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 ¨ | Accelerated filer ¨ | |||||
Non-accelerated filer x | Smaller reporting company x | |||||
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-212b-2 of the Exchange Act). Yes ☐¨No☑
At November 17, 2017August 18, 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 six months ended June 30, 2022 (the “Original Filing”), that was originally filed with the U.S. Securities and Exchange Commission on August 22, 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 20 Net (Loss) Income 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 | ||
31, 2021 | ||||
Notes to Condensed Consolidated Financial Statements | F-10 | |||
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 | 18 | |||
Item 5. | Other Information | 18 | ||
Item 6. | Exhibits | 19 |
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)
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 24,133,000 | $ | 15,912,000 | ||||
Restricted cash | 4,672,000 | 5,321,000 | ||||||
Marketable equity securities | 17,467,000 | 40,380,000 | ||||||
Digital currencies | 2,745,000 | 2,165,000 | ||||||
Accounts receivable | 18,076,000 | 6,455,000 | ||||||
Accrued revenue | 2,177,000 | 2,283,000 | ||||||
Inventories | 20,833,000 | 5,482,000 | ||||||
Investment in promissory notes and other, related parties | 2,770,000 | 2,842,000 | ||||||
Prepaid expenses and other current assets | 13,734,000 | 15,436,000 | ||||||
TOTAL CURRENT ASSETS | 106,607,000 | 96,276,000 | ||||||
Cash and marketable securities held in Trust Account | 116,895,000 | 116,725,000 | ||||||
Intangible assets, net | 8,084,000 | 4,035,000 | ||||||
Goodwill | 55,322,000 | 10,090,000 | ||||||
Property and equipment, net | 245,987,000 | 174,025,000 | ||||||
Right-of-use assets | 7,735,000 | 5,243,000 | ||||||
Investments in common stock, related parties | 8,845,000 | 13,230,000 | ||||||
Investments in other equity securities | 38,495,000 | 30,482,000 | ||||||
Investment in unconsolidated entity | - | 22,130,000 | ||||||
Loans receivable | 4,352,000 | 14,337,000 | ||||||
Other assets | 3,949,000 | 3,713,000 | ||||||
TOTAL ASSETS | $ | 596,271,000 | $ | 490,286,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 43,525,000 | $ | 22,755,000 | ||||
Investment margin accounts payable | - | 18,488,000 | ||||||
Operating lease liability, current | 2,484,000 | 1,123,000 | ||||||
Notes payable, net | 7,340,000 | 39,554,000 | ||||||
Convertible notes payable, current | 1,884,000 | - | ||||||
TOTAL CURRENT LIABILITIES | 55,233,000 | 81,920,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 |
F-1 |
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
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 |
(Unaudited)
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | 5,538,000 | 4,213,000 | ||||||
Notes payable | 55,547,000 | 55,055,000 | ||||||
Convertible notes payable | 14,209,000 | 468,000 | ||||||
Deferred underwriting commissions of Ault Disruptive subsidiary | 3,450,000 | 3,450,000 | ||||||
TOTAL LIABILITIES | 133,977,000 | 145,106,000 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Redeemable noncontrolling interests in equity of subsidiaries | 116,895,000 | 116,725,000 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Series A Convertible Preferred Stock, $ | stated value per share,- | - | ||||||
$ | par value – shares authorized; shares||||||||
issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
(redemption amount and liquidation preference of $176,000 as of | ||||||||
June 30, 2022 and December 31, 2021) | ||||||||
Series B Convertible Preferred Stock, $ | stated value per share,- | - | ||||||
share, $ | par value – shares authorized; shares issued||||||||
and outstanding at June 30, 2022 and December 31, 2021 (liquidation | ||||||||
preference of $1,250,000 at June 30, 2022 and December 31, 2021) | ||||||||
Series D Cumulative Redeemable Perpetual Preferred Stock, $ | stated||||||||
value per share, $ | par value – shares authorized;||||||||
shares authorized, | shares and shares issued and outstanding at||||||||
June 30, 2022 and December 31, 2021, respectively (liquidation preference of | ||||||||
$3,665,450 and $0 as of June 30, 2022 and December 31, 2021, respectively) | ||||||||
Class A Common Stock, $ | par value – shares authorized;324,000 | 84,000 | ||||||
and shares issued and outstanding at June 30, | ||||||||
2022 and December 31, 2021, respectively | ||||||||
Class B Common Stock, $ | par value – shares authorized;- | - | ||||||
shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
Additional paid-in capital | 549,713,000 | 385,644,000 | ||||||
Accumulated deficit | (200,184,000 | ) | (145,600,000 | ) | ||||
Accumulated other comprehensive loss | (1,863,000 | ) | (106,000 | ) | ||||
Treasury stock, at cost | (20,639,000 | ) | (13,180,000 | ) | ||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 327,351,000 | 226,842,000 | ||||||
Non-controlling interest | 18,048,000 | 1,613,000 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 345,399,000 | 228,455,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 596,271,000 | $ | 490,286,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHNSIVE LOSS
(Unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2021 | |||||||||||||||
2022 | Restated | 2022 | Restated | |||||||||||||
Revenue | $ | 7,849,000 | $ | 8,564,000 | $ | 16,508,000 | $ | 16,469,000 | ||||||||
Revenue, cryptocurrency mining | 3,976,000 | 291,000 | 7,524,000 | 421,000 | ||||||||||||
Revenue, hotel operations | 4,598,000 | - | 7,296,000 | - | ||||||||||||
Revenue, lending and trading activities | 943,000 | 53,274,000 | 18,864,000 | 58,485,000 | ||||||||||||
Total revenue | 17,366,000 | 62,129,000 | 50,192,000 | 75,375,000 | ||||||||||||
Cost of revenue | 12,369,000 | 6,278,000 | 22,863,000 | 11,386,000 | ||||||||||||
Gross profit | 4,997,000 | 55,851,000 | 27,329,000 | 63,989,000 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 729,000 | 531,000 | 1,424,000 | 1,133,000 | ||||||||||||
Selling and marketing | 6,979,000 | 1,505,000 | 13,460,000 | 2,747,000 | ||||||||||||
General and administrative | 19,032,000 | 7,992,000 | 32,719,000 | 13,084,000 | ||||||||||||
Impairment of mined cryptocurrency | 1,976,000 | - | 2,415,000 | - | ||||||||||||
Total operating expenses | 28,716,000 | 10,028,000 | 50,018,000 | 16,964,000 | ||||||||||||
(Loss) income from operations | (23,719,000 | ) | 45,823,000 | (22,689,000 | ) | 47,025,000 | ||||||||||
Other income (expenses) | ||||||||||||||||
Interest and other income | 81,000 | 14,000 | 530,000 | 51,000 | ||||||||||||
Change in fair value of equity securities, related party | - | (5,893,000 | ) | - | (2,924,000 | ) | ||||||||||
Interest expense | (2,031,000 | ) | (22,000 | ) | (31,855,000 | ) | (337,000 | ) | ||||||||
Change in fair value of marketable equity securities | 241,000 | (1,915,000 | ) | 241,000 | 45,000 | |||||||||||
Realized gain (loss) on marketable securities | (43,000 | ) | - | 66,000 | 397,000 | |||||||||||
Loss from investment in unconsolidated entity | (391,000 | ) | - | (924,000 | ) | - | ||||||||||
Gain on extinguishment of debt | - | 447,000 | - | 929,000 | ||||||||||||
Change in fair value of warrant liability | (6,000 | ) | 290,000 | (24,000 | ) | (388,000 | ) | |||||||||
Total other expenses, net | (2,149,000 | ) | (7,079,000 | ) | (31,966,000 | ) | (2,227,000) | |||||||||
(Loss) income before income taxes | (25,868,000 | ) | 38,744,000 | (54,655,000 | ) | 44,798,000 | ||||||||||
Income tax (provision) benefit | (217,000 | ) | (3,504,000 | ) | (217,000 | ) | (3,510,000 | ) | ||||||||
Net (loss) income | (26,085,000 | ) | 35,240,000 | (54,872,000 | ) | 41,288,000 | ||||||||||
Net loss attributable to non-controlling interest | 321,000 | 1,083,000 | 336,000 | 3,000 | ||||||||||||
Net (loss) income attributable to Ault Alliance, Inc. | (25,764,000 | ) | 36,323,000 | (54,536,000 | ) | 41,291,000 | ||||||||||
Preferred dividends | (44,000 | ) | (4,000 | ) | (49,000 | ) | (9,000 | ) | ||||||||
Net (loss) income available to common stockholders | $ | (25,808,000 | ) | $ | 36,319,000 | $ | (54,585,000 | ) | $ | 41,282,000 | ||||||
Basic net (loss) income per common share | $ | (0.09 | ) | $ | 0.72 | $ | (0.29 | ) | $ | 0.92 | ||||||
Diluted net (loss) income per common share | $ | (0.09 | ) | $ | 0.69 | $ | (0.29 | ) | $ | 0.86 | ||||||
Weighted average basic common shares outstanding | 289,672,000 | 50,783,000 | 190,870,000 | 45,052,000 | ||||||||||||
Weighted average diluted common shares outstanding | 289,672,000 | 52,780,000 | 190,870,000 | 47,574,000 | ||||||||||||
Comprehensive (loss) income | ||||||||||||||||
Net (loss) income available to common stockholders | $ | (25,808,000 | ) | $ | 36,319,000 | $ | (54,585,000 | ) | $ | 41,282,000 | ||||||
Other comprehensive income (loss) | ||||||||||||||||
Foreign currency translation adjustment | (1,471,000 | ) | 134,000 | (1,758,000 | ) | 41,000 | ||||||||||
Other comprehensive (loss) income | (1,471,000 | ) | 134,000 | (1,758,000 | ) | 41,000 | ||||||||||
Total comprehensive (loss) income | $ | (27,279,000 | ) | $ | 36,453,000 | $ | (56,343,000 | ) | $ | 41,323,000 |
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
(Unaudited)
Three Months Ended June 30, 2022
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Series A, B & D | 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, April 1, 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 | |||||||||||||||||||
Issuance of common stock for restricted stock awards | - | - | 429,379 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Preferred stock issued | 146,618 | - | - | - | 3,666,000 | - | - | - | - | 3,666,000 | ||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | (537,000 | ) | - | - | - | - | (537,000 | ) | ||||||||||||||||||||||||||||
Stock-based compensation | 983,000 | 36,000 | 1,019,000 | |||||||||||||||||||||||||||||||||||||
Sale of common stock | - | - | 98,995,997 | 99,000 | 53,180,000 | - | - | - | - | 53,279,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (1,266,000 | ) | - | - | - | - | (1,266,000 | ) | ||||||||||||||||||||||||||||
Acquisition of non-controlling interests | - | - | - | - | (1,848,000 | ) | - | - | (382,000 | ) | - | (2,230,000 | ) | |||||||||||||||||||||||||||
Non-controlling interest from AVLP acquisition | - | - | - | - | - | - | - | 6,738,000 | - | 6,738,000 | ||||||||||||||||||||||||||||||
Non-controlling interest from SMC acquisition | - | - | - | - | - | - | - | 10,336,000 | - | 10,336,000 | ||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | (6,467,000 | ) | (6,467,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (25,764,000 | ) | - | - | - | (25,764,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | (44,000 | ) | - | - | - | (44,000 | ) | |||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (1,471,000 | ) | - | - | (1,471,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (321,000 | ) | - | (321,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | - | (1,000 | ) | 2,000 | 1,000 | 1,000 | - | 3,000 | |||||||||||||||||||||||||||||
BALANCES, June 30, 2022 | 278,658 | $ | - | 324,440,579 | $ | 324,000 | $ | 549,713,000 | $ | (200,184,000 | ) | $ | (1,863,000 | ) | $ | 18,048,000 | $ | (20,639,000 | ) | $ | 345,399,000 |
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-4 |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (RESTATED)
(Unaudited)
Three Months Ended June 30, 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, April 1, 2021 | 132,040 | $ | - | 49,498,676 | $ | 49,000 | $ | 292,763,000 | $ | (117,366,000 | ) | $ | (878,000 | ) | $ | 1,902,000 | $ | 176,470,000 | ||||||||||||||||||
Stock-based compensation | 20,000 | 545,000 | 565,000 | |||||||||||||||||||||||||||||||||
Sale of common stock | - | - | 6,385,425 | 7,000 | 19,054,000 | - | - | - | 19,061,000 | |||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (477,000 | ) | - | - | - | (477,000 | ) | |||||||||||||||||||||||||
Issuance of common stock for conversion of convertible notes payable, related party | | | - | | | | - | | | | 275,862 | | | | - | | | | 400,000 | | | | - | | | | - | | | | - | | | | 400,000 | |
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | 36,323,000 | - | - | 36,323,000 | |||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | - | (4,000 | ) | - | - | (4,000 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | 134,000 | - | 134,000 | |||||||||||||||||||||||||||
Net income attributable to non-controlling interest | - | - | - | - | - | - | - | (1,083,000 | ) | (1,083,000 | ) | |||||||||||||||||||||||||
BALANCES, June 30, 2021 | 132,040 | $ | - | 56,159,963 | $ | 56,000 | $ | 311,760,000 | $ | (81,047,000 | ) | $ | (744,000 | ) | $ | 1,364,000 | $ | 231,389,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5 |
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Six Months Ended June 30, 2022
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Series A, B & D | 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 | - | - | 441,879 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Preferred stock issued | 146,618 | - | - | - | 3,666,000 | - | - | - | - | 3,666,000 | ||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | (537,000 | ) | - | - | - | - | (537,000 | ) | ||||||||||||||||||||||||||||
Stock-based compensation | 3,627,000 | 77,000 | 3,704,000 | |||||||||||||||||||||||||||||||||||||
Sale of common stock | - | - | 239,654,093 | 240,000 | 163,186,000 | - | - | - | - | 163,426,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (4,024,000 | ) | - | - | - | - | (4,024,000 | ) | ||||||||||||||||||||||||||||
Acquisition of non-controlling interests | - | - | - | - | (1,848,000 | ) | - | - | (382,000 | ) | - | (2,230,000 | ) | |||||||||||||||||||||||||||
Non-controlling interest from AVLP acquisition | - | - | - | - | - | - | - | 6,738,000 | - | 6,738,000 | ||||||||||||||||||||||||||||||
Non-controlling interest from SMC acquisition | - | - | - | - | - | - | - | 10,336,000 | - | 10,336,000 | ||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | (7,459,000 | ) | (7,459,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (54,536,000 | ) | - | - | - | (54,536,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | (49,000 | ) | - | - | - | (49,000 | ) | |||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (1,758,000 | ) | - | - | (1,758,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (336,000 | ) | - | (336,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | - | (1,000 | ) | 1,000 | 1,000 | 2,000 | - | 3,000 | |||||||||||||||||||||||||||||
BALANCES, June 30, 2022 | 278,658 | $ | - | 324,440,579 | $ | 324,000 | $ | 549,713,000 | $ | (200,184,000 | ) | $ | (1,863,000 | ) | $ | 18,048,000 | $ | (20,639,000 | ) | $ | 345,399,000 |
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)
Six Months Ended June 30, 2021
Series A & B | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | 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 | 39,000 | 545,000 | 584,000 | |||||||||||||||||||||||||||||||||
Sale of common stock | — | — | 27,947,325 | 28,000 | 144,016,000 | — | — | — | 144,044,000 | |||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | | | — | | | | — | | | | — | | | | — | | | | (4,541,000 | ) | | | — | | | | — | | | | — | | | | (4,541,000 | ) |
Issuance of common stock for conversion of convertible notes payable | | | — | | | | — | | | | 183,214 | | | | — | | | | 450,000 | | | | — | | | | — | | | | — | | | | 450,000 | |
Issuance of common stock for conversion of convertible notes payable, related party | | | — | | | | — | | | | 275,862 | | | | — | | | | 400,000 | | | | — | | | | — | | | | — | | | | 400,000 | |
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 41,291,000 | — | — | 41,291,000 | |||||||||||||||||||||||||||
Preferred dividends | — | — | — | — | (9,000 | ) | — | — | (9,000 | ) | ||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | 41,000 | — | 41,000 | |||||||||||||||||||||||||||
Net income attributable to non—controlling interest | — | — | — | — | — | — | — | (3,000 | ) | (3,000 | ) | |||||||||||||||||||||||||
