UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the quarterly period ended |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the transition period from ________ to ________. |
Commission file number 1-12711
AULT ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
94-1721931 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
11411 Southern Highlands Pkwy #240
Las Vegas, NV89141
(Address of principal executive offices)
(949)444-5464
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.001 par value | AULT | NYSE American | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 monthsyear (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataDate File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | |||||
Non-accelerated filer x | Smaller reporting company x | |||||
Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-212b-2 of the Exchange Act). Yes ☐oNo☑
At November 17, 2017August 18, 2023, the registrant had outstanding 15,817,393 shares of common stock.
AULT ALLIANCE, INC.
TABLE OF CONTENTS
Page | ||||
PART I – FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements (Unaudited) | F-1 | ||
Condensed Consolidated Balance Sheets as of 31, 2022 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and | ||||
Condensed Consolidated Statements of | ||||
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 | 18 |
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-K for the year ended December 31, 2016,2022, as amended, 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, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 19,705,000 | $ | 10,492,000 | ||||
Restricted cash | 1,092,000 | 3,563,000 | ||||||
Cash and marketable securities held in trust account | - | 118,193,000 | ||||||
Marketable equity securities | 653,000 | 6,590,000 | ||||||
Accounts receivable | 13,534,000 | 19,586,000 | ||||||
Inventories | 20,999,000 | 22,080,000 | ||||||
Investment in promissory notes and other, related party | 2,968,000 | 2,868,000 | ||||||
Loans receivable, current | 1,165,000 | 7,593,000 | ||||||
Prepaid expenses and other current assets | 16,745,000 | 14,744,000 | ||||||
TOTAL CURRENT ASSETS | 76,861,000 | 205,709,000 | ||||||
Cash and marketable securities held in trust account | 2,143,000 | - | ||||||
Intangible assets, net | 17,290,000 | 34,786,000 | ||||||
Goodwill | 9,158,000 | 27,902,000 | ||||||
Property and equipment, net | 227,860,000 | 229,914,000 | ||||||
Right-of-use assets | 7,333,000 | 8,419,000 | ||||||
Investments in common stock, related parties | 5,836,000 | 6,449,000 | ||||||
Investments in other equity securities | 25,856,000 | 42,494,000 | ||||||
Other assets | 6,053,000 | 5,841,000 | ||||||
TOTAL ASSETS | $ | 378,390,000 | $ | 561,514,000 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 81,131,000 | $ | 63,411,000 | ||||
Dividend payable in TurnOnGreen common stock | 5,200,000 | - | ||||||
Operating lease liability, current | 2,479,000 | 2,975,000 | ||||||
Notes payable, net | 46,434,000 | 39,621,000 | ||||||
Convertible notes payable, current | 3,326,000 | 1,325,000 | ||||||
Series E Convertible Preferred Liability: $0.001 par value – shares authorized; and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (liquidation preference of $8,300,000 as of June 30, 2023) | stated value per share, $7,055,000 | - | ||||||
Series G Convertible Preferred Liability: $0.001 par value – shares authorized; and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (liquidation preference of $1,421,000 as of June 30, 2023) | stated value per share, $1,208,000 | - | ||||||
Redeemable noncontrolling interests in equity of subsidiaries | - | 117,993,000 | ||||||
TOTAL CURRENT LIABILITIES | 146,833,000 | 225,325,000 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 314 | $ | 996 | ||||
Accounts receivable, net | 2,892 | 1,439 | ||||||
Inventories, net | 1,858 | 1,122 | ||||||
Prepaid expenses and other current assets | 603 | 285 | ||||||
TOTAL CURRENT ASSETS | 5,667 | 3,842 | ||||||
Intangible assets | 420 | — | ||||||
Goodwill | 6,490 | — | ||||||
Property and equipment, net | 603 | 570 | ||||||
Investments - related parties, net of original issue discount of $127 | ||||||||
and $45, respectively, at September 30, 2017 and December 31, 2016 | 3,782 | 1,036 | ||||||
Other investments | 679 | — | ||||||
Other investments, related parties | 354 | — | ||||||
Other assets | 265 | 24 | ||||||
TOTAL ASSETS | $ | 18,260 | $ | 5,472 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 5,460 | $ | 1,231 | ||||
Accounts payable and accrued expenses, related party | 104 | — | ||||||
Advances on future receipts, net of discount of $671 | 1,475 | — | ||||||
Revolving credit facility | 310 | — | ||||||
Notes payable | 1,609 | — | ||||||
Notes payable, related parties | 274 | 250 | ||||||
Convertible notes payable, net | 465 | — | ||||||
Other current liabilities | 144 | 398 | ||||||
TOTAL CURRENT LIABILITIES | 9,841 | 1,879 | ||||||
LONG TERM LIABILITIES | ||||||||
Notes payable | 659 | — | ||||||
Notes payable, related parties | 132 | — | ||||||
Convertible notes payable, related party, net of discount of $364 | ||||||||
and $496, respectively, at September 30, 2017 and December 31, 2016 | 166 | 34 | ||||||
TOTAL LIABILITIES | $ | 10,798 | $ | 1,913 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | 5,145,000 | 5,836,000 | ||||||
Notes payable | 87,561,000 | 91,464,000 | ||||||
Convertible notes payable | 11,949,000 | 11,451,000 | ||||||
Deferred underwriting commissions of Ault Disruptive Technologies Corporation (“Ault Disruptive”) subsidiary | 3,450,000 | 3,450,000 | ||||||
TOTAL LIABILITIES | 254,938,000 | 337,526,000 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Redeemable noncontrolling interests in equity of subsidiaries | 1,951,000 | - | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Series A Convertible Preferred Stock, $176,000 as of June 30, 2023 and December 31, 2022) | stated value per share, $ par value – shares authorized; shares issued and outstanding at June 30, 2023 and December 31, 2022 (liquidation preference of $- | - | ||||||
Series B Convertible Preferred Stock, $1,190,000 at June 30, 2023 and December 31, 2022) | stated value per share, share, $ par value – shares authorized; shares issued and outstanding at June 30, 2023 and December 31, 2022 (liquidation preference of $- | - | ||||||
Series D Cumulative Redeemable Perpetual Preferred Stock, $10,630,000 and $4,321,000 as of June 30, 2023 and December 31, 2022, respectively) | stated value per share, $ par value – shares authorized; shares authorized, shares and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (liquidation preference of $- | - | ||||||
