UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
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 ALLIANCE, 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, NV89141
(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 | AULT | 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 o | Accelerated filer o | |||||
Non-accelerated filer x | Smaller reporting company x | |||||
Emerging growth company | o |
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 ☐oNo☑
At November 17, 2017May 20, 2022 the registrant had outstanding 15,817,393 shares of common stock.
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q of Ault Alliance, Inc., which was then known as BitNile Holdings, Inc. (the “Company”) for the three months ended March 31, 2022 (the “Original Filing”), that was originally filed with the U.S. Securities and Exchange Commission on May 23, 2022. This Report only amends and restates Item 1, Item 2 and Item 4 of Part I of the Original Report to reflect the restatement. The foregoing items have not been updated to reflect other events occurring after the date of the Original Report (other than the Name Change, as defined below), or to modify or update those disclosures affected by subsequent events. Subsequent to the date of filing of the Original Filing, the Company merged its wholly owned subsidiary, Ault Alliance, Inc., with and into the Company, and in connection therewith, changed its name from BitNile Holdings, Inc. to Ault Alliance, Inc. (the “Name Change”). As such, other than on the cover page of this Amendment, the signature page to this Amendment, and the revised disclosures contained in Item 1 and Item 2, which reflects the Name Change, all other references in this Amendment to Ault Alliance, Inc. refers to the former wholly owned subsidiary of the same name, and not to the Company. In addition, the exhibit list in Item 6 of Part II has been updated only to include currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, are filed with this Amendment as Exhibit 31.1, 31.2 and 32.1.
The Amendment is being filed to correct an error in classification with respect to changes in fair value of financial instruments issued by a related party. The changes in fair value were erroneously recorded in other comprehensive income (loss) and have been reclassified to correct for the error within the statement of operations.
Further, this Amendment also includes certain limited modifications to reflect the correct classification in disclosures in the Company’s Note 16 Net Income (Loss) per Share footnote in the Company’s Notes to Condensed Consolidated Financial Statements.
AULT ALLIANCE, INC.
TABLE OF CONTENTS
Page | ||||
PART I – FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements (Unaudited) | F-1 | ||
Condensed Consolidated Balance Sheets as of 31, 2021 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ended | ||||
Condensed Consolidated Statements of March 31, 2022 and | ||||
2021 | ||||
Notes to Condensed Consolidated Financial Statements | F-8 | |||
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. | ||||
Mine Safety Disclosures | 12 | |||
Item 5. | Other Information | 12 | ||
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'smanagement’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-K10-K/A for the year ended December 31, 2016,2021, 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.the date of filing of this Quarterly Report on Form 10-Q. 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 ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 39,446,000 | $ | 15,912,000 | ||||
Restricted cash | 4,695,000 | 5,321,000 | ||||||
Marketable equity securities | 16,158,000 | 40,380,000 | ||||||
Digital currencies | 745,000 | 2,165,000 | ||||||
Accounts receivable | 6,977,000 | 6,455,000 | ||||||
Accrued revenue | 2,723,000 | 2,283,000 | ||||||
Inventories | 7,144,000 | 5,482,000 | ||||||
Prepaid expenses and other current assets | 7,995,000 | 15,436,000 | ||||||
TOTAL CURRENT ASSETS | 85,883,000 | 93,434,000 | ||||||
Cash and marketable securities held in Trust Account | 116,737,000 | 116,725,000 | ||||||
Intangible assets, net | 3,896,000 | 4,035,000 | ||||||
Goodwill | 9,944,000 | 10,090,000 | ||||||
Property and equipment, net | 206,797,000 | 174,025,000 | ||||||
Right-of-use assets | 7,049,000 | 5,243,000 | ||||||
Investment in promissory notes and other, related parties | 2,653,000 | 2,842,000 | ||||||
Investments in common stock, related parties | 8,729,000 | 13,230,000 | ||||||
Investments in equity securities | 37,091,000 | 30,482,000 | ||||||
Investment in unconsolidated entity | 22,297,000 | 22,130,000 | ||||||
Loans receivable | 13,358,000 | 14,337,000 | ||||||
Other assets | 4,490,000 | 3,713,000 | ||||||
TOTAL ASSETS | $ | 518,924,000 | $ | 490,286,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 27,239,000 | $ | 22,755,000 | ||||
Investment margin accounts payable | - | 18,488,000 | ||||||
Operating lease liability, current | 1,742,000 | 1,123,000 | ||||||
Notes payable, net | 1,312,000 | 39,554,000 | ||||||
TOTAL CURRENT LIABILITIES | 30,293,000 | 81,920,000 |
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 ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | 5,511,000 | 4,213,000 | ||||||
Notes payable | 53,999,000 | 55,055,000 | ||||||
Convertible notes payable | 488,000 | 468,000 | ||||||
Deferred underwriting commissions of Ault Disruptive subsidiary | 3,450,000 | 3,450,000 | ||||||
TOTAL LIABILITIES | 93,741,000 | 145,106,000 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Redeemable noncontrolling interests in equity of subsidiaries | 116,725,000 | 116,725,000 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Series A Convertible Preferred Stock, $ | stated value per share,- | - | ||||||
$ | par value – shares authorized; shares||||||||
issued and outstanding at March 31, 2022 and December 31, 2021 | ||||||||
(redemption amount and liquidation preference of $176,000 as of | ||||||||
March 31, 2022 and December 31, 2021) | ||||||||
Series B Convertible Preferred Stock, $ | stated value per share,- | - | ||||||
share, $ | par value – shares authorized; shares issued||||||||
and outstanding at March 31, 2022 and December 31, 2021 (liquidation | ||||||||
preference of $1,250,000 at March 31, 2022 and December 31, 2021) | ||||||||
Class A Common Stock, $ | par value – shares authorized;225,000 | 84,000 | ||||||
and shares issued and outstanding at March 31, | ||||||||
2022 and December 31, 2021, respectively | ||||||||
Class B Common Stock, $ | par value – shares authorized;- | - | ||||||
nil | shares issued and outstanding at March 31, 2022 and December 31, 2021||||||||
Additional paid-in capital | 495,536,000 | 385,644,000 | ||||||
Accumulated deficit | (174,378,000 | ) | (145,600,000 | ) | ||||
Accumulated other comprehensive loss | (393,000 | ) | (106,000 | ) | ||||
Treasury stock, at cost | (14,172,000 | ) | (13,180,000 | ) | ||||
TOTAL AULT ALLIANCE STOCKHOLDERS' EQUITY | 306,818,000 | 226,842,000 | ||||||
Non-controlling interest | 1,640,000 | 1,613,000 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 308,458,000 | 228,455,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 518,924,000 | $ | 490,286,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 |
F-2 |
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHNSIVECOMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2021 | ||||||||
2022 | Restated | |||||||
Revenue | $ | 8,659,000 | $ | 7,905,000 | ||||
Revenue, cryptocurrency mining, net | 3,548,000 | 130,000 | ||||||
Revenue, hotel operations | 2,698,000 | - | ||||||
Revenue, lending and trading activities | 17,921,000 | 5,210,000 | ||||||
Total revenue | 32,826,000 | 13,245,000 | ||||||
Cost of revenue | 10,494,000 | 5,108,000 | ||||||
Gross profit | 22,332,000 | 8,137,000 | ||||||
Operating expenses | ||||||||
Research and development | 695,000 | 602,000 | ||||||
Selling and marketing | 6,481,000 | 1,242,000 | ||||||
General and administrative | 13,687,000 | 5,092,000 | ||||||
Impairment of mined cryptocurrency | 439,000 | - | ||||||
Total operating expenses | 21,302,000 | 6,936,000 | ||||||
Income from operations | 1,030,000 | 1,201,000 | ||||||
Other income (expenses) | ||||||||
Interest and other income | 449,000 | 37,000 | ||||||
Change in fair value of equity securities, related party | - | 2,969,000 | ||||||
Interest expense | (29,824,000 | ) | (314,000 | ) | ||||
Change in fair value of marketable equity securities | - | 1,960,000 | ||||||
Realized gain on marketable securities | 109,000 | 397,000 | ||||||
Loss from investment in unconsolidated entity | (533,000 | ) | - | |||||
Gain on extinguishment of debt | - | 482,000 | ||||||
Change in fair value of warrant liability | (18,000 | ) | (679,000 | ) | ||||
Total other (expenses) income, net | (29,817,000 | ) | 4,852,000 | |||||
(Loss) income before income taxes | (28,787,000 | ) | 6,053,000 | |||||
Income tax (provision) benefit | - | (6,000 | ) | |||||
Net (loss) income | (28,787,000 | ) | 6,047,000 | |||||
Net loss (income) attributable to non-controlling interest | 15,000 | (1,081,000 | ) | |||||
Net (loss) income attributable to Ault Alliance, Inc. | (28,772,000 | ) | 4,966,000 | |||||
Preferred dividends | (5,000 | ) | (4,000 | ) | ||||
Net (loss) income available to common stockholders | $ | (28,777,000 | ) | $ | 4,962,000 | |||
Basic net (loss) income per common share | $ | (0.32 | ) | $ | 0.13 | |||
Diluted net (loss) income per common share | $ | (0.32 | ) | $ | 0.12 | |||
Weighted average basic common shares outstanding | 90,971,000 | 39,256,000 | ||||||
Weighted average diluted common shares outstanding | 90,971,000 | 40,202,000 | ||||||
Comprehensive (loss) income | ||||||||
Net (loss) income available to common stockholders | $ | (28,777,000 | ) | $ | 4,962,000 | |||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (287,000 | ) | (93,000 | ) | ||||
Other comprehensive (loss) income | (287,000 | ) | (93,000 | ) | ||||
Total comprehensive (loss) income | $ | (29,064,000 | ) | $ | 4,869,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 | ) |
F-3 |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended March 31, 2022
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Series A & B | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Controlling | Treasury | Stockholders’ | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Stock | Equity | |||||||||||||||||||||||||||||||