BALANCES, June 30, 2021 | 132,040 | $ | — | 56,159,963 | $ | 56,000 | $ | 311,760,000 | $ | (81,047,000 | ) | $ | (744,000 | ) | $ | 1,364,000 | $ | 231,389,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2021 | ||||||||
2022 | Restated | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (54,872,000 | ) | $ | 41,288,000 | |||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 7,129,000 | 1,093,000 | ||||||
Interest expense – debt discount | 26,493,000 | 40,000 | ||||||
Gain on extinguishment of debt | - | (929,000 | ) | |||||
Change in fair value of warrant liability | 24,000 | (290,000 | ) | |||||
Accretion of original issue discount on notes receivable – related party | - | (4,000 | ) | |||||
Accretion of original issue discount on notes receivable | (612,000 | ) | (955,000 | ) | ||||
Increase in accrued interest on notes receivable – related party | (100,000 | ) | (1,000 | ) | ||||
Stock-based compensation | 3,704,000 | 584,000 | ||||||
Impairment of cryptocurrencies | 2,415,000 | - | ||||||
Realized gains on sale of marketable securities | (18,585,000 | ) | (12,283,000 | ) | ||||
Unrealized losses (gains) on marketable securities | 9,669,000 | (3,483,000 | ) | |||||
Unrealized losses (gains) on investments in equity securities, related parties | 9,048,000 | (36,928,000 | ) | |||||
Unrealized gains on equity securities | (17,021,000 | ) | (1,224,000 | ) | ||||
Loss from investment in unconsolidated entity | 924,000 | - | ||||||
Loss on remeasurement of investment in unconsolidated entity | 2,700,000 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Marketable equity securities | 50,734,000 | (9,616,000 | ) | |||||
Accounts receivable | (2,311,000 | ) | (887,000 | ) | ||||
Accrued revenue | (7,000 | ) | 78,000 | |||||
Inventories | (2,646,000 | ) | 485,000 | |||||
Prepaid expenses and other current assets | 2,406,000 | (2,537,000 | ) | |||||
Digital currencies | (7,785,000 | ) | - | |||||
Other assets | (384,000 | ) | (246,000 | ) | ||||
Accounts payable and accrued expenses | 4,706,000 | 83,000 | ||||||
Other current liabilities | - | 4,472,000 | ||||||
Lease liabilities | (626,000 | ) | (439,000 | ) | ||||
Net cash provided by (used in) operating activities | 15,003,000 | (21,699,000 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (72,779,000 | ) | (5,590,000 | ) | ||||
Investment in promissory notes and other, related parties | (2,200,000 | ) | (4,040,000 | ) | ||||
Investments in common stock and warrants, related parties | (4,663,000 | ) | (16,483,000 | ) | ||||
Investment in real property, related party | - | (2,670,000 | ) | |||||
Proceeds from sale of investment in real property, related party | - | 2,670,000 | ||||||
Purchase of SMC, net of cash received | (8,239,000 | ) | - | |||||
Cash received upon acquisition of AVLP | 1,245,000 | - | ||||||
Acquisition of non-controlling interests | (2,230,000 | ) | - | |||||
Purchase of marketable equity securities | (1,981,000 | ) | - | |||||
Sales of marketable equity securities | 11,733,000 | 430,000 | ||||||
Investments in loans receivable | (2,728,000 | ) | - | |||||
Principal payments on loans receivable | 10,525,000 | - | ||||||
Sale of digital currencies | 4,377,000 | - | ||||||
Investments in equity securities | (15,820,000 | ) | (4,054,000 | ) | ||||
Net cash used in investing activities | (82,760,000 | ) | (29,737,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2021 | ||||||||
2022 | Restated | |||||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of common stock | $ | 163,426,000 | $ | 144,044,000 | ||||
Financing cost in connection with sales of common stock | (4,024,000 | ) | (4,541,000 | ) | ||||
Proceeds from sales of preferred stock | 3,666,000 | - | ||||||
Financing cost in connection with sales of preferred stock | (537,000 | ) | - | |||||
Proceeds from notes payable | 4,945,000 | 500,000 | ||||||
Repayment of margin accounts | (18,488,000 | ) | - | |||||
Payments on notes payable | (65,999,000 | ) | (1,917,000 | ) | ||||
Payments of preferred dividends | (49,000 | ) | (9,000 | ) | ||||
Purchase of treasury stock | (7,459,000 | ) | - | |||||
Payments on revolving credit facilities, net | - | (23,000 | ) | |||||
Net cash provided by financing activities | 75,481,000 | 138,054,000 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (152,000 | ) | 93,000 | |||||
Net increase in cash and cash equivalents and restricted cash | 7,572,000 | 86,711,000 | ||||||
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 | $ | 28,805,000 | $ | 105,391,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 4,104,000 | $ | 658,000 | ||||
Non-cash investing and financing activities: | ||||||||
Conversion of convertible notes payable into shares of common stock | $ | - | $ | 450,000 | ||||
Settlement of accounts payable with digital currency | $ | 413,000 | $ | 119,000 | ||||
Conversion of investment in unconsolidated entity for acquisition of AVLP | $ | 23,406,000 | $ | - | ||||
Conversion of convertible notes payable, related party into shares of common stock | $ | 400,000 | $ | 400,000 | ||||
Conversion of debt and equity securities to marketable securities | $ | 24,828,000 | $ | 2,656,000 | ||||
Conversion of loans receivable to marketable securities | $ | 3,600,000 | $ | - | ||||
Conversion of interest receivable to marketable securities | $ | 231,000 | $ | - | ||||
Conversion of loans receivable to debt and equity securities | $ | - | $ | 150,000 | ||||
Recognition of new operating lease right-of-use assets and lease liabilities | $ | 2,188,000 | $ | - |
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-9 |
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, medical/biopharma, karaoke audio equipment, 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 other members of California. Digital Powerthe Executive Committee. The Company has eight 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; |
· | The Singing Machine Company, Inc. (“SMC”) – karaoke audio equipment; |
· | Avalanche International Corp. (“Avalanche” or “AVLP”) – advanced textiles processing technology; |
· | Ault Global Real Estate Equities, Inc. (“AGREE”) – 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 the Company for the six months ended June 30, 2022, that was originally filed with the U.S. Securities and Digital Power Limited ("DP Limited"),Exchange Commission on August 22, 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 20 Net (Loss) Income 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 schedules below:
Schedule of condensed consolidated statements of operations and comprehensive loss | ||||||||||||
For the Three Months Ended | ||||||||||||
June 30, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
Revenue | $ | 8,564,000 | $ | - | $ | 8,564,000 | ||||||
Revenue, cryptocurrency mining, net | 291,000 | 291,000 | ||||||||||
Revenue, lending and trading activities | 53,274,000 | 53,274,000 | ||||||||||
Total revenue | 62,129,000 | - | 62,129,000 | |||||||||
Cost of revenue | 6,278,000 | 6,278,000 | ||||||||||
Gross profit | 55,851,000 | - | 55,851,000 | |||||||||
Operating expenses | ||||||||||||
Research and development | 531,000 | 531,000 | ||||||||||
Selling and marketing | 1,505,000 | 1,505,000 | ||||||||||
General and administrative | 7,992,000 | 7,992,000 | ||||||||||
Total operating expenses | 10,028,000 | - | 10,028,000 | |||||||||
Income from operations | 45,823,000 | 45,823,000 | ||||||||||
Other income (expenses) | ||||||||||||
Interest and other income | 14,000 | 14,000 | ||||||||||
Change in fair value of equity securities, related party | - | (5,893,000 | ) | (5,893,000 | ) | |||||||
Interest expense | (22,000 | ) | (22,000 | ) | ||||||||
Change in fair value of marketable equity securities | (1,915,000 | ) | (1,915,000 | ) | ||||||||
Gain on extinguishment of debt | 447,000 | 447,000 | ||||||||||
Change in fair value of warrant liability | 290,000 | 290,000 | ||||||||||
Total other expenses, net | (1,186,000 | ) | (5,893,000 | ) | (7,079,000 | ) | ||||||
Income (loss) before income taxes | 44,637,000 | (5,893,000 | ) | 38,744,000 | ||||||||
Income tax provision | (3,504,000 | ) | (3,504,000 | ) | ||||||||
Net income (loss) | 41,133,000 | (5,893,000 | ) | 35,240,000 | ||||||||
Net income attributable to non-controlling interest | 1,083,000 | 1,083,000 | ||||||||||
Net income (loss) attributable to Ault Alliance, Inc. | 42,216,000 | (5,893,000 | ) | 36,323,000 | ||||||||
Preferred dividends | (4,000 | ) | (4,000 | ) | ||||||||
Net income (loss) available to common stockholders | $ | 42,212,000 | $ | (5,893,000 | ) | $ | 36,319,000 | |||||
Basic net income (loss) per common share | $ | 0.83 | $ | 0.72 | ||||||||
Diluted net income (loss) per common share | $ | 0.81 | $ | 0.69 | ||||||||
Weighted average basic common shares outstanding | 50,783,000 | 50,783,000 | ||||||||||
Weighted average diluted common shares outstanding | 52,780,000 | 52,780,000 | ||||||||||
Comprehensive income | ||||||||||||
Net income (loss) available to common stockholders | $ | 42,212,000 | $ | (5,893,000 | ) | $ | 36,319,000 | |||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation adjustment | 134,000 | 134,000 | ||||||||||
Net unrealized gain on derivative securities of related party | (5,893,000 | ) | 5,893,000 | - | ||||||||
Other comprehensive (loss) income | (5,759,000 | ) | 5,893,000 | 134,000 | ||||||||
Total comprehensive income | $ | 36,453,000 | $ | - | $ | 36,453,000 |
For the Six Months Ended | ||||||||||||
June 30, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
Revenue | $ | 16,469,000 | $ | - | $ | 16,469,000 | ||||||
Revenue, cryptocurrency mining, net | 421,000 | 421,000 | ||||||||||
Revenue, lending and trading activities | 58,485,000 | 58,485,000 | ||||||||||
Total revenue | 75,375,000 | - | 75,375,000 | |||||||||
Cost of revenue | 11,386,000 | 11,386,000 | ||||||||||
Gross profit | 63,989,000 | - | 63,989,000 | |||||||||
Operating expenses | ||||||||||||
Research and development | 1,133,000 | 1,133,000 | ||||||||||
Selling and marketing | 2,747,000 | 2,747,000 | ||||||||||
General and administrative | 13,084,000 | 13,084,000 | ||||||||||
Total operating expenses | 16,964,000 | - | 16,964,000 | |||||||||
Income from operations | 47,025,000 | 47,025,000 | ||||||||||
Other income (expenses) | ||||||||||||
Interest and other income | 51,000 | 51,000 | ||||||||||
Change in fair value of equity securities, related party | - | (2,924,000 | ) | (2,924,000 | ) | |||||||
Interest expense | (337,000 | ) | (337,000 | ) | ||||||||
Change in fair value of marketable equity securities | 45,000 | 45,000 | ||||||||||
Realized gain on marketable securities | 397,000 | 397,000 | ||||||||||
Gain on extinguishment of debt | 929,000 | 929,000 | ||||||||||
Change in fair value of warrant liability | (388,000 | ) | (388,000 | ) | ||||||||
Total other (expenses) income, net | 697,000 | (2,924,000 | ) | (2,227,000 | ) | |||||||
Income (loss) before income taxes | 47,722,000 | (2,924,000 | ) | 44,798,000 | ||||||||
Income tax provision | (3,510,000 | ) | (3,510,000 | ) | ||||||||
Net income (loss) | 44,212,000 | (2,924,000 | ) | 41,288,000 | ||||||||
Net income attributable to non-controlling interest | 3,000 | 3,000 | ||||||||||
Net income (loss) attributable to Ault Alliance, Inc. | 44,215,000 | (2,924,000 | ) | 41,291,000 | ||||||||
Preferred dividends | (9,000 | ) | (9,000 | ) | ||||||||
Net income (loss) available to common stockholders | $ | 44,206,000 | $ | (2,924,000 | ) | $ | 41,282,000 | |||||
Basic net income (loss) per common share | $ | 0.98 | $ | 0.92 | ||||||||
Diluted net income (loss) per common share | $ | 0.92 | $ | 0.86 | ||||||||
Weighted average basic common shares outstanding | 45,052,000 | 45,052,000 | ||||||||||
Weighted average diluted common shares outstanding | 47,574,000 | 47,574,000 | ||||||||||
Comprehensive income | ||||||||||||
Net income (loss) available to common stockholders | $ | 44,206,000 | $ | (2,924,000 | ) | $ | 41,282,000 | |||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation adjustment | 41,000 | 41,000 | ||||||||||
Net unrealized gain on derivative securities of related party | (2,924,000 | ) | 2,924,000 | - | ||||||||
Other comprehensive (loss) income | (2,883,000 | ) | 2,924,000 | 41,000 | ||||||||
Total comprehensive income | $ | 41,323,000 | $ | - | $ | 41,323,000 |
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 statements of changes in stockholders’ equity | ||||||||||||
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 |
April 1, 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 | (119,402,000 | ) | 2,036,000 | (117,366,000 | ) | |||||||
Accumulated other comprehensive loss | 1,158,000 | (2,036,000 | ) | (878,000 | ) | |||||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 174,568,000 | - | 174,568,000 | |||||||||
Non-controlling interest | 1,902,000 | 1,902,000 | ||||||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 176,470,000 | $ | - | $ | 176,470,000 |
June 30, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock | $ | 56,000 | $ | - | $ | 56,000 | ||||||
Additional paid-in capital | 311,760,000 | 311,760,000 | ||||||||||
Accumulated deficit | (77,190,000 | ) | (3,857,000 | ) | (81,047,000 | ) | ||||||
Accumulated other comprehensive loss | (4,601,000 | ) | 3,857,000 | (744,000 | ) | |||||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 230,025,000 | - | 230,025,000 | |||||||||
Non-controlling interest | 1,364,000 | 1,364,000 | ||||||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 231,389,000 | $ | - | $ | 231,389,000 |
Further, the reclassification also resulted in a corresponding decrease in net income and a decrease 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 Six Months Ended | ||||||||||||
June 30, 2021 | ||||||||||||
As Reported | Adjustment | As Restated | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 44,212,000 | $ | (2,924,000 | ) | $ | 41,288,000 | |||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||
Depreciation and amortization | 1,093,000 | 1,093,000 | ||||||||||
Interest expense – debt discount | 40,000 | 40,000 | ||||||||||
Gain on extinguishment of debt | (929,000 | ) | (929,000 | ) | ||||||||
Change in fair value of warrant liability | (290,000 | ) | (290,000 | ) | ||||||||
Accretion of original issue discount on notes receivable – related party | (4,000 | ) | (4,000 | ) | ||||||||
Accretion of original issue discount on notes receivable | (955,000 | ) | (955,000 | ) | ||||||||
Increase in accrued interest on notes receivable – related party | (1,000 | ) | (1,000 | ) | ||||||||
Stock-based compensation | 584,000 | 584,000 | ||||||||||
Realized gains on sale of marketable securities | (12,283,000 | ) | (12,283,000 | ) | ||||||||
Unrealized losses (gains) on marketable securities | (3,483,000 | ) | (3,483,000 | ) | ||||||||
Unrealized losses (gains) on equity securities, related parties | (39,852,000 | ) | 2,924,000 | (36,928,000 | ) | |||||||
Unrealized gains on equity securities | (1,224,000 | ) | (1,224,000 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Marketable equity securities | (9,616,000 | ) | (9,616,000 | ) | ||||||||
Accounts receivable | (887,000 | ) | (887,000 | ) | ||||||||
Accrued revenue | 78,000 | 78,000 | ||||||||||
Inventories | 485,000 | 485,000 | ||||||||||
Prepaid expenses and other current assets | (2,537,000 | ) | (2,537,000 | ) | ||||||||
Other assets | (246,000 | ) | (246,000 | ) | ||||||||
Accounts payable and accrued expenses | 83,000 | 83,000 | ||||||||||
Other current liabilities | 4,472,000 | 4,472,000 | ||||||||||
Lease liabilities | (439,000 | ) | (439,000 | ) | ||||||||
Net cash used in operating activities | $ | (21,699,000 | ) | $ | - | $ | (21,699,000 | ) |
2. LIQUIDITY GOING CONCERN AND MANAGEMENT’S PLANS
As of SeptemberJune 30, 2017,2022, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212$24.1 million and a negative working capital of $4,174.$51.4 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 has 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 ninesix months ended SeptemberJune 30, 2017,2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
Significant Accounting Policies
Other than as noted below, there have been eliminated in consolidation.