Class A Common Stock, $ | par value – shares authorized; and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively2,000 | 1,000 | ||||||
Class B Common Stock, $ | par value – shares authorized; shares issued and outstanding at June 30, 2023 and December 31, 2022- | - | ||||||
Additional paid-in capital | 573,386,000 | 565,904,000 | ||||||
Accumulated deficit | (444,371,000 | ) | (329,078,000 | ) | ||||
Accumulated other comprehensive loss | (1,450,000 | ) | (1,100,000 | ) | ||||
Treasury stock, at cost | (29,919,000 | ) | (29,235,000 | ) | ||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 97,648,000 | 206,492,000 | ||||||
Non-controlling interest | 23,853,000 | 17,496,000 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 121,501,000 | 223,988,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 378,390,000 | $ | 561,514,000 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
COMMITMENTS AND CONTINGENCIES | — | — | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Series A Redeemable Convertible Preferred Stock, no par value – | — | — | ||||||
500,000 shares authorized; nil shares issued and outstanding at | ||||||||
September 30, 2017 and December 31, 2016 | ||||||||
Series B Redeemable Convertible Preferred Stock, $10 stated value per | — | — | ||||||
share, no par value – 500,000 shares authorized; 100,000 and nil | ||||||||
shares issued and outstanding at September 30, 2017 and December 31, | ||||||||
2016, respectively (liquidation preference of $1,000 and nil at | ||||||||
September 30, 2017 and December 31, 2016, respectively) | ||||||||
Series C Redeemable Convertible Preferred Stock, $2.40 stated value | — | — | ||||||
per share, no par value – 460,000 shares authorized; 455,002 and | ||||||||
nil shares issued and outstanding at September 30, 2017 and December | ||||||||
31, 2016, respectively (liquidation preference of $1,092 and nil at | ||||||||
September 30, 2017 and December 31, 2016, respectively) | ||||||||
Series D Redeemable Convertible Preferred Stock, $0.01 stated value | — | — | ||||||
per share, no par value – 378,776 shares authorized; 378,776 and | ||||||||
nil shares issued and outstanding at September 30, 2017 and December | ||||||||
31, 2016, respectively (liquidation preference of $0.01 per share) | ||||||||
Series E Redeemable Convertible Preferred Stock, $45 stated value per | — | — | ||||||
share, no par value – 10,000 shares authorized; 10,000 and nil shares | ||||||||
issued and outstanding at September 30, 2017 and December 31, 2016, | ||||||||
respectively (liquidation preference of $0.01 per share) | ||||||||
Preferred Stock, no par value – 151,224 shares authorized; nil shares | — | — | ||||||
issued and outstanding at September 30, 2017 and December 31, 2016 | ||||||||
Common Stock, no par value – 30,000,000 shares authorized; 14,150,154 | ||||||||
and 7,677,637 shares issued and outstanding at September 30, 2017 and | — | — | ||||||
December 31, 2016, respectively | ||||||||
Additional paid-in capital | 24,667 | 16,537 | ||||||
Accumulated deficit | (17,212 | ) | (12,158 | ) | ||||
Accumulated other comprehensive loss | (722 | ) | (820 | ) | ||||
TOTAL DIGITAL POWER STOCKHOLDERS' EQUITY | 6,733 | 3,559 | ||||||
Non-controlling interest | 729 | — | ||||||
TOTAL EQUITY | 7,462 | 3,559 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 18,260 | $ | 5,472 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHNSIVECOMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue, products | $ | 12,216,000 | $ | 7,849,000 | $ | 25,647,000 | $ | 16,508,000 | ||||||||
Revenue, cryptocurrency mining | 8,368,000 | 3,976,000 | 15,715,000 | 7,524,000 | ||||||||||||
Revenue, hotel and real estate operations | 4,709,000 | 4,598,000 | 7,410,000 | 7,296,000 | ||||||||||||
Revenue, crane operations | 12,590,000 | - | 25,236,000 | - | ||||||||||||
Revenue, lending and trading activities | 9,525,000 | 943,000 | 4,586,000 | 18,864,000 | ||||||||||||
Total revenue | 47,408,000 | 17,366,000 | 78,594,000 | 50,192,000 | ||||||||||||
Cost of revenue, products | 9,036,000 | 5,044,000 | 18,823,000 | 10,792,000 | ||||||||||||
Cost of revenue, cryptocurrency mining | 9,726,000 | 4,453,000 | 17,829,000 | 6,950,000 | ||||||||||||
Cost of revenue, hotel and real estate operations | 3,120,000 | 2,872,000 | 5,808,000 | 5,121,000 | ||||||||||||
Cost of revenue, crane operations | 7,641,000 | - | 15,029,000 | - | ||||||||||||
Cost of revenue, lending and trading activities | - | - | 1,180,000 | - | ||||||||||||
Total cost of revenue | 29,523,000 | 12,369,000 | 58,669,000 | 22,863,000 | ||||||||||||
Gross profit | 17,885,000 | 4,997,000 | 19,925,000 | 27,329,000 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 1,804,000 | 729,000 | 3,646,000 | 1,424,000 | ||||||||||||
Selling and marketing | 9,575,000 | 6,979,000 | 18,371,000 | 13,460,000 | ||||||||||||
General and administrative | 21,317,000 | 19,032,000 | 43,998,000 | 32,719,000 | ||||||||||||
Impairment of goodwill and intangible assets | 35,570,000 | - | 35,570,000 | - | ||||||||||||
Impairment of mined cryptocurrency | 124,000 | 1,976,000 | 263,000 | 2,415,000 | ||||||||||||
Total operating expenses | 68,390,000 | 28,716,000 | 101,848,000 | 50,018,000 | ||||||||||||
Loss from operations | (50,505,000 | ) | (23,719,000 | ) | (81,923,000 | ) | (22,689,000 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest and other income | 2,382,000 | 81,000 | 3,579,000 | 530,000 | ||||||||||||
Interest expense | (15,927,000 | ) | (2,031,000 | ) | (29,657,000 | ) | (31,855,000 | ) | ||||||||
Loss on extinguishment of debt | (91,000 | ) | - | (154,000 | ) | - | ||||||||||
Realized and unrealized (loss) gain on marketable securities | (206,000 | ) | 198,000 | (244,000 | ) | 307,000 | ||||||||||
Loss from investment in unconsolidated entity | - | (391,000 | ) | - | (924,000 | ) | ||||||||||
Impairment of equity securities | - | - | (9,555,000 | ) | - | |||||||||||
(Loss) gain on the sale of fixed assets | (1,754,000 | ) | - | 2,761,000 | - | |||||||||||
Change in fair value of warrant liability | 3,217,000 | (6,000 | ) | 3,217,000 | (24,000 | ) | ||||||||||
Total other expense, net | (12,379,000 | ) | (2,149,000 | ) | (30,053,000 | ) | (31,966,000 | ) | ||||||||
Loss before income taxes | (62,884,000 | ) | (25,868,000 | ) | (111,976,000 | ) | (54,655,000 | ) | ||||||||
Income tax provision | 1,368,000 | 217,000 | 1,105,000 | 217,000 | ||||||||||||
Net loss | (64,252,000 | ) | (26,085,000 | ) | (113,081,000 | ) | (54,872,000 | ) | ||||||||
Net loss attributable to non-controlling interest | 3,569,000 | 321,000 | 3,752,000 | 336,000 | ||||||||||||
Net loss attributable to Ault Alliance, Inc. | (60,683,000 | ) | (25,764,000 | ) | (109,329,000 | ) | (54,536,000 | ) | ||||||||
