,069 | ||||||||
Services transferred over time | 2,592,338 | — | — | 2,592,338 | ||||||||||||
Revenue from contracts with customers | $ | 6,350,019 | $ | 1,382,349 | $ | 302,039 | $ | 8,034,407 |
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Three Month ended March 31, 2020 | ||||||||||||||||
GWW | Coolisys | Ault Alliance | Total | |||||||||||||
Primary Geographical Markets | ||||||||||||||||
North America | $ | 1,672,726 | $ | 866,928 | $ | - | $ | 2,539,654 | ||||||||
Europe | 310,569 | 227,328 | — | 537,897 | ||||||||||||
Middle East | 2,306,288 | — | — | 2,306,288 | ||||||||||||
Other | 97,864 | 87,579 | — | 185,443 | ||||||||||||
Revenue from contracts with customers | 4,387,447 | 1,181,835 | - | 5,569,282 | ||||||||||||
Revenue, lending and trading activities | 36,152 | 36,152 | ||||||||||||||
Total revenue | $ | 4,387,447 | $ | 1,181,835 | $ | 36,152 | $ | 5,605,434 | ||||||||
Major Goods | ||||||||||||||||
RF/Microwave filters | $ | 1,501,380 | $ | — | $ | — | $ | 1,501,380 | ||||||||
Detector logarithmic video amplifiers | 288,846 | — | — | 288,846 | ||||||||||||
Power supply units | — | 1,181,835 | — | 1,181,835 | ||||||||||||
Power supply systems | 290,933 | — | — | 290,933 | ||||||||||||
Healthcare diagnostic systems | 214,303 | — | — | 214,303 | ||||||||||||
Defense systems | 2,091,985 | — | — | 2,091,985 | ||||||||||||
Revenue from contracts with customers | 4,387,447 | 1,181,835 | - | 5,569,282 | ||||||||||||
Revenue, lending and trading activities | 36,152 | 36,152 | ||||||||||||||
Total revenue | $ | 4,387,447 | $ | 1,181,835 | $ | 36,152 | $ | 5,605,434 | ||||||||
Timing of Revenue Recognition | ||||||||||||||||
Goods transferred at a point in time | $ | 2,081,159 | $ | 1,181,835 | $ | - | $ | 3,262,994 | ||||||||
Services transferred over time | 2,306,288 | — | — | 2,306,288 | ||||||||||||
Revenue from contracts with customers | $ | 4,387,447 | $ | 1,181,835 | $ | - | $ | 5,569,282 |
Sales of Products
The Company generates revenues from the fair valuesale of its products through a direct and indirect sales force. The Company’s performance obligations to deliver products are satisfied at the point in time when products are received by the customer, which is when the customer obtains control over the goods. The Company provides standard assurance warranties, which are not separately priced, that the products function as intended. The Company primarily receives fixed consideration for sales of product. Some of the Company’s investments were $3,782contracts with distributors include stock rotation rights after six months for slow moving inventory, which represents variable consideration. The Company uses an expected value method to estimate variable consideration and $1,036, respectively, and were concentratedconstrains revenue for estimated stock rotations until it is probable that a significant reversal in debt and equity securitiesthe amount of AVLP, a related party (See Note 4), which are classified as available-for-sale investments. At Septembercumulative revenue recognized will not occur. To date, returns have been insignificant. The Company’s customers generally pay within 30 2017,days from the Company's investment in AVLP is comprisedreceipt of convertible promissory notes of $3,670, net of unamortized discount, and marketable equity securities of $112. At December 31, 2016, the Company's investment in AVLP is comprised of convertible promissory notes of $952, net of unamortized discount, and marketable equity securities of $84. For investments in marketable equity securities, the Company took into consideration general market conditions, the duration and extent to which the fair value is below cost, andan invoice.
Because the Company’s ability and intent to hold the investment for a sufficient periodproduct sales agreements have an expected duration of time to allow for recovery of value in the foreseeable future. As a result of this analysis,one year or less, the Company has determined thatelected to adopt the practical expedient in ASC 606-10-50-14(a) of not disclosing information about its cost basisremaining performance obligations.
Manufacturing Services
The Company provides manufacturing services in AVLP equitable securities approximatesexchange primarily for fixed fees; however, the current fair value.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
For manufacturing services, which include revenues generated by Enertec and in certain instances revenues generated by Gresham Power, the Company’s performance obligation for manufacturing services is satisfied over time as the Company creates or enhances an asset based on criteria that are unique to the customer and that the customer controls as the asset is created or enhanced. Generally, the Company recognizes revenue based upon proportional performance over time using a cost ofto cost method which measures progress based on the costs incurred to total expected costs in satisfying its convertible promissory notes approximates fair value and are subject toperformance obligation. This method provides a periodic impairment review. The interest income, including amortizationdepiction of the discount arising at acquisition, forprogress in providing the convertible promissory notesmanufacturing service because there is a direct relationship between the costs incurred by the Company and the transfer of the manufacturing service to the customer. Manufacturing services that are recognized based upon the proportional performance method are included in earnings. In the future, ifabove table as services transferred over time and to the extent the customer has not been invoiced for these revenues, as accrued revenue in the accompanying consolidated balance sheets. Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the consolidated financial statements in the periods in which they are first identified.
The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component to the extent that the period between when the Company does not expecttransfers its promised good or service to recover the entire amortized cost basis,customer and when the customer pays in one year or less.
The aggregate amount of the transaction price allocated to the performance obligation that is partially unsatisfied as of March 31, 2021, for the MLSE units was $48.0 million, representing 24 MLSE units. Based on our expectations regarding funding of the production process and our experience building the first machines, the Company shallexpects to recognize other-than-temporary impairmentsthe remaining revenue related to the partially unsatisfied performance obligation over an estimated three year period. The Company will be paid in installments for this performance obligation over the estimated period that the remaining revenue is recognized.
Lending Activities and Trading Activities
Ault Alliance, through DP Lending, generates revenue from lending activities primarily through interest, origination fees and late/other comprehensivefees. Interest income (loss).
Financial instruments utilized in trading activities are carried at fair value. Fair value is generally based on quoted market prices for the same or similar assets and liabilities. If these market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where the determination of fair value may require significant management judgment or estimation. Realized gains and losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in revenue from lending activities.
Blockchain Mining
The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company purchased atprovides computing power to the market sharesmining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of common stockthe fixed digital currency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of three companies for a total cost of $25. In accordancerevenues), for successfully adding a block to the blockchain. The Company’s factional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with ASC No. 320-10, these investments are accounted for pursuant tomining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value method based uponat contract inception or the closingtime the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the digital currency award received is determined using the market pricesrate of common stockthe related digital currency at the time of receipt.
There is currently no specific definitive guidance under GAAP or alternative accounting framework for these three companies at September 30, 2017.
Expenses associated with running the cryptocurrency mining business, such as equipment deprecation and electricity cost are recorded as a component of cost of revenues.
5. fair value of financial instruments
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
Fair Value Measurement at March 31, 2021 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investments in convertible and term promissory notes of AVLP and Ault & Company – related parties | $ | 13,467,783 | $ | — | $ | — | $ | 13,467,783 | ||||||||
Investments in common stock and derivative instruments of AVLP – a related party | 10,335,348 | 819,324 | — | 9,516,024 | ||||||||||||
Investment in common stock and warrants of Alzamend – a related party | 4,487,091 | — | — | 4,487,091 | ||||||||||||
Investments in marketable equity securities | 18,153,863 | 18,153,863 | — | — | ||||||||||||
Securities purchased under agreement to resell | 33,647,059 | 33,647,059 | ||||||||||||||
Investments in debt and equity securities | 2,320,539 | — | 506,574 | 1,813,965 | ||||||||||||
Total Investments | $ | 82,411,683 | $ | 52,620,246 | $ | 506,574 | $ | 29,284,863 |
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Fair Value Measurement at September 30, 2017 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investments – AVLP – a related party | $ | 3,782 | $ | 112 | $ | 3,670 | $ | — | ||||||||
Investments in other companies | $ | 25 | $ | 25 | $ | — | $ | — | ||||||||
Fair Value Measurement at December 31, 2016 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investments – AVLP – a related party | $ | 1,036 | $ | 84 | $ | 952 | $ | — |
Fair Value Measurement at December 31, 2020 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investments in convertible promissory notes and advances of AVLP and Alzamend – related parties | $ | 10,668,470 | $ | — | $ | — | $ | 10,668,470 | ||||||||
Investments in common stock and derivative instruments of AVLP – a related party | 5,486,140 | 499,588 | — | 4,986,552 | ||||||||||||
Investment in common stock and warrants of Alzamend – a related party | 653,251 | — | — | 653,251 | ||||||||||||
Investments in marketable equity securities | 2,562,983 | 2,562,983 | — | — | ||||||||||||
Investments in debt and equity securities | 261,767 | — | — | 261,767 | ||||||||||||
Total Investments | $ | 19,632,611 | $ | 3,062,571 | $ | — | $ | 16,570,040 |
We assess the inputs used to measure fair value using athe three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:
We measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.
We assess the inputs used to measure fair value using the three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market.
Investments
We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.
Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. The Company made an irrevocable election to record available-for-sale debt investments at fair value utilizing the fair value option available under U.S. GAAP. The Company believed that carrying these investments at fair value better portrayed the economic substance of the investments. Under the fair value option, gains and losses on the debt investments are included in unrealized gains/(losses) on investments within net earnings each reporting period. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments .
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Equity investments
The Company accountsfollowing discusses our marketable equity securities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities.
Our marketable equity securities are publicly traded stocks or funds measured at fair value and classified within Level 1 and 2 in the fair value hierarchy because we use quoted prices for debt discount accordingidentical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets.
Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to ASC No. 470-20, Debt with Conversion and Other Options. Debt discounts are amortized through periodic charges to interest expense over the termfair value upon observable transactions for identical or similar investments of the related financial instrument usingsame issuer or impairment (referred to as the effective interest method. Duringmeasurement alternative). Non-marketable equity securities that have been remeasured during the period based on observable transactions are classified within Level 2 or Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3.
We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.
Derivatives
Derivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.
The following table summarizes the changes in investments in debt and equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017,March 31, 2021:
Investments in | ||||
debt and equity | ||||
securities | ||||
Balance at January 1, 2021 | $ | 261,767 | ||
Investment in convertible promissory notes | 500,000 | |||
Investment in warrants | 1,000,000 | |||
Change in fair value of warrants | 57,560 | |||
Accretion of discount | 52,198 | |||
Balance at March 31, 2021 | $ | 2,320,539 |
See Note 12 for the changes in investments in AVLP, Alzamend and Ault & Company recorded amortizationmeasured and carried at fair value on a recurring basis with the use of debt discounts of $652 and $1,239, respectively. The Company did not recognize any debt discountsignificant unobservable inputs (Level 3) during the three and nine months ended September 30, 2016.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
6. Net LossIncome (Loss) per Share
Basic and diluted net income per common share for the three months ended March 31, 2021 are calculated as follows:
For the Three Months Ended March 31, 2021 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income (loss) attributable to Ault Global Holdings | $ | 1,997,381 | ||||||||||
Less: Preferred stock dividends | (4,400 | ) | ||||||||||
Basic earnings per share | ||||||||||||
Net income available to common stockholders | 1,992,981 | 39,256,336 | $ | 0.05 | ||||||||
Effect of dilutive securities | ||||||||||||
Stock options | - | 505,245 | ||||||||||
8% convertible notes, related party | 8,000 | 275,862 | ||||||||||
4% convertible notes | 6,600 | 165,000 | ||||||||||
Diluted earnings per share | ||||||||||||
Income available to common stockholders plus assumed conversions | $ | 2,007,581 | 40,202,443 | $ | 0.05 |
For the three months ended March 31, 2020, net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented,the three months ended March 31, 2020, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. The Company has included 317,460 warrants, with an exercise price of $.01, in its earnings per share calculationthe period. Anti-dilutive securities, which are convertible into or exercisable for the three and nine months ended September 30, 2017. Anti-dilutive securities consistedCompany’s common stock, consist of the following at September 30,
2017 | 2016 | |||||||
Stock options | 2,891,000 | 1,001,000 | ||||||
Warrants | 10,233,199 | — | ||||||
Convertible notes | 3,157,576 | — | ||||||
Conversion of preferred stock | 4,606,131 | — | ||||||
Total | 20,887,906 | 1,001,000 |
March 31, 2020 | ||||
Stock options | 950 | |||
Warrants | 765,422 | |||
Convertible notes | 561,158 | |||
Conversion of preferred stock | 2,232 | |||
Total | 1,329,762 |
7. Discontinued Operations
On March 16, 2020, to try and mitigate the 20,887,906spread of potential common stock equivalents included 6,926,095 in warrants, convertible notes and preferred stock in which the holders are contractually prohibited from exercising or converting the warrants, convertible notes and preferred stock into shares of the Company’s common stock. The restriction shall remain until shareholder approval is received.