Business Combination
The Company accounts for stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation ("ASC No. 718"). Under ASC No. 718, compensation expense relatedallocates the purchase price of an acquired business to stock-based payments is recorded over the requisite service periodtangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the grant date fair valueacquisition date. Any excess of the awards. Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and thepurchase price volatility of the underlying stock.
If the consultant or vendorbusiness combination is reached or (ii)achieved in stages, the acquisition date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the faircarrying value of the acquirer’s previously held equity instrumentinterest in the acquirer is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized overin profit or loss.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the termcurrent-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.
Recent Accounting Standards
In May 2021, the consulting agreement.
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 hybrid contractsfinancial assets and net investment in leases that feature conversion options in accordance with ASC No. 815, Derivatives and Hedging Activities (“ASC No. 815”). ASC No. 815 requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measuredaccounted for at fair value under otherwise applicable GAAPthrough net income. ASU 2016-13 replaces the current incurred loss impairment methodology with changes in fair value reported in earnings as they occur and (c) a separate instrumentmethodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with the same terms as the embedded derivative instrument would be considered a derivative instrument.
In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be bifurcated from their host instruments)recognized and measured by the acquirer on the acquisition date in accordance with ASC No. 815.
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 (3) the effect of those transactions on an issuer’s financial statements. The amendments in accordance with ASC No. 220, Comprehensive Income. This statement establishes standardsthis update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company expects that this guidance will not have a significant impact on its condensed consolidated financial statements.
4. REVENUE DISAGGREGATION
The following tables summarize disaggregated customer contract revenues and the source of the revenue for the reportingthree and presentationsix months ended June 30, 2022 and 2021. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are not considered to be revenues from contracts with customers under GAAP.
The Company’s disaggregated revenues consisted of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss generally represents all changes in equity during the period except those resulting from investments by, or distributions to, stockholders. The Company determined that its items of other comprehensive loss relate to changes in foreign currency translation adjustments.
Schedule of disaggregated revenues | ||||||||||||||||||||||||
Three months ended June 30, 2022 | ||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | BNI | AGREE | Total | |||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||
North America | $ | 1,111,000 | $ | 822,000 | $ | 12,000 | $ | 4,248,000 | $ | 4,598,000 | $ | 10,791,000 | ||||||||||||
Europe | 2,540,000 | 28,000 | - | - | - | 2,568,000 | ||||||||||||||||||
Middle East and other | 2,852,000 | 212,000 | - | - | - | 3,064,000 | ||||||||||||||||||
Revenue from contracts with customers | 6,503,000 | 1,062,000 | 12,000 | 4,248,000 | 4,598,000 | 16,423,000 | ||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 943,000 | - | - | 943,000 | ||||||||||||||||||
Total revenue | $ | 6,503,000 | $ | 1,062,000 | $ | 955,000 | $ | 4,248,000 | $ | 4,598,000 | $ | 17,366,000 | ||||||||||||
Major Goods or Services | ||||||||||||||||||||||||
RF/microwave filters | 559,000 | - | - | - | - | 559,000 | ||||||||||||||||||
Detector logarithmic video amplifiers | 692,000 | - | - | - | - | 692,000 | ||||||||||||||||||
Power supply units | 1,698,000 | 1,016,000 | - | - | - | 2,714,000 | ||||||||||||||||||
Power supply systems | 609,000 | - | - | - | - | 609,000 | ||||||||||||||||||
Healthcare diagnostic systems | 1,992,000 | - | - | - | - | 1,992,000 | ||||||||||||||||||
Electric vehicle chargers | - | 46,000 | - | - | - | 46,000 | ||||||||||||||||||
Defense systems | 953,000 | - | - | - | - | 953,000 | ||||||||||||||||||
Digital currency mining | - | - | - | 3,976,000 | - | 3,976,000 | ||||||||||||||||||
Hotel operations | - | - | - | - | 4,598,000 | 4,598,000 | ||||||||||||||||||
Other | - | - | 12,000 | 272,000 | - | 284,000 | ||||||||||||||||||
Revenue from contracts with customers | 6,503,000 | 1,062,000 | 12,000 | 4,248,000 | 4,598,000 | 16,423,000 | ||||||||||||||||||
Revenue, lending and trading activities | - | - | 943,000 | - | - | 943,000 | ||||||||||||||||||
Total revenue | $ | 6,503,000 | $ | 1,062,000 | $ | 955,000 | $ | 4,248,000 | $ | 4,598,000 | $ | 17,366,000 | ||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||
Goods transferred at a point in time | $ | 3,601,000 | $ | 1,062,000 | $ | 12,000 | $ | 4,248,000 | $ | 4,598,000 | $ | 13,521,000 | ||||||||||||
Services transferred over time | 2,902,000 | - | - | - | - | 2,902,000 | ||||||||||||||||||
Revenue from contracts with customers | $ | 6,503,000 | $ | 1,062,000 | $ | 12,000 | $ | 4,248,000 | $ | 4,598,000 | $ | 16,423,000 |
The Company’s disaggregated revenues consisted of the measurement date.
Six months ended June 30, 2022 | ||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | BNI | AGREE | Total | |||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||
North America | $ | 2,622,000 | $ | 1,834,000 | $ | 19,000 | $ | 8,074,000 | $ | 7,296,000 | $ | 19,845,000 | ||||||||||||
Europe | 4,719,000 | 47,000 | - | - | - | 4,766,000 | ||||||||||||||||||
Middle East and other | 6,407,000 | 310,000 | - | - | - | 6,717,000 | ||||||||||||||||||
Revenue from contracts with customers | 13,748,000 | 2,191,000 | 19,000 | 8,074,000 | 7,296,000 | 31,328,000 | ||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 18,864,000 | - | - | 18,864,000 | ||||||||||||||||||
Total revenue | $ | 13,748,000 | $ | 2,191,000 | $ | 18,883,000 | $ | 8,074,000 | $ | 7,296,000 | $ | 50,192,000 | ||||||||||||
Major Goods or Services | ||||||||||||||||||||||||
RF/microwave filters | 2,070,000 | - | - | - | - | 2,070,000 | ||||||||||||||||||
Detector logarithmic video amplifiers | 692,000 | - | - | - | - | 692,000 | ||||||||||||||||||
Power supply units | 4,129,000 | 2,112,000 | - | - | - | 6,241,000 | ||||||||||||||||||
Power supply systems | 657,000 | - | - | - | - | 657,000 | ||||||||||||||||||
Healthcare diagnostic systems | 1,992,000 | - | - | - | - | 1,992,000 | ||||||||||||||||||
Electric vehicle chargers | - | 79,000 | - | - | - | 79,000 | ||||||||||||||||||
Defense systems | 4,208,000 | - | - | - | - | 4,208,000 | ||||||||||||||||||
Digital currency mining | - | - | - | 7,524,000 | - | 7,524,000 | ||||||||||||||||||
Hotel operations | - | - | - | - | 7,296,000 | 7,296,000 | ||||||||||||||||||
Other | - | - | 19,000 | 550,000 | - | 569,000 | ||||||||||||||||||
Revenue from contracts with customers | 13,748,000 | 2,191,000 | 19,000 | 8,074,000 | 7,296,000 | 31,328,000 | ||||||||||||||||||
Revenue, lending and trading activities | - | - | 18,864,000 | - | - | 18,864,000 | ||||||||||||||||||
Total revenue | $ | 13,748,000 | $ | 2,191,000 | $ | 18,883,000 | $ | 8,074,000 | $ | 7,296,000 | $ | 50,192,000 | ||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||
Goods transferred at a point in time | $ | 7,113,000 | $ | 2,191,000 | $ | 19,000 | $ | 8,074,000 | $ | 7,296,000 | $ | 24,693,000 | ||||||||||||
Services transferred over time | 6,635,000 | - | - | - | - | 6,635,000 | ||||||||||||||||||
Revenue from contracts with customers | $ | 13,748,000 | $ | 2,191,000 | $ | 19,000 | $ | 8,074,000 | $ | 7,296,000 | $ | 31,328,000 |
The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independentCompany’s disaggregated revenues consisted of the Company. Unobservable inputs are inputs that reflectfollowing for the three months ended June 30, 2021:
Three months ended June 30, 2021 | ||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | Total | |||||||||||||
Primary Geographical Markets | ||||||||||||||||
North America | $ | 2,140,000 | $ | 1,289,000 | $ | 550,000 | $ | 3,979,000 | ||||||||
Europe | 1,842,000 | 453,000 | - | 2,295,000 | ||||||||||||
Middle East and other | 2,493,000 | 88,000 | - | 2,581,000 | ||||||||||||
Revenue from contracts with customers | 6,475,000 | 1,830,000 | 550,000 | 8,855,000 | ||||||||||||
Revenue, lending and trading activities (North America) | - | - | 53,274,000 | 53,274,000 | ||||||||||||
Total revenue | $ | 6,475,000 | $ | 1,830,000 | $ | 53,824,000 | $ | 62,129,000 | ||||||||
Major Goods | ||||||||||||||||
RF/microwave filters | $ | 1,076,000 | $ | - | $ | - | $ | 1,076,000 | ||||||||
Detector logarithmic video amplifiers | 73,000 | - | - | 73,000 | ||||||||||||
Power supply units | 240,000 | 1,830,000 | - | 2,070,000 | ||||||||||||
Power supply systems | 2,475,000 | - | - | 2,475,000 | ||||||||||||
Healthcare diagnostic systems | 228,000 | - | - | 228,000 | ||||||||||||
Defense systems | 2,383,000 | - | - | 2,383,000 | ||||||||||||
Digital currency mining | - | - | 291,000 | 291,000 | ||||||||||||
Other | - | - | 259,000 | 259,000 | ||||||||||||
Revenue from contracts with customers | 6,475,000 | 1,830,000 | 550,000 | 8,855,000 | ||||||||||||
Revenue, lending and trading activities | - | - | 53,274,000 | 53,274,000 | ||||||||||||
Total revenue | $ | 6,475,000 | $ | 1,830,000 | $ | 53,824,000 | $ | 62,129,000 | ||||||||
Timing of Revenue Recognition | ||||||||||||||||
Goods transferred at a point in time | $ | 3,863,000 | $ | 1,830,000 | $ | 550,000 | $ | 6,243,000 | ||||||||
Services transferred over time | 2,612,000 | - | - | 2,612,000 | ||||||||||||
Revenue from contracts with customers | $ | 6,475,000 | $ | 1,830,000 | $ | 550,000 | $ | 8,855,000 |
The Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Six months ended June 30, 2021 | ||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | Total | |||||||||||||
Primary Geographical Markets | ||||||||||||||||
North America | $ | 4,029,000 | $ | 2,497,000 | $ | 852,000 | $ | 7,378,000 | ||||||||
Europe | 3,752,000 | 562,000 | - | 4,314,000 | ||||||||||||
Middle East and other | 5,044,000 | 154,000 | - | 5,198,000 | ||||||||||||
Revenue from contracts with customers | 12,825,000 | 3,213,000 | 852,000 | 16,890,000 | ||||||||||||
Revenue, lending and trading activities (North America) | - | - | 58,485,000 | 58,485,000 | ||||||||||||
Total revenue | $ | 12,825,000 | $ | 3,213,000 | $ | 59,337,000 | $ | 75,375,000 | ||||||||
Major Goods | ||||||||||||||||
RF/microwave filters | $ | 2,291,000 | $ | - | $ | - | $ | 2,291,000 | ||||||||
Detector logarithmic video amplifiers | 144,000 | - | - | 144,000 | ||||||||||||
Power supply units | 478,000 | 3,213,000 | - | 3,691,000 | ||||||||||||
Power supply systems | 4,708,000 | - | - | 4,708,000 | ||||||||||||
Healthcare diagnostic systems | 413,000 | - | - | 413,000 | ||||||||||||
Defense systems | 4,791,000 | - | - | 4,791,000 | ||||||||||||
Digital currency mining | - | - | 421,000 | 421,000 | ||||||||||||
Other | - | - | 431,000 | 431,000 | ||||||||||||
Revenue from contracts with customers | 2,825,000 | 3,213,000 | 852,000 | 16,890,000 | ||||||||||||
Revenue, lending and trading activities | - | - | 58,485,000 | 58,485,000 | ||||||||||||
Total revenue | $ | 12,825,000 | $ | 3,213,000 | $ | 59,337,000 | $ | 75,375,000 | ||||||||
Timing of Revenue Recognition | ||||||||||||||||
Goods transferred at a point in time | $ | 7,621,000 | $ | 3,213,000 | $ | 852,000 | $ | 11,686,000 | ||||||||
Services transferred over time | 5,204,000 | - | - | 5,204,000 | ||||||||||||
Revenue from contracts with customers | $ | 12,825,000 | $ | 3,213,000 | $ | 852,000 | $ | 16,890,000 |
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 June 30, 2022 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investment in term promissory note of Ault & Company, Inc. (“Ault & Company”) and other – a related party | $ | 2,770,000 | $ | - | $ | - | $ | 2,770,000 | ||||||||
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party | 8,845,000 | 8,845,000 | - | - | ||||||||||||
Investments in marketable equity securities | 17,467,000 | 17,467,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 116,895,000 | 116,895,000 | - | - | ||||||||||||
Investments in other equity securities | 804,000 | - | - | 804,000 | ||||||||||||
Total assets measured at fair value | $ | 146,781,000 | $ | 143,207,000 | $ | - | $ | 3,574,000 |
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 other equity securities | 9,215,000 | - | - | 9,215,000 | ||||||||||||
Total assets measured at fair value | $ | 182,392,000 | $ | 170,335,000 | $ | - | $ | 12,057,000 |
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 other equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the six months ended June 30, 2022:
Schedule of other equity securities measured and carried at fair value | ||||
Investments in other equity securities | ||||
Balance at January 1, 2022 | $ | 9,215,000 | ||
Investment in preferred stock | 2,550,000 | |||
Change in fair value of warrants | 13,867,000 | |||
Conversion to marketable securities | (24,828,000 | ) | ||
Balance at June 30, 2022 | $ | 804,000 |
See Note 11 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 and six months ended June 30, 2022.