Preferred dividends | (321,000 | ) | (44,000 | ) | (550,000 | ) | (49,000 | ) | ||||||||
Net loss available to common stockholders | $ | (61,004,000 | ) | $ | (25,808,000 | ) | $ | (109,879,000 | ) | $ | (54,585,000 | ) | ||||
Basic net loss per common share | $ | (50.08 | ) | $ | (26.73 | ) | $ | (91.41 | ) | $ | (85.83 | ) | ||||
Diluted net loss per common share | $ | (50.08 | ) | $ | (26.73 | ) | $ | (91.41 | ) | $ | (85.83 | ) | ||||
Weighted average basic and diluted common shares outstanding | ||||||||||||||||
Comprehensive loss | ||||||||||||||||
Net loss available to common stockholders | $ | (61,004,000 | ) | $ | (25,808,000 | ) | $ | (109,879,000 | ) | $ | (54,585,000 | ) | ||||
Foreign currency translation adjustment | (520,000 | ) | (1,471,000 | ) | (350,000 | ) | (1,758,000 | ) | ||||||||
Other comprehensive loss | (520,000 | ) | (1,471,000 | ) | (350,000 | ) | (1,758,000 | ) | ||||||||
Total comprehensive loss | $ | (61,524,000 | ) | $ | (27,279,000 | ) | $ | (110,229,000 | ) | $ | (56,343,000 | ) |
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, 2023
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, 2023 | 395,062 | $ | - | 1,385,822 | $ | 1,000 | $ | 575,073,000 | $ | (378,633,000 | ) | $ | (931,000 | ) | $ | 24,265,000 | $ | (29,432,000 | ) | $ | 190,343,000 | |||||||||||||||||||
Preferred stock issued for cash | 162,175 | - | - | - | 5,090,000 | - | - | - | - | 5,090,000 | ||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | (3,388,000 | ) | - | - | - | - | (3,388,000 | ) | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 752,000 | - | - | 1,307,000 | - | 2,059,000 | ||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 103,096 | - | 754,000 | - | - | - | - | 754,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (27,000 | ) | - | - | - | - | (27,000 | ) | ||||||||||||||||||||||||||||
Issuance of common stock for conversion of preferred stock liabilities | - | - | 37,493 | - | 328,000 | - | - | - | - | 328,000 | ||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity | - | - | - | - | - | (4,736,000 | ) | - | - | - | (4,736,000 | ) | ||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | 2,000 | - | - | (1,223,000 | ) | - | (1,221,000 | ) | ||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | 3,572,000 | - | 3,572,000 | ||||||||||||||||||||||||||||||
Distribution to Circle 8 non-controlling interest | - | - | - | - | - | - | - | (500,000 | ) | - | (500,000 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha LP (“Ault Alpha”) | - | - | - | - | - | - | - | - | (488,000 | ) | (488,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (60,683,000 | ) | - | - | - | (60,683,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | - | (321,000 | ) | - | - | - | (321,000 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (520,000 | ) | - | - | (520,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (3,569,000 | ) | - | (3,569,000 | ) | ||||||||||||||||||||||||||||
Dividend payable in TurnOnGreen common stock ($3.52 per share) | - | - | - | - | (5,200,000 | ) | - | - | - | - | (5,200,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | 1,000 | 2,000 | 2,000 | 1,000 | 1,000 | 1,000 | 8,000 | ||||||||||||||||||||||||||||||
BALANCES, June 30, 2023 | 557,237 | $ | - | 1,526,411 | $ | 2,000 | $ | 573,386,000 | $ | (444,371,000 | ) | $ | (1,450,000 | ) | $ | 23,853,000 | $ | (29,919,000 | ) | $ | 121,501,000 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 3,220 | $ | 1,826 | $ | 6,670 | $ | 5,603 | ||||||||
Cost of revenue | 2,124 | 1,123 | 4,136 | 3,526 | ||||||||||||
Gross profit | 1,096 | 703 | 2,534 | 2,077 | ||||||||||||
Operating expenses | ||||||||||||||||
Engineering and product development | 306 | 147 | 798 | 511 | ||||||||||||
Selling and marketing | 423 | 235 | 1,045 | 723 | ||||||||||||
General and administrative | 1,685 | 404 | 4,240 | 1,115 | ||||||||||||
Total operating expenses | 2,414 | 786 | 6,083 | 2,349 | ||||||||||||
Loss from operations | (1,318 | ) | (83 | ) | (3,549 | ) | (272 | ) | ||||||||
Interest (expense) income, net | (753 | ) | 23 | (1,367 | ) | 85 | ||||||||||
Loss before income taxes | (2,071 | ) | (60 | ) | (4,916 | ) | (187 | ) | ||||||||
Income tax benefit | — | 22 | — | 22 | ||||||||||||
Net loss | $ | (2,071 | ) | $ | (38 | ) | $ | (4,916 | ) | $ | (165 | ) | ||||
Less: Net loss attributable to non-controlling interest | 104 | — | 216 | — | ||||||||||||
Net loss attributable to Digital Power Corp | (1,967 | ) | (38 | ) | (4,700 | ) | (165 | ) | ||||||||
Preferred deemed dividends | — | — | (319 | ) | — | |||||||||||
Preferred dividends | (27 | ) | — | (35 | ) | — | ||||||||||
Loss available to common shareholders | $ | (1,994 | ) | $ | (38 | ) | $ | (5,054 | ) | $ | (165 | ) | ||||
Basic and diluted net loss per common share | $ | (0.15 | ) | $ | (0.01 | ) | $ | (0.46 | ) | $ | (0.02 | ) | ||||
Basic and diluted weighted average common shares outstanding | 13,745,540 | 6,775,971 | 10,884,948 | 6,775,971 | ||||||||||||
Comprehensive Loss | ||||||||||||||||
Loss available to common shareholders | $ | (1,994 | ) | $ | (38 | ) | $ | (5,054 | ) | $ | (165 | ) | ||||
Other comprehensive income (loss) | ||||||||||||||||
Change in net foreign currency translation adjustments | 42 | (55 | ) | 141 | (265 | ) | ||||||||||
Net unrealized loss on securities available-for-sale, net of income taxes | (43 | ) | — | (43 | ) | — | ||||||||||
Other comprehensive income (loss) | (1 | ) | (55 | ) | 98 | (265 | ) | |||||||||
Total Comprehensive loss | $ | (1,995 | ) | $ | (93 | ) | $ | (4,956 | ) | $ | (430 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4 |
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 for cash | 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 Avalanche International Corp. (“AVLP”) acquisition | - | - | - | - | - | - | - | 6,738,000 | - | 6,738,000 | ||||||||||||||||||||||||||||||
Non-controlling interest from The Singing Machine Company, Inc. (“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.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Six Months Ended June 30, 2023
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, 2023 | 304,878 | $ | - | 1,274,157 | $ | 1,000 | $ | 565,904,000 | $ | (329,078,000 | ) | $ | (1,100,000 | ) | $ | 17,496,000 | $ | (29,235,000 | ) | $ | 223,988,000 | |||||||||||||||||||
Issuance of common stock for restricted stock awards | - | - | 4,974 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Preferred stock issued for cash | 252,359 | - | - | - | 6,309,000 | - | - | - | - | 6,309,000 | ||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | (3,431,000 | ) | - | - | - | - | (3,431,000 | ) | ||||||||||||||||||||||||||||