BALANCES, January 1, 2022 | 132,040 | $ | - | 84,344,607 | $ | 84,000 | $ | 385,644,000 | $ | (145,600,000 | ) | $ | (106,000 | ) | $ | 1,613,000 | $ | (13,180,000 | ) | $ | 228,455,000 | |||||||||||||||||||
Issuance of common stock for restricted stock awards | - | - | 12,500 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||
Options | - | - | - | - | 1,025,000 | - | - | 41,000 | - | 1,066,000 | ||||||||||||||||||||||||||||||
Restricted stock awards | - | - | - | - | 1,619,000 | - | - | - | - | 1,619,000 | ||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 140,658,096 | 141,000 | 110,006,000 | - | - | - | - | 110,147,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (2,758,000 | ) | - | - | - | - | (2,758,000 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock – Ault Alpha | - | - | - | - | - | - | - | - | (992,000 | ) | (992,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (28,772,000 | ) | - | - | - | (28,772,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | (5,000 | ) | - | - | - | (5,000 | ) | |||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (287,000 | ) | - | - | (287,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (15,000 | ) | - | (15,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | - | - | (1,000 | ) | - | 1,000 | - | - | |||||||||||||||||||||||||||||
BALANCES, March 31, 2022 | 132,040 | $ | - | 225,015,203 | $ | 225,000 | $ | 495,536,000 | $ | (174,378,000 | ) | $ | (393,000 | ) | $ | 1,640,000 | $ | (14,172,000 | ) | $ | 308,458,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (RESTATED)
(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 | $ | - | 27,753,562 | $ | 28,000 | $ | 171,396,000 | $ | (122,329,000 | ) | $ | (785,000 | ) | $ | 822,000 | $ | 49,132,000 | ||||||||||||||||||
Stock based compensation: | ||||||||||||||||||||||||||||||||||||
Options | - | - | - | - | 20,000 | - | - | - | 20,000 | |||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 21,561,900 | 21,000 | 124,962,000 | - | - | - | 124,983,000 | |||||||||||||||||||||||||||
Issuance of common stock for conversion of convertible notes payable | - | - | 183,214 | - | 450,000 | - | - | - | 450,000 | |||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (4,065,000 | ) | - | - | - | (4,065,000 | ) | |||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 4,966,000 | - | - | 4,966,000 | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | - | (4,000 | ) | - | - | (4,000 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (93,000 | ) | - | (93,000 | ) | |||||||||||||||||||||||||
Net income attributable to non-controlling interest | - | - | - | - | - | - | - | 1,081,000 | 1,081,000 | |||||||||||||||||||||||||||
Other | - | - | - | - | - | (1,000 | ) | 1,000 | - | |||||||||||||||||||||||||||
BALANCES, March 31, 2021 | 132,040 | $ | - | 49,498,676 | $ | 49,000 | $ | 292,763,000 | $ | (117,368,000 | ) | $ | (877,000 | ) | $ | 1,903,000 | $ | 176,470,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5 |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2021 | ||||||||
2022 | Restated | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (28,787,000 | ) | $ | 6,047,000 | |||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 2,562,000 | 162,000 | ||||||
Amortization | 80,000 | 104,000 | ||||||
Amortization of right-of-use assets | 339,000 | 229,000 | ||||||
Amortization, related party | 173,000 | 8,000 | ||||||
Interest expense – debt discount | 26,461,000 | 20,000 | ||||||
Gain on extinguishment of debt | - | (482,000 | ) | |||||
Change in fair value of warrant liability | 18,000 | 679,000 | ||||||
Accretion of original issue discount on notes receivable – related party | - | (4,000 | ) | |||||
Accretion of original issue discount on notes receivable | (276,000 | ) | (65,000 | ) | ||||
Increase in accrued interest on notes receivable – related party | (54,000 | ) | (1,000 | ) | ||||
Stock-based compensation | 2,685,000 | 20,000 | ||||||
Impairment of cryptocurrencies | 439,000 | - | ||||||
Realized gains on sale of marketable securities | 5,707,000 | (4,892,000 | ) | |||||
Unrealized gains on marketable securities | (13,515,000 | ) | (2,260,000 | ) | ||||
Unrealized (gains) losses on investments in equity securities, related parties | 4,694,000 | (3,123,000 | ) | |||||
Unrealized gains on equity securities | (13,461,000 | ) | (58,000 | ) | ||||
Loss from investment in unconsolidated entity | 533,000 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Marketable equity securities | 32,649,000 | (8,870,000 | ) | |||||
Accounts receivable | (621,000 | ) | 301,000 | |||||
Accrued revenue | (484,000 | ) | 104,000 | |||||
Inventories | (1,723,000 | ) | (118,000 | ) | ||||
Prepaid expenses and other current assets | 7,431,000 | (91,000 | ) | |||||
Digital currencies | (3,809,000 | ) | - | |||||
Other assets | (704,000 | ) | (86,000 | ) | ||||
Accounts payable and accrued expenses | 4,961,000 | (1,713,000 | ) | |||||
Other current liabilities | - | 78,000 | ||||||
Lease liabilities | (270,000 | ) | (230,000 | ) | ||||
Net cash provided by (used in) operating activities | 25,028,000 | (14,241,000 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (35,359,000 | ) | (4,349,000 | ) | ||||
Investment in promissory notes and other, related parties | (700,000 | ) | (3,595,000 | ) | ||||
Investments in common stock and warrants, related parties | (194,000 | ) | (4,756,000 | ) | ||||
Investment in real property, related party | - | (2,670,000 | ) | |||||
Purchase of marketable equity securities | (158,000 | ) | - | |||||
Sales of marketable equity securities | 10,210,000 | 430,000 | ||||||
Investments in loans receivable | (246,000 | ) | - | |||||
Principal payments on loans receivable | 1,500,000 | - | ||||||
Sale of digital currencies | 4,377,000 | - | ||||||
Investments in equity securities | (3,820,000 | ) | (1,787,000 | ) | ||||
Net cash used in investing activities | (24,390,000 | ) | (16,727,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2021 | ||||||||
2022 | Restated | |||||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of common stock | $ | 110,147,000 | $ | 124,983,000 | ||||
Financing cost in connection with sales of equity securities | (2,758,000 | ) | (4,065,000 | ) | ||||
Proceeds from notes payable | 295,000 | - | ||||||
Repayment of margin accounts | (18,488,000 | ) | - | |||||
Payments on notes payable | (65,986,000 | ) | (972,000 | ) | ||||
Payments of preferred dividends | (5,000 | ) | (4,000 | ) | ||||
Purchase of treasury stock | (992,000 | ) | - | |||||
Payments on revolving credit facilities, net | - | (8,000 | ) | |||||
Net cash provided by financing activities | 22,213,000 | 119,934,000 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 57,000 | 152,000 | ||||||
Net increase in cash and cash equivalents and restricted cash | 22,908,000 | 89,118,000 | ||||||
Cash and cash equivalents and restricted cash at beginning of period | 21,233,000 | 18,680,000 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 44,141,000 | $ | 107,798,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 2,572,000 | $ | 658,000 | ||||
Non-cash investing and financing activities: | ||||||||
Conversion of convertible notes payable into shares of common stock | $ | - | $ | 450,000 | ||||
Payment of accounts payable with digital currency | $ | 413,000 | $ | 119,000 | ||||
Conversion of convertible notes payable, related party into shares of common stock | $ | 400,000 | $ | - | ||||
Recognition of new operating lease right-of-use assets and lease liabilities | $ | 2,188,000 | $ | - | ||||
Purchase of marketable equity securities for future payment | $ | - | $ | 33,647,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 |
F-7 |
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 |
1. DESCRIPTION OF BUSINESS
Ault Alliance, Inc., a Delaware corporation which was then known as BitNile Holdings, Inc. (“BitNile” or the “Company”) was incorporated in 1969, underSeptember 2017. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, telecommunications, medical/biopharma, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary. BitNile was founded by Milton “Todd” Ault, III, its Executive Chairman and is led by Mr. Ault, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Corporation LawCounsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the StateCompany. All major investment and capital allocation decisions are made for the Company by Mr. Ault and the Executive Committee. The Company has six reportable segments:
· | BitNile, Inc. (“BNI”) – cryptocurrency mining operations, |
· | Ault Alliance, Inc. (“Ault Alliance”) – commercial lending, activist investing, media, and digital learning, |
· | Gresham Worldwide, Inc. (“GWW”) – defense solutions, |
· | TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions, |
· | Real Estate – hotel operations and other commercial real estate holdings, and |
· | Ault Disruptive Technologies Corporation (“Ault Disruptive”) – a special purpose acquisition company (“SPAC”). |
1 A. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
This Amendment amends the Quarterly Report on Form 10-Q of California. Digital Powerthe Company for the three months ended March 31, 2022, that was originally filed with the U.S. Securities and Digital Power Limited ("DP Limited"),Exchange Commission on May 23, 2022. This Amendment only corrects an error in classification with respect to changes in fair value of financial instruments issued by a wholly owned subsidiary, locatedrelated party. The changes in fair value were erroneously recorded in other comprehensive income (loss) and have been reclassified to correct for the error within the statement of operations. The Company has restated its Condensed Consolidated Statements of Operations and Comprehensive Loss, Condensed Consolidated Statements of Changes in Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows to correct this misclassification. Further, this Amendment also includes certain limited modifications to reflect the correct classification in disclosures in the United Kingdom, are currently engagedCompany’s Note 16 Net Income (Loss) per Share footnote in the design, manufactureCompany’s Notes to Condensed Consolidated Financial Statements. Finally, the Company has modified its disclosures in Item 4 of Part I to reflect the identification of an additional material weakness.