In the first quarter of 2020, management determined that the permanent closing of the restaurant operations met the criteria for presentation as discontinued operations. Accordingly, the results of the restaurant operations are presented as discontinued operations in the Company’s condensed consolidated statements of operations and comprehensive income (loss) and are excluded from continuing operations for all periods presented. On November 2, 2020, I.AM filed a voluntary petition for bankruptcy under Chapter 7 in the United States Bankruptcy Court in the Central District of California, Santa Ana Division, case number 8:20-bk-13076. As a result of I.AM’s bankruptcy filing on November 2, 2017, if all2020, Ault Global ceded authority for managing the business to the Bankruptcy Court. For this reason, the Company concluded that Ault Global had lost control of I.AM, and no longer had significant influence over I.AM. Therefore, the Company deconsolidated I.AM effective with the filing of the potential common stock equivalentsChapter 11 bankruptcy in which there are no contractual restrictions upon exercise were converted into shares of the Company’s common stock it would exceed the Company’s authorized shares of common stock.
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Investment in convertible promissory note of AVLP | $ | 3,797 | $ | 997 | ||||
Investment in common stock of AVLP | 112 | 84 | ||||||
Total investment in AVLP P – Gross | 3,909 | 1,081 | ||||||
Less: original issue discount | (127 | ) | (45 | ) | ||||
Total investment in AVLP P – Net | $ | 3,782 | $ | 1,036 |
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
The restaurant operations are included in our results as discontinued operations through March 16, 2020, the year endeddate of closing of the restaurants. The following tables summarize the major classes of line items included in loss from discontinued operations:
For the Three | ||||
Months Ended | ||||
March 31, 2020 | ||||
Revenue | $ | 543,327 | ||
Cost of revenue | (160,310 | ) | ||
Selling and marketing | — | |||
General and administrative | (555,445 | ) | ||
Impairment of property and equipment and right-of-use assets | (1,525,316 | ) | ||
Income (loss) from discontinued operations | $ | (1,697,744 | ) |
8. Marketable Equity Securities
Marketable securities in equity securities with readily determinable market prices consisted of the following as of March 31, 2021 and December 31, 2016,2020:
Marketable equity securities at March 31, 2021 | |||||||||||||||||
Gross unrealized | Gross unrealized | ||||||||||||||||
Cost | gains | losses | Fair value | ||||||||||||||
Common shares | $ | 15,225,347 | $ | 3,733,672 | $ | (805,156 | ) | $ | 18,153,863 |
Marketable equity securities at December 31, 2020 | |||||||||||||||||
Gross unrealized | Gross unrealized | ||||||||||||||||
Cost | gains | losses | Fair value | ||||||||||||||
Common shares | $ | 1,505,686 | $ | 1,083,532 | $ | (26,235 | ) | $ | 2,562,983 |
Marketable equity securities
The following table presents additional information about marketable equity securities:
Marketable | ||||
Equity Securities | ||||
Balance at January 1, 2021 | $ | 2,562,983 | ||
Purchases of marketable equity securities in operations | 62,994,562 | |||
Sales of marketable equity securities in operations | (54,124,898 | ) | ||
Sales of marketable equity securities | (430,124 | ) | ||
Realized gains on marketable equity securities | 4,891,601 | |||
Unrealized gains on marketable equity securities | 2,259,739 | |||
Balance at March 31, 2021 | $ | 18,153,863 |
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
At March 31, 2021 and December 31, 2020, the Company madehad invested in the marketable equity securities of certain publicly traded companies. The Company’s investment in marketable equity securities will be revalued on each balance sheet date. The fair value of the Company’s holdings in marketable equity securities at March 31, 2021and December 31, 2020 is a strategic decisionLevel 1 measurement based on quoted prices in an active market.
At March 31, 2021 and December 31, 2020, the Company also held an investment in a limited partnership. This investment does not have a readily determinable fair value and has been measured at cost less impairment, if any, and adjusted for observable price changes for identical or similar investments.
Naked Brand Group stock purchase agreement
On March 29, 2021, DP Lending entered into a stock purchase agreement with an institutional investor (the “Seller”) to investpurchase 47,058,824 shares of Naked Brand Group Limited (the “NAKD shares”). Under the agreement, DP Lending agreed to sell the NAKD shares and pay the Seller 99% of the net proceeds from the sale. As of March 31, 2021, the fair value of the NAKD shares was $33.6 million and is included in securities purchased under agreement to resell. The Company also recorded a $33.3 million stock purchase consideration payable and a $336,000 contract liability as of March 31, 2021.
9. PROPERTY AND EQUIPMENT, NET
At March 31, 2021 and December 31, 2020, property and equipment consist of:
March 31, 2021 | December 31, 2020 | |||||||
Cryptocurrency machines and related equipment | $ | 593,226 | $ | 567,216 | ||||
Computer, software and related equipment | 3,340,446 | 3,056,711 | ||||||
Office furniture and equipment | 751,272 | 489,315 | ||||||
Land | 2,566,621 | — | ||||||
Building | 1,283,311 | |||||||
Leasehold improvements | 1,343,162 | 1,352,124 | ||||||
9,878,038 | 5,465,366 | |||||||
Accumulated depreciation and amortization | (3,589,324 | ) | (3,342,636 | ) | ||||
Property and equipment, net | $ | 6,288,714 | $ | 2,122,730 |
For the three months ended March 31, 2021 and 2020, depreciation expense amounted to $162,000 and $175,000 respectively.
Acquisition of Michigan Cloud Data Center
On January 29, 2021, Alliance Cloud Services, LLC, a majority-owned subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on the acquisition of a 617,000 square foot energy-efficient facility located on a 34.5 acre site in southern Michigan for a purchase price of $3.9 million. The facility is subject to a final corrective measures plan with the Environment Protection Agency. The seller performed remedial activities at the Michigan facility relating to historical soil and groundwater contamination and the Company is responsible for ongoing monitoring and final remediation plans. The Company’s estimated cost of the environmental remediation obligation is approximately $300,000 and reflects its best estimate of probable future costs for remediation based on the current assessment data and regulatory obligations. Future costs will depend on many factors, including the extent of work necessary to implement monitoring and final remediation plans and the Company’s time frame for remediation. The Company may incur actual costs in the future that are materially different than this estimate and such costs could have a material impact on results of operations, financial condition, and cash flows during the period in which they are recorded.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
10. INTANGIBLE ASSETS, NET
At March 31, 2021 and December 31, 2020 intangible assets consist of:
March 31, 2021 | December 31, 2020 | |||||||
Trade name and trademark | $ | 1,555,571 | $ | 1,551,197 | ||||
Customer list | 3,391,272 | 3,441,654 | ||||||
Domain name and other intangible assets | 665,295 | 689,920 | ||||||
5,612,138 | 5,682,771 | |||||||
Accumulated depreciation and amortization | (1,371,718 | ) | (1,292,383 | ) | ||||
Intangible assets, net | $ | 4,240,420 | $ | 4,390,388 |
The Company’s trade names and trademarks were determined to have an indefinite life. The remaining definite lived intangible assets are primarily being amortized on a straight-line basis over their estimated useful lives. Amortization expense was $104,000 and $83,000, respectively, for the three months ended March 31, 2021 and 2020.
11. GOODWILL
The following table summarizes the changes in our goodwill during the three months ended March 31, 2021:
Goodwill | ||||
Balance as of January 1, 2021 | $ | 9,645,686 | ||
Effect of exchange rate changes | (179,109 | ) | ||
Balance as of March 31, 2021 | $ | 9,466,577 |
12. INVESTMENTS – RELATED PARTIES
Investments in AVLP, Alzamend Neuro, Inc. (“Alzamend”) and Ault and Company, Inc. (“Ault & Company”) at March 31, 2021 and December 31, 2020, are comprised of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Investment in convertible promissory note of AVLP | $ | 13,924,136 | $ | 11,269,136 | ||||
Short term advance in Alzamend | - | 750,000 | ||||||
Investment in convertible promissory note of Alzamend | - | 50,000 | ||||||
Investment in promissory note of Ault & Company | 2,500,000 | - | ||||||
Accrued interest in promissory notes, related parties | 2,027,557 | 2,026,812 | ||||||
Total investment in promissory notes, related parties – gross | 18,451,693 | 14,095,948 | ||||||
Less: original issue discount | (1,560,302 | ) | (3,870 | ) | ||||
Less: provision for loan losses | (3,423,608 | ) | (3,423,608 | ) | ||||
Total investment in promissory notes, related parties | 13,467,783 | 10,668,470 | ||||||
Investment in derivative instruments of AVLP | 9,516,024 | 4,986,552 | ||||||
Investment in common stock of AVLP | 819,324 | 499,588 | ||||||
Investment in common stock and warrants of Alzamend | 4,487,091 | 653,251 | ||||||
Investments in derivatives and common stock, related parties | 14,822,439 | 6,139,391 | ||||||
Total investments, related parties – net | $ | 28,290,222 | $ | 16,807,861 | ||||
Investments in derivatives and common stock, related parties | $ | 14,822,439 | $ | 6,139,391 | ||||
Investment in promissory notes, related parties | 13,467,783 | 10,668,470 | ||||||
Total investment, related parties – net | $ | 28,290,222 | $ | 16,807,861 |
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
The following table summarizes the changes in our investments in AVLP, Alzamend and Ault & Company during the three months ended March 31, 2021:
Investment in | ||||||||||||
Investment in | promissory notes | Total | ||||||||||
warrants and | and advances | investment | ||||||||||
common stock | of AVLP, | in AVLP, | ||||||||||
of AVLP and | Alzamend and | Alzamend and | ||||||||||
Alzamend | Ault & Company | Ault & Company, net | ||||||||||
Balance at January 1, 2021 | $ | 6,139,391 | $ | 10,668,470 | $ | 16,807,861 | ||||||
Investment in convertible promissory notes of AVLP | — | 1,094,698 | 1,094,698 | |||||||||
Investment in convertible promissory note of Alzamend | — | (50,000 | ) | (50,000 | ) | |||||||
Investment in promissory note of Ault & Company | — | 2,500,000 | 2,500,000 | |||||||||
Investment in common stock of AVLP and Alzamend | 3,046,016 | — | 3,046,016 | |||||||||
Investment in warrants of Alzamend | 953,984 | — | 953,984 | |||||||||
Short term advance in Alzamend | — | (750,000 | ) | (750,000 | ) | |||||||
Fair value of derivative instruments issued by AVLP | 1,560,302 | — | 1,560,302 | |||||||||
Unrealized gain in derivative instruments of AVLP | 2,969,170 | — | 2,969,170 | |||||||||
Unrealized loss in warrants of Alzamend | (13,086 | ) | — | (13,086 | ) | |||||||
Unrealized gain in common stock of AVLP and Alzamend | 166,662 | — | 166,662 | |||||||||
Accretion of discount | — | 3,870 | 3,870 | |||||||||
Accrued Interest | — | 745 | 745 | |||||||||
Balance at March 31, 2021 | $ | 14,822,439 | $ | 13,467,783 | $ | 28,290,222 |
Investments in AVLP
The Company’s investments in AVLP, a related party controlled by Philou Ventures, LLC (“Philou”), an existing majority stockholder. The Company’s investments in AVLP primarilyaffiliate of the Company, consist of convertible promissory notes, derivative instruments and shares of AVLP common stockstock. As of AVLP.
At March 31, 2021, the Company recorded a cumulative unrealized gain on its investment in warrants of $0.50 is subjectAVLP of $1.9 million compared to adjustment for customary stock splits, stock dividends, combinations or similar events. The Warrant may be exercised for cash or on a cashless basis.
The fair value of the Company’s holdings in the AVLP warrants was estimated using the Black-Scholes option-pricing method and $38, respectively, ofthe following assumptions:
Exercise price | $0.50 | |
Remaining contractual term (in years) | 1.68 — 5.0 | |
Volatility | 68.7% — $104.6% | |
Weighted average risk free interest rate | 0.13% — 2.98% | |
Expected dividend yield | 0% |
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
The volatility factor was determined based on historical stock prices for similar technology companies with market capitalizations under $100 million. The warrant valuation is a Level 3 measurement.