Stock-based compensation | 4,683,000 | - | - | 1,924,000 | - | 6,607,000 | ||||||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 209,787 | - | 4,912,000 | - | - | - | - | 4,912,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (132,000 | ) | - | - | - | - | (132,000 | ) | ||||||||||||||||||||||||||||
Issuance of common stock for conversion of preferred stock liabilities | - | - | 37,493 | - | 328,000 | - | - | - | - | 328,000 | ||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity | - | - | - | - | - | (5,415,000 | ) | - | - | - | (5,415,000 | ) | ||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | 13,000 | - | - | (1,245,000 | ) | - | (1,232,000 | ) | ||||||||||||||||||||||||||||
Non-controlling position at BitNile Metaverse, Inc. (“BMI”) subsidiary acquired | - | - | - | - | - | - | - | 6,357,000 | - | 6,357,000 | ||||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | 3,572,000 | - | 3,572,000 | ||||||||||||||||||||||||||||||
Distribution to Circle 8 non-controlling interest | - | - | - | - | - | - | - | (500,000 | ) | - | (500,000 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | (685,000 | ) | (685,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (109,329,000 | ) | - | - | - | (109,329,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | (550,000 | ) | - | - | - | (550,000 | ) | |||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (350,000 | ) | - | - | (350,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (3,752,000 | ) | - | (3,752,000 | ) | ||||||||||||||||||||||||||||
Dividend payable in TurnOnGreen common stock ($3.52 per share) | - | - | - | - | (5,200,000 | ) | - | - | - | - | (5,200,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | 1,000 | - | 1,000 | 1,000 | 1,000 | 4,000 | |||||||||||||||||||||||||||||||
BALANCES, June 30, 2023 | 557,237 | $ | - | 1,526,411 | $ | 2,000 | $ | 573,386,000 | $ | (444,371,000 | ) | $ | (1,450,000 | ) | $ | 23,853,000 | $ | (29,919,000 | ) | $ | 121,501,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6 |
AULT ALLIANCE, INC. AND SUBSIDIARIES
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 for cash | 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 SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (113,081,000 | ) | $ | (54,872,000 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 14,383,000 | 6,618,000 | ||||||
Amortization of debt discount | 16,418,000 | 26,493,000 | ||||||
Amortization of right-of-use assets | 1,446,000 | 511,000 | ||||||
Impairment of goodwill and intangible assets | 35,570,000 | - | ||||||
Stock-based compensation | 6,607,000 | 3,704,000 | ||||||
Gain on the sale of fixed assets | (2,761,000 | ) | - | |||||
Impairment of equity securities | 11,555,000 | - | ||||||
Impairment of cryptocurrencies | 263,000 | 2,415,000 | ||||||
Realized gain on the sale of cryptocurrencies | (348,000 | ) | (261,000 | ) | ||||
Revenue, cryptocurrency mining | (15,715,000 | ) | (7,524,000 | ) | ||||
Realized losses on sale of marketable securities | (2,946,000 | ) | (18,585,000 | ) | ||||
Unrealized gains on marketable securities | (3,367,000 | ) | 9,669,000 | |||||
Unrealized losses on investments in common stock, related parties | 628,000 | 9,048,000 | ||||||
Unrealized gains on equity securities | - | (17,021,000 | ) | |||||
Income from cash held in trust | (2,533,000 | ) | - | |||||
Loss from investment in unconsolidated entity | - | 924,000 | ||||||
Loss on remeasurement of investment in unconsolidated entity | - | 2,700,000 | ||||||
Provision for loan losses | 1,180,000 | - | ||||||
Change in the fair value of warrant liability | (3,217,000 | ) | 24,000 | |||||
Other | 54,000 | (712,000 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Proceeds from the sale of cryptocurrencies | 15,040,000 | 4,377,000 | ||||||
Marketable equity securities | 41,197,000 | 50,734,000 | ||||||
Accounts receivable | 6,088,000 | (2,311,000 | ) | |||||
Inventories | 1,124,000 | (2,646,000 | ) | |||||
Prepaid expenses and other current assets | (1,077,000 | ) | 2,399,000 | |||||
Other assets | (211,000 | ) | (384,000 | ) | ||||
Accounts payable and accrued expenses | 8,148,000 | 4,706,000 | ||||||
Lease liabilities | (1,532,000 | ) | (626,000 | ) | ||||
Net cash provided by operating activities | 12,913,000 | 19,380,000 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (11,346,000 | ) | (72,779,000 | ) | ||||
Investment in promissory notes and other, related parties | - | (2,200,000 | ) | |||||
Investments in common stock and warrants, related parties | - | (4,663,000 | ) | |||||
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 | ||||||
Investments in loans receivable | (181,000 | ) | (2,728,000 | ) | ||||
Principal payments on loans receivable | - | 10,525,000 | ||||||
Investments in equity securities | (10,544,000 | ) | (15,820,000 | ) | ||||
Proceeds from the sale of fixed assets | 4,515,000 | - | ||||||
Other | (1,310,000 | ) | - | |||||
Net cash used in investing activities | (18,866,000 | ) | (87,137,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-8 |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of common stock | $ | 4,912,000 | $ | 163,426,000 | ||||
Financing cost in connection with sales of common stock | (132,000 | ) | (4,024,000 | ) | ||||
Proceeds from sales of preferred stock | 6,309,000 | 3,666,000 | ||||||
Financing cost in connection with sales of preferred stock | (3,431,000 | ) | (537,000 | ) | ||||
Proceeds from subsidiaries’ sale of stock to non-controlling interests | 3,572,000 | - | ||||||
Distribution to Circle 8 non-controlling interest | (500,000 | ) | - | |||||
Proceeds from notes payable | 30,665,000 | 4,945,000 | ||||||
Repayment of margin accounts | (767,000 | ) | (18,488,000 | ) | ||||
Payments on notes payable | (34,057,000 | ) | (65,999,000 | ) | ||||
Payments of preferred dividends | (550,000 | ) | (49,000 | ) | ||||
Purchase of treasury stock | (685,000 | ) | (7,459,000 | ) | ||||
Proceeds from sales of convertible notes | 7,817,000 | - | ||||||
Payments on convertible notes | (360,000 | ) | - | |||||
Net cash provided by financing activities | 12,793,000 | 75,481,000 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (98,000 | ) | (152,000 | ) | ||||
Net increase in cash and cash equivalents and restricted cash | 6,742,000 | 7,572,000 | ||||||
Cash and cash equivalents and restricted cash at beginning of period | 14,055,000 | 21,233,000 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 20,797,000 | $ | 28,805,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 4,658,000 | $ | 4,104,000 | ||||
Non-cash investing and financing activities: | ||||||||
Settlement of accounts payable with digital currency | $ | 13,000 | $ | 413,000 | ||||