As a result, the Condensed Consolidated Statements of Operations and saleComprehensive Loss amounts of switching power supplies“Change in fair value of equity securities, related party” and converters. On November 30, 2016, Digital Power formed Digital Power Lending, LLC (“DP Lending”),Net unrealized gain on derivative securities of related party” were adjusted pursuant to the schedule below:
Schedule of condensed consolidated statements of operations and comprehensive loss | ||||||||||||
For the Three Months Ended | ||||||||||||
March 31, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
Revenue | $ | 7,905,000 | $ | - | $ | 7,905,000 | ||||||
Revenue, cryptocurrency mining, net | 130,000 | 130,000 | ||||||||||
Revenue, lending and trading activities | 5,210,000 | 5,210,000 | ||||||||||
Total revenue | 13,245,000 | - | 13,245,000 | |||||||||
Cost of revenue | 5,108,000 | 5,108,000 | ||||||||||
Gross profit | 8,137,000 | - | 8,137,000 | |||||||||
Operating expenses | ||||||||||||
Research and development | 602,000 | 602,000 | ||||||||||
Selling and marketing | 1,242,000 | 1,242,000 | ||||||||||
General and administrative | 5,092,000 | 5,092,000 | ||||||||||
Total operating expenses | 6,936,000 | - | 6,936,000 | |||||||||
Income from operations | 1,201,000 | 1,201,000 | ||||||||||
Other income (expenses) | ||||||||||||
Interest and other income | 37,000 | 37,000 | ||||||||||
Change in fair value of equity securities, related party | - | 2,969,000 | 2,969,000 | |||||||||
Interest expense | (314,000 | ) | (314,000 | ) | ||||||||
Change in fair value of marketable equity securities | 1,960,000 | 1,960,000 | ||||||||||
Realized gain on marketable securities | 397,000 | 397,000 | ||||||||||
Gain (loss) on extinguishment of debt | 482,000 | 482,000 | ||||||||||
Change in fair value of warrant liability | (679,000 | ) | (679,000 | ) | ||||||||
Total other (expenses) income, net | 1,883,000 | 2,969,000 | 4,852,000 | |||||||||
(Loss) income before income taxes | 3,084,000 | 2,969,000 | 6,053,000 | |||||||||
Income tax (provision) benefit | (6,000 | ) | (6,000 | ) | ||||||||
Net (loss) income | 3,078,000 | 2,969,000 | 6,047,000 | |||||||||
Net loss (income) attributable to non-controlling interest | (1,081,000 | ) | (1,081,000 | ) | ||||||||
Net (loss) income attributable to BitNile Holdings, Inc. | 1,997,000 | 2,969,000 | 4,966,000 | |||||||||
Preferred dividends | (4,000 | ) | (4,000 | ) | ||||||||
Net (loss) income available to common stockholders | $ | 1,993,000 | $ | 2,969,000 | $ | 4,962,000 | ||||||
Basic net (loss) income per common share | $ | 0.05 | $ | 0.13 | ||||||||
Diluted net (loss) income per common share | $ | 0.05 | $ | 0.12 | ||||||||
Weighted average basic common shares outstanding | 39,256,000 | 39,256,000 | ||||||||||
Weighted average diluted common shares outstanding | 40,202,000 | 40,202,000 | ||||||||||
Comprehensive (loss) income | ||||||||||||
Net (loss) income available to common stockholders | $ | 1,993,000 | $ | 2,969,000 | $ | 4,962,000 | ||||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation adjustment | (93,000 | ) | (93,000 | ) | ||||||||
Net unrealized gain on derivative securities of related party | 2,969,000 | (2,969,000 | ) | - | ||||||||
Other comprehensive (loss) income | 2,876,000 | (2,969,000 | ) | (93,000 | ) | |||||||
Total comprehensive (loss) income | $ | 4,869,000 | $ | - | $ | 4,869,000 |
The Condensed Consolidated Statements of Changes in Stockholders’ Equity amounts of “Accumulated deficit” and “Accumulated other comprehensive loss” were adjusted pursuant to the schedules below:
Schedule of condensed consolidated financial statements | ||||||||||||
January 1, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock | $ | 28,000 | $ | - | $ | 28,000 | ||||||
Additional paid-in capital | 171,396,000 | 171,396,000 | ||||||||||
Accumulated deficit | (121,396,000 | ) | (933,000 | ) | (122,329,000 | ) | ||||||
Accumulated other comprehensive loss | (1,718,000 | ) | 933,000 | (785,000 | ) | |||||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 48,310,000 | - | 48,310,000 | |||||||||
Non-controlling interest | 822,000 | 822,000 | ||||||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 49,132,000 | $ | - | $ | 49,132,000 |
March 31, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock | $ | 49,000 | $ | - | $ | 49,000 | ||||||
Additional paid-in capital | 292,763,000 | 292,763,000 | ||||||||||
Accumulated deficit | (119,404,000 | ) | 2,036,000 | (117,368,000 | ) | |||||||
Accumulated other comprehensive loss | 1,159,000 | (2,036,000 | ) | (877,000 | ) | |||||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 174,567,000 | - | 174,567,000 | |||||||||
Non-controlling interest | 1,903,000 | 1,903,000 | ||||||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 176,470,000 | $ | - | $ | 176,470,000 |
Further, the reclassification also resulted in a corresponding increase in net income and an increase in unrealized gains on April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”). Both DP Lending and Coolisys are wholly-owned subsidiaries. DP Lending is engagedequity securities, related party within net cash used in providing commercial loans to companies throughout 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 businessesactivities, as reflected in the customized and flexible power system solutions for the medical, military, telecom and industrial markets, other than the European markets which are primarily served by DP Limited, in Coolisys. On June 2, 2017, Digital Power purchased 56.4%Company’s Condensed Consolidated Statements of the outstanding equity interests of Microphase Corporation, a Delaware corporation (the “Microphase”). Microphase is a design-to-manufacture original equipment manufacturer (“OEM”) delivering radio frequency (“RF”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector logarithmic video amplifiers (“DLVA”) to the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut. Further, on September 1, 2017, Coolisys acquired all 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. The Company’s results of operations include 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, 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).
Schedule of condensed consolidated statements of cash flows | ||||||||||||
For the Three Months Ended | ||||||||||||
March 31, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 3,078,000 | $ | 2,969,000 | $ | 6,047,000 | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||
Depreciation | 162,000 | 162,000 | ||||||||||
Amortization | 104,000 | 104,000 | ||||||||||
Amortization of right-of-use assets | 229,000 | 229,000 | ||||||||||
Amortization, related party | 8,000 | 8,000 | ||||||||||
Interest expense – debt discount | 20,000 | 20,000 | ||||||||||
Gain on extinguishment of debt | (482,000 | ) | (482,000 | ) | ||||||||
Change in fair value of warrant liability | 679,000 | 679,000 | ||||||||||
Accretion of original issue discount on notes receivable – related party | (4,000 | ) | (4,000 | ) | ||||||||
Accretion of original issue discount on notes receivable | (65,000 | ) | (65,000 | ) | ||||||||
Increase in accrued interest on notes receivable – related party | (1,000 | ) | (1,000 | ) | ||||||||
Stock-based compensation | 20,000 | 20,000 | ||||||||||
Impairment of cryptocurrencies | - | - | ||||||||||
Realized gains on sale of marketable securities | (4,892,000 | ) | (4,892,000 | ) | ||||||||
Unrealized gains on marketable securities | (2,260,000 | ) | (2,260,000 | ) | ||||||||
Unrealized gains on equity securities, related party | (154,000 | ) | (2,969,000 | ) | (3,123,000 | ) | ||||||
Unrealized gains on equity securities | (58,000 | ) | (58,000 | ) | ||||||||
Loss from investment in unconsolidated entity | - | - | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Marketable equity securities | (8,870,000 | ) | (8,870,000 | ) | ||||||||
Accounts receivable | 301,000 | 301,000 | ||||||||||
Accrued revenue | 104,000 | 104,000 | ||||||||||
Inventories | (118,000 | ) | (118,000 | ) | ||||||||
Prepaid expenses and other current assets | (91,000 | ) | (91,000 | ) | ||||||||
Digital currencies | - | - | ||||||||||
Other assets | (86,000 | ) | (86,000 | ) | ||||||||
Accounts payable and accrued expenses | (1,713,000 | ) | (1,713,000 | ) | ||||||||
Other current liabilities | 78,000 | 78,000 | ||||||||||
Lease liabilities | (230,000 | ) | (230,000 | ) | ||||||||
Net cash used in operating activities | $ | (14,241,000 | ) | $ | - | $ | (14,241,000 | ) |
2. LIQUIDITY GOING CONCERN AND MANAGEMENT’S PLANS
As of September 30, 2017,March 31, 2022, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212$39.4 million and a negative working capital of $4,174.$55.6 million. The Company has incurred recurring losses and reported losses for the three and nine months ended September 30, 2017, totaled $1,967 and $4,700, respectively. In the past, the Company hasprimarily financed its operations principally through issuances of convertible debt, promissory notes and equity securities. During 2017, as reflected below, the Company continues to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:
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 ourthe Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from ourthe Company’s 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, 2016,2021, filed with the Securities and Exchange Commission (the “SEC”) on April 10, 2017.15, 2022. The condensed consolidated balance sheet as of December 31, 20162021 was derived from the Company’s audited 20162021 financial statements contained in the above referenced Form 10-K. Results of the three and nine months ended September 30, 2017,March 31, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.2022.
F-11 |
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2021 Annual Report.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of Consolidation
Recent Accounting Standards
In May 2021, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The guidance became effective for the Company on January 1, 2022. The Company adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its unaudited condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” (“ASU No. 2016-13”) to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its condensed consolidated financial statements includeand related disclosures.
In August 2020, the accounts of Digital Power,FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Effective January 1, 2022, the Company early adopted ASU 2020-06 using the modified retrospective approach, which resulted in no impact on its wholly-owned subsidiaries, DP Limited, Coolisys, Power-Plusconsolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and DP Lending and its majority-owned subsidiary, Microphase. All significant intercompany accounts and transactions have been eliminated in consolidation.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832),” which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and ASC No. 325,
F-12 |
4. REVENUE DISAGGREGATION
The following tables summarize disaggregated customer contract revenues and convertible promissory notes are both classified as “available-for-sale securities” and are carried at fair value, based on quoted market prices. Unrealized gains and losses are reported as a separate component of stockholder’s equity, accumulated other comprehensive loss. When evaluating the Company’s debt and equity investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial conditionsource of the issuerrevenue for the three months ended March 31, 2022 and any changes thereto,2021. Revenues from lending and thetrading 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 intent to sell, or whether it is more likely than not that it will be required to sell, the investment before recoverydisaggregated revenues consist of the investment’s amortized cost basis. Equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accountedfollowing for under the equity method are typically carried at cost (i.e., cost method investments), as described in ASC No. 325-20. Additionally, the investment in debt securities of AVLP qualifies for applicationthree months ended March 31, 2022:
Schedule of disaggregated revenues | ||||||||||||||||||||||||
Three months ended March 31, 2022 | ||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | Cryptocurrency | Real Estate | Total | |||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||
North America | $ | 1,511,000 | $ | 1,012,000 | $ | 7,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 9,054,000 | ||||||||||||
Europe | 2,179,000 | 19,000 | - | - | - | 2,198,000 | ||||||||||||||||||
Middle East | 3,254,000 | - | - | - | - | 3,254,000 | ||||||||||||||||||
Other | 301,000 | 98,000 | - | - | - | 399,000 | ||||||||||||||||||
Revenue from contracts with customers | 7,245,000 | 1,129,000 | 7,000 | 3,826,000 | 2,698,000 | 14,905,000 | ||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 17,921,000 | - | - | 17,921,000 | ||||||||||||||||||
Total revenue | $ | 7,245,000 | $ | 1,129,000 | $ | 17,928,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 32,826,000 | ||||||||||||
Major Goods or Services | ||||||||||||||||||||||||
RF/microwave filters | 1,511,000 | - | - | - | - | 1,511,000 | ||||||||||||||||||
Detector logarithmic video amplifiers | - | - | - | - | - | - | ||||||||||||||||||
Power supply units | 2,431,000 | 1,096,000 | - | - | - | 3,527,000 | ||||||||||||||||||
Power supply systems | 48,000 | - | - | - | - | 48,000 | ||||||||||||||||||
Healthcare diagnostic systems | - | - | - | - | - | - | ||||||||||||||||||
EV Chargers | - | 33,000 | - | - | - | 33,000 | ||||||||||||||||||
Defense systems | 3,255,000 | - | - | - | - | 3,255,000 | ||||||||||||||||||
Digital currency mining, net | - | - | - | 3,548,000 | - | 3,548,000 | ||||||||||||||||||
Hotel operations | - | - | - | - | 2,698,000 | 2,698,000 | ||||||||||||||||||
Other | - | - | 7,000 | 278,000 | - | 285,000 | ||||||||||||||||||
Revenue from contracts with customers | 7,245,000 | 1,129,000 | 7,000 | 3,826,000 | 2,698,000 | 14,905,000 | ||||||||||||||||||
Revenue, lending and trading activities | - | - | 17,921,000 | - | - | 17,921,000 | ||||||||||||||||||
Total revenue | $ | 7,245,000 | $ | 1,129,000 | $ | 17,928,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 32,826,000 | ||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||
Goods transferred at a point in time | $ | 3,512,000 | $ | 1,129,000 | $ | 7,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 11,172,000 | ||||||||||||
Services transferred over time | 3,733,000 | - | - | - | - | 3,733,000 | ||||||||||||||||||
Revenue from contracts with customers | $ | 7,245,000 | $ | 1,129,000 | $ | 7,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 14,905,000 |
The Company’s disaggregated revenues consist of the fair value option in accordance with ASC No. 825.