During the three months ended March 31, 2021 and 2020, no interest income was recognized from the Company’s investment in AVLP. The Company evaluated the collectability of both interest and principal for the discount accretion. Asconvertible promissory notes in AVLP to determine whether there was an impairment. Based on current information and events, primarily the value of September 30, 2017,the underlying conversion feature and December 31, 2016, current economic events, the Company recorded contractual interest receivable attributed toconcluded that an impairment existed. At March 31, 2021, the Company determined that the fair value of the convertible promissory notes in AVLP Notes and AVLP Loan Agreementwas $12.5 million. The Company’s determination of $208 and $13, respectively.
In aggregate, the Company has 999,175 shares of AVLP common stock which represents 18.0% of AVLP’s outstanding shares of common stock. At March 31, 2021, the closing market price of AVLP’s common stock was in$0.82, an increase from $0.50 at December 31, 2020. Based upon the rangeclosing market price of $0.51 and $ 0.85 and due to the illiquidity and significant volatility of AVLP’sAVLP common stock at March 31, 2021, the Company’s investment in AVLP common stock had an unrealized gain of $71,000.
The Company has determined that AVLP is a variable interest entity (“VIE”) as it does not have sufficient equity at risk. The Company does not consolidate AVLP because the Company is not the primary beneficiary and does not have a controlling financial interest. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although the Company has made a significant investment in AVLP, the Company has determined that Philou, which controls AVLP through the voting power conferred by its cost basisequity investment and which is deemed to be more closely associated with AVLP, is the primary beneficiary. As a result, AVLP’s financial position and results of operations are not consolidated in AVLPour financial position and results of operations.
Investments in Alzamend
At December 31, 2020, the Company had provided Alzamend a short-term advance of $750,000 and invested $50,000 in an 8% convertible promissory note. In conjunction with the issuance of the 8% convertible promissory note, Alzamend issued to the Company warrants to purchase 16,667 shares of Alzamend common stock approximatesat an exercise price of $3.00 per share for a period of five years.
On March 9, 2021, DP Lending, entered into a securities purchase agreement with Alzamend to invest $10.0 million in Alzamend common stock and warrants, subject to the currentachievement of certain milestones. DP Lending funded $4.0 million upon execution of the securities purchase agreement, which included the conversion of the short term advance and convertible promissory note in the aggregate amount of $800,000. The remaining $6.0 million will be funded upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, in aggregate, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DP Lending for $10.0 million, or $1.50 per share, and issue to DP Lending warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by the Company’s independent directors after receiving a third-party valuation report of Alzamend.
In addition to the Alzamend common shares purchase on March 9, 2021, the Company also held 427,888 shares of Alzamend common stock that it had acquired in during the years ended December 31, 2020 and 2019 for $252,000. At March 31, 2021, the estimated fair value.
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Investment in thousands, except shareAult & Company, Inc.
On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to the Company. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per share data
13. OTHER INVESTMENTS, RELATED PARTIES
Executive Chairman relocation benefit
On February 23, 2021, as part of a relocation benefit for our Executive Chairman, Milton C. Ault, III, related to the Company moving its corporate headquarters from Newport Beach, CA to Las Vegas, NV, the Company agreed to purchase Mr. Ault’s California residence for $2.7 million. The transaction was structured such that upon the closing of the subsequent sale of the residence, the Company shall have not recognized a gain or a loss on the transaction. The Company has concluded that indicatorsand Mr. Ault agreed to escrow $254,000 of impairment, including those describedthe purchase price in ASC No. 320-10-35-27, do not currently exist for the Company’s investment in debt and equity securitiesevent of AVLP.
14. STOCK-BASED COMPENSATION
The options outstanding as of March 31, 2021, have been classified by exercise price, as follows:
Outstanding | Exercisable | ||||||||||||||||
Weighted | |||||||||||||||||
Average | Weighted | Weighted | |||||||||||||||
Remaining | Average | Average | |||||||||||||||
Exercise | Number | Contractual | Exercise | Number | Exercise | ||||||||||||
Price | Outstanding | Life (Years) | Price | Exercisable | Price | ||||||||||||
$480 - $560 | 894 | 4.70 | $ | 537.34 | 695 | $ | 530.84 | ||||||||||
$1,208 - $1,352 | 25 | 3.00 | $ | 1,336.00 | 25 | $ | 1,336.00 | ||||||||||
$480 - $1,352 | 919 | 4.65 | $ | 559.07 | 720 | $ | 558.82 | ||||||||||
Issuances outside of Plans | |||||||||||||||||
$1.79 | 850,000 | 9.47 | $ | 1.79 | 0 | $ | 0.00 | ||||||||||
Total Options | |||||||||||||||||
$480 - 1,856 | 850,919 | 9.47 | $ | 2.39 | 720 | $ | 558.82 |
On March 31, 2021 and December 31, 2020, there was no aggregate intrinsic value of stock options that were outstanding commonand exercisable. The intrinsic value for stock of Microphase (the “MPC Common Stock”), from the Stockholders in exchange (the “Exchange”) for the issuance by the Company of 1,842,448 shares of Digital Power common stock (“Common Stock”) and 378,776 shares of Digital Power Series D Preferred Stock (collectively, the “Exchange Shares”), which shares of Digital Power Series D Preferred Stock are, subject to shareholder approval, convertible into an aggregate of 757,552 shares of Common Stock and warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of Common Stock (the “Warrant Shares”). The Exchange Shares and the Exchange Warrants are at times collectively referred to herein as the “Exchange Securities.” At the time of the closing of the acquisition the Exchange Shares constituted 56.4% of the outstanding equity interests of Microphase Corporation. The operating results of Microphase from the closing date of the acquisition, June 2, 2017, through September 30, 2017, are included in the consolidated financial statements.
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Microphase | Power-Plus | |||||||
Cash and cash equivalents | $ | 11 | $ | 27 | ||||
Accounts receivable | 439 | 235 | ||||||
Inventories | 667 | 241 | ||||||
Prepaid expenses and other current assets | 139 | 2 | ||||||
Restricted cash | 100 | — | ||||||
Intangible assets | 95 | 250 | ||||||
Property and equipment | 93 | 23 | ||||||
Other investments | 303 | — | ||||||
Deposits and loans | 44 | — | ||||||
Accounts payable and accrued expenses | (1,680 | ) | (392 | ) | ||||
Revolving credit facility | (880 | ) | (210 | ) | ||||
Notes payable | (2,204 | ) | — | |||||
Notes payable, related parties | (406 | ) | — | |||||
Other current liabilities | (327 | ) | — | |||||
Net liabilities assumed/assets acquired | (3,606 | ) | 176 | |||||
Goodwill and other intangibles | 6,002 | 488 | ||||||
Non-controlling interest | (945 | ) | — | |||||
Purchase price | $ | 1,451 | $ | 664 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 3,583 | $ | 3,751 | $ | 10,329 | $ | 12,692 | ||||||||
Net loss | $ | (2,277 | ) | $ | (711 | ) | $ | (4,820 | ) | $ | (1,742 | ) | ||||
Less: Net loss attributable to non-controlling interest | 103 | 290 | 103 | 714 | ||||||||||||
Net loss attributable to Digital Power Corp | $ | (2,144 | ) | $ | (421 | ) | $ | (4,717 | ) | $ | (1,028 | ) | ||||
Preferred deemed dividends | — | — | (319 | ) | — | |||||||||||
Preferred dividends | (27 | ) | — | (35 | ) | — | ||||||||||
Loss available to common shareholders | $ | (2,171 | ) | $ | (421 | ) | $ | (5,071 | ) | $ | (1,028 | ) | ||||
Basic and diluted net loss per common share | $ | (0.14 | ) | $ | (0.05 | ) | $ | (0.40 | ) | $ | (0.12 | ) | ||||
Basic and diluted weighted average common shares outstanding | 15,587,988 | 8,618,419 | 12,727,396 | 8,618,419 | ||||||||||||
Comprehensive Loss | ||||||||||||||||
Loss available to common shareholders | $ | (2,171 | ) | $ | (421 | ) | $ | (5,071 | ) | $ | (1,028 | ) | ||||
Other comprehensive income (loss) | ||||||||||||||||
Change in net foreign currency translation adjustments | 42 | (55 | ) | 141 | (265 | ) | ||||||||||
Net unrealized gain (loss) on securities available-for- sale, net of income taxes | (43 | ) | 186 | (43 | ) | 204 | ||||||||||
Other comprehensive income (loss) | (1 | ) | 131 | 98 | (61 | ) | ||||||||||
Total Comprehensive loss | $ | (2,172 | ) | $ | (290 | ) | $ | (4,973 | ) | $ | (1,089 | ) |
September 30, 2017 | ||||
Weighted average risk free interest rate | 1.73% — 2.14 | % | ||
Weighted average life (in years) | 5.0 | |||
Volatility | 98.41% — 107.22 | % | ||
Expected dividend yield | 0 | % | ||
Weighted average grant-date fair value per share of options granted | $ | 0.45 |
Outstanding | Exercisable | |||||||||||||||||||
Weighted | ||||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||
Price | Outstanding | Life (Years) | Price | Exercisable | Price | |||||||||||||||
$0.57 - $0.79 | 2,425,000 | 9.14 | $ | 0.66 | 1,249,167 | $ | 0.66 | |||||||||||||
$1.10 - $1.32 | 25,000 | 6.10 | $ | 1.28 | 20,000 | $ | 1.27 | |||||||||||||
$1.51 - $1.69 | 441,000 | 5.11 | $ | 1.61 | 378,500 | $ | 1.60 | |||||||||||||
$0.57 - 1.69 | 2,891,000 | 8.50 | $ | 1.10 | 1,647,667 | $ | 0.88 |
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept. 30, 2017 | Sept. 30, 2016 | Sept. 30, 2017 | Sept. 30, 2016 | |||||||||||||
Cost of revenues | $ | 2 | $ | 1 | $ | 6 | $ | 5 | ||||||||
Engineering and product development | 6 | 1 | 20 | 3 | ||||||||||||
Selling and marketing | 8 | 5 | 18 | 13 | ||||||||||||
General and administrative | 349 | 35 | 1,017 | 108 | ||||||||||||
Stock-based compensation from Plans | 365 | 42 | 1,061 | 129 | ||||||||||||
Stock-based compensation from issuances outside of Plans | 152 | — | 208 | — | ||||||||||||
Total stock-based compensation | $ | 517 | $ | 42 | $ | 1,269 | $ | 129 |
A summary of option activity under the Company's stock option plans as of September 30, 2017,March 31, 2021, and changes during the ninethree months ended are as follows:
Outstanding Options | ||||||||||||||||||||
Weighted | ||||||||||||||||||||
Weighted | Average | |||||||||||||||||||
Shares | Average | Remaining | Aggregate | |||||||||||||||||
Available | Number | Exercise | Contractual | Intrinsic | ||||||||||||||||
for Grant | of Shares | Price | Life (years) | Value | ||||||||||||||||
December 31, 2016 | 3,247,630 | 2,331,000 | $ | 0.83 | 9.08 | $ | 0 | |||||||||||||
Restricted stock awards | (1,336,798 | ) | ||||||||||||||||||
Grants | (510,000 | ) | 560,000 | $ | 0.61 | |||||||||||||||
September 30, 2017 | 1,350,832 | 2,891,000 | $ | 0.81 | 8.50 | $ | 0 |
Outstanding Options | |||||||||||||||||||||
Weighted | |||||||||||||||||||||
Weighted | Average | ||||||||||||||||||||
Shares | Average | Remaining | Aggregate | ||||||||||||||||||
Available | Number | Exercise | Contractual | Intrinsic | |||||||||||||||||
for Grant | of Shares | Price | Life (years) | Value | |||||||||||||||||
January 1, 2021 | 6,693 | 925 | $ | 564.43 | 4.87 | $ | — | ||||||||||||||
Forfeited 1 | — | (6 | ) | $ | 1,352.00 | ||||||||||||||||
March 31, 2021 | 6,693 | 919 | $ | 559.07 | 4.65 | $ | — |
1 Includes options that were issued pursuant to the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 30, 2017, $0.55Company’s 2002 Plan and the exercise price, multiplied by the number of in-the-money-options).