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 | $ | 23,703,000 | $ | 24,828,000 | ||||
Conversion of loans receivable to marketable securities | $ | 5,430,000 | $ | 3,600,000 | ||||
Conversion of interest receivable to marketable securities | $ | - | $ | 231,000 | ||||
Recognition of new operating lease right-of-use assets and lease liabilities | $ | - | $ | 2,188,000 | ||||
Remeasurement of Ault Disruptive temporary equity | $ | 5,415,000 | $ | - | ||||
Preferred stock exchanged for notes payable | $ | 8,591,000 | $ | - | ||||
Redeemable noncontrolling interests in equity of Ault Disruptive paid with cash and marketable securities held in trust account | $ | 120,064,000 | $ | - | ||||
Dividend payable in TurnOnGreen common stock in additional paid-in capital | $ | 5,200,000 | $ | - |
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 (“Ault Alliance” or the “Company”) 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 offers colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provides mission-critical products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary.
Ault Alliance was incorporatedfounded by Milton “Todd” Ault, III, its Executive Chairman and is led by Milton “Todd” Ault, III, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Counsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the Company. All major investment and capital allocation decisions are made for the Company by the Executive Committee. The Company has the following nine reportable segments:
· | Energy and Infrastructure (“Energy”) – crane operations, advanced textiles processing and oil exploration; |
· | Technology and Finance (“Fintech”) –commercial lending, activist investing, stock trading, media, and digital learning; |
· | The Singing Machine Company, Inc. (“SMC”) – consumer electronics; |
· | Sentinum, Inc. (“Sentinum”) – cryptocurrency mining operations and colocation and hosting services for the emerging artificial intelligence ecosystems and other industries; |
· | Giga-tronics Incorporated (“GIGA”) – defense industry; |
· | Imperalis Holding Corp., d/b/a TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions; |
· | BitNile Metaverse, Inc. (“BMI”) – immersive metaverse platform; |
· | 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. |
Reverse Stock Split
On May 15, 2023, pursuant to the authorization provided by the Company’s stockholders at a special meeting of stockholders, the Company’s board of directors approved an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding common stock by a ratio of one-for-three hundred (the “Reverse Split”). The Reverse Split did not affect the number of authorized shares of common stock, preferred stock or their respective par value per share. As a result of the Reverse Split, each three hundred shares of common stock issued and outstanding prior to the Reverse Split were converted into one share of common stock. The Reverse Split became effective in 1969, under the General Corporation Law of the State of California. Digital Power and Digital Power Limited ("DP Limited"), a wholly owned subsidiary, locatedDelaware on May 17, 2023. All share amounts in these financial statements have been updated to reflect the United Kingdom, are currently engaged in the design, manufacture and sale of switching power supplies and converters. On November 30, 2016, Digital Power formed Digital Power Lending, LLC (“DP Lending”), and on April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”). Both DP Lending and Coolisys are wholly-owned subsidiaries. DP Lending is engaged 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 businesses 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% 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).
2. LIQUIDITY GOING CONCERN AND MANAGEMENT’S PLANS
As of SeptemberJune 30, 2017,2023, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212 and a$19.7 million, negative working capital of $4,174.$70.0 million and a history of net operating losses. 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:
The accompanyingcondensed consolidated financial statements do not include any adjustments that might becomebe necessary shouldif the Company beis unable to continue as a going concern.
In making this assessment management performed a comprehensive analysis of the Company’s current circumstances, including its financial position, cash flow and cash usage forecasts, as well as obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources beyond the Company’s direct control that management expects to be available within the next 12 months.
Management expects that the Company’s existing cash and cash equivalents, accounts receivable and marketable securities as of June 30, 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 amended Annual Report on Form 10-K10-K/A for the year ended December 31, 2016,2022 (the “2022 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on April 10, 2017.May 22, 2023. The condensed consolidated balance sheet as of December 31, 20162022 was derived from the Company’s audited 20162022 financial statements contained in the above referenced Form 10-K.2022 Annual Report. Results of the three and ninesix months ended SeptemberJune 30, 2017,2023, 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.
Revenue Recognition – Bitcoin Mining
The Company accounts for stock-based compensationrecognizes revenue from Bitcon Mining under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in accordance with ASC No. 718, Compensation – Stock Compensation ("ASC No. 718"). Under ASC No. 718, compensation expense relatedan amount that reflects the consideration to stock-based payments is recorded overwhich the requisite service period based on the grant date fair value 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 the price volatility of the underlying stock.
· | Step 1: Identify the contract with the customer, |
· | Step 2: Identify the performance obligations in the contract, |
· | Step 3: Determine the transaction price, |
· | Step 4: Allocate the transaction price to the performance obligations in the contract, and |
· | Step 5: Recognize revenue when the company satisfies a performance obligation. |
The Company has entered into a digital asset mining pool by executing a contract with a mining pool operator to provide computing power to the mining pool. The Company’s customer, as defined in ASC 606-10-20, is with the mining pool operator with whom the Company has agreed to the terms of service and user service agreement. The Company supplies computing power, in exchange for consideration, to the pool operator who in turn provides transaction verification services followsto third parties via a mining pool that includes other participants.