Other equity securities also include investments in entities that do not have a readily determinable fair value and do not report net asset value per share. These investments are accounted for using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments. Observable price changes result from, among other things, equity transactions for the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. For these transactions to be considered observable price changes of the same issuer, the Company evaluates whether these transactions have similar rights and obligations, including voting rights, distribution preferences, conversion rights, and other factors, to the investments the Company holds. Any investments adjusted to their fair value by applying the measurement alternative are disclosed as nonrecurring fair value measurements, including the level in the fair value hierarchy that was used. As of June 30, 2022 and December 31, 2021, investments in other equity securities valued using a measurement alternative of $37.7 million and $21.3 million, respectively, are included in other equity securities in the accompanying condensed consolidated balance sheets.
The following table presents information on the assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021. These investments were not measured due to an observable price change or impairment during the six months ended June 30, 2022.
Schedule of investments not measured | ||||||||||||||||
Fair Value Measurement Using | ||||||||||||||||
Total | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
As of June 30, 2022 | ||||||||||||||||
Investments in other equity securities that do not report net asset value | $ | 37,691,000 | $ | - | $ | - | $ | 37,691,000 |
Fair Value Measurement Using | ||||||||||||||||
Total | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
As of December 31, 2021 | ||||||||||||||||
Investments in other equity securities that do not report net asset value | $ | 21,241,000 | $ | - | $ | - | $ | 21,241,000 |
6. MARKETABLE EQUITY SECURITIES
Marketable equity securities with readily determinable market prices consisted of the following as of June 30, 2022 and December 31, 2021:
Schedule of marketable equity securities | ||||||||||||||||
Marketable equity securities at June 30, 2022 | ||||||||||||||||
Gross unrealized | Gross unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Common shares | $ | 26,063,000 | $ | 481,000 | $ | (9,077,000 | ) | $ | 17,467,000 |
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 |
The Company’s investment in marketable equity securities are revalued on each balance sheet date.
7. PROPERTY AND SUBSIDIARY
At June 30, 2017
Schedule of property and equipment | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Cryptocurrency machines and related equipment | $ | 76,963,000 | $ | 10,763,000 | ||||
Computer, software and related equipment | 18,697,000 | 8,884,000 | ||||||
Office furniture and equipment | 2,585,000 | 702,000 | ||||||
Land | 25,696,000 | 25,696,000 | ||||||
Building and improvements | 70,926,000 | 68,959,000 | ||||||
194,867,000 | 115,004,000 | |||||||
Accumulated depreciation and amortization | (10,403,000 | ) | (5,096,000 | ) | ||||
Property and equipment placed in service, net | 184,464,000 | 109,908,000 | ||||||
Deposits on cryptocurrency machines | 61,523,000 | 64,117,000 | ||||||
Property and equipment, net | $ | 245,987,000 | $ | 174,025,000 |
For the six months ended June 30, 2022 and 2021, depreciation expense amounted to $6.3 million and $0.4 million, respectively.
8. BUSINESS COMBINATIONS
Overview of AVLP Acquisition
On June 1, 2022, the Company converted the principal amount under the convertible promissory notes issued to it by AVLP and accrued but unpaid interest into common stock of AVLP. The Company converted $20.0 million in thousands, exceptprincipal and $5.9 million of accrued interest receivable at a conversion price of $0.50 per share and per share data
Prior to the conversion of the convertible promissory notes, the Company accounted for its investment in AVLP as an investment in an unconsolidated entity under the equity method of accounting. In connection with the conversion of the convertible promissory notes, the Company’s consolidated financial statements now include all of the accounts of AVLP, and any significant intercompany balances and transactions have been eliminated in consolidation.
The consideration transferred for the Company’s approximate 92% ownership interest in connection with this acquisition aggregated $20.7 million, which represented the fair value of the Company’s holdings in AVLP immediately prior to conversion. The carrying amount of the Company’s holdings in AVLP immediately prior to conversion was $23.4 million, resulting in a $2.7 million loss for the related remeasurement, which was recognized in interest and other income. The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the acquisition date. The goodwill resulting from this acquisition is not tax deductible.
The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.
Schedule of preliminary allocation | ||||
Preliminary allocation | ||||
Total purchase consideration | $ | 20,706,000 | ||
Fair value of non-controlling interest | 6,706,000 | |||
Total consideration | $ | 27,412,000 | ||
Identifiable net liabilities assumed: | ||||
Cash | $ | 1,245,000 | ||
Prepaid expenses and other current assets | 55,000 | |||
Property and equipment | 5,057,000 | |||
Note receivable | 800,000 | |||
Accounts payable and accrued expenses | (6,935,000 | ) | ||
Convertible notes payable, principal | (9,734,000 | ) | ||
Fair value of embedded derivative | (1,226,000 | ) | ||
Fair value of bifurcated conversion option | (4,425,000 | ) | ||
Fair value of bifurcated put option | (200,000 | ) | ||
Net liabilities assumed | (15,363,000 | ) | ||
Goodwill | $ | 42,775,000 |
The Company consolidates the results of AVLP on a one-month lag, therefore the statements of operations do not include results for AVLP for the three and six months ended June 30, 2022.
Overview of SMC Acquisition
Beginning in June 2022, the Company, through its subsidiary Digital Power Lending, LLC (“DP Lending”), began making open market purchases of SMC common stock. These purchases granted the Company a greater than 20% effective ownership on June 9, 2022, and subsequently, on June 15, 2022, the Company owned more than 50% of the issued and outstanding common stock of SMC. The Company’s ownership of SMC stands at 51.6% as of June 30, 2022.
As of June 15, 2022 (“Acquisition Date”), the purchase price of the common stock acquired totaled $7.4 million and on June 15, 2022 a $3.1 million gain was recognized in interest and other income for the remeasurement of the Company’s previously held ownership interest to $10.5 million, based on the trading price of SMC common stock. The Company also recognized non-controlling interest at fair value as of the Acquisition Date in the amount of $10.3 million.
The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed, is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the Acquisition Date. The goodwill resulting from this acquisition is not tax deductible.
The Company consolidates the results of SMC on a one-quarter lag as it enables the Company to report its quarterly results independent from the timing of when SMC reports its results, therefore the statements of operations do not include results for SMC for the three and six months ended June 30, 2022.
The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.
Schedule of assets acquired and liabilities assumed | ||||
Preliminary Allocation | ||||
Total purchase consideration | $ | 10,517,000 | ||
Fair value of non-controlling interest | 10,336,000 | |||
Total consideration | $ | 20,853,000 | ||
Identifiable net assets acquired: | ||||
Cash | $ | 2,278,000 | ||
Accounts receivable | 9,891,000 | |||
Prepaid expenses and other current assets | 673,000 | |||
Inventories | 12,840,000 | |||
Property and equipment, net | 529,000 | |||
Right-of-use assets | 1,073,000 | |||
Other assets | 83,000 | |||
Intangible assets: | ||||
Trade names-estimated useful life of 19 years | 2,470,000 | |||
Customer relationships-estimated useful life of 16 years | 1,380,000 | |||
Proprietary technology-estimated useful life of 3 years | 600,000 | |||
Accounts payable and accrued expenses | (10,052,000 | ) | ||
Notes payable | (2,972,000 | ) | ||
Lease liabilities | (1,124,000 | ) | ||
Net assets acquired | 17,669,000 | |||
Goodwill | $ | 3,184,000 |
Unaudited Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2022 have been prepared as if the SMC acquisition had occurred on January 1, 2022.
Schedule of pro forma consolidated results of operations | ||||||||
Three Months Ended | Six Months Ended | |||||||
June 30, 2022 | June 30, 2022 | |||||||
Total revenues | $ | 29,058,000 | $ | 64,717,000 | ||||
Net loss attributable to BitNile Holdings, Inc. | $ | (26,206,000 | ) | $ | (56,531,000 | ) |
The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.
9. GOODWILL
The Company’s goodwill increased due to the acquisition of controlling interests in AVLP on June 1, 2022 and SMC on June 15, 2022. The following table summarizes the changes in the Company’s goodwill for the six months ended June 30, 2022:
Schedule of goodwill | ||||
Goodwill | ||||
Balance as of January 1, 2022 | $ | 10,090,000 | ||
Acquisition of AVLP | 42,775,000 | |||
Acquisition of SMC | 3,184,000 | |||
Effect of exchange rate changes | (727,000 | ) | ||
Balance as of June 30, 2022 | $ | 55,322,000 |
10. INCREASE IN OWNERSHIP INTEREST OF SUBSIDIARIES
On May 12, 2022, BNI closed a $1.8 million membership interest purchase agreement whereby BNI acquired the 30% minority interest of Alliance Cloud Services, LLC (“ACS”) which BNI did not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI. ACS owns and operates the Company’s Michigan data center, where BNI conducts the Company’s Bitcoin mining operations.
Between June 15, 2022 and June 30, 2022, DP Lending increased the Company’s ownership interest in SMC through the open market purchase of approximately 430,000.
shares for $11. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and Ault & Company at June 30, 2022 and December 31, 2021, were comprised of the following:
Investment in Promissory Notes, Related Parties
Schedule of investment | ||||||||||||
Interest | Due | June 30, | 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 | 270,000 | 170,000 | ||||||||||
Other | - | 172,000 | ||||||||||
Total investment in promissory note, related party | $ | 2,770,000 | $ | 2,842,000 |
Investment in Common Stock and Options, Related Parties
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Investment in common stock and options of Alzamend | $ | 8,845,000 | $ | 13,230,000 |
The following table summarizes the changes in the Company’s investments in Alzamend and Ault & Company during the six months ended June 30, 2022:
Schedule of investments in Alzamend and Ault | ||||||||
Investment in warrants and common stock of Alzamend | Investment in promissory notes of Ault & Company | |||||||
Balance at January 1, 2022 | $ | 13,230,000 | $ | 2,842,000 | ||||
Investment in common stock and options of Alzamend | 4,663,000 | - | ||||||
Unrealized loss in common stock of Alzamend | (9,048,000 | ) | - | |||||
Amortization of related party investment | - | (173,000 | ) | |||||
Accrued interest | - | 101,000 | ||||||
Balance at June 30, 2022 | $ | 8,845,000 | $ | 2,770,000 |
Investments in Alzamend Common Stock
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the six months ended June 30, 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 | |||||||
March 9, 2021 securities purchase agreement* | 2,667,000 | $ | 1.50 | 4,000,000 | ||||||||
Open market purchases after initial public offering | 618,000 | $ | 1.07 | 663,000 | ||||||||
Unrealized loss in common stock of Alzamend | (9,048,000 | ) | ||||||||||
Balance at June 30, 2022 | 10,232,000 | $ | 0.86 | $ | 8,845,000 |
* | Pursuant to the March 9, 2021 securities purchase agreement, in aggregate, Alzamend agreed to sell up to 6,666,667 shares of its common stock to DP Lending for $10.0 million, or $1.50 per share, and issue to DP Lending warrants to acquire 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. As of December 31, 2021, DP Lending funded $6.0 million, including the conversion of notes and advances of $0.8 million, and the remaining $4.0 million was funded upon Alzamend achieving certain milestones during the three months ended June 30, 2022. |
12. INVESTMENT IN UNCONSOLIDATED ENTITY – AVLP
Equity Investments in Unconsolidated Entity – AVLP
The Company converted its AVLP convertible promissory note on June 1, 2022 as part of the acquisition of AVLP (see Note 8). Equity investments in the then unconsolidated entity, AVLP, at December 31, 2021, were comprised of the following:
Investment in Promissory Notes
Schedule of convertible promissory note | ||||||||
Interest rate | Due date | December 31, 2021 | ||||||
Investment in convertible promissory note | 12% | 2022-2026 | $ | 17,799,000 | ||||
Investment in promissory note – Alpha Fund | 8% | June 30, 2022 | 3,600,000 | |||||
Accrued interest receivable | 2,092,000 | |||||||
Other | 600,000 | |||||||
Total investment in promissory notes, gross | 24,091,000 | |||||||
Less: provision for loan losses | (2,000,000 | ) | ||||||
Total investment in promissory note | $ | 22,091,000 |
The following table summarizes the changes in the Company’s equity investments in the then unconsolidated entity, AVLP, during the six months ended June 30, 2022:
Schedule ofchanges in the equity investments | ||||||||||||
Investment in | Investment in | |||||||||||
warrants and | promissory notes | Total | ||||||||||
common stock | and advances | investment | ||||||||||
Balance at January 1, 2022 | $ | 39,000 | $ | 22,091,000 | $ | 22,130,000 | ||||||
Investment in convertible promissory notes | - | 2,200,000 | 2,200,000 | |||||||||
Loss from equity investment | (39,000 | ) | (885,000 | ) | (924,000 | ) | ||||||
Accrued interest | - | 143,000 | 143,000 | |||||||||
Loss on remeasurement upon conversion | - | (2,700,000 | ) | (2,700,000 | ) | |||||||
Conversion of AVLP convertible promissory notes | - | (17,040,000 | ) | (17,040,000 | ) | |||||||
Elimination of intercompany debt after conversion | - | (3,809,000 | ) | (3,809,000 | ) | |||||||
Balance at June 30, 2022 | $ | - | $ | - | $ | - |
13. CONSOLIDATED VARIABLE INTEREST ENTITY - ALPHA FUND
Alpha Fund – Consolidated Variable Interest Entity
As of June 30, 2022 and December 31, 2021, the Company held an investment in Ault Alpha LP (“Alpha Fund”). Alpha Fund operates as a private investment fund. The general partner of 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 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 June 30, 2022, DP Lending subscribed for $25 million or 100% of the limited partnership interests in Alpha Fund, the full amount of which was funded, an increase of $8 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 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 Alpha Fund’s partnership agreement and side letter entered into between the Company and 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 June 30, 2022, Alpha Fund owned 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”), accounted for as treasury stock as of June 30, 2022.