Three months ended March 31, 2021 | ||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | Total | |||||||||||||
Primary Geographical Markets | ||||||||||||||||
North America | $ | 1,889,000 | $ | 1,208,000 | $ | 302,000 | $ | 3,399,000 | ||||||||
Europe | 1,910,000 | 109,000 | - | 2,019,000 | ||||||||||||
Middle East | 2,389,000 | - | - | 2,389,000 | ||||||||||||
Other | 162,000 | 66,000 | - | 228,000 | ||||||||||||
Revenue from contracts with customers | 6,350,000 | 1,383,000 | 302,000 | 8,035,000 | ||||||||||||
Revenue, lending and trading activities (North America) | - | - | 5,210,000 | 5,210,000 | ||||||||||||
Total revenue | $ | 6,350,000 | $ | 1,383,000 | $ | 5,512,000 | $ | 13,245,000 | ||||||||
Major Goods | ||||||||||||||||
RF/microwave filters | $ | 1,215,000 | $ | - | $ | - | $ | 1,215,000 | ||||||||
Detector logarithmic video amplifiers | 71,000 | - | - | 71,000 | ||||||||||||
Power supply units | 238,000 | 1,383,000 | - | 1,621,000 | ||||||||||||
Power supply systems | 2,233,000 | - | - | 2,233,000 | ||||||||||||
Healthcare diagnostic systems | 185,000 | - | - | 185,000 | ||||||||||||
Defense systems | 2,408,000 | - | - | 2,408,000 | ||||||||||||
Digital currency mining | - | - | 130,000 | 130,000 | ||||||||||||
Other | - | - | 172,000 | 172,000 | ||||||||||||
Revenue from contracts with customers | 6,350,000 | 1,383,000 | 302,000 | 8,035,000 | ||||||||||||
Revenue, lending and trading activities | - | - | 5,210,000 | 5,210,000 | ||||||||||||
Total revenue | $ | 6,350,000 | $ | 1,383,000 | $ | 5,512,000 | $ | 13,245,000 | ||||||||
Timing of Revenue Recognition | ||||||||||||||||
Goods transferred at a point in time | $ | 3,758,000 | $ | 1,383,000 | $ | 302,000 | $ | 5,443,000 | ||||||||
Services transferred over time | 2,592,000 | - | - | 2,592,000 | ||||||||||||
Revenue from contracts with customers | $ | 6,350,000 | $ | 1,383,000 | $ | 302,000 | $ | 8,035,000 |
5. FAIR VALUE OF FINANCIAL STATEMENTS – Unaudited (Continued)
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 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 | $ | — |
Schedule of financial instrument measured at fair value | ||||||||||||||||
Fair Value Measurement at March 31, 2022 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investment in term promissory note of Ault & Company, Inc. (“Ault & Company”) and other – a related party | $ | 2,653,000 | $ | - | $ | - | $ | 2,653,000 | ||||||||
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party | 8,729,000 | 8,729,000 | - | - | ||||||||||||
Investments in marketable equity securities | 16,158,000 | 16,158,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 116,737,000 | 116,737,000 | - | - | ||||||||||||
Investments in equity securities | 37,091,000 | - | - | 37,091,000 | ||||||||||||
Total assets measured at fair value | $ | 181,368,000 | $ | 141,624,000 | $ | - | $ | 39,744,000 |
Fair Value Measurement at December 31, 2021 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investment in term promissory note of Ault & Company and other – a related party | $ | 2,842,000 | $ | - | $ | - | $ | 2,842,000 | ||||||||
Investment in common stock of Alzamend – a related party | 13,230,000 | 13,230,000 | - | - | ||||||||||||
Investments in marketable equity securities | 40,380,000 | 40,380,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 116,725,000 | 116,725,000 | - | - | ||||||||||||
Investments in equity securities | 30,482,000 | - | - | 30,482,000 | ||||||||||||
Total assets measured at fair value | $ | 203,659,000 | $ | 170,335,000 | $ | - | $ | 33,324,000 |
The Company assesses 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:
The following table summarizes the changes in investments in equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three months ended March 31, 2022:
Schedule of other equity securities measured and carried at fair value | ||||
Investments in equity securities | ||||
Balance at January 1, 2022 | $ | 30,482,000 | ||
Investment in equity securities | 3,820,000 | |||
Change in fair value of warrants | 10,281,000 | |||
Unrealized gains on equity securities | 3,180,000 | |||
Conversion to marketable securities | (10,672,000 | ) | ||
Balance at March 31, 2022 | $ | 37,091,000 |
See Note 8 for the changes in investments in Ault & Company measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) during the three months ended March 31, 2022.
6. Marketable Securities
Marketable securities in equity securities with readily determinable market prices consisted of the following as of March 31, 2022 and December 31, 2021:
Schedule of marketable equity securities | ||||||||||||||||
Marketable equity securities at March 31, 2022 | ||||||||||||||||
Gross unrealized | Gross unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Common shares | $ | 16,366,000 | $ | 5,268,000 | $ | (5,476,000 | ) | $ | 16,158,000 | |||||||
Marketable equity securities at December 31, 2021 | ||||||||||||||||
Gross unrealized | Gross unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Common shares | $ | 53,475,000 | $ | 32,000 | $ | (13,127,000 | ) | $ | 40,380,000 |
At March 31, 2022 and December 31, 2021, the Company invested in the marketable equity securities of publicly traded companies. The Company’s investment in marketable equity securities are revalued on each balance sheet date.
7. PROPERTY AND EQUIPMENT, NET
At March 31, 2022 and December 31, 2021, property and equipment consisted of:
Schedule of property and equipment | March 31, 2022 | December 31, 2021 | ||||||
Cryptocurrency machines and related equipment | $ | 18,507,000 | $ | 10,763,000 | ||||
Computer, software and related equipment | 7,702,000 | 8,884,000 | ||||||
Office furniture and equipment | 3,362,000 | 702,000 | ||||||
Land | 25,696,000 | 25,696,000 | ||||||
Building and improvements | 69,415,000 | 68,959,000 | ||||||
124,682,000 | 115,004,000 | |||||||
Accumulated depreciation and amortization | (7,493,000 | ) | (5,096,000 | ) | ||||
Property and equipment placed in service, net | 117,189,000 | 109,908,000 | ||||||
Deposits on cryptocurrency machines | 89,608,000 | 64,117,000 | ||||||
Property and equipment, net | $ | 206,797,000 | $ | 174,025,000 |
For the three months ended March 31, 2022 and 2021, depreciation expense amounted to $2.6 million and $0.2 million, respectively.
8. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and Ault & Company at March 31, 2022 and December 31, 2021, were comprised of the following:
Investment in Promissory Notes, Related Parties
Schedule of investment | Interest | Due | March 31, | December 31, | ||||||||||||
Rate | Date | 2022 | 2021 | |||||||||||||
Investment in promissory note of Ault & Company | 8 | % | December 31, 2022 | $ | 2,500,000 | $ | 2,500,000 | |||||||||
Accrued interest receivable, Ault & Company | 153,000 | 170,000 | ||||||||||||||
Other | - | 172,000 | ||||||||||||||
Total investment in promissory note, related party | $ | 2,653,000 | $ | 2,842,000 |
Investment in Common Stock and Options, Related Parties
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Investment in common stock and options of Alzamend | $ | 8,729,000 | $ | 13,230,000 |
The following table summarizes the changes in the Company’s investments in Alzamend and Ault & Company during the three months ended March 31, 2022:
Schedule of investments in Alzamend and Ault | Investment in warrants and common stock of Alzamend | Investment in promissory notes and advances of Alzamend and Ault & Company and Other | ||||||
Balance at January 1, 2022 | $ | 13,230,000 | $ | 2,842,000 | ||||
Investment in common stock and options of Alzamend | 194,000 | - | ||||||
Unrealized loss in common stock of Alzamend | (4,695,000 | ) | - | |||||
Amortization of related party investment | - | (173,000 | ) | |||||
Accrued interest | - | (16,000 | ) | |||||
Balance at March 31, 2022 | $ | 8,729,000 | $ | 2,653,000 |
Investments in Alzamend Common Stock
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended March 31, 2022:
Schedule of investments in Alzamend common stock | Shares of | Per Share | Investment in | |||||||||
Common Stock | Price | Common Stock | ||||||||||
Balance at January 1, 2022 | 6,947,000 | $ | 1.90 | $ | 13,230,000 | |||||||
Open market purchases after initial public offering | 153,000 | $ | 1.27 | 194,000 | ||||||||
Unrealized loss in common stock of Alzamend | (4,691,000 | ) | ||||||||||
Investment in Alzamend common stock | 7,100,000 | $ | 1.23 | 8,733,000 | ||||||||
Investment in Alzamend options | (4,000 | ) | ||||||||||
Balance at March 31, 2022 | $ | 8,729,000 |
9. INVESTMENT IN UNCONSOLIDATED ENTITY – Unaudited (Continued)
Equity Investments in thousands, except shareUnconsolidated Entity – AVLP
Equity investments in an unconsolidated entity, AVLP, at March 31, 2022 and per share data
Investment in Promissory Notes
Schedule of convertible promissory note | Interest | Due | March 31, | December 31, | ||||||||||||
Rate | Date | 2022 | 2021 | |||||||||||||
Investment in convertible promissory note | 12 | % | 2022-2026 | $ | 18,499,000 | $ | 17,799,000 | |||||||||
Investment in promissory note – Alpha Fund | 8 | % | June 30, 2022 | 3,600,000 | 3,600,000 | |||||||||||
Accrued interest receivable | 2,092,000 | 2,092,000 | ||||||||||||||
Other | 106,000 | 600,000 | ||||||||||||||
Total investment in promissory notes, gross | 24,297,000 | 24,091,000 | ||||||||||||||
Less: provision for loan losses | (2,000,000 | ) | (2,000,000 | ) | ||||||||||||
Total investment in promissory note | $ | 22,297,000 | $ | 22,091,000 |
* During the three and nine months ended September 30, 2017,March 31, 2022 and 2021, no interest income was recognized from the Company’s investment in AVLP.