The Company’s enforceable right to compensation begins only when, and lasts as long as, the provisionsCompany provides computing power to the mining pool operator and is created as power is provided over time. The only consideration due to the Company relates to the provision of ASC No. 505-50, Equity Based Paymentscomputing power. The contracts are terminable at any time by and at no cost to Non-Employees. Accordingly, the measurement date forCompany, and by the pool operator. Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. Providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators.
The transaction consideration the Company receives, if any, is non-cash consideration in the form of Bitcoin. Changes in the fair value of the equity instruments issuednon-cash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and therefore, are not included in revenue. The mining pool operator charges fees to cover the costs of maintaining the pool and are deducted from amounts the Company may otherwise earn and are treated as a reduction to the consideration received. Fees fluctuate and historically have been approximately 0.3% per reward earned, on average.
In exchange for providing computing power, the Company is entitled to a Full-Pay-Per-Share payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided by the Company to the mining pool as a percentage of total network hash rate, and other inputs. The Company is entitled to consideration even if a block is not successfully placed by the mining pool operator. The contract is in effect until terminated by either party.
All consideration pursuant to this arrangement is variable. It is not probable that a significant reversal of cumulative revenue will occur and the Company is able to calculate the payout based on the contractual formula, non-cash revenue is estimated and recognized based on the spot price of the Company’s principal market for Bitcoin at the inception of each contract, which is determined to be daily. Non-cash consideration is measured at fair value at contract inception. Fair value of the crypto asset consideration is determined using the spot price of the Company’s principal market for Bitcoin at the earlierbeginning of (i) the datecontract period. This amount is estimated and recognized in revenue upon inception, which is when hash rate is provided.
There is no significant financing component in these transactions.
Expenses associated with running the cryptocurrency mining business, such as equipment depreciation and electricity costs, are recorded as a component of cost of revenues.
Preferred Stock Liabilities
The Company follows Accounting Standards Codification (“ASC”) 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for the Preferred Shares (as defined in Note 16). ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics:
· | A fixed monetary amount known at inception; |
· | Variations in something other than the fair value of the issuer’s equity shares; or |
· | Variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves in the opposite direction as the value of the issuer’s shares. |
The number of shares delivered is determined on the basis of (1) the fixed monetary amount determined as the stated value and (2) the current stock price at which a commitment for performance bysettlement, so that the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, theaggregate fair value of the equity instrument is recognized overshares delivered equals the term of the consulting agreement.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses,” (“ASU No. 2016-13”) to improve information on credit losses for financial assets and $1,036, respectively, and were concentrated in debt and equity securities of AVLP, a related party (See Note 4), which are classified as available-for-sale investments. At September 30, 2017, the Company'snet investment in AVLP is comprised of convertible promissory notes of $3,670,leases that are not accounted for at fair value through net of unamortized discount, and marketable equity securities of $112. At December 31, 2016,income. ASU 2016-13 replaces the Company's investment in AVLP is comprised of convertible promissory notes of $952, net of unamortized discount, and marketable equity securities of $84. For investments in marketable equity securities,current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance was effective for the Company took into consideration general market conditions, the duration and extent to which the fair value is below cost, andbeginning on January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s abilitycondensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and intentContract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to holdbe recognized and measured by the investment for a sufficient period of time to allow for recovery of valueacquirer on the acquisition date in the foreseeable future. As a result of this analysis, the Company has determined that its cost basis in AVLP equitable securities approximates the current fair value.
4. REVENUE DISAGGREGATION
The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three and six months ended June 30, 2023 and 2022. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are accountednot considered to be revenues from contracts with customers under GAAP.
The Company’s disaggregated revenues consisted of the following for pursuant to the fair value method based uponthree months ended June 30, 2023 (excludes Ault Disruptive, as that segment has no revenue):
Schedule of disaggregated revenues | ||||||||||||||||||||||||||||||||||||
GIGA | TurnOn Green | Fintech | Sentinum | AGREE | SMC | BMI | Energy | Total | ||||||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||||||
North America | $ | 2,856,000 | $ | 541,000 | $ | - | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,590,000 | $ | 31,734,000 | ||||||||||||||||||
Europe | 2,270,000 | 7,000 | - | - | - | - | - | 82,000 | 2,359,000 | |||||||||||||||||||||||||||
Middle East and other | 3,614,000 | 176,000 | - | - | - | - | - | - | 3,790,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 8,740,000 | 724,000 | - | 8,693,000 | 4,384,000 | 2,625,000 | 45,000 | 12,672,000 | 37,883,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 9,525,000 | - | - | - | - | - | 9,525,000 | |||||||||||||||||||||||||||
Total revenue | $ | 8,740,000 | $ | 724,000 | $ | 9,525,000 | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,672,000 | $ | 47,408,000 | ||||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||||||
RF/microwave filters | $ | 1,972,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 1,972,000 | ||||||||||||||||||
Power supply units & systems | 1,564,000 | 645,000 | - | - | - | - | - | - | 2,209,000 | |||||||||||||||||||||||||||
Healthcare diagnostic systems | 1,101,000 | - | - | - | - | - | - | - | 1,101,000 | |||||||||||||||||||||||||||
Defense systems | 3,899,000 | - | - | - | - | - | - | - | 3,899,000 | |||||||||||||||||||||||||||
Digital currency mining | - | - | - | 8,368,000 | - | - | - | - | 8,368,000 | |||||||||||||||||||||||||||
Hotel and real estate operations | - | - | - | 325,000 | 4,384,000 | - | - | - | 4,709,000 | |||||||||||||||||||||||||||
Karaoke machines and related consumer goods | - | - | - | - | - | 2,625,000 | - | - | 2,625,000 | |||||||||||||||||||||||||||
Crane rental | - | - | - | - | - | - | - | 12,590,000 | 12,590,000 | |||||||||||||||||||||||||||
Other | 204,000 | 79,000 | - | - | - | - | 45,000 | 82,000 | 410,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 8,740,000 | 724,000 | - | 8,693,000 | 4,384,000 | 2,625,000 | 45,000 | 12,672,000 | 37,883,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 9,525,000 | - | - | - | - | - | 9,525,000 | |||||||||||||||||||||||||||
Total revenue | $ | 8,740,000 | $ | 724,000 | $ | 9,525,000 | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,672,000 | $ | 47,408,000 | ||||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||||||