shares of the Company’s common stock and shares of the Company’s14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at June 30, 2022 and December 31, 2021 consisted of:
Schedule of other current liabilities | ||||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts payable | $ | 18,348,000 | $ | 6,902,000 | ||||
Accrued payroll and payroll taxes | 6,540,000 | 5,027,000 | ||||||
Financial instrument liabilities | 934,000 | 4,249,000 | ||||||
Accrued legal | 1,787,000 | 2,637,000 | ||||||
Interest payable | 3,680,000 | 187,000 | ||||||
Other accrued expenses | 12,236,000 | 3,753,000 | ||||||
Total | $ | 43,525,000 | $ | 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 | ||||
June 30, 2022 | December 31, 2021 | |||
Contractually stipulated stock price | $2.50 | $2.50 | ||
Exercise price | $2.50 | $2.50 | ||
Contractually defined remaining term | 5.0 | 5.0 | ||
Contractually defined volatility | 135% | 135% | ||
Dividend yield | 0% | 0% | ||
Risk-free interest rate | 3.0% | 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 six months ended June 30, 2022 and 2021:
Schedule of fair value of the financial instruments | ||||||||
June 30, 2022 | June 30, 2021 | |||||||
Beginning balance | $ | 4,249,000 | $ | 4,192,000 | ||||
Change in fair value | 24,000 | 388,000 | ||||||
Extinguishment | (3,339,000 | ) | - | |||||
Ending balance | $ | 934,000 | $ | 4,580,000 |
15. NOTES PAYABLE
Notes payable at June 30, 2022 and December 31, 2021, were comprised of the following.
Schedule of notes payable | ||||||||||||
Interest rate | Due date | June 30, 2022 | December 31, 2021 | |||||||||
Short-term notes payable | 12.0% | Aug. – Nov. 2022 | $ | 92,000 | $ | 118,000 | ||||||
10% original issue discount senior secured notes | - | 65,972,000 | ||||||||||
AGREE Madison secured construction loans | 7.0% | January 1, 2025 | 55,055,000 | 55,055,000 | ||||||||
SMC line of credit | 15.5% | June 11, 2023 | 2,500,000 | - | ||||||||
SMC installment notes | 7.6% | June 18, 2024 | 195,000 | - | ||||||||
SMC notes payable | 6.0% | Sep. 2024 – Feb. 2025 | 353,000 | - | ||||||||
XBTO Trading note payable | 12.5% | December 30, 2023 | 4,000,000 | - | ||||||||
Short-term bank line of credit | 3.9% | Renews monthly | 1,736,000 | 960,000 | ||||||||
Total notes payable | $ | 63,931,000 | $ | 122,105,000 | ||||||||
Less: | ||||||||||||
Unamortized debt discounts | (1,044,000 | ) | (27,496,000 | ) | ||||||||
Total notes payable, net | $ | 62,887,000 | $ | 94,609,000 | ||||||||
Less: current portion | (7,340,000 | ) | (39,554,000 | ) | ||||||||
Notes payable – long-term portion | $ | 55,547,000 | $ | 55,055,000 |
SMC Debt Security Interest
The SMC debt is secured by a perfected security interest in all SMC assets including a first-priority security interest in SMC accounts receivable and inventory.
Amortization of Debt Discount of Secured Promissory Notes
On December 30, 2021, the Company entered into a securities purchase agreement with certain accredited 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 discount accordingon the Secured Promissory Notes related to ASC No. 470-20, Debt with Conversionthe original issue discount and Other Options. Debt discounts are amortized through periodic charges to interest expense over the termestimated fair value of the related financial instrument using the effective interest method. warrants totaled $26.3 million.
During the three and nine months ended September 30, 2017,March 31, 2022, the Secured Promissory Notes were repaid and the Company recorded amortizationfully amortized the related debt discount of debt discounts$26.3 million, which is included within interest expense on the condensed consolidated statements of $652operations.
16. CONVERTIBLE NOTES
Convertible notes payable at June 30, 2022 and $1,239,December 31, 2021, were comprised of the following:
Schedule of convertible notes payable | ||||||||||||||
Conversion price per share | Interest rate | Due date | June 30, 2022 | December 31, 2021 | ||||||||||
Convertible promissory note | $ | 4% | May 10, 2024 | $ | 660,000 | $ | 660,000 | |||||||
AVLP convertible promissory notes | $ | (AVLP stock)15% | August 22, 2025 | 9,911,000 | - | |||||||||
Fair value of embedded derivative | 1,226,000 | - | ||||||||||||
Fair value of bifurcated conversion option | 4,425,000 | - | ||||||||||||
Fair value of bifurcated put option | 200,000 | - | ||||||||||||
Less: unamortized debt discounts | (329,000 | ) | (192,000 | ) | ||||||||||
Total convertible notes payable, net of financing cost | $ | 16,093,000 | $ | 468,000 | ||||||||||
Less: current portion | (1,884,000 | ) | - | |||||||||||
Total convertible notes payable, net of financing cost, long term | $ | 14,209,000 | $ | 468,000 |
AVLP convertible promissory notes
The AVLP convertible notes payable are due and payable on August 22, 2025, with interest at 7% per annum. At the election of the holders, outstanding principal and accrued but unpaid interest under the notes are convertible into shares of AVLP’s common stock at a conversion price equal to either (i) if the aggregate market capital of AVLP on the date of conversion (the “Market Cap”) is $35 million or less, at a 25% discount to the market price, or (ii) if the Market Cap is greater than $35 million, at a 25% discount to the market price, provided that such discount shall be increased by dividing it by the quotient that shall be obtained by dividing $35 million by the Market Cap at the time of conversion, provided, however, any increase in the discount to the market price shall not result in a discount that is greater than a 75% discount (the “Conversion Price”). Notwithstanding the foregoing, in no event shall the Conversion Price be less than $0.35.
17. 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 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.
On August 8, 2022, the Court issued an Order denying the motion to dismiss, in its entirety.
The deadline for the Company and its subsidiaries to file an Answer to the Amended Complaint is September 2, 2022.
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.
18. STOCKHOLDERS’ EQUITY
2022 Issuances
2022 ATM Offering – Common Stock
On February 25, 2022, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets, LLC (“Ascendiant Capital”) 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 Common ATM Offering”). As of June 30, 2022, the Company had sold an aggregate of 239.7 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $163.4 million.
Public Offering of Series D Preferred Stock
The Company has designated
shares of preferred stock, par value $0.001 per share, of the Company as the Series D Preferred Stock.On June 3, 2022, the Company announced the closing of its public offering of 144,000 shares of its Series D Preferred Stock at a price to the public of $25.00 per share. Gross proceeds from the offering were approximately $3.6 million, before deducting offering expenses. Net proceeds to the Company, after payment of commissions, non-accountable fees and offering expenses were $3.1 million.
2022 ATM Offering – Preferred Stock
On June 14, 2022, the Company entered into an At-The-Market equity offering program with Ascendiant Capital under which it may sell, from time to time, shares of its Series D Preferred Stock for aggregate gross proceeds of up to $46,400,000 (the “2022 Preferred ATM Offering”). As of June 30, 2022, the Company had sold an aggregate of shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of $57,000.
19. INCOME TAXES
The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes. The Company’s effective tax rate (“ETR”) from continuing operations was 0.4% and (7.4%) for the six months ended June 30, 2022 and 2021, respectively. The Company did not recognize any debt discount duringan income tax provision of $0.2 million and $3.5 million for the six months ended June 30, 2022 and 2021, respectively. The difference between the ETR and federal statutory rate of 21% is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes and changes in valuation allowance.
For the three and ninesix months ended SeptemberJune 30, 2016.
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 | ||||
June 30, 2022 | ||||
Stock options | 6,396,000 | |||
Restricted stock grants | 2,085,000 | |||
Warrants | 18,493,000 | |||
Convertible notes | 165,000 | |||
Convertible preferred stock | 2,000 | |||
Total | 27,141,000 |
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 |
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 |
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 |
Schedule of basic and diluted net income per common share | ||||||||||||
For the Three Months Ended June 30, 2021 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income attributable to BitNile Holdings | $ | 36,323,000 | ||||||||||
Less: Preferred stock dividends | (4,000 | ) | ||||||||||
Basic earnings per share | ||||||||||||
Net income available to common stockholders | 36,319,000 | 50,783,000 | $ | 0.72 | ||||||||
Effect of dilutive securities | ||||||||||||
Stock options | — | 292,000 | ||||||||||
Warrants | 290,000 | 1,540,000 | ||||||||||
4% convertible notes | 7,000 | 165,000 | ||||||||||
Diluted earnings per share | ||||||||||||
Income available to common stockholders plus assumed conversions | $ | 36,616,000 | 52,780,000 | $ | 0.69 |
For the Six Months Ended June 30, 2021 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income attributable to BitNile Holdings | $ | 41,291,000 | ||||||||||
Less: Preferred stock dividends | (9,000 | ) | ||||||||||
Basic earnings per share | ||||||||||||
Net income available to common stockholders | 41,282,000 | 45,052,000 | $ | 0.92 | ||||||||
Effect of dilutive securities | ||||||||||||
Stock options | — | 422,000 | ||||||||||
Warrants | (388,000 | ) | 1,935,000 | |||||||||
4% convertible notes | 13,000 | 165,000 | ||||||||||
Diluted earnings per share | ||||||||||||
Income available to common stockholders plus assumed conversions | $ | 40,907,000 | 47,574,000 | $ | 0.86 |
21. SEGMENT AND SUBSIDIARY
The Company did not record any additional interest expensehad six reportable segments as a result of the extinguishment since the carrying amount of the convertible notes 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.
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 | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | BNI | AGREE | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 6,503,000 | $ | 1,062,000 | $ | 12,000 | $ | - | $ | - | $ | - | $ | - | $ | 7,577,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 3,976,000 | - | - | - | 3,976,000 | ||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 272,000 | - | - | - | 272,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 943,000 | - | - | - | - | 943,000 | ||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 4,598,000 | - | - | 4,598,000 | ||||||||||||||||||||||||
Total revenues | $ | 6,503,000 | $ | 1,062,000 | $ | 955,000 | $ | 4,248,000 | $ | 4,598,000 | $ | - | $ | - | $ | 17,366,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 298,000 | $ | 4,000 | $ | 34,000 | $ | 2,613,000 | $ | 827,000 | $ | - | $ | 711,000 | $ | 4,487,000 | ||||||||||||||||
Loss from operations | $ | (1,076,000 | ) | $ | (445,000 | ) | $ | (11,486,000 | ) | $ | (3,454,000 | ) | $ | (166,000 | ) | $ | (489,000 | ) | $ | (6,603,000 | ) | $ | (23,719,000 | ) | ||||||||
Capital expenditures for the three months ended June 30, 2022 | $ | 156,000 | $ | 50,000 | $ | 761,000 | $ | 36,397,000 | $ | (15,000 | ) | $ | - | $ | 71,000 | $ | 37,420,000 |
Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | BNI | AGREE | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 13,749,000 | $ | 2,191,000 | $ | 19,000 | $ | - | $ | - | $ | - | $ | - | $ | 15,959,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 7,524,000 | - | - | - | 7,524,000 | ||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 549,000 | - | - | - | 549,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 18,864,000 | - | - | - | - | 18,864,000 | ||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 7,296,000 | - | - | 7,296,000 | ||||||||||||||||||||||||
Total revenues | $ | 13,749,000 | $ | 2,191,000 | $ | 18,883,000 | $ | 8,073,000 | $ | 7,296,000 | $ | - | $ | - | $ | 50,192,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 519,000 | $ | 10,000 | $ | 68,000 | $ | 4,140,000 | $ | 1,655,000 | $ | - | $ | 53,000 | $ | 6,445,000 | ||||||||||||||||
Income (loss) from operations | $ | (1,220,000 | ) | $ | (1,620,000 | ) | $ | 426,000 | $ | (3,817,000 | ) | $ | (1,548,000 | ) | $ | (786,000 | ) | $ | (14,124,000 | ) | $ | (22,689,000 | ) | |||||||||
Capital expenditures for the six months ended June 30, 2022 | $ | 285,000 | $ | 125,000 | $ | 849,000 | $ | 71,384,000 | $ | 19,000 | $ | - | $ | 117,000 | $ | 72,779,000 |
AVLP and 2016. Other than as shown, no foreign country contributed materiallySMC Segment Information
The AVLP and SMC acquisitions were completed in June 2022. The results of operations were not material to revenues or long-livedthe Company’s consolidated results of operations for the three and six months ended June 30, 2022. As of June 30, 2022, identifiable assets for these periods:
Segment information for the three and six months ended June 30, 2021:
Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | BNI | AGREE | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 6,475,000 | $ | 1,831,000 | $ | 50,000 | $ | - | $ | - | $ | - | $ | - | $ | 8,356,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 291,000 | - | - | - | 291,000 | ||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 208,000 | - | - | - | 208,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 53,274,000 | - | - | - | - | 53,274,000 | ||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total revenues | $ | 6,475,000 | $ | 1,831,000 | $ | 53,324,000 | $ | 499,000 | $ | - | $ | - | $ | - | $ | 62,129,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 213,000 | $ | 6,000 | $ | 27,000 | $ | 111,000 | $ | - | $ | - | $ | 13,000 | $ | 370,000 | ||||||||||||||||
Income (loss) from operations | $ | (1,000,000 | ) | $ | 117,000 | $ | 49,375,000 | $ | (197,000 | ) | $ | - | $ | (118,000 | ) | $ | (2,354,000 | ) | $ | 45,823,000 | ||||||||||||
Capital expenditures for the three months ended June 30, 2021 | $ | 474,000 | $ | - | $ | 12,000 | $ | 650,000 | $ | - | $ | - | $ | 105,000 | $ | 1,241,000 |
Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
GWW | TurnOnGreen | Ault Alliance | BNI | AGREE | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 12,826,000 | $ | 3,213,000 | $ | 126,000 | $ | - | $ | - | $ | - | $ | - | $ | 16,165,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 421,000 | - | - | - | 421,000 | ||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 304,000 | - | - | - | 304,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 58,485,000 | - | - | - | 58,485,000 | |||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | - | - | ||||||||||||||||||||||||||
Total revenues | $ | 12,826,000 | $ | 3,213,000 | $ | 58,611,000 | $ | 725,000 | $ | - | $ | - | $ | - | $ | 75,375,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 428,000 | $ | 13,000 | $ | 28,000 | $ | 152,000 | $ | - | $ | - | $ | 16,000 | $ | 637,000 | ||||||||||||||||
Income (loss) from operations | $ | (788,000 | ) | $ | (83,000 | ) | $ | 53,781,000 | $ | (500,000 | ) | $ | - | $ | (188,000 | ) | $ | (5,197,000 | ) | $ | 47,025,000 | |||||||||||
Capital expenditures for the six months ended June 30, 2021 | $ | 566,000 | $ | - | $ | 285,000 | $ | 4,634,000 | $ | - | $ | - | $ | 105,000 | $ | 5,590,000 |
22. CONCENTRATIONS OF CREDIT AND SUBSIDIARY
Accounts receivable are concentrated with certain large customers. At June 30, 2017
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 |
For the three months ended June 30, 2022, one customer represented 13% of consolidated revenues.