AVLP Convertible Promissory Note Maturities
The contractual maturities of AVLP’s convertible promissory notes as of March 31, 2022 were:
Schedule of convertible promissory note maturities | ||||
Year | ||||
2022 | $ | 4,124,000 | ||
2023 | 2,820,000 | |||
2024 | 2,651,000 | |||
2025 | 1,674,000 | |||
2026 | 6,530,000 | |||
2027 | 700,000 | |||
Total | $ | 18,499,000 |
F-17 |
The following table summarizes the changes in the Company’s equity investments in an unconsolidated entity, AVLP, during the year ended December 31, 2021 and the three months ended March 31, 2022:
Schedule of changes in the equity investments | Investment in | Investment in | ||||||||||
warrants and | promissory notes | Total | ||||||||||
common stock | and advances | investment | ||||||||||
Balance at January 1, 2021 | $ | 5,486,000 | $ | 10,471,000 | $ | 15,957,000 | ||||||
Investment in convertible promissory notes | - | 7,344,000 | 7,344,000 | |||||||||
Fair value of warrants | 2,786,000 | - | 2,786,000 | |||||||||
Unrealized loss in warrants | (7,772,000 | ) | - | (7,772,000 | ) | |||||||
Unrealized gain in common stock | (150,000 | ) | - | (150,000 | ) | |||||||
Loss from equity investment | (311,000 | ) | - | (311,000 | ) | |||||||
Accretion of discount | - | 4,210,000 | 4,210,000 | |||||||||
Accrued interest | - | 66,000 | 66,000 | |||||||||
Balance at January 1, 2022 | 39,000 | 22,091,000 | 22,130,000 | |||||||||
Investment in convertible promissory notes | - | 700,000 | 700,000 | |||||||||
Loss from equity investment | (39,000 | ) | (494,000 | ) | (533,000 | ) | ||||||
Balance at March 31, 2022 | $ | - | $ | 22,297,000 | $ | 22,297,000 |
10. CONSOLIDATED VARIABLE INTEREST ENTITY - ALPHA FUND
Alpha Fund – Consolidated Variable Interest Entity
During the three months ended March 31, 2022 and the year ended December 31, 2021, the Company recorded amortizationinvested in Ault Alpha LP (the “Alpha Fund”). The Alpha Fund operates as a private investment fund. The general partner of the Alpha Fund, Ault Alpha GP LLC (“Alpha GP”) is owned by Ault Capital Management LLC (the “Investment Manager”), which also acts as the investment manager to the Alpha Fund. The Investment Manager is owned by Ault & Company. Messrs. Ault, Horne, Nisser and Cragun, who serve as executive officers and/or directors of the Company, are executive officers of the Investment Manager, and Messrs. Ault, Horne and Nisser are executive officers and directors of Ault & Company.
As of March 31, 2022, the Company subscribed for $18 million or 100% of the limited partnership interests in the Alpha Fund, the full amount of which was funded, an increase of $1 million from the $17 million subscribed and funded as of December 31, 2021. These investments are subject to a rolling five-year lock-up period, provided that after three years, Alpha GP will waive the last twenty-four (24) months of the lock-up period upon receipt of written notice from an executive officer of the Company that a withdrawal of capital is required to prevent a going concern opinion from the Company’s auditors, under the terms of the Alpha Fund’s partnership agreement and side letter entered into between the Company and the Alpha Fund.
The Company consolidates Alpha Fund as a variable interest entity (a “VIE”) due to its significant level of influence and control of Alpha Fund, the size of its investment, and its ability to participate in policy making decisions, the Company is considered the primary beneficiary of the VIE.
Investments by Alpha Fund – Treasury Stock
As of March 31, 2022, the Alpha Fund owned 7,100,000 shares of the Company’s common stock, accounted for as treasury stock as of March 31, 2022.
F-18 |
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at March 31, 2022 and December 31, 2021 consisted of:
Schedule of other current liabilities | March 31, | December 31, | ||||||
2022 | 2021 | |||||||
Accounts payable | $ | 11,448,000 | $ | 6,902,000 | ||||
Accrued payroll and payroll taxes | 4,364,000 | 5,027,000 | ||||||
Financial instrument liabilities | 4,267,000 | 4,249,000 | ||||||
Accrued legal | 1,787,000 | 2,637,000 | ||||||
Other accrued expenses | 5,373,000 | 3,940,000 | ||||||
$ | 27,239,000 | $ | 22,755,000 |
Financial Instruments
Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. In prior years, the Company granted certain warrants that resulted in these warrants accounted for as a financial instrument and being re-measured every reporting period with the change in value reported in the statement of operations.
The financial instruments were valued using a variety of pricing models with the following valuation assumptions:
Schedule of Financial Instrument | March 31, 2022 | December 31, 2021 | ||||||
Contractually stipulated stock price | $ | $ | ||||||
Exercise price | $ | $ | ||||||
Contractually defined remaining term | 5.0 | 5.0 | ||||||
Contractually defined volatility | 135 | % | 135 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Risk-free interest rate | 2.4 | % | 1.3 | % |
Per the terms of the warrant agreements underlying the financial instruments, the value to the warrant holders is defined within the agreement based on a stock price, contractual term, volatility factor and dividend rate as defined in the warrant agreement, and not indexed to the company’s stock, resulting in the financial instrument accounting. The risk-free interest rate was based on rates established by the Federal Reserve Bank.
The following table sets forth a summary of the changes in the estimated fair value of the financial instruments during the three months ended March 31, 2022 and 2021:
Schedule of fair value of the financial instruments | March 31, 2022 | March 31, 2021 | ||||||
Beginning balance | $ | 4,249,000 | $ | 4,192,000 | ||||
Change in fair value | 18,000 | 679,000 | ||||||
Ending balance | $ | 4,267,000 | $ | 4,871,000 |
12. AMORTIZATION OF DEBT DISCOUNT OF SECURED PROMISSORY NOTES
On December 30, 2021, the Company entered into a securities purchase agreement with certain sophisticated investors providing for the issuance of:
· | secured promissory notes (the “Secured Promissory Notes”) that bear interest at 8% per annum with an aggregate principal face amount of approximately $66 million including a 10% original issue discount; |
· | five-year warrants to purchase an aggregate of | shares of the Company’s common stock at an exercise price of $ , subject to adjustment; and
· | five-year warrants to purchase an aggregate of | shares of Common Stock (the “Class B Warrant Shares”) at an exercise price of $ per share, subject to adjustment. The Class B Warrant Shares are deemed to be a derivative instrument.
As of December 31, 2021, unamortized debt discountsdiscount on the Secured Promissory Notes related to the original issue discount and estimated fair value of $652the warrants totaled $26.3 million.
During the three months ended March 31, 2022, the Secured Promissory Notes were repaid and $1,239,the Company fully amortized the related debt discount of $26.3 million, which is included within interest expense on the condensed consolidated statements of operations.
13. 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 one of the Company’s subsidiaries, filed a Complaint (the “Complaint”) in the United States District Court for the Southern District of New York against the Company and the Company’s 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 the Company and its 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, the Company and its subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against the Company, 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 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.
On June 2, 2021, the Company and its subsidiary filed a motion to dismiss the amended complaint in its entirety as against the Company, and the promissory estoppel claim as against the subsidiary.
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 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 amount of the unpaid portion of the purchase agreement, which is included in accounts payable and accrued expenses. An unfavorable outcome may have a material adverse effect on the Company’s 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 the Company and the Company’s 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 the Company, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and the Company, 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 to deliver unrestricted shares of 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, the Company and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.
On July 28, 2021, the Court conducted oral argument in connection with the motion to dismiss. During the oral argument, the Court informed the parties that the Court was dismissing the fraud claim, in its entirety, and provided Plaintiffs an opportunity to amend their fraud claim within sixty days of the date of the oral argument. The Court reserved decision on the other causes of action.
On December 14, 2021, the Court entered a decision and order in connection with the motion to dismiss whereby the Court dismissed Plaintiff’s causes of action for specific performance, conversion, permanent injunction, and reiterated its prior determination that the fraud claim was also dismissed. The Court denied the motion to dismiss in connection with the other causes of action asserted in the complaint.
On January 26, 2022, the Company and Mr. Ault filed an answer to the complaint and asserted numerous affirmative defenses.
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 the Company’s business, financial condition and results of operations.
Subpoena
The Company and certain affiliates and related parties have received several subpoenas from the SEC for the production of documents and testimony. The Company is fully cooperating with this non-public, fact-finding inquiry and management believes that the Company has operated its business in compliance with all applicable laws. The subpoenas expressly provide that the inquiry is not to be construed as an indication by the SEC or its staff that any violations of the federal securities laws have occurred, nor should they 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. The Company is 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. The Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes 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 the Company’s other outstanding matters, based on the Company’s current knowledge, the Company believes that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
14. STOCKHOLDERS’ EQUITY
2022 Issuances
2022 ATM Offering
On February 25, 2022, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets to sell shares of common stock having an aggregate offering price of up to $200 million from time to time, through an “at the market offering” program (the “2022 ATM Offering”). As of March 31, 2022, the Company had sold an aggregate of million shares of common stock pursuant to the 2022 ATM Offering for gross proceeds of $110.1 million.
15. INCOME TAXES
The Company calculates its interim income tax provision in accordance with ASC 270 and ASC 740. The Company’s effective tax rate (“ETR”) from continuing operations was 0.0% and 0.2% for the three months ended March 31, 2022 and 2021, respectively. The Company did not recognize any debt discount duringhad no provision for income taxes for the three and nine months ended September 30, 2016.
For the three months ended March 31, 2022, 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, 2022, 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 |
Net Loss Per Share
Schedule of net loss per share | March 31, 2022 | |||
Stock options | 6,396,000 | |||
Restricted stock grants | 2,063,000 | |||
Warrants | 20,015,000 | |||
Convertible notes | 165,000 | |||
Convertible preferred stock | 2,000 | |||
Total | 28,641,000 |
Basic and diluted net income per 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.
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 |
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 |
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 | 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 |
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 |
Schedule of basic and diluted net income per common share | For the Three Months Ended March 31, 2021 | |||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income attributable to BitNile Holdings | $ | 4,966,000 | ||||||||||
Less: Preferred stock dividends | (4,000 | ) | ||||||||||
Basic earnings per share | ||||||||||||
Net income available to common stockholders | 4,962,000 | 39,256,000 | $ | 0.13 | ||||||||
Effect of dilutive securities | ||||||||||||
Stock options | - | 505,000 | ||||||||||
8% convertible notes, related party | 8,000 | 276,000 | ||||||||||
4% convertible notes | 7,000 | 165,000 | ||||||||||
Diluted earnings per share | ||||||||||||
Income available to common stockholders plus assumed conversions | $ | 4,977,000 | 40,202,000 | $ | 0.12 |
17. SEGMENT AND SUBSIDIARY
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 |
The Company did not record any additional interest expense as a result of the extinguishment of $130 in short-term loans since the carrying amount of the short-term loans was equivalent to the fair value of the consideration transferred, which was determined from the closing price of the Company’s equity securities on the date of extinguishment. During the three months ended September 30, 2017, the Company also repaid $30 in short-term loans.