Goods transferred at a point in time | $ | 4,720,000 | $ | 722,000 | $ | - | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 82,000 | $ | 21,271,000 | ||||||||||||||||||
Services transferred over time | 4,020,000 | 2,000 | - | - | - | - | - | 12,590,000 | 16,612,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | $ | 8,740,000 | $ | 724,000 | $ | - | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,672,000 | $ | 37,883,000 |
The Company’s disaggregated revenues consisted of the closing market pricesfollowing for the six months ended June 30, 2023 (excludes Ault Disruptive, as that segment has no revenue):
GIGA | TurnOn Green | Fintech | Sentinum | AGREE | SMC | BMI | Energy | Total | ||||||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||||||
North America | $ | 5,190,000 | $ | 1,326,000 | $ | - | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,675,000 | $ | 61,369,000 | ||||||||||||||||||
Europe | 4,711,000 | 11,000 | - | - | - | - | - | 107,000 | 4,829,000 | |||||||||||||||||||||||||||
Middle East and other | 7,547,000 | 263,000 | - | - | - | - | - | - | 7,810,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 17,448,000 | 1,600,000 | - | 16,498,000 | 6,627,000 | 6,008,000 | 45,000 | 25,782,000 | 74,008,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 4,586,000 | - | - | - | - | - | 4,586,000 | |||||||||||||||||||||||||||
Total revenue | $ | 17,448,000 | $ | 1,600,000 | $ | 4,586,000 | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,782,000 | $ | 78,594,000 | ||||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||||||
RF/microwave filters | $ | 3,219,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,219,000 | ||||||||||||||||||
Power supply units & systems | 4,678,000 | 1,470,000 | - | - | - | - | - | - | 6,148,000 | |||||||||||||||||||||||||||
Healthcare diagnostic systems | 2,238,000 | - | - | - | - | - | - | - | 2,238,000 | |||||||||||||||||||||||||||
Defense systems | 6,564,000 | - | - | - | - | - | - | - | 6,564,000 | |||||||||||||||||||||||||||
Digital currency mining | - | - | - | 15,715,000 | - | - | - | - | 15,715,000 | |||||||||||||||||||||||||||
Hotel and real estate operations | - | - | - | 783,000 | 6,627,000 | - | - | - | 7,410,000 | |||||||||||||||||||||||||||
Karaoke machines and related consumer goods | - | - | - | - | - | 6,008,000 | - | - | 6,008,000 | |||||||||||||||||||||||||||
Crane rental | - | - | - | - | - | - | - | 25,236,000 | 25,236,000 | |||||||||||||||||||||||||||
Other | 749,000 | 130,000 | - | - | - | - | 45,000 | 546,000 | 1,470,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 17,448,000 | 1,600,000 | - | 16,498,000 | 6,627,000 | 6,008,000 | 45,000 | 25,782,000 | 74,008,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 4,586,000 | - | - | - | - | - | 4,586,000 | |||||||||||||||||||||||||||
Total revenue | $ | 17,448,000 | $ | 1,600,000 | $ | 4,586,000 | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,782,000 | $ | 78,594,000 | ||||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||||||
Goods transferred at a point in time | $ | 10,126,000 | $ | 1,595,000 | $ | - | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 546,000 | $ | 41,445,000 | ||||||||||||||||||
Services transferred over time | 7,322,000 | 5,000 | - | - | - | - | - | 25,236,000 | 32,563,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | $ | 17,448,000 | $ | 1,600,000 | $ | - | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,782,000 | $ | 74,008,000 |
The Company’s disaggregated revenues consisted of common stockthe following for thesethe three companies at Septembermonths ended June 30, 2017.
Three months ended June 30, 2022 | ||||||||||||||||||||||||
GWW | TurnOnGreen | Fintech | Sentinum | 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 | ||||||||||||
Power supply units & systems | 2,307,000 | 1,016,000 | - | - | - | 3,323,000 | ||||||||||||||||||
Healthcare diagnostic systems | 1,992,000 | - | - | - | - | 1,992,000 | ||||||||||||||||||
Defense systems | 953,000 | - | - | - | - | 953,000 | ||||||||||||||||||
Digital currency mining | - | - | - | 3,976,000 | - | 3,976,000 | ||||||||||||||||||
Hotel and real estate operations | - | - | - | 272,000 | 4,598,000 | 4,870,000 | ||||||||||||||||||
Other | 692,000 | 46,000 | 12,000 | - | - | 750,000 | ||||||||||||||||||
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 categorizationCompany’s disaggregated revenues consisted of a financial instrument within the valuation hierarchy is based uponfollowing for the lowest level of input that is significant to the fair value measurement. six months ended June 30, 2022:
Six months ended June 30, 2022 | ||||||||||||||||||||||||
GWW | TurnOnGreen | Fintech | Sentinum | 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 | ||||||||||||
Power supply units & systems | 4,786,000 | 2,112,000 | - | - | - | 6,898,000 | ||||||||||||||||||
Healthcare diagnostic systems | 1,992,000 | - | - | - | - | 1,992,000 | ||||||||||||||||||
Defense systems | 4,208,000 | - | - | - | - | 4,208,000 | ||||||||||||||||||
Digital currency mining | - | - | - | 7,524,000 | - | 7,524,000 | ||||||||||||||||||
Hotel and real estate operations | - | - | - | 550,000 | 7,296,000 | 7,846,000 | ||||||||||||||||||
Other | 692,000 | 79,000 | 19,000 | - | - | 790,000 | ||||||||||||||||||
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 |
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 | $ | — |
Fair value, assets measured on recurring basis | ||||||||||||||||
Fair Value Measurement at June 30, 2023 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party | $ | 5,836,000 | $ | 5,836,000 | $ | - | $ | - | ||||||||
Investments in marketable equity securities | 653,000 | 653,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 2,143,000 | 2,143,000 | - | - | ||||||||||||
Total assets measured at fair value | $ | 8,632,000 | $ | 8,632,000 | $ | - | $ | - | ||||||||
Liabilities: | ||||||||||||||||
Series E and G preferred stock liabilities | $ | 8,263,000 | $ | - | $ | - | $ | 8,263,000 | ||||||||
Warrant and embedded conversion feature liabilities | 5,605,000 | - | - | 5,605,000 | ||||||||||||
Convertible promissory notes | 15,275,000 | - | - | 15,275,000 | ||||||||||||
Total liabilities measured at fair value | $ | 29,143,000 | $ | - | $ | - | $ | 29,143,000 |
Fair Value Measurement at December 31, 2022 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Investment in common stock of Alzamend – a related party | $ | 6,449,000 | $ | 6,449,000 | $ | - | $ | - | ||||||||
Investments in marketable equity securities | 6,590,000 | 6,590,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 118,193,000 | 118,193,000 | - | - | ||||||||||||
Investments in other equity securities | 13,340,000 | - | - | 13,340,000 | ||||||||||||
Total assets measured at fair value | $ | 144,572,000 | $ | 131,232,000 | $ | - | $ | 13,340,000 | ||||||||
Liabilities: | ||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 2,967,000 | $ | - | $ | - | $ | 2,967,000 | ||||||||
Convertible promissory notes | 12,776,000 | - | - | 12,776,000 | ||||||||||||
Total liabilities measured at fair value | $ | 15,743,000 | $ | - | $ | - | $ | 15,743,000 |
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, 2023:
Schedule of investments | ||||
Investments in other equity securities | ||||
Balance at January 1, 2023 | $ | 13,340,000 | ||
Conversion to Level 1 marketable securities | (13,340,000 | ) | ||
Balance at June 30, 2023 | $ | - |
Equity Investments for Which Measurement Alternative Has Been Selected
As of June 30, 2023 and December 31, 2022, the Company held equity investments in other securities, which consisted of investments in preferred stock, valued at $25.9 million and $29.2 million, respectively, that were valued using a measurement alternative. These investments are included in other equity securities in the accompanying condensed consolidated balance sheets.