23. SUBSEQUENT EVENTS
2022 Common ATM Offering
During the period between July 1, 2022 through August 18, 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.
2022 Preferred ATM Offering
During the Chairman and majority shareholder of Ault & Company.
Investments in Alpha Fund
During the period between July 1, 2022 through August 18, 2022, DP Lending purchased an averageadditional $6.5 million of $0.54 per share.
Formation of Ault Energy
On October 17, 2017,July 11, 2022, the Company and Microphase, entered intoannounced the formation of Ault Energy, LLC (“Ault Energy”), as an Agreement for the Purchase and Sale of Future Receipts with TVT Capital LLC pursuant to which the Company and Microphase collectively sold in the aggregate $834 in Future Receiptsindirect wholly-owned subsidiary of the Company through Ault Alliance. Ault Energy will partner with White River Holdings Corp. (“White River”), a wholly owned subsidiary of Ecoark Holdings, Inc. (“Ecoark”), on drilling projects across 30,000 acres in Texas, Louisiana and Microphase for $600. UnderMississippi. Ault Energy, as DP Lending’s designee, has the termsright to purchase up to 25%, or such higher percentages at the discretion of White River, in various drilling projects of White River. In August 2022, Ault Energy committed to purchasing 40% of the agreement,first drilling project offered, at a cost to Ault Energy of approximately $1 million.
F-33 |
Note Purchase Agreement
On August 10, 2022, the Company, through its BNI and Microphase will be obligated to pay $21 in the aggregate on a weekly basis until the purchase price of $834, has been paid in full. In connection with entering into the agreement, the Company and Microphase collectively paid a $30 origination fee. In addition, the purchase price of $834 has been personally guaranteed by Milton Ault, III, the Company’s Executive Chairman.
The maturity date of the transactions contemplated bysecured promissory notes is August 10, 2023. The Company is required to make monthly payment (principal and interest) of $1,000,000 on the Purchase Agreementtenth calendar day of each month, starting in accordance with Section 713 of the NYSE American Company Guide.
Hosting Agreement
On August 15, 2022, the Company, has the option to prepay all amounts owed under the Convertible Debentures in cash at a rate of 110% within 90 days from the original issue date and 115% from 91 days from the original issue date through the maturity date.
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 and majority owned subsidiaries and strategic investments, we own and operate a data center at which we mine Bitcoin, and provide mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. In addition, we own and operate 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 Limited(“Ascendiant Capital”) 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 Common ATM Offering”). As of June 30, 2022, we had sold an aggregate of 239.7 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $163.4 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. (“TurnOnGreen”), 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 TurnOnGreen that we own, and (ii) forgive and eliminate the intracompany accounts between us and TurnOnGreen evidencing historical equity investments made by us in TurnOnGreen, in the approximate amount of $25 million, 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 TurnOnGreen and other customary closing conditions. Immediately following the completion of the Transaction, TurnOnGreen 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 TurnOnGreen shall cease to exist, IMHC shall own TurnOnGreen’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 company seekingvoluntary 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, were to increase our revenuespurchase the Assets and assume certain of EYP’s obligations associated with the purchased Assets through acquisitions. Our strategy reflects our managementa supervised sale under Section 363 of the Bankruptcy Code. Ault Alliance’s stalking horse bid is based on an enterprise value of approximately $67.7 million, which includes the purchase price for the Assets under the Asset Purchase Agreement of $62.5 million, 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 Board’s current philosophythe senior secured loans previously issued by Ault Alliance to EYP, in an approximate aggregate amount of $11.8 million, and less the amount of certain liabilities assumed by Ault Alliance. The Asset Purchase Agreement required the Asset Purchase to close by June 30, 2022. Consummation of the Asset Purchase was 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. On July 7, 2022, we announced that occurredAult Alliance did not acquire the assets of EYP as a result of a changehigher bidder. Ault Alliance lent $8.0 million to EYP and earned $4.7 million in control completed in September 2016. Our acquisitioninterest, penalties and development target strategy includes companies that have developed a “new waybreak-up fees from October 2021 through June 2022. The principal amount of doing business” in mature, well-developed industries experiencing changes due to new technology; companies that may become profitable or more profitable through efficiencythe loans, interest, penalties and reduction of costs; companies that are related to our core business in the commercial and defense industries; and companies that will enhance our overall revenues. It is our goal to substantially increase our gross revenues 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. DP Lending retains the option to acquire an additional 6,666,667 shares of Alzamend common stock and warrants to purchase another 3,333,334 such shares for an aggregate of $10 million.
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.
On May 26, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative of the several underwriters named therein (collectively, the “Underwriters”), relating to a firm commitment public offering of 123,423 newly issued shares of our 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”) at a public offering price of $25.00 per share.
On June 1, 2022, we and the Underwriters mutually agreed to increase the size of the offering of our Series D Preferred Stock from 123,423 shares to 144,000 shares. Thus, we and the Underwriters agreed to terminate the Underwriting Agreement and entered into a side letter to terminate such Underwriting Agreement (the “Side Letter”). Following the execution of the Side Letter, on June 1, 2022, we entered into a new underwriting agreement (the “New Underwriting Agreement”) with the Underwriters, relating to a firm commitment public offering of 144,000 newly issued shares of our Series D Preferred Stock at a public offering price of $25.00 per share. On June 3, 2022, we closed the offering of the sale of the 144,000 shares of our Series D Preferred Stock for gross proceeds of approximately $3.6 million, before deducting offering expenses. Net proceeds to us, after payment of commissions, non-accountable fees and offering expenses, were approximately $3.1 million.
On June 14, 2022, we entered into an At-The-Market issuance sales agreement with Ascendiant Capital to sell shares of Series D Preferred Stock having an aggregate offering price of up to $46.4 million from time to time, through an “at the market offering” program (the “2022 Preferred ATM Offering”). As of June 30, 2022, we had sold an aggregate of 2,618 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of $57,000.
On June 1, 2022, we converted our convertible promissory notes of Avalanche International Corp. (“AVLP”) and accrued interest into common stock of AVLP. We converted $20.0 million principal and $5.9 million of accrued interest receivable at a conversion price of $0.50 per share and received 51,889,168 shares of common stock increasing our common stock ownership of AVLP from less than 20% to approximately 92%.
Beginning in June 2022, we, through DP Lending, began making open market purchases of The Singing Machine Company, Inc. (“SMC”) common stock and on June 15, 2022, we owned more than 50% of the issued and outstanding common stock of SMC. As of June 15, 2022, the purchase price of the common stock acquired totaled $7.4 million and on June 15, 2022 a $3.1 million gain was recognized in interest and other income for the remeasurement of our previously held ownership interest to $10.5 million, based on the trading price of SMC common stock.
On August 10, 2022, BNI and DP Lending entered into a Note Purchase Agreement (the “NPA”) with two accredited investors (the “Investors”) providing for the issuance of Secured Promissory Notes (individually, a “Note” and collectively, the “Notes”) with an aggregate principal face amount of $11,000,000. The Notes have a principal face amount of $11,000,000 and bear interest at 10% per annum, payable monthly in arrears, pursuant to the terms of the Notes. The maturity date of the Notes is engagedAugust 10, 2023. BNI is required to make an aggregate monthly payment (a “Monthly Payment”) of $1,000,000 on the tenth calendar day of each month, starting in September 2022. The Monthly Payment includes principal and interest pursuant to the amortization table set forth in the Notes. After BNI makes the first six Monthly Payments, BNI may elect to pay a forbearance fee of $125,000 to an Investor, or an aggregate of $250,000 to the two Investors (each, a “Monthly Forbearance”) in lieu of a Monthly Payment, which Monthly Forbearance would extend the maturity date of such Notes by one month, provided that BNI may not elect to make a Monthly Forbearance in consecutive months. BNI may prepay the full outstanding principal and accrued but unpaid interest at any time, provided that if BNI prepays the Notes, BNI is required to pay the Investors the amount of interest that would have accrued from the date of prepayment until the first anniversary of the issuance date of the Notes. The purchase price for the Notes was $10 million.
Pursuant to the NPA, BNI, DP Lending and Helios Funds LLC, as the collateral agent on behalf of the Investors (the “Agent”) entered into a security agreement (the “Security Agreement”), pursuant to which (i) DP Lending granted to the Investors a security interest in marketable securities, investments and other property having a value of $10 million in a DP Lending brokerage account and (ii) BNI granted to the Investors a security interest in 4,000 S19 Pro Antminers (the “Miners”), provided that the number of Miners would be reduced to 2,000 after BNI makes the third Monthly Payment (as defined below), as set forth in the Security Agreement. In addition, pursuant to a subsidiary guaranty, DP Lending jointly and severally agreed to guarantee and act as surety for BNI’s obligation to repay the Notes. The Notes are further secured by a guaranty we provided.
On August 15, 2022, BNI entered into a Master Agreement (the “Master Agreement”) and Order Form (the “Order Form” and together with the Master Agreement, the “Hosting Documents”) with Compute North LLC (“Compute North”) providing commercial loansfor the hosting by Compute North of Bitcoin miners owned by BNI. Pursuant to the Hosting Documents, Compute North will host 6,500 S19j Pro Antminers (the “Hosted Miners”) owned by BNI for a period of five (5) years (the “Term”). BNI agreed to pay a fee for the Hosted Miners (the “Monthly Service Fee”), together with a monthly package fee per Hosted Miner. The Monthly Service Fee is payable based on the actual hashrate performance of the Hosted Miners, of which 70% of the anticipated Monthly Service Fee is payable in advance, and the remaining Monthly Service Fee, if any, will be invoiced in arrears.
Under the Master Agreement, BNI granted Compute North a continuing first-position security interest in the Hosted Miners, as collateral for BNI’s obligations under the Hosting Documents. Upon an event of default (as defined in the Master Agreement) by BNI, Compute North has the right to terminate the Hosting Documents and BNI is obligated to pay to Compute North all amounts then due under the Hosting Documents, together with a fee as liquidated damages, equal to the amount of fees that BNI would have been required to pay through the end of the Term.
General
As a holding company, our business objective is designed to increase stockholder value. Under the strategy we have adopted, we are focused on managing and financially supporting our existing subsidiaries and partner companies, throughoutwith the United Statesgoal of pursuing monetization opportunities and maximizing the value returned to provide themstockholders. We have, are and will consider initiatives including, among others: public offerings, the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize 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 operatingother companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary or 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 sell some or all of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner companies public through 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.
In recent years, 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 June 30, 2017 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016
The following table summarizes the results of our operations for the three months ended SeptemberJune 30, 2017, from $1,8262022 and 2021.
For the Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 7,849,000 | $ | 8,564,000 | ||||
Revenue, cryptocurrency mining | 3,976,000 | 291,000 | ||||||
Revenue, hotel operations | 4,598,000 | - | ||||||
Revenue, lending and trading activities | 943,000 | 53,274,000 | ||||||
Total revenue | 17,366,000 | 62,129,000 | ||||||
Cost of revenue | 12,369,000 | 6,278,000 | ||||||
Gross profit | 4,997,000 | 55,851,000 | ||||||
Total operating expenses | 28,716,000 | 10,028,000 | ||||||
(Loss) income from operations | (23,719,000 | ) | 45,823,000 | |||||
Interest and other income | 81,000 | 14,000 | ||||||
Change in fair value of equity securities, related party | - | (5,893,000 | ) | |||||
Interest expense | (2,031,000 | ) | (22,000 | ) | ||||
Change in fair value of marketable equity securities | 241,000 | (1,915,000 | ) | |||||
Realized loss on marketable securities | (43,000 | ) | - | |||||
Loss from investment in unconsolidated entity | (391,000 | ) | - | |||||
Gain on extinguishment of debt | - | 447,000 | ||||||
Change in fair value of warrant liability | (6,000 | ) | 290,000 | |||||
(Loss) income before income taxes | (25,868,000 | ) | 38,744,000 | |||||
Income tax (provision) benefit | (217,000 | ) | (3,504,000 | ) | ||||
Net (loss) income | (26,085,000 | ) | 35,240,000 | |||||
Net loss attributable to non-controlling interest | 321,000 | 1,083,000 | ||||||
Net (loss) income attributable to Ault Alliance, Inc. | (25,764,000 | ) | 36,323,000 | |||||
Preferred dividends | (44,000 | ) | (4,000 | ) | ||||
Net (loss) income available to common stockholders | $ | (25,808,000 | ) | $ | 36,319,000 | |||
Comprehensive (loss) income | ||||||||
Net (loss) income available to common stockholders | $ | (25,808,000 | ) | $ | 36,319,000 | |||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (1,471,000 | ) | 134,000 | |||||
Other comprehensive loss | (1,471,000 | ) | 134,000 | |||||
Total comprehensive (loss) income | $ | (27,279,000 | ) | $ | 36,453,000 |
4 |
Revenues
Revenues by segment for the three months ended SeptemberJune 30, 2016. The increase in revenue was primarily2022 and 2021 are as follows:
For the Three Months Ended June 30, | Increase | |||||||||||||||
2022 | 2021 | (Decrease) | % | |||||||||||||
GWW | $ | 6,503,000 | $ | 6,475,000 | $ | 28,000 | 0 | % | ||||||||
TurnOnGreen | 1,062,000 | 1,831,000 | (769,000 | ) | -42 | % | ||||||||||
BNI | ||||||||||||||||
Revenue, cryptocurrency mining | 3,976,000 | 291,000 | 3,685,000 | 1266 | % | |||||||||||
Revenue, commercial real estate leases | 272,000 | 185,000 | 87,000 | 47 | % | |||||||||||
Ault Global Real Estate Equities, Inc. (“AGREE”) | 4,598,000 | - | 4,598,000 | — | ||||||||||||
Ault Alliance: | ||||||||||||||||
Revenue, lending and trading activities | 943,000 | 53,274,000 | (52,331,000 | ) | -98 | % | ||||||||||
Other | 12,000 | 73,000 | (61,000 | ) | -84 | % | ||||||||||
Total revenue | $ | 17,366,000 | $ | 62,129,000 | $ | (44,763,000 | ) | -72 | % |
Our revenues decreased by $44.8 million, or 72%, to $17.4 million for the three months ended June 30, 2022, from $62.1 million for the three months ended June 30, 2021.