15. WARRANTS
During the ninethree months and ended September 30, 2017,March 31, 2021, the Company issued a total of 8,484,073 warrants, at an average exercise price of $0.81 per share. Warrant issuances during the current quarter ended September 30, 2017, included:
Outstanding | Exercisable | |||||||||||||||||||
Weighted | ||||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||
Price | Outstanding | Life (Years) | Price | Exercisable | Price | |||||||||||||||
$0.01 | 317,460 | 9.09 | $ | 0.01 | 79,364 | $ | 0.01 | |||||||||||||
$0.55 | 450,304 | 5.05 | $ | 0.55 | — | — | ||||||||||||||
$0.65 | 272,727 | 2.90 | $ | 0.65 | — | — | ||||||||||||||
$0.66 | 1,475,000 | 4.86 | $ | 0.66 | 1,475,000 | $ | 0.66 | |||||||||||||
$0.70 | 2,428,571 | 4.92 | $ | 0.70 | 690,476 | $ | 0.70 | |||||||||||||
$0.72 | 182,003 | 4.72 | $ | 0.72 | — | — | ||||||||||||||
$0.75 | 244,999 | 4.69 | $ | 0.75 | — | — | ||||||||||||||
$0.80 | 1,415,128 | 2.55 | $ | 0.80 | 1,166,666 | $ | 0.80 | |||||||||||||
$0.90 | 445,002 | 3.05 | $ | 0.90 | 265,000 | $ | 0.90 | |||||||||||||
$1.00 | 2,002,005 | 4.68 | $ | 1.00 | — | — | ||||||||||||||
$1.10 | 1,000,000 | 2.67 | $ | 1.10 | — | — | ||||||||||||||
$0.01 - 1.10 | 10,233,199 | 4.26 | $ | 0.79 | 3,676,506 | $ | 0.32 |
Outstanding | Exercisable | ||||||||||||||||
Weighted | |||||||||||||||||
Average | Weighted | Weighted | |||||||||||||||
Remaining | Average | Average | |||||||||||||||
Exercise | Number | Contractual | Exercise | Number | Exercise | ||||||||||||
Price | Outstanding | Life (Years) | Price | Exercisable | Price | ||||||||||||
$ — | 6,500 | 3.00 | $ | — | 6,500 | $ | — | ||||||||||
$0.88 - $1.91 | 3,237,016 | 4.05 | $ | 1.43 | 3,237,016 | $0.88 - $1.91 | |||||||||||
$8.00 - $19.80 | 53,452 | 3.13 | $ | 12.74 | 53,452 | $8.00 - $19.80 | |||||||||||
$440 - $920 | 16,225 | 1.95 | $ | 733.40 | 16,225 | $440 - $920 | |||||||||||
$1,040 - $2,000 | 2,367 | 1.93 | $ | 1,404.85 | 2,367 | $1,040 - $2,000 | |||||||||||
$0.88 - $2,000 | 3,315,560 | 4.02 | $ | 6.19 | 3,315,560 | $ | 6.19 |
Warrant issuances during 2020 requiring shareholder approval
Rule 713 of the NYSE American, the national securities exchange on which the Common Stock is listed, requires stockholder approval of a transaction, other than a public offering, involving the sale, issuance or potential issuance by an issuer of Common Stock (or securities convertible into or exercisable for Common Stock) at a price less than the greater of book or market value which together with sales by officers, directors or principal stockholders of the issuer equals 20% or more of presently outstanding Common Stock, or equal to 20% or more of presently outstanding stock for less than the greater of book or market value of the stock, or when the issuance or potential issuance of additional shares will result in a change of control of the issuer. Accordingly, absent shareholder approval, the holders of warrants issued between October 22, 2020 and November 19, 2020 to purchase an aggregate of 2,627,394 shares of Common Stock are prohibited from exercising the warrants and receiving shares of Common Stock unless stockholder approval is obtained for the warrants. The Company anticipates seeking stockholder approval for the exercise of all the warrants during July 2021.
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
The Company utilized the Black-Scholes option pricing model and the assumptions used during the ninethree months ended September 30, 2017:
September 30, 2017 | ||||
Weighted average risk free interest rate | 1.42% — 2.01 | % | ||
Weighted average life (in years) | 4.9 | |||
Volatility | 98.5% — 107.5 | % | ||
Expected dividend yield | 0 | % | ||
Weighted average grant-date fair value per share of warrants granted | $ | 0.41 |
Exercise price | $0.88 - $1.91 |
Remaining contractual term (in years) | 5.0 |
Volatility | 86.3% |
Weighted average risk free interest rate | 0.46% — 1.38% |
Expected dividend yield | 0% |
16. OTHER CURRENT LIABILITIES
Other current liabilities at March 31, 2021 and September 13, 2017, the Company received funding as a result of entering into multiple AgreementsDecember 31, 2020 consist of:
March 31, 2021 | December 31, 2020 | |||||||
Accrued payroll and payroll taxes | $ | 1,497,374 | $ | 1,411,728 | ||||
Warranty liability | 91,043 | 90,640 | ||||||
Other accrued expenses | 248,520 | 287,457 | ||||||
$ | 1,836,937 | $ | 1,789,825 |
17. LEASES
We have operating leases for the Purchase and Sale of Future Receipts with TVT Capital, LLC pursuant to which the Company sold in the aggregate $2,585 in future receipts of the Company for $1,772. Under theoffice space. Our leases have remaining lease terms of 2 month to 11 years, some of which may include options to extend the agreements,leases perpetually, and some of which may include options to terminate the Company will be obligated to pay the initial daily amountleases within 1 year.
The following table provides a summary of $13 until the $2,585 has been paid in full. Asleases by balance sheet category as of September 30, 2017, the Company had paid back $439. March 31, 2021:
March 31, 2021 | ||||
Operating right-of-use assets | $ | 4,816,798 | ||
Operating lease liability - current | 855,933 | |||
Operating lease liability - non-current | 4,020,877 |
The term future receipts means cash, check, ACH, credit card, debit card, bank card, charged card or other formcomponents of monetary payment. The
Three Months Ended | ||||
March 31, 2021 | ||||
Operating lease cost | $ | 345,755 | ||
Short-term lease cost | — | |||
Variable lease cost | — |
The following tables provides a summary of other information related to leases for the period from June 3, 2017 (date loan was assumed) to September 30, 2017, was $35 and $49, respectively.
March 31, 2021 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 346,864 | ||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | — | ||
Weighted-average remaining lease term - operating leases | 6.4 years | |||
Weighted-average discount rate - operating leases | 9.0 | % |
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
The Company determined that using a discount rate of 9% is reasonable, as a result of a notice that Microphase received from Gerber identifying several events of default underthis is consistent with the mortgage rates for commercial properties for the time period commensurate with the terms of the Revolving Credit Facility, Microphase and Gerber entered into a Forbearance Agreement. The eventsleases.
Maturity of default were primarily related to, (i) the change in control that occurred on June 2, 2017, when Digital Power acquired a majority interest in Microphase, and (ii) borrowingslease liabilities under the Revolving Credit Facility exceeding the collateral borrowing base. The Forbearance agreement accelerated the repaymentour non-cancellable operating leases as of borrowings that were secured by inventories and equipment until such borrowings were repaid and required the Company to provide a corporate guarantee for amounts advanced under the Revolving Credit Facility, which guarantee was provided on July 20, 2017. As of September 30, 2017, approximately $65 of borrowings subject to acceleration remained outstanding on the Revolving Credit Facility.
Payments due by period | ||||
2021 (remainder) | $ | 1,033,945 | ||
2022 | 1,292,334 | |||
2023 | 992,390 | |||
2024 | 914,693 | |||
2025 | 697,692 | |||
Thereafter | 1,793,975 | |||
Total lease payments | 6,725,029 | |||
Less interest | (1,848,219 | ) | ||
Present value of lease liabilities | $ | 4,876,810 |
18. NOTES PAYABLE
Notes Payable at September 30, 2017,March 31, 2021 and December 31, 2020, are comprised of the following. At December 31, 2016following:
March 31, 2021 | December 31, 2020 | |||||||
Esousa purchased notes | $ | — | $ | 200,000 | ||||
Short-term notes payable | 1,087,491 | 1,088,899 | ||||||
Notes payable to Wells Fargo | 174,290 | 182,615 | ||||||
Note payable to Dept. of Economic and Community Development | 185,546 | 196,597 | ||||||
Paycheck Protection Program Loans | 447,201 | 1,162,302 | ||||||
SBA Economic Injury Disaster Loan | 150,000 | 150,000 | ||||||
Short term bank credit | 429,195 | 1,404,096 | ||||||
Total notes payable | $ | 2,473,723 | $ | 4,384,509 | ||||
Less: current portion | (2,154,676 | ) | (4,048,009 | ) | ||||
Notes payable – long-term portion | $ | 319,047 | $ | 336,500 |
Master Exchange Agreement
On February 10, 2020, the Company did not have any Notes Payable.
September 30, | ||||
2017 | ||||
10% short-term promissory notes (a) | $ | 705 | ||
Notes payable to Lucosky Brookman, LLP (b) | 450 | |||
Notes payable to Wells Fargo (c) | 304 | |||
Note payable to Department of Economic and Community Development (d) | 298 | |||
Note payable to People's United Bank ( e) | 19 | |||
Power-Plus Credit Facilities (f) | 182 | |||
Note payable to Power-Plus Member (g) | 255 | |||
Other short-term notes payable (h) | 55 | |||
Total notes payable | 2,268 | |||
Less: current portion | (1,609 | ) | ||
Notes payable – long-term portion | $ | 659 |
22Paycheck Protection Program
During April 2020, the Company received loans under the Paycheck Protection Program (“PPP”)in the principal amount of $715,000 and the Company’s majority owned subsidiary, Microphase, received loans in the principal amount of $467,000. The principal of the loan may be forgiven up to the total cost of payroll, mortgage interest payments, rent and utility payments made during the eight-week period after origination. On January 11, 2021, the Company received forgiveness in the principal amount of $715,000. The Company expects the remaining amount received under the PPP shall also be forgiven.
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
19. NOTES PAYABLE – RELATED PARTIES Notes Payable – Related parties at March 31, 2021 and December 31, 2020, are comprised of the following:
Microphase is a party to several notes payable agreements with six of its past officers, employees and their family members. As of March 31, 2021, the aggregate outstanding balance pursuant to these notes payable agreements, inclusive of $33,000 of accrued interest, was $248,000, with annual interest rates ranging between 3.00% and 6.00%. 20. CONVERTIBLE NOTES Convertible Notes Payable at March 31, 2021 and December 31, 2020, are comprised of the following:
4% Convertible Promissory Note On May 20, 2019, the Company entered into a securities purchase agreement with an investor to sell, for a purchase price of $500,000, a 4% original issue discount (“OID”) convertible promissory note with an aggregate principal face amount of $660,000 and a five-year warrant to purchase an aggregate of 12,500 shares of |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Notes payable to MCKEA Holdings, LLC (a) | $ | — | $ | 250 | ||||
Notes payable to former officer and employee (b) | 406 | — | ||||||
Total notes payable | 406 | 250 | ||||||
Less: current portion | (274 | ) | — | |||||
Notes payable – long-term portion | $ | 132 | $ | 250 |
September 30, | ||||
2017 | ||||
10% Convertible secured notes | $ | 880 | ||
12% Convertible secured note | 400 | |||
Total convertible notes payable | 1,280 | |||
Less: | ||||
Unamortized debt discounts | (726 | ) | ||
Unamortized financing cost | (89 | ) | ||
Total convertible notes payable, net of debt discounts and financing cost | $ | 465 |
The Company computed the fair value of the 666,666 warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $167 based$58,000based on the estimated fair value of the 666,666 warrants.
In aggregate, the Company recorded a debt discount in the amount of $207 based on the relative fair values of the 666,666 warrants and OID of $40. During the three and nine months ended September 30, 2017, non-cash interest expense of $37 was recorded from the amortization of debt discounts.
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
12% Convertible secured note | $ | 530 | $ | 530 | ||||
Less: | ||||||||
Unamortized debt discounts | (355 | ) | (484 | ) | ||||
Unamortized financing cost | (9 | ) | (12 | ) | ||||
Convertible note – related party, net of debt discounts and financing cost | $ | 166 | $ | 34 |
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
21. COMMITMENTS AND CONTINGENCIES
Blockchain Mining Supply and Services, Ltd.