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 |
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 |
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 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 |
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 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 |
Schedule of operating segments | ||||||||||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | Cryptocurrency | Real Estate | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 7,245,000 | $ | 1,129,000 | $ | 7,000 | $ | - | $ | - | $ | - | $ | - | $ | 8,381,000 | ||||||||||||||||
Revenue, cryptocurrency mining, net | - | - | - | 3,548,000 | - | - | - | 3,548,000 | ||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 278,000 | - | - | - | 278,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 17,921,000 | - | - | - | - | 17,921,000 | ||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 2,698,000 | - | - | 2,698,000 | ||||||||||||||||||||||||
Total revenues | $ | 7,245,000 | $ | 1,129,000 | $ | 17,928,000 | $ | 3,826,000 | $ | 2,698,000 | $ | - | $ | - | $ | 32,826,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 221,000 | $ | 6,000 | $ | 34,000 | $ | 1,527,000 | $ | 828,000 | $ | - | $ | 26,000 | $ | 2,642,000 | ||||||||||||||||
Income (loss) from operations | $ | (144,000 | ) | $ | (1,175,000 | ) | $ | 11,912,000 | $ | (363,000 | ) | $ | (1,382,000 | ) | $ | (297,000 | ) | $ | (7,521,000 | ) | $ | 1,030,000 | ||||||||||
Capital expenditures for the three months ended March 31, 2022 | $ | 129,000 | $ | 75,000 | $ | 88,000 | $ | 34,987,000 | $ | 34,000 | $ | - | $ | 46,000 | $ | 35,359,000 |
Segment information for these periods:
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 |
GWW | TurnOnGreen | Ault Alliance | Holding Company | Total | ||||||||||||||||
Revenue | $ | 6,350,000 | $ | 1,383,000 | $ | 172,000 | $ | - | $ | 7,905,000 | ||||||||||
Revenue, cryptocurrency mining, net | 130,000 | 130,000 | ||||||||||||||||||
Revenue, lending and trading activities | - | - | 5,210,000 | - | 5,210,000 | |||||||||||||||
Total revenues | $ | 6,350,000 | $ | 1,383,000 | $ | 5,512,000 | $ | - | $ | 13,245,000 | ||||||||||
Depreciation and amortization expense | $ | 213,000 | $ | 7,000 | $ | 43,000 | $ | 3,000 | $ | 266,000 | ||||||||||
Income (loss) from operations | $ | 212,000 | $ | (200,000 | ) | $ | 4,033,000 | $ | (2,844,000 | ) | $ | 1,201,000 | ||||||||
Capital expenditures for the three months ended March 31, 2021 | $ | 92,000 | $ | - | $ | 4,257,000 | $ | - | $ | 4,349,000 |
18. SUBSEQUENT EVENTS
2022 ATM Offering
During the period between April 1, 2022 through May 20, 2022, 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.
Investments in Alpha Fund
During the Chairman and majority shareholder of Ault & Company.
Investments in Alzamend
On April 26, 2022, DP Lending funded the remaining $4 million due to Alzamend upon its achievement of the final milestone.
EYP Acquisition
On April 25, 2022, the Company announced that its subsidiary, Ault Alliance has agreed to lend approximately $12 million (inclusive of existing loans) through a super-priority debtor-in-possession (“DIP”) loan to, and entered into subscription agreementsan asset purchase agreement with, five investors, under which we agreed to issueEYP, Inc. and sell inits affiliates (“EYP”) providing for the aggregate 452,239 sharesacquisition of common stock to the investors at $0.67 per shareall of EYP’s assets for an aggregate consideration of approximately $68 million (the “Asset Purchase”). Ault Alliance will also make an offer of employment to all current employees of EYP. EYP is an integrated architecture, engineering, and design services company specializing in higher education, healthcare, government and science & technology with offices in 11 cities across the United States.
The asset purchase priceagreement constitutes a “stalking horse” bid in a sale process being conducted under Section 363 of $303. $75the U.S. Bankruptcy Code. As such, Ault Alliance’s acquisition of EYP’s assets remains subject to approval by the United States Bankruptcy Court for the District of Delaware, following court-approved bidding procedures, including the potential receipt of competing offers for EYP’s assets at auction. It is expected that the sale process will be completed by June 2022, and that throughout the sale process, the business will continue to operate in the ordinary course providing services to its customers. As part of the purchase, price was paid in cashAult Alliance will be able to include the value of its DIP loan as part of its bid at closing. Consummation of the Asset Purchase is subject to Bankruptcy Court approved bidding procedures, higher and $228 was paid through the cancellation of debt incurred by the Company, of which $93 was from a related party.
Increase in accordance with Section 713Ownership of Alliance Cloud Services, LLC
On May 12, 2022, BNI closed a $1.8 million membership interest purchase agreement whereby BNI acquired the NYSE American Company Guide.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this quarterly report, the “Company,” “Digital Power,“BitNile,” “we,” “us” and “our” refer to Digital Power Corporation,Ault Alliance, Inc., a CaliforniaDelaware corporation which was then known as BitNile Holdings, Inc. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, telecommunications, medical/biopharma, and textiles. In addition, the Company owns and operates hotels and extends credit to select entrepreneurial businesses through a licensed lending subsidiary.
Recent Events and Developments
On February 4, 2022, we and our wholly-ownedwholly owned subsidiary Ault Alliance, Inc. (“Ault Alliance”) entered into a securities purchase agreement providing for our purchase of BitNile, Inc. (“BNI”) from Ault Alliance. As a result of this transaction, both BNI and Ault Alliance are each stand-alone wholly owned subsidiaries Coolisys Technologies, Inc., Power-Plus Technical Distributors,of ours.
On February 10, 2022, consistent with our objective to have BNI operate the entirety of our business that relates to cryptocurrencies, Ault Alliance assigned the entirety of its interest in Alliance Cloud Services, LLC Digital Power Lending,(“ACS”) to BNI.
On February 25, 2022, we entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets, LLC Digital Power Limitedto sell shares of common stock having an aggregate offering price of up to $200 million from time to time, through an “at the market offering” program (the “2022 ATM Offering”). As of March 31, 2022, we had sold an aggregate of 140.0 million shares of common stock pursuant to the 2022 ATM Offering for gross proceeds of $110.1 million.
On March 20, 2022, we and our majority owned subsidiary MicrophaseImperalis Holding Corp. (“IMHC”) entered into a securities purchase agreement (the “Agreement”) with TurnOnGreen, Inc. (“TOGI”), a wholly owned subsidiary of ours. According to the Agreement, we will (i) deliver to IMHC all of the outstanding shares of common stock of TOGI that we own, and (ii) forgive and eliminate the intracompany accounts between us and TOGI evidencing historical equity investments made by us in TOGI, in the approximate amount of $25,000,000, in consideration for the issuance by IMHC to us (the “Transaction”) of an aggregate of 25,000 newly designated shares of Series A Preferred Stock (the “IMHC Preferred Stock”), with each such share having a stated value of $1,000. The closing of the Transaction is subject to our delivery to IMHC of audited financial statements of TOGI and other customary closing conditions. Immediately following the completion of the Transaction, TOGI will be a wholly-owned subsidiary of IMHC. The parties to the Agreement have agreed that, upon completion of the Transaction, IMHC will change its name to TurnOnGreen, Inc., and, through an upstream merger whereby the current TOGI shall cease to exist, IMHC shall have TOGI’s two operating subsidiaries, TOG Technologies Inc. and Digital Power Corporation.
On March 30, 2022, we fully paid our $66 million senior secured notes (the “Senior Notes”) and accrued interest. The 10% original issuance discount promissory notes were sold in December 2021 and were due and payable on March 31, 2022.
On April 22, 2022, Ault Alliance entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with EYP Group Holdings, Inc. and each of its subsidiaries and affiliates listed on the signature page to the Asset Purchase Agreement (collectively, “EYP”), pursuant to which Ault Alliance agreed to purchase substantially all of the assets of EYP (such assets, the “Assets,” and such transaction, the “Asset Purchase”). On April 24, 2022, EYP filed a growth companyvoluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Bankruptcy Court has permitted joint administration of the Chapter 11 cases under the caption “In re EYP Group Holdings, Inc., et al.”, Case No. 22-10367 (MFW) (the “Chapter 11 Cases”).
Under the Asset Purchase Agreement, Ault Alliance or its designee(s), upon the closing of the transactions contemplated thereby, will purchase the Assets and assume certain of EYP’s obligations associated with the purchased Assets through a supervised sale under Section 363 of the Bankruptcy Code. Ault Alliance’s stalking horse bid is based on an enterprise value of approximately Sixty-Seven Million Seven Hundred Thousand Dollars ($67,700,000), which includes the purchase price for the Assets under the Asset Purchase Agreement of Sixty-Two Million Five Hundred Thousand Dollars ($62,500,000), as adjusted by a closing working capital adjustment (the “Purchase Price”), plus Ault Alliance’s assumption of certain liabilities. The Purchase Price would be paid in cash, less the outstanding amount of the DIP Loans and the senior secured loans previously issued by Ault Alliance to EYP, in an approximate aggregate amount of Eleven Million Seven Hundred Fifty Thousand Dollars ($11,750,000), and less the amount of certain liabilities assumed by Ault Alliance. The Asset Purchase Agreement requires the Asset Purchase to close by June 30, 2022. Consummation of the Asset Purchase is subject to Bankruptcy Court approved bidding procedures, higher and better offers made in the auction by other potential bidders, approval of the highest bidder by the Bankruptcy Court and customary closing conditions.
In connection with the Chapter 11 Cases, EYP filed a motion seeking Bankruptcy Court approval of debtor-in-possession financing on the terms set forth in that certain Senior Secured Superpriority Debtor-in-Possession Financing Term Sheet, dated April 22, 2022 (the “DIP Financing Agreement”), by and among Ault Alliance and EYP. The DIP Financing Agreement provides for senior secured superpriority debtor-in-possession financing facilities (the “DIP Financing”) in a $5 million commitment, with up to increase our revenues through acquisitions. Our strategy reflects our management and Board’s current philosophy that occurred as$2.5 million of such commitment available upon entry of an interim order (the “Interim DIP Order”) approving the DIP Financing (the “Initial Draw”). The DIP Financing will become available upon the satisfaction of customary conditions precedent thereto, including the entry of the Interim DIP Order. The remaining portion of the commitment, minus the Initial Draw, shall become available upon entry of the final order of the Bankruptcy Court approving the DIP Financing (collectively, any borrowings under the DIP Financing the “DIP Loans”). On April 26, 2022, the Bankruptcy Court entered the Interim DIP Order. On or about April 29, 2022, EYP made an Initial Draw in the amount of $1.5 million pursuant to the Interim DIP Order. A hearing on approval of the DIP Financing on a resultfinal basis is scheduled for May 25, 2022.
The DIP Financing matures on the earlier of a change in control completed in September 2016. Our acquisition and development target strategy includes companies that have developed a “new way(i) June 30, 2022, (ii) the closing date following entry of doing business” in mature, well-developed industries experiencing changes due to new technology; companies that may become profitableone or more profitable through efficiency and reductionfinal orders approving the sale of costs; companies that are related to our core businessthe Assets in the commercial and defense industries; and companies that will enhance our overall revenues. It is our goal to substantially increase our gross revenuesChapter 11 Cases, (iii) the acceleration of any outstanding DIP Loans following the occurrence of an uncured event of default (as defined in the near future.