GWW
GWW revenues were flat at $6.5 million for both the three months ended June 30, 2022 and 2021.
TurnOnGreen
TurnOnGreen revenues for the three months ended June 30, 2022 of $1.1 million declined $0.8 million, or 42%, from $1.8 million for the three months ended June 30, 2021, due to supply chain challenges.
The current supply chain crisis in the global economy has led to delivery delays and shortages of certain electronic components and associated raw materials that TurnOnGreen uses in its products. Should this supply chain crisis continue throughout 2022, it will likely extend TurnOnGreen’s production time periods and delay the timing of revenue recognition. TurnOnGreen cannot predict if or when circumstances may change, nor can it predict the amount by which bookings or shipments may change.
BNI
Revenues from BNI’s cryptocurrency mining operations were $4.0 million for the three months ended June 30, 2022, compared to $0.3 million for three months ended June 30, 2021. During 2021, we purchased Bitcoin mining equipment and increased our acquisitioncryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations 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.
AGREE
AGREE revenues were $4.6 million for the outstanding equity intereststhree months ended June 30, 2022 compared to $0 for the three months ended June 30, 2021. On December 22, 2021, AGREE acquired four hotel properties for $71.3 million, consisting of Microphase ona 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.
Ault Alliance
Revenues from our lending and trading activities decreased to $0.9 million for the three months ended June 2, 2017, combined with30, 2022, from $53.3 million for the three months ended June 30, 2021, which is attributable to significant unrealized gains in the prior year period and unrealized losses in the current year period from our acquisitioninvestment portfolio. During the three months ended June 30, 2021, DP Lending generated significant income from appreciation of allinvestments in marketable securities as well as shares of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphasecommon stock underlying convertible notes and Power-Pluswarrants issued to DP Lending in certain financing transactions. Revenue from lending and trading activities during the three months ended SeptemberJune 30, 2017, were $1,3402021 included an approximate $40 million unrealized gain from our investment in Alzamend. Under its business model, DP Lending also generates revenue through origination fees charged to borrowers and $224, respectively. Excluding revenues that wereinterest generated byfrom each loan.
Revenues from our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 fromtrading activities during the three months ended SeptemberJune 30, 2016.
Gross Margins
Gross margins decreased to $2,87728.8% for the three months ended SeptemberJune 30, 2017, from $1,2482022, compared to 89.9% for the three months ended SeptemberJune 30, 2016. As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of Microphase2021. Our gross margins have typically ranged between 30% and Power-Plus. If we had not closed35%, 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 contract28.8% recognized during the three months ended SeptemberJune 30, 2017, represents2022 were impacted by the first revenues recognized from this contract, which is expected to extend over several years.
Research and Development
Research and development expenses increased by $0.2 million to $0.7 million for the three months ended SeptemberJune 30, 2016, a decrease of 40.7%. The decrease was primarily attributable to a decrease of military and commercial products sales 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 increased by $159 to $306were $7.0 million for the three months ended SeptemberJune 30, 2017 from $1472022, compared to $1.5 million for the three months ended SeptemberJune 30, 2016.2021, an increase of $5.5 million, or 364%. The increase is partly attributed to our acquisitionwas the result of Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarily$3.7 million higher marketing costs at Ault Alliance, including $2.4 million related to an advertising sponsorship agreement as well as increases in sales and marketing personnel and consultants.
General and Administrative
General and administrative expenses were $19.0 million for the three months ended June 30, 2022, compared to $8.0 million for the three months ended June 30, 2021, an increase of $11.0 million, or 138%. General and administrative expenses increased from the comparative prior period, mainly due to:
· | increased costs of $2.6 million related to the Michigan data center, operated by ACS; |
· | $2.5 million increase in the accrual of a performance bonus related to realized gains on trading activities during the period; |
· | general and administrative costs of $1.9 million from our hotel operations, which were acquired in December 2021; |
· | higher salaries of $1.3 million and audit fees of $1.0 million; |
· | non-cash stock compensation costs of $1.0 million; and |
· | increased legal fees of $0.9 million, in part related to the efforts to acquire EYP. |
Loss From Operations
We recorded a loss from operations of $23.7 million for the three months ended June 30, 2022, compared to a gain of $45.8 million for the three months ended June 30, 2021. The decrease in operating income is attributable primarily to the decrease in unrealized gains from trading activities from the prior year period, combined with an increase in direct manpower costoperating expenses.
Interest and Other Income
Interest and other income was $81,000 for the three months ended June 30, 2022 compared to $14,000 for the three months ended June 30, 2021. Other income for the three months ended June 30, 2022 included a $2.8 million gain related to remeasurement of our previously held ownership interest of SMC prior to the June 15, 2022 acquisition, based on the trading price of SMC common stock. In addition, other income for the three months ended June 30, 2022 included a $2.7 million loss related to remeasurement of our previously held ownership interest of AVLP prior to the June 1, 2022 acquisition.
Change in fair value of equity securities, related party
Change in fair value of equity securities, related party resulting from the additionwarrant securities that we received as a result of our investment in AVLP was nil for the three months ended June 30, 2022, compared to a new Headloss of Engineering$5.9 million for the three months ended June 30, 2021.
Interest Expense
Interest expense was $2.0 million for the three months ended June 30, 2022, compared to $22,000 for the three months ended June 30, 2021. The increase in interest expense is due primarily to interest on the $55.1 million construction loans related to the December 2021 acquisition of hotel properties.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability was a loss of $6,000 for the three months ended June 30, 2022, compared to a gain of $0.3 million for the three months ended June 30, 2021. During the three months ended June 30, 2021, the fair value of the warrants that were issued during 2021 in a series of debt financings decreased by $0.3 million. The fair value of warrant liabilities is re-measured at each financial reporting period and Technology,immediately before exercise, with any changes in fair value recorded as change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive (loss) income.
Change in Fair Value of Marketable Equity Securities
Change in fair value of marketable equity securities was a highly-compensated positiongain of $0.2 million for the three months ended June 30, 2022, compared to a loss of $1.9 million for the three months ended June 30, 2021. The loss generated in the prior year period related to an investment in marketable securities held by Microphase Corporation (“Microphase”), a majority owned subsidiary of GWW, that was created duringfully sold in the fourth quarter of 2016.2021.
Realized Loss on Marketable Securities
Realized loss on marketable securities was $43,000 for the three months ended June 30, 2022, compared to $0 for the three months ended June 30, 2021. Realized loss for the three months ended June 30, 2022 included losses from Alpha Fund, which began operations in October 2021.
Loss From Investment in Unconsolidated Entity
Loss from investment in unconsolidated entity was $0.4 million for the three months ended June 30, 2022, compared to $0 for the three months ended June 30, 2021, representing our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.
Gain on Extinguishment of Debt
Gain on extinguishment of debt was $0 for the three months ended June 30, 2022, compared to a gain of $0.4 million for the three months ended June 30, 2021. On May 20, 2021, Microphase received forgiveness of its Paycheck Protection Program loan in the principal amount of $0.4 million.
Net (Loss) Income
For the foregoing reasons, our net loss for the three months ended June 30, 2022 was $25.8 million, compared to net income of $36.3 million for the three months ended June 30, 2021.
7 |
Other Comprehensive Loss
Other comprehensive loss was $1.5 million for the three months ended June 30, 2022, compared to other comprehensive income of $0.1 million for the three months ended June 30, 2021. Other comprehensive loss for the three months ended June 30, 2022 and 2021 was attributable to foreign currency translation adjustments between our functional currency, the U.S. Dollar, and the British Pound and Israeli Shekel.
Results of Operations for the Six Months Ended June 30, 2022 and 2021
The following table summarizes the results of our operations for the six months ended June 30, 2022 and 2021.
For the Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 16,508,000 | $ | 16,469,000 | ||||
Revenue, cryptocurrency mining | 7,524,000 | 421,000 | ||||||
Revenue, hotel operations | 7,296,000 | - | ||||||
Revenue, lending and trading activities | 18,864,000 | 58,485,000 | ||||||
Total revenue | 50,192,000 | 75,375,000 | ||||||
Cost of revenue | 22,863,000 | 11,386,000 | ||||||
Gross profit | 27,329,000 | 63,989,000 | ||||||
Total operating expenses | 50,018,000 | 16,964,000 | ||||||
(Loss) income from operations | (22,689,000 | ) | 47,025,000 | |||||
Interest and other income | 530,000 | 51,000 | ||||||
Change in fair value of equity securities, related party | - | (2,924,000 | ) | |||||
Interest expense | (31,855,000 | ) | (337,000 | ) | ||||
Change in fair value of marketable equity securities | 241,000 | 45,000 | ||||||
Realized gain on marketable securities | 66,000 | 397,000 | ||||||
Loss from investment in unconsolidated entity | (924,000 | ) | - | |||||
Gain on extinguishment of debt | - | 929,000 | ||||||
Change in fair value of warrant liability | (24,000 | ) | (388,000 | ) | ||||
(Loss) income before income taxes | (54,655,000 | ) | 44,798,000 | |||||
Income tax (provision) benefit | (217,000 | ) | (3,510,000 | ) | ||||
Net (loss) income | (54,872,000 | ) | 41,288,000 | |||||
Net loss attributable to non-controlling interest | 336,000 | 3,000 | ||||||
Net (loss) income attributable to Ault Alliance, Inc. | (54,536,000 | ) | 41,291,000 | |||||
Preferred dividends | (49,000 | ) | (9,000 | ) | ||||
Net (loss) income available to common stockholders | $ | (54,585,000 | ) | $ | 41,282,000 | |||
Comprehensive (loss) income | ||||||||
Net (loss) income available to common stockholders | $ | (54,585,000 | ) | $ | 41,282,000 | |||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (1,758,000 | ) | 41,000 | |||||
Other comprehensive loss | (1,758,000 | ) | (2,883,000 | ) | ||||
Total comprehensive (loss) income | $ | (56,343,000 | ) | $ | 41,323,000 |
Revenues
Revenues by segment for the six months ended June 30, 2022 and 2021 are as follows:
For the Six Months Ended June 30, | Increase | |||||||||||||||
2022 | 2021 | (Decrease) | % | |||||||||||||
GWW | $ | 13,748,000 | $ | 12,825,000 | $ | 923,000 | 7 | % | ||||||||
TurnOnGreen | 2,191,000 | 3,213,000 | (1,022,000 | ) | -32 | % | ||||||||||
BNI | ||||||||||||||||
Revenue, cryptocurrency mining | 7,524,000 | 421,000 | 7,103,000 | 1687 | % | |||||||||||
Revenue, commercial real estate leases | 550,000 | 281,000 | 269,000 | 96 | % | |||||||||||
AGREE | 7,296,000 | - | 7,296,000 | — | ||||||||||||
Ault Alliance: | ||||||||||||||||
Revenue, lending and trading activities | 18,864,000 | 58,485,000 | (39,621,000 | ) | -68 | % | ||||||||||
Other | 19,000 | 150,000 | (131,000 | ) | -87 | % | ||||||||||
Total revenue | $ | 50,192,000 | $ | 75,375,000 | $ | (25,183,000 | ) | -33 | % |
Our revenues decreased by $25.2 million, or 33%, to $50.2 million for the six months ended June 30, 2022, from $75.4 million for the six months ended June 30, 2021.
GWW
GWW revenues increased by $0.9 million, or 7%, to $13.7 million for the six months ended June 30, 2022, from $12.8 million for the six months ended June 30, 2021. The increase in revenue from our GWW segment for customized solutions for the military markets reflects higher revenues from Enertec Systems 2001 Ltd., a GWW subsidiary, which primarily consisted of revenue recognized over time, grew to $6.2 million for the six months ended June 30, 2022, an increase of $1.3 million, or 27%, from $4.9 million in the prior-year period.
TurnOnGreen
TurnOnGreen revenues for the six months ended June 30, 2022 of $2.2 million declined $1.0 million, or 32%, from $3.2 million for the six months ended June 30, 2021, due to supply chain challenges.
BNI
Revenues from BNI’s cryptocurrency mining operations were $7.5 million for the six months ended June 30, 2022, compared to $0.4 million for six months ended June 30, 2021. During 2021, we purchased Bitcoin mining equipment and increased our cryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations in 2022 was based on several factors, which positively affected the number of active miners we operated, including the market prices of digital currencies, and favorable power costs available at our Michigan data center.
AGREE
AGREE revenues were $7.3 million for the six months ended June 30, 2022 compared to $0 for the six months ended June 30, 2021. On December 22, 2021, AGREE 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.
Ault Alliance
Revenues from our lending and trading activities decreased to $18.9 million for the six months ended June 30, 2022, from $58.5 million for the six months ended June 30, 2021, which is attributable to significant unrealized gains in the prior year period and unrealized losses in the current year period from our investment portfolio. During the six months ended June 30, 2021, DP Lending generated significant income from appreciation of investments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to DP Lending in certain financing transactions. Revenue from lending and trading activities during the six months ended June 30, 2021 included an approximate $40 million unrealized gain from our investment in Alzamend. Under its business model, DP Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.
Revenues from our trading activities during the six months ended June 30, 2022 included significant net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.
Gross Margins
Gross margins decreased to 54.4% for the six months ended June 30, 2022, compared to 84.9% for the six months ended June 30, 2021. Our gross margins have typically ranged between 30% and 35%, with slight variations depending on the overall composition of our revenue.