On November 28, 2018, Blockchain Mining Supply and Services, Ltd. (“Blockchain Mining”) a vendor who sold computers to our subsidiary, filed a Complaint (the “Complaint”) in thousands, except sharethe United States District Court for the Southern District of New York against us and per share data
The Convertible Note contains standardComplaint asserts claims for breach of contract and customary events of default including, but not limited to,promissory estoppel against the Company and its subsidiary arising from the subsidiary’s alleged failure to make payments when duehonor its obligations under the Convertible Note agreementpurchase agreement. The Complaint seeks monetary damages in excess of $1,388,495, plus attorneys’ fees and bankruptcy or insolvencycosts.
The Company intends to vigorously defend against the claims asserted against it in this action.
On April 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against us, and the promissory estoppel claim as against its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Complaint in connection with the breach of contract claim.
On April 29, 2020, Blockchain Mining filed an amended complaint (the “Amended Complaint”). The Amended Complaint asserts the same causes of action and seeks the same damages as the initial Complaint.
On May 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Amended Complaint in its entirety as against the Company, and the promissory estoppel claim as against of its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Amended Complaint in connection with the breach of contract claim.
In its partial Answer, the Company’s subsidiary admitted to the validity of the Company. Upon 30 days’ notice,contract at issue and also asserted numerous affirmative defenses concerning the proper calculation of damages.
On December 4, 2020, the Court issued an Order directing the Parties to engage in limited discovery (the “Limited Discovery”) to be completed by March 4, 2021. In connection therewith, the Court also denied the defendants’ Motion to Dismiss without prejudice.
The Company and its subsidiary have informed the Court that they intend to file a revised motion to dismiss the Amended Complaint and anticipate filing such motion to dismiss when the Court issues a briefing schedule.
Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has established a reserve in the right to prepay the Convertible Note. In addition, provided that the closing price for a shareamount of the Company’s common stock exceeds $3.00 per shareunpaid portion of the purchase agreement. An unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.
Ding Gu (a/k/a Frank Gu) and Xiaodan Wang Litigation
On January 17, 2020, Ding Gu (a/k/a Frank Gu) (“Gu”) and Xiaodan Wang (“Wang” and with “Gu” collectively, “Plaintiffs”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against us and our Chief Executive Officer, Milton C. Ault, III, in an action captioned Ding Gu (a/k/a Frank Gu) and Xiaodan Wang v. DPW Holdings, Inc. and Milton C. Ault III (a/k/a Milton Todd Ault III a/k/a Todd Ault), Index No. 650438/2020.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
The Complaint asserts causes of action for 30 consecutive trading days,declaratory judgment, specific performance, breach of contract, conversion, attorneys’ fees, permanent injunction, enforcement of Guaranty, unjust enrichment, money had and received, and fraud arising from: (i) a series of transactions entered into between Gu and us, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and DPW, in or about July 2019. The Complaint seeks, among other things, monetary damages in excess of $1.1 million, plus a decree of specific performance directing the Company has the right to compel the noteholder to convert the principal amount intodeliver unrestricted shares of common stock atto Gu, plus attorneys’ fees and costs.
The Company intends to vigorously defend against the contractual conversion price.
On May 4, 2020, the investorCompany and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.
On July 24, 2020, Plaintiffs filed their opposition papers to the Company’s joint motion to dismiss.
The motion to dismiss has been fully briefed and is currently pending before the court.
Based on the Company’s assessment of the facts underlying the above claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. An unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.
Subpoena
The Company received a three-year warrantsubpoena from the SEC for the voluntary production of documents. The Company is fully cooperating with this non-public, fact-finding inquiry and Management believe that the Company has operated its business in compliance with all applicable laws. The subpoena expressly provides that the inquiry is not to purchase 265,000 sharesbe construed as an indication by the Commission or its staff that any violations of common stock, at an exercise pricethe federal securities laws have occurred, nor should it be considered a reflection upon any person, entity or security. However, there can be no assurance as to the outcome of $0.80 per share, and a three-year warrant to purchase 265,000 sharesthis matter.
AULT GLOBAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Other Litigation Matters
The Company is involved in litigation arising from other matters in the ordinary course of common stock, at an exercise price of $0.90 per share (collectively the
Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Convertible Note Warrants mayCompany records a liability when it believes that it is probable that a loss has been incurred and the amount can be exercised for cash or on a cashless basis. The Convertible Note Warrants have a call feature that permitsreasonably estimated. If the Company to force redemption at $0.001 per share indetermines that a loss is reasonably possible and the eventloss or range of loss can be estimated, the closing price for a share ofCompany discloses the Company’s common stock exceeds $3.00 for 30 consecutive trading days.
With respect to the Company’s other outstanding matters, based on the estimated fair valueCompany’s current knowledge, the Company believes that the amount or range of the Convertible Note Warrants.
22. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue 2,000,00025.0 million shares of Preferred Stock with no$0.001 par value. The Board of Directors has designated 500,0001.0 million shares of itsas Series A Convertible Preferred Stock as
Common Stock
Common stock confers upon the holders the rights to receive notice to participate and vote in the generalat any meeting of shareholdersstockholders of the Company, to receive dividends, if and when declared, and to participate in a distribution of surplus of assets upon liquidation of the Company.
2021 ATM Offering
On November 15, 2016,January 22, 2021, the Company entered into subscription agreementsan At-The-Market Issuance Sales Agreement, as amended on February 17, 2021 and thereafter on March 5, 2021 (the “2016 Subscription Agreements”“2021 Sales Agreement”) with nine accredited investors. PursuantAscendiant Capital Markets, LLC, or the sales agent, relating to the sale of shares of Common Stock offered by a prospectus supplement and the accompanying prospectus, as amended by the amendments to the sales agreement dated February 16, 2021 and March 5, 2021. In accordance with the terms of the 2016 Subscription Agreements,2021 Sales Agreement, the Company sold 901,666 units at $0.60 formay offer and sell shares of Common Stock having an aggregate purchaseoffering price of approximately $541. Each unit consistsup to $200.0 million from time to time through the sales agent. As of one shareMarch 5, 2021, the Company had sold an aggregate of common stock and one warrant21.6 million shares of Common Stock pursuant to purchase one sharethe sales agreement for gross proceeds of common stock (the “Nov. 2016 Warrants”) at an exercise price of $0.80.
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Issuance of up to 50%common stock for conversion of the securities offered by the Company in any future financing transactions, with limited exceptions.
During January 2021, the Company issued 666,667 shares of its common stock, an extinguishment price of $0.60 per share, for the cancellation of $400 in demand promissory notes.
23. RELATED PARTY TRANSACTION
a. |
The Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective date of August 21, 2017 pursuant to which the Company provided Avalanche a non-revolving credit facility of up to $5,000, inclusive of prior amounts loaned to AVLP, for a period ending on August 21, 2019, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. In consideration of entering into the AVLP Loan Agreement, the Company and AVLP cancelled the AVLP Notes and consolidated the AVLP Notes and prior advances and issued a new Convertible Promissory Note in the aggregate principal amount of $3,474 (the “New Note”) that is convertible into shares of AVLP at a conversion price of $0.50 per share. The New Note is due in two years and accrues interest at 12% per annum on the principal amount. Prior interest accrued under the AVLP Notes and advances will continue to be an obligation of AVLP. The New Note contains standard events of defaults. In addition, concurrent to issuing the New Note, AVLP issued to the Company a five-year Warrant to purchase 6,948,800 shares of AVLP Common Stock at $0.50 per share. Future advances under the AVLP Loan Agreement, if any, will be evidenced by a convertible promissory containing a conversion price feature at $0.50 per share and warrant with an exercise price of $0.50 per share. Further, under the terms of the AVLP Loan Agreement, any notes issued by AVLP are secured by the assets of AVLP. (See Note 4).
Philou is AVLP’s controlling shareholder. Mr. Ault is Chairman of AVLP’s Board of Directors and the Executive Chairman of the Company’s Board of Directors.the Company. Mr. William B. Horne is the Chief Financial Officer and a director of AVLP and also the audit committee chairmanChief Executive Officer, Vice Chairman and Director of the Company.
In March 2017, the Company was awarded a 3-year, $50$50.0 million purchase order by MTIX to manufacture, install and service the MLSEMultiplex Laser Surface Enhancement (“MLSE”) plasma-laser system.
b. | On |
In addition to the Alzamend common shares purchased on March 9, 2021, the Company also held 427,888 shares of Alzamend common stock that it had acquired during the years ended December 31, 2020 and 2019 for $252,000. At March 31, 2021, the estimated fair value of Alzamend’s common stock was $1.50. Based upon the estimated fair value of Alzamend common stock at March 31, 2021, the Company’s investment in Alzamend common stock had an unrealized gain of $236,000.
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Mr. Ault is Executive Chairman of Alzamend’s Board of Directors and per share data
On |
24. SEGMENT, CUSTOMERS AND GEOGRAPHICAL INFORMATION
The Company has twothree reportable geographic segments; see Note 1 for a brief description of the Company’s business.
The following data presents the revenues, expenditures and other operating data of the Company’s geographic operating segments and presented in accordance with ASC No. 280.