On November 30, 2016, Digital Power formedApril 26, 2022, Digital Power Lending, LLC (“(“DP Lending”) made an additional $4 million investment in Alzamend Neuro, Inc. (“Alzamend”), a wholly-owned subsidiary.related party and early clinical-stage biopharmaceutical company focused on developing novel products for the treatment of neurodegenerative diseases and psychiatric disorders. During 2021, DP Lending entered into a securities purchase agreement (the “SPA”) with Alzamend to invest $10 million in Alzamend common stock and warrants, subject to the achievement of certain milestones. DP Lending had previously funded $6 million pursuant to the terms of the SPA and the achievement of 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 AL001. On April 26, 2022, DP Lending funded the remaining amount due to achievement of the final milestone, the receipt of the full data set from Alzamend’s Phase 1 clinical trial for AL001.
On May 12, 2022, BNI closed a $1.8 million membership interest purchase agreement whereby BNI acquired the 30% minority interest of ACS which BNI did not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI. ACS owns and operates our Michigan data center, where BNI conducts our Bitcoin mining operations.
General
As a holding company, our business strategy is engageddesigned to increase stockholder value. Under this strategy, we are focused on managing and financially supporting our existing subsidiaries and partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to stockholders. 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 providing commercial loanssecondary market transactions, or a combination thereof, as well as other opportunities to maximize stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations and working capital needs.
From time to time, we engage in discussions with other companies throughoutinterested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the United Statesextent 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 stockholders’ best interests, we will seek to provide them with operatingsell 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 rights offerings and directed share subscription programs. We will continue to consider these (or similar) programs and the sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our stockholders.
Over the recent past we have provided capital and relevant expertise to financefuel the growth of their businesses. The loans will primarily be short-term, ranging from six to twelve months.
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, Suite 240, Las Vegas, NV 89141. Our phone number is 510-657-2635949-444-5464 and our website address is www.digipwr.com.
Results of Operations
Results of Operations for the Three Months Ended March 31, 2022 and 2021
The following table summarizes the results of our operations for the three months ended September 30, 2017, from $1,826March 31, 2022 and 2021.
For the Three Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 8,659,000 | $ | 7,905,000 | ||||
Revenue, cryptocurrency mining, net | 3,548,000 | 130,000 | ||||||
Revenue, hotel operations | 2,698,000 | - | ||||||
Revenue, lending and trading activities | 17,921,000 | 5,210,000 | ||||||
Total revenue | 32,826,000 | 13,245,000 | ||||||
Cost of revenue | 10,494,000 | 5,108,000 | ||||||
Gross profit | 22,332,000 | 8,137,000 | ||||||
Operating expenses | ||||||||
Research and development | 695,000 | 602,000 | ||||||
Selling and marketing | 6,481,000 | 1,242,000 | ||||||
General and administrative | 13,687,000 | 5,092,000 | ||||||
Impairment of mined cryptocurrency | 439,000 | - | ||||||
Total operating expenses | 21,302,000 | 6,936,000 | ||||||
Income from operations | 1,030,000 | 1,201,000 | ||||||
Interest and other income | 449,000 | 37,000 | ||||||
Change in fair value of equity securities, related party | - | 2,969,000 | ||||||
Interest expense | (29,824,000 | ) | (314,000 | ) | ||||
Change in fair value of marketable equity securities | - | 1,960,000 | ||||||
Realized gain on marketable securities | 109,000 | 397,000 | ||||||
Loss from investment in unconsolidated entity | (533,000 | ) | - | |||||
Gain on extinguishment of debt | - | 482,000 | ||||||
Change in fair value of warrant liability | (18,000 | ) | (679,000 | ) | ||||
(Loss) income before income taxes | (28,787,000 | ) | 6,053,000 | |||||
Income tax (provision) benefit | - | (6,000 | ) | |||||
Net (loss) income | (28,787,000 | ) | 6,047,000 | |||||
Net loss (income) attributable to non-controlling interest | 15,000 | (1,081,000 | ) | |||||
Net (loss) income attributable to Ault Alliance, Inc. | (28,772,000 | ) | 4,966,000 | |||||
Preferred dividends | (5,000 | ) | (4,000 | ) | ||||
Net (loss) income available to common stockholders | $ | (28,777,000 | ) | $ | 4,962,000 | |||
Comprehensive (loss) income | ||||||||
Net (loss) income available to common stockholders | $ | (28,777,000 | ) | $ | 4,962,000 | |||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (287,000 | ) | (93,000 | ) | ||||
Other comprehensive (loss) income | (287,000 | ) | (93,000 | ) | ||||
Total comprehensive (loss) income | $ | (29,064,000 | ) | $ | 4,869,000 |
Revenues
Revenues by segment for the three months ended September 30, 2016.March 31, 2022 and 2021 are as follows:
For the Three Months Ended March 31, | Increase | |||||||||||||||
2022 | 2021 | (Decrease) | % | |||||||||||||
Gresham Worldwide, Inc. (“GWW”) | $ | 7,245,000 | $ | 6,350,000 | $ | 895,000 | 14 | % | ||||||||
TOGI | 1,129,000 | 1,383,000 | (254,000 | ) | -18 | % | ||||||||||
Cryptocurrency | ||||||||||||||||
Revenue, cryptocurrency mining, net | 3,548,000 | 130,000 | 3,418,000 | 2,629 | % | |||||||||||
Revenue, commercial real estate leases | 278,000 | 172,000 | 106,000 | 62 | % | |||||||||||
Real estate | 2,698,000 | - | 2,698,000 | — | ||||||||||||
Ault Alliance: | ||||||||||||||||
Revenue, lending and trading activities | 17,921,000 | 5,210,000 | 12,711,000 | 244 | % | |||||||||||
Other | 7,000 | - | 7,000 | — | ||||||||||||
Total revenue | $ | 32,826,000 | $ | 13,245,000 | $ | 19,581,000 | 148 | % |
Our revenues increased by $19.6 million, or 148%, to $32.8 million for the three months ended March 31, 2022, from $13.2 million for the three months ended March 31, 2021.
GWW
GWW revenues increased by $0.9 million, or 14%, to $7.2 million for the three months ended March 31, 2022, from $6.4 million for the three months ended March 31, 2021. The increase in revenue was primarilyfrom our GWW segment for customized solutions for the military markets reflects higher revenue from Enertec, which largely consists of revenue recognized over time, grew to $3.3 million for the three months ended March 31, 2022, an increase of $0.8 million, or 33.4%, from $2.4 million in the prior-year period.
TOGI
TOGI revenues for the three months ended March 31, 2022 of $1.1 million declined $0.3 million, or 18%, from $1.4 million for the three months ended March 31, 2021, due to supply chain challenges.
Cryptocurrency
Revenues from our acquisitioncryptocurrency mining operations were $3.5 million for the three months ended March 31, 2022, compared to $0.1 million for three months ended March 31, 2021. During 2021, we purchased Bitcoin mining equipment and increased our cryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations in 2021 was based on several factors, which positively affected the number of 56.4% active miners we operated, including the market prices of digital currencies, and favorable power costs available at our Michigan data center.
Real Estate
Real estate segment revenues were $2.7 million for the outstandingthree months ended March 31, 2022 compared to nil for the three months ended March 31, 2021. On December 22, 2021, the real estate segment acquired four hotel properties for $71.3 million, consisting of a 136-room Courtyard by Marriott, a 133-room Hilton Garden Inn and a 122-room Residence Inn by Marriott in Middleton, WI, as well as a 135-room Hilton Garden Inn in Rockford, IL. Other than the cryptocurrency segment Michigan data center, we did not have any income-producing real estate prior to the hotel acquisitions.
Ault Alliance
Revenues from our lending and trading activities increased to $17.9 million for the three months ended March 31, 2022, from $5.2 million for the three months ended March 31, 2021, which is attributable to a significant allocation of capital from our equity interestsfinancing transactions to our loan and investment portfolio. During the three months ended March 31, 2022, DP Lending generated significant income from appreciation of Microphase on June 2, 2017, combined withinvestments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to DP Lending in certain financing transactions. Under its business model, DP Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.
Revenues from our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plustrading activities during the three months ended September 30, 2017, were $1,340March 31, 2022 included significant net gains on equity securities, including unrealized gains and $224, respectively. Excluding revenues that were generated bylosses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in 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.
Gross Margins
Gross margins increased by 130.5% to $2,87768.0% for the three months ended September 30, 2017, from $1,248March 31, 2022, compared to 61.4% for the three months ended September 30, 2016. As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of MicrophaseMarch 31, 2021. Our gross margins have typically ranged between 33% and Power-Plus. If we had not closed37%, with slight variations depending on these acquisition, then revenues from our U.S. operations would have been $1,313, an increase of 5.2%. The increase in revenues from our U.S. operations is attributed to the recognition of $109 in revenue from the MLSE $50 million purchase order contract which was offset by a slight decrease in salesoverall composition of our legacy products. The recognitionrevenue.
Our gross margins of revenue from the MLSE contract68.0% recognized during the three months ended September 30, 2017, representsMarch 31, 2022 were impacted by the first revenues recognized from this contract, which is expected to extend over several years.
Research and commercial products salesDevelopment
Research and the impact of a weakening of the British Pound and Euro against the USD. The decline in commercial product sales was mainly attributed to standard commodity products. The decline in military product sales was attributed to technical changes in the design of one of our development contracts.
Selling and Marketing
Selling and marketing expenses were $6.5 million for the three months ended September 30, 2016. The increase is partly attributedMarch 31, 2022, compared to our acquisition of Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarily related to an increase in direct manpower cost from the addition of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.
General and Administrative
General and administrative expenses were $13.7 million for the three months ended September 30, 2016,March 31, 2022, compared to $5.1 million for the three months ended March 31, 2021, an increase of $188. Our acquisition$8.6 million, or 169%. General and administrative expenses increased from the comparative prior period, mainly due to:
· | non-cash stock compensation costs of $2.6 million; |
· | general and administrative costs of $1.8 million from our hotel operations, which were acquired in December 2021; |
· | increased costs of $0.9 million related to the Michigan data center, operated by ACS; and |
· | higher legal expense of $1.3 million, salaries of $0.5 million and audit fees of $0.3 million. |
Income From Operations
We recorded income from operations of Microphase and Power-Plus accounted$1.0 million for $46 and $55, respectively, ofthe three months ended March 31, 2022, compared to $1.2 million for the three months ended March 31, 2021. The decrease in operating income is attributable to the increase in selling and marketing expenses. The remaining increase is attributed to anoperating expenses partially offset by the increase in personnel costs directly attributed to salesrevenue and marketing personnel atgross margins.
Interest and Other Income
Interest and other income was $0.4 million for the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarterthree months ended March 31, 2017,2022 compared to $37,000 for the three months ended March 31, 2021. Other income for the three months ended March 31, 2022 included $0.3 million other income from Alpha Fund, which was formed in July 2021.