Our gross margins of 54.4% recognized during the six months ended June 30, 2022 were impacted by the favorable margins from our lending and trading activities and modest margins on cryptocurrency mining operations due to the decline in the price of Bitcoin. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross margins for the six months ended June 30, 2022 and 2021 would have been 31.4% and 33.2%, respectively, consistent with our historical range.
Research and Development
Research and development expenses increased by $0.3 million to $1.4 million for the six months ended June 30, 2022, from $1.1 million for the six months ended June 30, 2021. The increase in research and development expenses was due to product development efforts at TurnOnGreen and GWW.
Selling and Marketing
Selling and marketing expenses were $423$13.5 million for the threesix months ended SeptemberJune 30, 20172022, compared to $235$2.7 million for the threesix months ended SeptemberJune 30, 2016,2021, an increase of $188. Our acquisition$10.7 million, or 390%. The increase was the result of Microphase$8.2 million higher advertising and Power-Plus accounted for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributedpromotion costs at Ault Alliance, including $6.4 million related to an advertising sponsorship agreement as well as a $1.4 million increase in personnel costs directly attributed to sales and marketing personnel and a $0.4 million increase in consulting expense. The increase is also attributable to a $0.4 million increase in costs incurred at the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmentedTurnOnGreen to grow our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the three months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses due to the significant amount of time in which he devoted to the sales process. The increase in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate mattersinfrastructure related to our restructuring and expansion. As such, during the three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter, was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.
General and Administrative
General and administrative expenses were $1,685$32.7 million for the threesix months ended SeptemberJune 30, 20172022, compared to $404$13.1 million for the threesix months ended SeptemberJune 30, 2016,2021, an increase of $1,281. Our acquisition of Microphase accounted for $410 of the increase in general$19.6 million, or 150%. General and administrative expenses. The adjusted increase of $871expenses increased from the comparative prior period, was mainly due to:
· | general and administrative costs of $3.7 million from our hotel operations, which were acquired in December 2021; |
· | non-cash stock compensation costs of $3.6 million; |
· | $2.5 million increase in the accrual of a performance bonus related to realized gains on trading activities during the period; |
· | higher salaries of $1.8 million and audit fees of $1.3 million; |
· | increased costs of $1.5 million related to the Michigan data center, operated by ACS; and |
· | increased legal fees of $1.5 million, in part related to the efforts to acquire EYP. |
(Loss) Income From Operations
We recorded a loss from operations of $22.7 million for the six months ended June 30, 2022, compared to higher stock based compensation expenses,a gain of $47.0 million for the six months ended June 30, 2021. The decrease in operating income is attributable primarily to the decrease in unrealized gains from trading activities from the prior year period, combined with an increase in legaloperating expenses.
10 |
Interest and audit costs, an increase in investor relationship costsOther Income
Interest and hiring of additional consultantsother income was $0.5 million for the six months ended June 30, 2022 compared to build an infrastructure in anticipation$51,000 for the six months ended June 30, 2021. Other income for the six months ended June 30, 2022 included a $2.8 million gain related to remeasurement of our future growth andpreviously held ownership interest of SMC prior to the allocationJune 15, 2022 acquisition, based on the trading price of SMC common stock. In addition, other income for the six months ended June 30, 2022 included a $2.7 million loss related to remeasurement of our Chief Executive Officer’s salarypreviously held ownership interest of AVLP prior to general and administrative expense. The remaining increasethe June 1, 2022 acquisition.
Change in general and administrative expenses is duefair value of equity securities, related party
Change in fair value of equity securities, related party resulting from the warrant securities that we received as a result of our investment in AVLP was nil for the six months ended June 30, 2022, compared to various costs, nonea loss of which are significant individually.
Interest (expense) income, net
Interest expense net was $753$31.9 million for the threesix months ended SeptemberJune 30, 20172022 compared to income of $23$0.3 million for the threesix months ended SeptemberJune 30, 2016.2021. The increase in interest expense forrelates primarily to the three months ended September 30, 2017 is primarily related to$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 in the aggregate amount of $669, resulting$26.3 million from the issuance of warrants, a non-cash charge, and original issue discount, in conjunctionconnection 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 fromSenior Notes. In addition, the amortization of debt discount and debt financing costs. The remaining increase in interest expense net, wasis due, in part, to an increase ininterest on 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$55.1 million construction loans related to the Loan and Security Agreement entered into on September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”) December 2021 acquisition of $141.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability was a loss of $1,318$24,000 for the threesix months ended SeptemberJune 30, 2017 compared to an operating loss of $83 for the three months ended September 30, 2016. The increase in operating loss is mostly attributable from the increase of general and administrative expenses.
Change in Fair Value of Marketable Equity Securities
Change in fair value of marketable equity securities was a gain of $0.2 million for the six months ended June 30, 2022, compared to a gain of $45,000 for the six months ended June 30, 2021. The loss generated in the prior year period relates to an investment in marketable securities held by Microphase that was fully sold in the fourth quarter of 2021.
Realized Gain on Marketable Securities
Realized gain on marketable securities was $0.1 million for the six months ended June 30, 2022, compared to $0.4 million for the six months ended June 30, 2021. Realized gains in the prior year period relates to realized gains from an investment in marketable securities held by Microphase, a portion of which was sold during the six months ended June 30, 2021.
Loss From Investment in Unconsolidated Entity
Loss from investment in unconsolidated entity was $0.9 million for the six months ended June 30, 2022, compared to $3,000 for the six months ended June 30, 2021, representing our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.
Gain on Extinguishment of Debt
Gain on extinguishment of debt was $0 for the six months ended June 30, 2022, compared to a gain of $0.9 million for the six months ended June 30, 2021. The prior year gain on extinguishment of debt represents forgiveness of Paycheck Protection Program loans.
Net (Loss) Income
For the foregoing reasons, our net loss of $38 for the threesix months ended SeptemberJune 30, 2016 as a result2022 was $54.6 million, compared to net income of $41.3 million for the aforementioned changes. After taking into considerationsix months ended June 30, 2021.
Other Comprehensive (Loss) Income
Other comprehensive loss was $1.8 million for the six months ended June 30, 2022, compared to other comprehensive income of $41,000 for the six months ended June 30, 2021. Other comprehensive loss for the six months ended June 30, 2022 and 2021 was attributable to foreign currency translation adjustments between our functional currency, the non-controlling interest of the minority shareholders of Microphase, the net loss attributable to the Company was $1,967U.S. Dollar, and 38 respectively.
Liquidity and Capital Resources
On June 30, 2017 compared to 37.1% for the nine months ended September 30, 2016. The increase in gross margins was mainly attributable to the increase in sales of our commercial products sold in our U.S. operations, which have greater gross margins, combined with the decrease in sales from our European operations.
Net cash provided by operating activities totaled $15.0 million for the six months ended June 30, 2022 compared to net cash used in operating activities totaled $1,577of $21.7 million for the ninesix months ended SeptemberJune 30, 2017, compared to2021. Cash provided by operating activities for the six months ended June 30, 2022 included $50.7 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 wasDP Lending, partially offset by non-cash charges, the amortization of debt discount of $1,239operating losses and stock-based compensation of $1,269, an increasechanges 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$82.8 million for the ninesix months ended SeptemberJune 30, 20172022, compared to $12 of net$29.7 million for the six months ended June 30, 2021. Net cash provided byused in investing activities for the ninesix months ended SeptemberJune 30, 2016. The increase2022 included $72.8 million of the net usage of cash from investing activities wascapital expenditures primarily related to the investmentBitcoin mining equipment, $15.8 million for investments in AVLP, loans to third partiesequity securities and $8.2 million for the purchase of Power-Plus.
Net cash provided by financing activities was $5,194 and nil$75.5 million for the ninesix months ended SeptemberJune 30, 20172022, compared to $138.1 million for the six months ended June 30, 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.
· |
· | Public Offering of Series D Preferred Stock – On June 3, 2022, we announced the |
· | December 2021 Secured Promissory Notes – On |
· | Margin Accounts Payable – During the year ended December 31, 2021, we entered into leverage agreements on certain brokerage accounts, whereby we borrowed $18.5 million. The margin accounts payable were repaid during the three months ended March 31, 2022. |
· | Purchase of |
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 foreseeable futuresix months ended June 30, 2022 are issued.
Critical Accounting Policies
Business Combination
We allocate the purchase price of an acquired business to the tangible and will be required to raise additional capital to continue to support our working capital requirements. We believe thatintangible assets acquired and liabilities assumed based upon their estimated fair values on the MLSEacquisition date. Any excess of the purchase order contract of $50 million will contribute to generate meaningful revenue and corresponding cash in 2017. In addition, we have been successfulprice over the last 12 months in raising capitalfair value of the net assets acquired is recorded as goodwill. Acquired customer relations, technology, tradenames and know how are recognized at fair value. The purchase price allocation process requires management 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.
If the business combination is based on historical information and known current trends and factors. The estimates and assumptionsachieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are evaluated on an ongoing basis and actual results have been within our expectations. We have not changed these policies from those previously disclosedrecognized in our Annual Report.
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. Management has identified the following two material weaknesses:
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 commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis.
· | Engaging a third-party specialist to assist management with improving the Company’s overall control environment, focusing on change management and 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 2017of 2022, 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 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.
On August 8, 2022, the Court issued an Order denying the Motion to Dismiss, in its entirety.
The deadline for us and our subsidiaries to file an Answer to the Amended Complaint is September 2, 2022.
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
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, exceptwith the exception that the following section of Risk Factors section of our 2021 Annual Report on Form 10-K is hereby amended and restated in its entirety:
“Risks Related to Related Party Transactions
Avalanche
We have lent a substantial amount of funds to Avalanche, a related party, whose ability to repay us is subject to significant doubt; in addition, we identified
On September 6, 2017, we entered into a Loan and procedures.
While Avalanche received funds from a third party in the amount of $2.75 million in early April of 2019 in consideration for its issuance of a convertible promissory note to such third party (the “Third Party Note”), $2.7 million was used to pay an outstanding receivable due us and no amount was used to repay the quarterly period ended June 30, 2017, which was filed with the Securities and Exchange Commission (
On June 27, 2022, AVLP exchanged the term note it had issued to Ault Alpha for a 10% senior secured convertible note in the principal face amount of $3,797,260 due June 15, 2024 (the “Ault Alpha Note”). The Ault Alpha Note is convertible, subject to adjustment, at $0.50 per share. AVLP also issued Ault Alpha a warrant to purchase an aggregate of 1,617,647 shares of Avalanche common stock at an exercise price of $0.50. Pursuant to a security agreement entered into by Avalanche and Ault Alpha, as amended by an intercreditor agreement entered into by and among the foregoing parties, our internal controls over financial reporting (“ICFR”) were not effective atcompany and certain other persons, Ault Alpha has a second priority interest in AVLP’s assets securing the reasonable assurance level:
On July 7, 2017,11, 2022, AVLP issued us a 10% senior secured convertible note in the Companyprincipal face amount of $3,000,000 due July 10, 2024 (the “AVLP Note”). The AVLP Note is convertible, subject to adjustment, at $0.50 per share. AVLP also issued us warrants to purchase an aggregate of 40,998,272 shares of Avalanche common stock at an exercise price of $0.50. Pursuant to a security agreement entered into by Avalanche and Ault Alpha, as amended by an asset purchaseintercreditor agreement to acquireentered into by and among the intellectual propertyforegoing parties, our company and certain other persons, we have a first priority interest in AVLP’s assets securing the repayment of Coolisys.com, in consideration for, in part, 50,000the AVLP Note.
On June 1, 2022, we converted the entire principal and accrued interest on the Prior AVLP Note into an aggregate of 51,889,168 shares of common stock of Avalanche, representing approximately 90.2% of Avalanche’s issued and outstanding shares of common stock. The seller ofThere is currently no liquid market for the intellectual property and purchaser of theAvalanche common stock was an accredited investor.
There is some doubt as to whether Avalanche will ever have the ability to repay its debt to us, as well as our ability to sell the shares we beneficially own since at present there is no market for these shares. If we are unable to recoup our investment in Avalanche in the foreseeable future or at all, such failure would have a materially adverse effect on our financial condition and future prospects.
Milton C. Ault, III and William Horne, our Executive Chairman and Chief Executive Officer, respectively, and two of our directors are directors of Avalanche. In addition, Philou is the controlling stockholder of Avalanche.
Milton C. Ault, III and William Horne, our Executive Chairman and Chief Executive Officer, respectively, and two of our directors, are also directors of Avalanche. In addition, Philou is the controlling stockholder of Avalanche. Certain conflicts of interest between us, on the one hand, and Avalanche, on the other hand, may arise relating to commercial or strategic opportunities or initiatives, in addition to the conflicts related to the debt that Avalanche owes us. For example, Messrs. Ault and Horne may find it difficult to determine how to meet their fiduciary duties to us as well as Avalanche, which could result in a less favorable result for us than would be issued by the Companycase if they were solely directors of our company. Further, even if Messrs. Ault and Horne were able to successfully meet their fiduciary obligations to us and Avalanche, the fact that they are subjectmembers of the board of directors of both companies could attenuate their ability to approval fromfocus on our business and best interests, possibly to the NYSE American prior to issuance.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
From April 1, 2022 through June 30, 2022, Ault Alpha LP purchased 75,00015,125,000 shares of our common stock at $0.60 per share and a warrant to purchase up to 75,00010,456 shares of our common stock at $0.60 per share for an aggregate purchase price of $45. These shares and warrants have yetSeries D Preferred Stock. 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. Ault & Company is controlled by Mr. Milton Ault, our Executive Chairman.
Common Stock Purchased
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 | |||||||||||||
April 1, 2022 – April 30, 2022 | - | - | ||||||||||||||
May 1, 2022 – May 31, 2022 | 10,429,605 | $ | 0.34 | |||||||||||||
June 1, 2022 – June 30, 2022 | 4,695,395 | $ | 0.35 | |||||||||||||
Total | 15,125,000 | $ | 0.34 | - | - |
Series D Preferred Stock Purchased | ||||||||||||||||
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 | |||||||||||||
April 1, 2022 – April 30, 2022 | - | - | ||||||||||||||
May 1, 2022 – May 31, 2022 | - | - | ||||||||||||||
June 1, 2022 – June 30, 2022 | 10,456 | $ | 18.99 | |||||||||||||
Total | 10,456 | $ | 18.99 | - | - |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
101.INS* | Inline XBRL Instance | |
101.SCH* | Inline XBRL Taxonomy Extension Schema | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
Inline XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
Cover Page Interactive Data File (formatted as Inline XBRL | ||
_________________
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 20, 2017
AULT ALLIANCE, INC. | ||||
By: | /s/ William B. Horne | |||
William B. Horne | ||||
Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
By: | /s/ Kenneth S. Cragun | |||
Kenneth S. Cragun | ||||
Chief Financial Officer | ||||
(Principal Accounting |
21