Nine months ended September 30, 2017 (unaudited) | ||||||||||||||||
DPC | DPL | Eliminations | Total | |||||||||||||
Revenues | $ | 5,206 | $ | 1,464 | $ | — | $ | 6,670 | ||||||||
Inter-segment revenues | $ | 43 | $ | — | $ | (43 | ) | $ | — | |||||||
Total revenues | $ | 5,249 | $ | 1,464 | $ | (43 | ) | $ | 6,670 | |||||||
Depreciation and amortization expense | $ | 75 | $ | 53 | $ | — | $ | 128 | ||||||||
Loss from operations | $ | (3,277 | ) | $ | (272 | ) | $ | — | $ | (3,549 | ) | |||||
Interest expense, net | $ | (1,367 | ) | |||||||||||||
Net loss attributable to non-controlling interest | $ | 216 | ||||||||||||||
Net loss attributable to Digital Power Corp | $ | (4,700 | ) | |||||||||||||
Capital expenditures for segment assets, as Sept. 30, 2017 | $ | 8 | $ | 13 | $ | — | $ | 21 | ||||||||
Identifiable assets as of September 30, 2017 | $ | 12,315 | 1,666 | $ | — | $ | 13,981 |
Nine months ended September 30, 2016 (unaudited) | ||||||||||||||||
DPC | DPL | Eliminations | Total | |||||||||||||
Revenues | $ | 3,408 | $ | 2,195 | $ | — | $ | 5,603 | ||||||||
Inter-segment revenues | $ | 89 | $ | — | $ | (89 | ) | $ | — | |||||||
Total revenues | $ | 3,497 | $ | 2,195 | $ | (89 | ) | $ | 5,603 | |||||||
Depreciation and amortization expense | $ | 57 | $ | 66 | $ | — | $ | 123 | ||||||||
Loss from operations | $ | (147 | ) | $ | (125 | ) | $ | — | $ | (272 | ) | |||||
Interest income, net | $ | 85 | ||||||||||||||
Income tax benefit | $ | 22 | ||||||||||||||
Net loss | $ | (165 | ) | |||||||||||||
Capital expenditures for segment assets, as of Sept. 30, 2016 | $ | 23 | $ | 51 | $ | — | $ | 74 | ||||||||
Identifiable assets as of September 30, 2016 | $ | 2,084 | $ | 2,371 | $ | — | $ | 4,455 |
Three Months ended March 31, 2021 | ||||||||||||||||
GWW | Coolisys | Ault Alliance | Total | |||||||||||||
Revenue | $ | 6,350,019 | $ | 1,382,349 | $ | 172,143 | $ | 7,904,511 | ||||||||
Revenue, lending and trading activities | — | — | 5,210,222 | 5,210,222 | ||||||||||||
Revenue, cryptocurrency mining | — | — | 129,896 | 129,896 | ||||||||||||
Total revenues | $ | 6,350,019 | $ | 1,382,349 | $ | 5,512,261 | $ | 13,244,629 | ||||||||
Depreciation and | ||||||||||||||||
amortization expense | $ | 213,217 | $ | 6,810 | $ | 45,816 | $ | 265,843 | ||||||||
Loss from operations | $ | 211,658 | $ | (200,332 | ) | $ | 4,033,013 | $ | 4,044,339 | |||||||
Capital expenditures for | ||||||||||||||||
segment assets, as of | ||||||||||||||||
March 31, 2021 | $ | 92,268 | $ | - | $ | 4,256,603 | $ | 4,348,871 | ||||||||
Identifiable assets as of | ||||||||||||||||
March 31, 2021 | $ | 29,838,776 | $ | 1,720,894 | $ | 202,470,739 | $ | 234,030,409 |
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
Three months ended September 30, 2017 (unaudited) | ||||||||||||||||
DPC | DPL | Eliminations | Total | |||||||||||||
Revenues | $ | 2,877 | $ | 343 | $ | — | $ | 3,220 | ||||||||
Inter-segment revenues | $ | 6 | $ | — | $ | (6 | ) | $ | — | |||||||
Total revenues | $ | 2,883 | $ | 343 | $ | (6 | ) | $ | 3,220 | |||||||
Depreciation and amortization expense | $ | 32 | $ | 16 | $ | — | $ | 48 | ||||||||
Loss from operations | $ | (1,137 | ) | $ | (181 | ) | $ | — | $ | (1,318 | ) | |||||
Interest expense, net | $ | (753 | ) | |||||||||||||
Net loss attributable to non-controlling interest | $ | 104 | ||||||||||||||
Net income (loss) | $ | (1,967 | ) | |||||||||||||
Capital expenditures for segment assets, as of Sept. 30, 2017 | $ | - | $ | - | $ | — | $ | - | ||||||||
Identifiable assets as of September 30, 2017 | $ | 12,315 | $ | 1,666 | $ | — | $ | 13,981 |
Three months ended September 30, 2016 (unaudited) | ||||||||||||||||
DPC | DPL | Eliminations | Total | |||||||||||||
Revenues | $ | 1,248 | $ | 578 | $ | — | $ | 1,826 | ||||||||
Inter-segment revenues | $ | 27 | $ | — | $ | (27 | ) | $ | — | |||||||
Total revenues | $ | 1,275 | $ | 578 | $ | (27 | ) | $ | 1,826 | |||||||
Depreciation and amortization expense | $ | 19 | $ | 21 | $ | — | $ | 40 | ||||||||
Income (loss) from operations | $ | 34 | $ | (117 | ) | $ | — | $ | (83 | ) | ||||||
Interest income, net | $ | 23 | ||||||||||||||
Income tax benefit | $ | 22 | ||||||||||||||
Net income (loss) | $ | (38 | ) | |||||||||||||
Capital expenditures for segment assets, as of September 30, 2016 | $ | — | $ | 4 | $ | — | $ | 4 | ||||||||
Identifiable assets as of September 30, 2016 | $ | 2,084 | $ | 2,371 | $ | — | $ | 4,455 |
Three Months ended March 31, 2020 | ||||||||||||||||
GWW | Coolisys | Ault Alliance | Total | |||||||||||||
Revenue | $ | 4,387,447 | $ | 1,181,835 | $ | — | $ | 5,569,282 | ||||||||
Revenue, lending and trading activities | — | — | 36,152 | 36,152 | ||||||||||||
Total revenues | $ | 4,387,447 | $ | 1,181,835 | $ | 36,152 | $ | 5,605,434 | ||||||||
Depreciation and | ||||||||||||||||
amortization expense | $ | 150,014 | $ | 108,218 | $ | — | $ | 258,232 | ||||||||
Loss from operations | $ | 95,756 | $ | (218,544 | ) | $ | (35,713 | ) | $ | (158,501 | ) | |||||
Capital expenditures for | ||||||||||||||||
segment assets, as of | ||||||||||||||||
March 31, 2020 | $ | 138,672 | $ | 669 | $ | 16,640 | $ | 155,981 | ||||||||
Identifiable assets as of | ||||||||||||||||
March 31, 2020 | $ | 20,827,301 | $ | 15,352,192 | $ | 1,586,215 | $ | 37,765,708 |
Concentration Risk:
The following table providestables provide the percentage of total revenues for the three months ended March 31, 2021 and 2020 attributable to a single customer from which 10% or more of total revenues are derived:
For the three months ended Sept. 30, 2017 | For the nine months ended Sept. 30, 2017 | |||||||||||||||
Total Revenues | Total Revenues | |||||||||||||||
by Major | Percentage of | by Major | Percentage of | |||||||||||||
Customers | Total Company | Customers | Total Company | |||||||||||||
(in thousands) | Revenues | (in thousands) | Revenues | |||||||||||||
Customer A | $ | 433 | 13 | % | $ | 1,062 | 16 | % |
For the three months ended Sept. 30, 2016 | For the nine months ended Sept. 30, 2016 | |||||||||||||||
Total Revenues | Total Revenues | |||||||||||||||
by Major | Percentage of | by Major | Percentage of | |||||||||||||
Customers | Total Company | Customers | Total Company | |||||||||||||
(in thousands) | Revenues | (in thousands) | Revenues | |||||||||||||
Customer A | $ | 407 | 22 | % | $ | 1,176 | 21 | % | ||||||||
Customer B | $ | 253 | 14 | % | $ | — | — | |||||||||
Customer C | $ | 196 | 11 | % | $ | — | — |
For the Three Months Ended | ||||||||
March 31, 2021 | ||||||||
Total Revenues | Percentage of | |||||||
by Major | Total Company | |||||||
Customers | Revenues | |||||||
Customer A | $ | 2,107,072 | 16 | % |
For the Three Months Ended | ||||||||
March 31, 2020 | ||||||||
Total Revenues | Percentage of | |||||||
by Major | Total Company | |||||||
Customers | Revenues | |||||||
Customer A | $ | 1,854,295 | 33 | % |
Revenue from Customer A and B wereis attributable to Digital Power and revenue from Customer C attributable to DP Limited.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Commercial products | $ | 1,342 | $ | 1,505 | $ | 3,362 | $ | 3,971 | ||||||||
Defense products | 1,878 | 321 | 3,308 | 1,632 | ||||||||||||
Total revenues | $ | 3,220 | $ | 1,826 | $ | 6,670 | $ | 5,603 |
25. SUBSEQUENT EVENTS
Extension of AVLP Loan Agreement
On April 13, 2021, the AVLP Loan Agreement was increased to geographic areas:
Issuance of Common Stock for Convertible Promissory Note
On May 12, 2021, the Company issued 275,862 shares of Common Stock to Ault & Company, Inc. upon the conversion of $400,000 of principal on the location. The following table presents total revenues for the three and nine months ended September 30, 2017 and 2016. Other than as shown, no foreign country contributed materially to revenues or long-lived assets for these periods:
AULT GLOBAL HOLDINGS AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Unaudited (Continued)
March 31, 2021
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
North America | $ | 2,671 | $ | 1,125 | $ | 4,746 | $ | 3,128 | ||||||||
Europe | 342 | 314 | 1,244 | 1,548 | ||||||||||||
South Korea | 3 | 196 | 223 | 499 | ||||||||||||
Other | 204 | 191 | 457 | 428 | ||||||||||||
Total revenues | $ | 3,220 | $ | 1,826 | $ | 6,670 | $ | 5,603 |
Sale of Naked Brand Group Stock
In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2017 and has determined that it does not have any material subsequent events to disclose in these financial statements except for the following.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this quarterly report, the “Company,” “Digital Power,“DPW Holdings,” “we,” “us” and “our” refer to Digital Power Corporation,Ault Global Holdings, Inc., a CaliforniaDelaware corporation, our wholly-owned subsidiaries, Gresham Worldwide, Inc., Coolisys Technologies, Corp, Ault Alliance, Inc., Power-Plus Technical Distributors, LLC, Digital Power Lending, LLC, Digital Farms, Inc., Gresham Power LimitedElectronics, Enertec Systems 2001 Ltd. and our majority owned subsidiary, Microphase Corporation.
Recent Developments
2021 ATM Offering
On January 22, 2021, we entered into an At-The-Market Issuance Sales Agreement, as amended on February 17, 2021 and thereafter on March 5, 2021 (the “2021 Sales Agreement”) with Ascendiant Capital Markets, LLC, or the sales agent, relating to the sale of shares of Common Stock offered by a prospectus supplement and the accompanying prospectus, as amended by the amendments to the sales agreement dated February 16, 2021 and March 5, 2021. In accordance with the terms of the 2021 Sales Agreement, we may offer and sell shares of Common Stock having an aggregate offering price of up to $200 million from time to time through the sales agent. As of March 5, 2021, we sold an aggregate of 21.6 million shares of Common Stock pursuant to the sales agreement for gross proceeds of $125 million.
Issuance of common stock for conversion of debt
During January 2021, principal and accrued interest of $200,000 and $16,000, respectively, on our debt securities was satisfied through the issuance of 183,214 shares of Common Stock. We arerecognized a growth company seeking to increase our revenues through acquisitions. Our strategy reflects our management and Board’s current philosophy that occurredloss on extinguishment of $234,000 as a result of this issuance.
Acquisition of Michigan Cloud Data Center
On January 29, 2021, Alliance Cloud Services, LLC, a changemajority-owned subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on the acquisition of a 617,000 square foot energy-efficient facility located on a 34.5 acre site in control completedsouthern Michigan for a purchase price of $3.9 million. The purchase price was paid by the Company’s own working capital.
Investment in September 2016. Our acquisitionAlzamend Neuro, Inc.
On March 12, 2021, we announced that its wholly owned subsidiary, DP Lending, entered into a securities purchase agreement with Alzamend, a related party, to invest $10 million in Alzamend common stock and development target strategy includes companies that have developedwarrants, subject to the achievement of certain milestones. We agreed to fund $4 million upon execution of the securities purchase agreement and to fund the balance upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DPL for $10 million, or $1.50 per share, and issue to DPL warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by our independent directors after receiving a “new waythird-party valuation report of doing business”Alzamend.
Investment in mature, well-developed industries experiencing changesAult & Company, Inc.
$2.5 million 8% one year On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to us. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per annum, is due to new technology; companies that may become profitable or more profitable through efficiency and reductionpayable on February 25, 2022.
Executive Chairman relocation benefit
On February 23, 2021, as part of costs; companies that area relocation benefit for our Executive Chairman, Milton C. Ault, III, related to our core businessmoving its corporate headquarters from Newport Beach, CA to Las Vegas, NV, we agreed to purchase Mr. Ault’s California residence for the appraised market value of the property of $2.7 million. The transaction was structured such that upon the closing of the subsequent sale of the residence, the Company shall have not recognized a gain or a loss on the transaction. During April 2021, the Company entered into an agreement for the subsequent sale of the residence, which closed on April 19, 2021.
Forgiveness of Debt
On January 11, 2021we received forgiveness of a loan under the PPP in the commercialprincipal amount of $715,000.
Impact of Coronavirus on Our Operations
The COVID-19 pandemic continues to present significant business challenges in 2021. During the first quarter of 2021, we continued to experience impacts in each of our business areas related to COVID-19, primarily in continued increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, site access and defense industries;quarantine restrictions, and companies that will enhancethe impacts of remote work and adjusted work schedules. During the first quarter, we continued to take measures to protect the health and safety of our overall revenues. It isemployees, including measures to facilitate the provision of vaccines to our goalemployees in line with state and local guidelines. We also continued to substantially increasework with our gross revenuescustomers and suppliers to minimize disruptions.
Although the COVID-19 pandemic did not have a significant impact on our financial results in the near future.
GENERAL
As a holding company, our business strategy is designed to increase shareholder value. Under this strategy, we are focused on managing and industrial markets. Althoughfinancially supporting our existing subsidiaries and partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to shareholders. We have, are and will consider initiatives including, among others: public offerings, the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize shareholder value. We anticipate returning value to shareholders after satisfying our debt obligations and working capital needs.
From time to time, we intendengage in discussions with other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our shareholders’ best interests, we will seek growthto sell some or all of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner companies public through acquisitions, werights offerings and directed share subscription programs. We will continue to focus on high-gradeconsider these (or similar) programs and custom product designsthe sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our shareholders.
Over the commercial, medicalrecent past we have provided capital and military/defense markets, where customers demand high density, high efficiency and ruggedized productsrelevant expertise to meet the harshest and/or military mission critical operating conditions.
We are a CaliforniaDelaware corporation formed in 1969 andwith our corporate office located in the heart of the Silicon Valley at 48430 Lakeview Blvd, Fremont, California 94538-3158.11411 Southern Highlands Pkwy #240, Las Vegas, Nevada 89141. Our phone number is 510-657-2635949-444-5464 and our website address is www.digipwr.com.