5 |
Change in fair value of equity securities, related party
Change in fair value of equity securities, related party resulting from the warrant securities that we augmentedreceived as a result of our salesinvestment in AVLP was nil for the three months ended March 31, 2022, compared to a gain of $3.0 million for the three months ended March 31, 2021.
Interest Expense
Interest expense was $29.8 million for the three months ended March 31, 2022, compared to $0.3 million for the three months ended March 31, 2021. The increase in interest expense relates to the $66.0 million of Senior Notes issued in December 2021, which were fully paid in March 2022. Interest expense from these Senior Notes included the amortization of debt discount of $26.3 million from the issuance of warrants, a non-cash charge, and marketing teamoriginal issue discount, in connection with the additionthese Senior Notes.
Change in Fair Value of a Vice President of Business Development and two regional sales managers. Warrant Liability
During the three months ended September 30, 2016,March 31, 2022, the servicesfair value of our current Chief Executive Officerthe warrants that were reported within sellingissued during 2021 in a series of debt financings increased by $18,000. The fair value of these warrants is re-measured at each financial reporting period and marketing expenses due to the significant amountimmediately before exercise, with any changes in fair value recorded as change in fair value of time in which he devoted to the sales process. The increasewarrant liability in the headcountcondensed consolidated statements of our salesoperations and marketing team allowed our CEOcomprehensive loss.
Change in Fair Value of Marketable Equity Securities
Change in fair value of marketable equity securities was nil for the three months ended March 31, 2022, compared to spenda gain of $2.0 million for the three months ended March 31, 2021. The change relates to an investment in marketable securities held by Microphase Corporation (“Microphase”), a majority owned subsidiary of his timeGWW, that was fully sold in the fourth quarter of 2021.
Realized Gain on general corporate matters relatedMarketable Securities
Realized gain on marketable securities was $0.1 million for the three months ended March 31, 2022, compared to our restructuring and expansion. As such,$0.4 million for the three months ended March 31, 2021. The change relates to realized gains from an investment in marketable securities held by Microphase, a portion of which was sold during the three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter,March 31, 2021.
Loss From Investment in Unconsolidated Entity
Loss from investment in unconsolidated entity 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.
Gain on Extinguishment of Microphase accounted for $410Debt
Gain on extinguishment of the increase in general and administrative expenses. The adjusted increase of $871 from the comparative prior perioddebt was mainly due to higher stock based compensation expenses, an increase in legal 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 of which are significant individually.
Net (Loss) Income
For the foregoing reasons, our net loss for the three months ended September 30, 2017 is primarily relatedMarch 31, 2022 was $28.8 million, compared to debt discount, in the aggregate amountnet income of $669, resulting from the issuance of warrants in conjunction with the sale of debt and equity instruments of $3,452. During the three months ended September 30, 2017, as a result of these issuances, non-cash interest expense 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 increase in the amount of the Company’s total borrowings. At September 30, 2017, the outstanding balance of the Company’s convertible notes payable and notes payable 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 accretion 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.
Other Comprehensive (Loss) Income
Other comprehensive loss of $83was $0.3 million for the three months ended September 30, 2016. The increase in operating loss is mostly attributable from the increase of general and administrative expenses.
Liquidity and Product Development
On 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 nine 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 matters related to our restructuring and expansion. As such, during the nine months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, 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.
Net cash provided by operating activities totaled $25.0 million for the three months ended March 31, 2022 compared to net cash used in operating activities totaled $1,577of $14.2 million for the ninethree months ended September 30, 2017, compared toMarch 31, 2021. Cash provided by operating activities for the three months ended March 31, 2022 included $32.6 million net cash provided by operatingmarketable securities from 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 due to the September 30, 2017 nine months lossoperations 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 in 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$24.4 million for the ninethree months ended September 30, 2017March 31, 2022, compared to $12 of net$16.7 million for the three months ended March 31, 2021. Net cash provided byused in investing activities for the ninethree months ended September 30, 2016. The increaseMarch 31, 2022 included $35.4 million of the net usage of cash from investing activities was primarilycapital expenditures related to Bitcoin mining equipment, partially offset by $10.2 million proceeds from the investment in AVLP, loans to third parties and the purchasesale of Power-Plus.
Net cash provided by financing activities was $5,194 and nil$22.2 million for the ninethree months ended September 30, 2017March 31, 2022, compared to $119.9 million for the three months ended March 31, 2021, and 2016, respectively. The financing activities related toreflects the sale of 1,309,545 shares of common stock for net proceeds of $672, the sale of Series B and Series C Preferred Stock of $1,540, gross proceeds from the Company’s debt financings of $2,649, gross proceeds from advances of future receipts of $1,772 and payments on debt facilities of $626.
· |
· | December 2021 Secured Promissory Notes – On |
· | Margin Accounts Payable – During the |
We expectbelieve our current cash on hand combined with the proceeds from the 2022 ATM Offering are sufficient to continue to incur lossesmeet our operating and capital requirements for at least the next twelve months from the date the financial statements for the foreseeablethree months ended March 31, 2022 are issued.
Critical Accounting Policies
Variable Interest Entities
For a variable interest entity (“VIE”), we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of a VIE. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity and the obligation to absorb the losses or the right to receive the benefits that could potentially be significant to the entity.
We evaluate our business relationships with related parties to identify potential VIEs under Accounting Standards Codification (“ASC”) 810, Consolidation. We consolidate VIEs in which we are considered to be the primary beneficiary. Entities are considered to be the primary beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (ii) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. Our judgment with respect to our level of influence or control of an entity involves the consideration of various factors including the form of our ownership interest, our representation in the entity’s governance, the size of our investment, estimates of future cash flows, our ability to participate in policy making decisions and willthe rights of the other investors to participate in the decision making process and to replace us as manager and/or liquidate the joint venture, if applicable.
Variable Interest Entity Considerations – AVLP
We have determined that AVLP is a VIE as it does not have sufficient equity at risk. We do not consolidate AVLP because we are not the primary beneficiary and do not have a controlling financial interest. To be requireda primary beneficiary, an entity must have the power to raisedirect the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although we have made a significant investment in AVLP, we have determined that Philou, which controls AVLP through the voting power conferred by its equity 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 our financial position and results of operations.
Equity Investment in Unconsolidated Entity
As of March 31, 2022, our ownership percentage of AVLP was less than 20%. During the fourth quarter of 2021, we made additional capitaladvances to continueAVLP under the existing loan agreement and our consolidated VIE, Ault Alpha, entered into a loan agreement with AVLP totaling $3.6 million. Due to support our working capital requirements. We believecumulative lending position to AVLP and the facts and circumstances surrounding the terms of loan agreements, we reevaluated our level of influence over AVLP and determined that the MLSE purchase order contractequity ownership in AVLP should be accounted for under the equity method of $50 million will contributeaccounting.
The basis of our previously held interest in AVLP was remeasured to generate meaningful revenuefair value immediately before adopting the equity method of accounting. Our interest in AVLP as of March 31, 2022 and corresponding cashDecember 31, 2021 has been presented as an equity investment in 2017. In addition, wean unconsolidated entity.
We have been successful over the last 12 monthsinvested in raising capital to support our working capital requirements. We anticipate that we will continue to raise capital through public and private equity offerings, debt financings, or other means. If we are unable to secure additional capital, we may be required to curtail our current operations and take additional measures to reduce costs expenses, including reducing our workforce, eliminating outside consultants, ceasing or reducing our due diligence of potential future acquisitions, including the associated legal fees, in order to conserve cash in order to sustain operations and meet our obligations.
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'sCompany’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, each of our principal executive officer and principal financial officer has concluded that the Company’s internal control over financial reporting was not effective as of the 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, 2021, 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, fair value estimates and analysis of financial instruments for proper classification in the consolidated financial statements, in a timely manner. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness. Our primary user access controls (i.e. provisioning, de-provisioning, privileged access and user access reviews) to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not effective as of June 30, 2017 duedesigned and/or implemented effectively. We did not design and/or implement sufficient controls for program change management 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.
Planned Remediation
Management continues to work to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding our IT systems and applications. Management will continue to implement measures to remediate material weaknesses, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) enhancing design and documentation related to both user access and change management processes and control activities; and (ii) developing and communicating additional policies and procedures to govern the area of IT change management. In order to achieve the timely implementation of the above, management has identifiedcommenced the following two material weaknesses:
Engaging a access controls, |
· | Continuing to increase headcount across the |
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 20172022 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 $1.4 million, plus attorneys’ fees and costs.
We believe that these claims are without merit and intend to vigorously defend them.
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 the previously filed motion to dismiss without prejudice.
On June 2, 2021, we and our subsidiary filed a motion to dismiss (the “Motion to Dismiss”) the Amended Complaint in its entirety as against us, and the promissory estoppel claim as against the subsidiary.
The Motion to Dismiss has been fully briefed and is currently pending before the Court.
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 $1.1 million, plus a decree of specific performance directing DPW to deliver unrestricted shares of DPW’s common stock to Gu, plus attorneys’ fees and costs.
We believe that these claims are without merit and intend to vigorously defend them.
On May 4, 2020, we and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice (the “Motion to Dismiss”).
On July 28, 2021, the Court conducted oral argument (the “Oral Argument”), via Microsoft Teams, in connection with the Motion to Dismiss. During the Oral Argument, the Court informed the parties that the Court would be dismissing the fraud claim, in its entirety, and provided Plaintiffs an opportunity to amend their fraud claim within sixty days of the date of the Oral Argument. The Court reserved decision on the other causes of action.
On December 14, 2021, the Court entered a Decision and Order in connection with the Motion to Dismiss (the “Order”) whereby the Court dismissed Plaintiff’s causes of action for specific performance, conversion, permanent injunction, and reiterated its prior determination that the fraud claim was also dismissed. The Court denied the Motion to Dismiss in connection with the other causes of action asserted in the Complaint.
On January 26, 2022, we and Ault filed an Answer to the Complaint and asserted numerous affirmative defenses.
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 and certain affiliates and related parties have received several subpoenas from the SEC for the production of documents and testimony. The Company is fully cooperating with this non-public, fact-finding inquiry and management believes that the Company has operated its business in compliance with all applicable laws. The subpoenas expressly provide 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 they 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 |
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The risks described in Part I, Item 1A, "Risk“Risk Factors,"” in our 20162021 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 20162021 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 |
From January 1, 2022 through March 31, 2022, Ault Alpha LP purchased 750,000 shares of common stock, have yetof which 250,000 shares were purchased at the end of December 2021, which trade transactions settled in the beginning of January 2022. Ault Alpha LP may be deemed to be issued byan “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Company and are subject to approval from the NYSE American prior to issuance.
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs | |||||||||||||
January 1, 2022 - January 31, 2022 | 225,000 | $ | 0.85 | - | - | |||||||||||
February 1, 2022 - February 28, 2022 | 272,401 | $ | 0.95 | - | - | |||||||||||
March 1, 2022 - March 31, 2022 | 252,599 | $ | 0.91 | - | - | |||||||||||
Total | 750,000 | $ | 0.91 | - | - |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
* | Filed 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 ALLIANCE, INC. | ||||
/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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