Results of Operations
RESULTS OF OPERATIONS
The following table summarizes the results of our operations for the three months ended September 30, 2017, from $1,826March 31, 2021 and 2020.
For the Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Revenue | $ | 7,904,511 | $ | 5,569,282 | ||||
Revenue, cryptocurrency mining | 129,896 | — | ||||||
Revenue, lending and trading activities | 5,210,222 | 36,152 | ||||||
Total revenue | 13,244,629 | 5,605,434 | ||||||
Cost of revenue | 5,107,908 | 3,853,435 | ||||||
Gross profit | 8,136,721 | 1,751,999 | ||||||
Total operating expenses | 6,935,728 | 4,681,783 | ||||||
Income (loss) from continuing operations | 1,200,993 | (2,929,784 | ) | |||||
Interest income | 36,923 | 320 | ||||||
Interest expense | (313,934 | ) | (1,086,163 | ) | ||||
Change in fair value of marketable equity securities | 1,959,791 | (365,359 | ) | |||||
Realized gain on marketable securities | 397,331 | — | ||||||
Gain (loss) on extinguishment of debt | 481,533 | (463,134 | ) | |||||
Change in fair value of warrant liability | (678,769 | ) | 4,411 | |||||
Income (loss) from continuing operations before income taxes | 3,083,868 | (4,839,709 | ) | |||||
Income tax (expense) benefit | (5,901 | ) | 5,905 | |||||
Net income (loss) from continuing operations | 3,077,967 | (4,833,804 | ) | |||||
Net loss from discontinued operations, net of taxes | — | (1,697,744 | ) | |||||
Net income (loss) | 3,077,967 | (6,531,548 | ) | |||||
Less: Net gain attributable to non-controlling interest | (1,080,586 | ) | — | |||||
Net income (loss) attributable to Ault Global Holdings | 1,997,381 | (6,531,548 | ) | |||||
Preferred dividends | (4,400 | ) | (4,460 | ) | ||||
Net income (loss) available to common stockholders | $ | 1,992,981 | $ | (6,536,008 | ) | |||
Comprehensive income (loss) | ||||||||
Income (loss) available to common stockholders | $ | 1,992,981 | $ | (6,536,008 | ) | |||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (92,694 | ) | (148,607 | ) | ||||
Net unrealized gain (loss) on derivative securities of related party | 2,969,170 | (1,242,094 | ) | |||||
Other comprehensive income (loss) | 2,876,476 | (1,390,701 | ) | |||||
Total comprehensive income (loss) | $ | 4,869,457 | $ | (7,926,709 | ) |
Revenues
Revenues by segment for the three months ended September 30, 2016.March 31, 2021 and 2020 are as follows:
For the Three Months Ended March 31, | Increase | |||||||||||||||
2021 | 2020 | (Decrease) | % | |||||||||||||
GWW | $ | 6,350,019 | $ | 4,387,447 | $ | 1,962,572 | 45 | % | ||||||||
Coolisys | 1,382,349 | 1,181,835 | 200,514 | 17 | % | |||||||||||
Ault Alliance: | ||||||||||||||||
Revenue, cryptocurrency mining | 129,896 | — | 129,896 | - | ||||||||||||
Revenue, lending and trading activities | 5,210,222 | 36,152 | 5,174,070 | 14312 | % | |||||||||||
Other | 172,143 | — | 172,143 | — | ||||||||||||
Total revenue | $ | 13,244,629 | $ | 5,605,434 | $ | 7,639,195 | 136 | % |
Our revenues increased by $7,639,195, or 136%, to $13,244,629 for the three months ended March 31, 2021, from $5,605,434 for the three months ended March 31, 2020.
GWW
GWW revenues increased by $2.0 million, or 45%, to $6.4 million for the three months ended March 31, 2021, from $4.4 million for the three months ended March 31, 2020. The increase in revenue from our Gresham Worldwide segment for customized solutions for the military markets reflected the benefit of capital that was primarilyallocated to our defense business based on the overall improved capital structure of the Company. GWW revenue in 2021 includes $1.8 million from Relec, which was acquired on November 30, 2020. Revenue from Enertec, which largely consists of revenue recognized over time, for the three months ended March 31, 2021 increased $133,000 or 5.8% from the prior-year period.
Coolisys
Coolisys revenues increased by $201,000, or 16%, to $1.4 million for the three months ended March 31, 2021, from $1.2 million for three months ended March 31, 2020.
Ault Alliance
Revenues from our cryptocurrency mining operations revenues increased by $130,000, or 100% from the three months ended March 31, 2020, as we resumed our cryptocurrency mining operations during the first quarter of 2021, due to improved business conditions. Our decision to resume cryptocurrency mining operations in 2021 was based on several factors, which had positively affected the number of active miners we operated, including the market prices of digital currencies, and favorable power costs available at our acquisitionMichigan data center.
Revenues from our lending and trading activities increased to $5.2 million, for the three months ended March 31, 2021, from $36,000 for the three months ended March 31, 2020 attributed to a significant allocation of 56.4% capital from our recent equity financing transactions to our loan and investment portfolio. Under its business model, DP Lending generates revenue through origination fees charged to borrowers and interest generated from each loan. DP Lending may also generate income from appreciation of investments in marketable securities as well as any shares of common stock underlying convertible notes or warrants issued to DP Lending in any particular financing.
Gross margins
Gross margins increased to 61.2% for the outstanding equity intereststhree months ended March 31, 2021 compared to 31.3% for the three months ended March 31, 2020. Our gross margins have typically ranged between 33% and 37%, with slight variations depending on the overall composition of Microphase on June 2, 2017, combined with our acquisitionrevenue.
Our gross margins of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus61.2% recognized during the three months ended September 30, 2017,March 31, 2021, were $1,340 and $224, respectively. Excluding revenues that were generatedimpacted by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 from the three months ended September 30, 2016.
Engineering and Product Development
Engineering and product development expenses increased by $159$161,000 to $306$602,000 for the three months ended September 30, 2017March 31, 2021, from $147$441,000 for the three months ended September 30, 2016.March 31, 2020. The increase is partly attributed to our acquisition of Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarilyexpenses is due to cost incurred at Coolisys related to an increase in direct manpower cost from the additiondevelopment of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.
Selling and Marketing
Selling and marketing expenses were $423$1.2 million for the three months ended September 30, 2017March 31, 2021, compared to $235$338,000 for the three months ended September 30, 2016,March 31, 2020, an increase of $188. Our acquisition$903,000 or 267.1%. The increase was the result of Microphase and Power-Plus accounted for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed to an increaseincreases in personnel costs directly attributed to an increase in sales and marketing personnel and consultants primarily at the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the three months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses due to the significant amount of time in which he devoted to the sales process. The increase in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate mattersAult Alliance related to our restructuringdigital marketing through Tansocial and expansion. As such, during the three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter, was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.
General and Administrative
General and administrative expenses were $1,685$5.1 million for the three months ended September 30, 2017March 31, 2021, compared to $404$2.9 million for the three months ended September 30, 2016,March 31, 2020, an increase of $1,281. Our acquisition$2.2 million. General and administrative expenses increased from the comparative prior period, mainly due to higher consulting, audit, legal and insurance costs. In addition, we have increased our general and administrative costs related to our Michigan Data Center, operated by Alliance Cloud Services. General and administrative expenses in 2021 include $341,000 of Microphase accountedcosts from Relec, which was acquired on November 30, 2020.
Income (loss) from continuing operations
We recorded income from continuing operations of $1.2 million for $410the three months ended March 31, 2021, compared to an operating loss of $2.9 million for the three months ended March 31, 2020. The prior year period included a $1.0 million provision for credit losses. In addition, the improve in operating results is attributable to an increase in revenue and gross margins partially offset by the increase in general and administrative expenses. The
Provision for credit losses
Loans are generally carried at the amount of unpaid principal, adjusted increase of $871 from the comparative prior period was mainly due to higher stock based compensation expenses, an increase in legalfor unearned loan fees and audit costs, an increase in investor relationship costs and hiring of additional consultants to build an infrastructure in anticipation of our future growth and the allocation of our Chief Executive Officer’s salary to general and administrative expense. The remaining increase in general and administrative expenses is due to various costs, none oforiginal issue discount, which are significant individually.
Interest income net
Interest expense, netincome was $753$37,000 for the three months ended September 30, 2017March 31, 2021 compared to income of $23$320 for the three months ended September 30, 2016.March 31, 2020.
Interest expense
Interest expense was $314,000 for the three months ended March 31, 2021 compared to $1.1 million for the three months ended March 31, 2020. The increasedecrease in interest expense for the three months ended September 30, 2017March 31, 2021 is primarily related to debt discount,the decrease in the aggregate amountour level of $669, resulting from the issuanceborrowings.
Change in fair value of warrants in conjunction with the sale of debt and equity instruments of $3,452. warrant liability
During the three months ended September 30, 2017, asMarch 31, 2020, the fair value of the warrants that were issued during 2020 in a resultseries of debt financings increased by $679,000. The fair value of these issuances, non-cash interest expensewarrants is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value recorded as change in fair value of $669 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increasewarrant liability in the amountConsolidated Statements of the Company’s total borrowings. At September 30, 2017, the outstanding balanceOperations and Comprehensive Income (Loss).
Change in fair value of the Company’s convertible notes payable and notes payablemarketable equity securities
Change in fair value of marketable equity securities was $3,458. Conversely, at September 30, 2016, the Company did not have any outstanding convertible notes payable or notes payable. Interest expense was partially offset by interest income and the accretiona gain of original issue discount pursuant to the Loan and Security Agreement entered into on September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”) of $141.
Realized gain on marketable securities
Realized gain on marketable securities was $397,000 for the three months ended September 30, 2017March 31, 2021.
Gain (loss) on extinguishment of debt
Gain on extinguishment of debt was $482,000 for the three months ended March 31, 2021 compared to a loss of $463,000 for the three months ended March 31, 2020. During the three months ended March 31, 2021, principal and accrued interest of $200,000 and $16,000, respectively, on our debt securities was satisfied through the issuance of 183,214 shares of our common stock. We recognized a loss on extinguishment of $234,000 as a result of this issuance of common stock based on the fair value of our common stock at the date of the exchange. The loss on extinguishment from the issuance of the 183,214 shares of our common stock was offset by the forgiveness of our Paycheck Protection Program loan in the principal amount of $715,000.
Net Loss from Discontinued Operations
As a result of temporary closures of restaurants in San Diego County and the deteriorating business conditions at the Company’s restaurant businesses, during the first quarter of 2020, the Company concluded that discontinuing the operations of I.AM was ultimately in its best interest. Management determined that the permanent closing of the restaurant operations met the criteria for presentation as discontinued operations. Accordingly, the results of the restaurant operations are presented as discontinued operations in our consolidated statements of operations and comprehensive loss and are excluded from continuing operations for all periods presented. Additionally, on November 2, 2020, I.AM filed a voluntary petition for bankruptcy under Chapter 7 in the United States Bankruptcy Court in the Central District of California, Santa Ana Division, case number 8:20-bk-13076. As a result of I.AM’s bankruptcy filing on November 2, 2020, Ault Global ceded authority for managing the business to the Bankruptcy Court. For this reason, we concluded that Ault Global had lost control of I.AM, and no longer had significant influence over I.AM. Therefore, we deconsolidated I.AM effective with the filing of the Chapter 11 bankruptcy in November 2020.
Net income (loss)
For the foregoing reasons, our net income for the three months ended March 31, 2021, was $3.1 million compared to a net loss of $38$6.5 million for the three months ended September 30, 2016 as a result of the aforementioned changes.March 31, 2020. After taking into consideration the losspreferred dividends of $4,400 and $4,460, respectively, and a net gain attributable to the non-controlling interest of the minority shareholders of Microphase, the net loss attributable to the Company was $1,967 and 38 respectively.
Other comprehensive income (loss)
Other comprehensive income was $4.9 million for the ninethree months ended September 30, 2016March 31, 2021, compared to other comprehensive loss of $7.9 million for the three months ended March 31, 2020. Other comprehensive income for the three months ended March 31, 2021, which increased our equity, was primarily due to unrealized gains in the warrant derivative securities that we received as a result of our investment in Avalanche International, Corp., or AVLP, a related party. During the aforementioned changes. After taking into consideration the loss attributable to the non-controlling interest of the minority shareholders of Microphase and an income tax benefit that was recognized during the ninethree months ended SeptemberMarch 30, 2016,2020, unrealized losses in the net loss attributable towarrant derivative securities of AVLP was the Company was $4,700 and $165, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2017,March 31, 2021, we had cash and cash equivalents of $314.$107.8 million. This compares with cash and cash equivalents of $996$18.7 million at December 31, 2016.2020. The decreaseincrease in cash and cash equivalents was primarily due to cash used in operating and investing activities in excess of funds provided by financing activities.
Net cash used in continuing operating activities totaled $1,577$14.2 million for the ninethree months ended September 30, 2017,March 31, 2021, compared to $1.1 million for the three months ended March 31, 2020. Cash used for operating activities included $8.9 million net cash provided by operatingused for marketable securities related to trading activities of $138 for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the decrease in net cash provided by operating activities comparedrelated to the nine months ended September 30, 2016 was mainly dueoperations of DP Lending and $1.7 million cash used to the September 30, 2017 nine months loss of $4,916. The net loss was partially offset by non-cash charges, the amortization of debt discount of $1,239 and stock-based compensation of $1,269, an increase inreduce accounts payable and accrued expenses of $2,083 and decreases in our accounts receivable of $737 and other current liabilities of $595.
Net cash used in investing activities was $4,384$16.7 million for the ninethree months ended September 30, 2017March 31, 2021, compared to $12 of net cash provided by investing activities$102,000 for the ninethree months ended September 30, 2016. The increase ofMarch 31, 2020 and reflects the net usage of cash from investing activities was primarily related to the investment in AVLP, loans to third parties and the purchase of Power-Plus.
· | Acquisition of Michigan Cloud Data Center - On January 29, 2021, Alliance Cloud Services, LLC, a majority-owned subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on the acquisition of a 617,000 square foot energy-efficient facility located on a 34.5 acre site in southern Michigan for a purchase price of $3.9 million. |
· | Investment in Alzamend Neuro, Inc. - On March 12, 2021, we announced that its wholly owned subsidiary, DP Lending, entered into a securities purchase agreement with Alzamend, a related party, to invest $10 million in Alzamend common stock and warrants, subject to the achievement of certain milestones. We agreed to fund $4 million upon execution of the securities purchase agreement and to fund the balance upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DPL for $10,000,000, or $1.50 per share, and issue to DPL warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by our independent directors after receiving a third-party valuation report of Alzamend. |
· | Investment in Ault & Company, Inc. - On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to us. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per annum, is due and payable on February 25, 2022. |
· | Executive Chairman relocation benefit - On February 23, 2021, as part of a relocation benefit for our Executive Chairman, Milton C. Ault, III, related to the moving of our corporate headquarters from Newport Beach, CA to Las Vegas, NV, we agreed to purchase Mr. Ault’s California residence for the appraised market value of the property of $2.7 million. The house was subsequently sold during April 2021 and no gain or loss was recognized from sale of the property. |
Historically, the Company haswe have financed itsour operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below, the Company continues2021, we continued to successfully obtain additional equity financing. Net cash provided by financing activities was $119.9 million and debt financing$1.3 million for the three months ended March 31, 2021 and 2020, respectively. Financing activities during the three months ended March 31, 2021, primarily related to proceeds from the 2021 ATM offering. On January 22, 2021, we entered into an At-The-Market Issuance Sales Agreement, as amended on February 17, 2021 and thereafter on March 5, 2021 (the “2021 Sales Agreement”) with Ascendiant Capital Markets, LLC, or the sales agent, relating to the sale of shares of Common Stock offered by a prospectus supplement and the accompanying prospectus, as amended by the amendments to the sales agreement dated February 16, 2021 and March 5, 2021. In accordance with the terms of the 2021 Sales Agreement, we may offer and sell shares of Common Stock having an aggregate offering price of up to $200 million from time to time through the sales agent. As of March 5, 2021, we sold an aggregate of 21.6 million shares of Common Stock pursuant to the sales agreement for gross proceeds of $125 million.
We believe our current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date the financial statements for its fiscal quarter ended March 31, 2021 are issued.
CRITICAL ACCOUNTING POLICIES
Fair value of Financial Instruments
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.
The guidance also establishes a three-tier hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs include those that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability.
We assess the inputs used to measure fair value using the three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market.
The Company’s investments in AVLP, a related party controlled by Philou, an affiliate of the Company, consist of convertible promissory notes, derivative instruments and shares of AVLP common stock. As of December 31, 2020, the Company has provided loans to AVLP in the principal amount $13,924,136 and, in restructuring existing debt.addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 27,858,272 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. Management used both a market and income approach to quantify the carrying amount of the convertible notes, including credit risk. The following financings transactionsmarket approach considered the fair value of AVLP’s common stock adjusted for a lack of marketability discount and the time value of money based on expectation as to the timing of a potential liquidity event which could affect the timing of a settlement of the convertible notes. The income approach was primarily based on a discounted cash flow analysis with assumptions regarding forecasted revenues, operating margins and a risk-adjusted discount rate to compute the net present value of such cash flows.
In determining the revenue and expense assumptions that were consummated during 2017:
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer, with the assistance of other members of the Company's management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report report. Based upon our evaluation, our principal executive officer and principal financial officer has determinedconcluded that our disclosure controls and procedures werethe Company’s internal control over financial reporting was not effective as of June 30, 2017the end of the period covered by this Quarterly Report on Form 10-Q because the Company has not yet completed its remediation of the material weakness previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the end of its most recent fiscal year.
Specifically, management has determined that we do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting, including applying complex accounting principles relating to consolidation accounting and fair value estimates, in a timely manner. In addition, due to certain material weaknesses as described herein.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses:
Planned Remediation
Management, in coordination with the input, oversight and support of our Board of Directors,Audit Committee, has identified the measures below to strengthen our control environment and internal control over financial reporting.
On August 19, 2020, Mr. Horne resigned as our Chief Financial Officer and was appointed our President, and later became our Chief Executive Officer. Mr. Cragun, who had served as the Company’s Chief Accounting Officer since October 1, 2018, succeeded Mr. Horne as the Chief Financial Officer of the Company. In January 2018, we engaged the services of a financial accounting advisory firm. In January 2019, we hired a Senior Vice President of Finance. In May 2019, we hired an Executive Vice President and General Counsel, who later became our President and General Counsel. Finally, in January 2021, we hired a Director of Reporting. These individuals were tasked with expanding and monitoring the Company’s internal controls, to provide an additional level of review of complex financial issues and to assist with financial reporting. On October 7, 2019, we created an Executive Committee which is currently comprised of our Executive Chairman, Chief Executive Officer and President. The Executive Committee meets on a daily basis to address the Company’s critical needs and provides a forum to approve transactions which are communicated to the Company’s Chief Financial Officer and Senior Vice President of Finance on a bi-weekly basis by our Chief Executive Officer, who also reviews all of the Company’s material transactions and reviews the financial performance of each of our subsidiaries. On December 16, 2020, in consultation with the Chairman of the Audit Committee, we engaged a professional services firm to review management’s assessment of compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and to identify internal control process improvement opportunities. These changes have improved and simplified our internal processes and resulted in enhanced controls. While these changes have improved and simplified our internal processes and resulted in enhanced controls, these enhancements have not been operating for a sufficient period of time for management to conclude, through testing, that these controls are operating effectively. Further, as we hire a new Chief Financial Officer,continue to expand our internal accounting department, the Chairman of the Audit Committee shall perform the following:
· |
· |
We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures.
Despite the existence of these material weaknesses, we believe that the consolidated financial statements included in the period covered by this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Controls over Financial Reporting.
Except as detailed above, during the most recent fiscal quarter 20172021 there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Blockchain Mining Supply and Services, Ltd.
On November 28, 2018, Blockchain Mining Supply and Services, Ltd. (“Blockchain Mining”) a vendor who sold computers to our subsidiary, filed a Complaint (the “Complaint”) in the United States District Court for the Southern District of New York against us and our subsidiary, Digital Farms, Inc. (f/k/a Super Crypto Mining, Inc.), in an action captioned Blockchain Mining Supply and Services, Ltd. v. Super Crypto Mining, Inc. and DPW Holdings, Inc., Case No. 18-cv-11099.
The Complaint asserts claims for breach of contract and promissory estoppel against us and our subsidiary arising from the subsidiary’s alleged failure to honor its obligations under the purchase agreement. The Complaint seeks monetary damages in excess of $1,388,495, plus attorneys’ fees and costs.
The Company intends to vigorously defend against the claims asserted against it in this action.
On April 13, 2020, we and our subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against us, and the promissory estoppel claim as against our subsidiary. On the same day, our subsidiary also filed a partial Answer to the Complaint in connection with the breach of contract claim.
On April 29, 2020, Blockchain Mining filed an amended complaint (the “Amended Complaint”). The Amended Complaint asserts the same causes of action and seeks the same damages as the initial Complaint.
On May 13, 2020, we and our subsidiary, jointly filed a motion to dismiss the Amended Complaint in its entirety as against us, and the promissory estoppel claim as against of our subsidiary. On the same day, our subsidiary also filed a partial Answer to the Amended Complaint in connection with the breach of contract claim.
In its partial Answer, the Company’s subsidiary admitted to the validity of the contract at issue and also asserted numerous affirmative defenses concerning the proper calculation of damages.
On December 4, 2020, the Court issued an Order directing the Parties to engage in limited discovery (the “Limited Discovery”) which was completed on March 4, 2021. In connection therewith, the Court also denied Defendants’ Motion to Dismiss without prejudice.
The Company and its subsidiary have informed the Court that they intend to file a revised motion to dismiss the Amended Complaint and anticipate filing such motion to dismiss when the Court issues a briefing schedule.
Based on our assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, we cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, we have established a reserve in the amount of the unpaid portion of the purchase agreement. An unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.
Ding Gu (a/k/a Frank Gu) and Xiaodan Wang Litigation
On January 17, 2020, Ding Gu (a/k/a Frank Gu) (“Gu”) and Xiaodan Wang (“Wang” and with “Gu” collectively, “Plaintiffs”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against us and our Chief Executive Officer, Milton C. Ault, III, in an action captioned Ding Gu (a/k/a Frank Gu) and Xiaodan Wang v. DPW Holdings, Inc. and Milton C. Ault III (a/k/a Milton Todd Ault III a/k/a Todd Ault), Index No. 650438/2020.
The Complaint asserts causes of action for declaratory judgment, specific performance, breach of contract, conversion, attorneys’ fees, permanent injunction, enforcement of Guaranty, unjust enrichment, money had and received, and fraud arising from: (i) a series of transactions entered into between Gu and us, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and DPW, in or about July 2019. The Complaint seeks, among other things, monetary damages in excess of $1,100,000, plus a decree of specific performance directing DPW to deliver unrestricted shares of DPW’s common stock to Gu, plus attorneys’ fees and costs.
The Company intends to vigorously defend against the claims asserted against it in this action.
On May 4, 2020, we and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.
On July 24, 2020, Plaintiffs filed their opposition papers to our joint motion to dismiss.
The motion to dismiss has been fully briefed and is currently pending before the court.
Based on our assessment of the facts underlying the above claims, the uncertainty of litigation, and the preliminary stage of the case, we cannot reasonably estimate the potential loss or range of loss that may result from this action. An unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.
Subpoena
The Company received a subpoena from the SEC for the voluntary production of documents. The Company is fully cooperating with this non-public, fact-finding inquiry and managements believe that the Company has operated its business in compliance with all applicable laws. The subpoena expressly provides that the inquiry is not to be construed as an indication by the Commission or its staff that any violations of the federal securities laws have occurred, nor should it be considered a reflection upon any person, entity or security. However, there can be no assurance as to the outcome of this matter.
Other Litigation Matters
The Company is involved in litigation arising from other matters in the ordinary course of business. We are regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
With respect to our other outstanding matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
ITEM 1A. RISK FACTORS
The risks described in Part I, Item 1A, "Risk“Risk Factors,"” in our 20162020 Annual Report on Form 10-K, could materially and adversely affect our business, financial condition and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face - our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The Risk Factors section of our 20162020 Annual Report on Form 10-K remains current in all material respects except that we identified
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 20, 2017
AULT GLOBAL HOLDINGS, INC. | |||
By: | /s/ William B. Horne | ||
William B. Horne | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
By: | /s/ Kenneth S. Cragun | ||
Kenneth S. Cragun | |||
Chief Financial Officer | |||
(Principal Accounting |
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