Measurement Alternative Impairment
The Company has made cumulative downward adjustments for impairments for equity securities that do not have readily determinable fair values as of June 30, 2023, totaling $11.6 million. Approximately $9.6 million of these adjustments have been reflected in other income (expense) and $2.0 million of these adjustments related to Fintech lending operations and have been recorded against revenue from lending and trading activities on the consolidated statement of operations and comprehensive loss.
6. Marketable EQUITY Securities
Marketable equity securities with readily determinable market prices consisted of the following as of June 30, 2023 and December 31, 2022:
Schedule of marketable securities | |||||||||||||||||
Marketable equity securities at June 30, 2023 | |||||||||||||||||
Gross unrealized | Gross unrealized | ||||||||||||||||
Cost | gains | losses | Fair value | ||||||||||||||
Common shares | $ | 5,131,000 | $ | 9,000 | $ | (4,487,000 | ) | $ | 653,000 |
Marketable equity securities at December 31, 2022 | |||||||||||||||||
Gross unrealized | Gross unrealized | ||||||||||||||||
Cost | gains | losses | Fair value | ||||||||||||||
Common shares | $ | 10,271,000 | $ | 383,000 | $ | (4,064,000 | ) | $ | 6,590,000 |
The Company’s investment in marketable equity securities is revalued on each balance sheet date.
7. DIGITAL CURRENCIES
The following table presents the activities of the digital currencies (included in prepaid expenses and other current assets) for the six months ended June 30, 2023 and 2022:
Schedule of activities of the digital currencies | ||||
Digital Currencies | ||||
Balance at January 1, 2023 | $ | 554,000 | ||
Additions of mined digital currencies | 14,714,000 | |||
Payments to vendors | (13,000 | ) | ||
Impairment of mined cryptocurrency | (263,000 | ) | ||
Sale of digital currencies | (15,040,000 | ) | ||
Realized gain on sale of digital currencies | 348,000 | |||
Balance at June 30, 2023 | $ | 300,000 |
Digital Currencies | ||||
Balance at January 1, 2022 | $ | 2,165,000 | ||
Additions of mined digital currencies | 7,524,000 | |||
Payments to vendors | (412,000 | ) | ||
Impairment of mined cryptocurrency | (2,415,000 | ) | ||
Sale of digital currencies | (4,377,000 | ) | ||
Realized gain on sale of digital currencies | 260,000 | |||
Balance at June 30, 2022 | $ | 2,745,000 |
8. PROPERTY AND EQUIPMENT, NET
At June 30, 2023 and December 31, 2022, property and equipment consisted of:
Schedule of property and equipment | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
Building and improvements | $ | 87,159,000 | $ | 81,102,000 | ||||
Bitcoin mining equipment | 50,640,000 | 42,438,000 | ||||||
Crane rental equipment | 32,681,000 | 32,453,000 | ||||||
Land | 25,646,000 | 25,646,000 | ||||||
Computer, software and related equipment | 27,358,000 | 23,168,000 | ||||||
Aircraft | 15,983,000 | 15,983,000 | ||||||
Vehicles | 4,702,000 | 3,314,000 | ||||||
Office furniture and equipment | 3,210,000 | 2,854,000 | ||||||
Oil and natural gas properties, unproved properties | 3,564,000 | 972,000 | ||||||
250,943,000 | 227,930,000 | |||||||
Accumulated depreciation and amortization | (23,083,000 | ) | (9,344,000 | ) | ||||
Property and equipment placed in service, net | 227,860,000 | 218,586,000 | ||||||
Deposits on cryptocurrency machines | - | 11,328,000 | ||||||
Property and equipment, net | $ | 227,860,000 | $ | 229,914,000 |
Summary of depreciation expense:
Schedule of depreciation | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Depreciation expense | $ | 7,966,000 | $ | 3,725,000 | $ | 13,876,000 | $ | 6,287,000 |
9. INTANGIBLE ASSETS, NET
At June 30, 2023 and December 31, 2022, intangible assets consisted of:
Schedule of intangible asset | ||||||||||
Useful Life | June 30, 2023 | December 31, 2022 | ||||||||
Developed technology | 3-8 years | $ | 7,984,000 | $ | 24,584,000 | |||||
Customer list | 8-10 years | 5,829,000 | 5,865,000 | |||||||
Trade names | 5-10 years | 3,916,000 | 4,316,000 | |||||||
Trade name and trademark | Indefinite life | 1,513,000 | 1,493,000 | |||||||
Domain name and other intangible assets | 5 years | 599,000 | 630,000 | |||||||
19,841,000 | 36,888,000 | |||||||||
Accumulated amortization | (2,551,000 | ) | (2,102,000 | ) | ||||||
Intangible assets, net | $ | 17,290,000 | $ | 34,786,000 |
The Company’s trade names and trademarks were determined to have an indefinite life. The remaining definite lived intangible assets are primarily being amortized on a straight-line basis over their estimated useful lives.
Schedule of indefinite-lived intangible assets | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Amortization expense | $ | 254,000 | $ | 79,000 | $ | 507,000 | $ | 158,000 |
As of June 30, 2023, intangible assets subject to amortization have an average remaining useful life of 8.2 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.
Schedule of estimated amortization expense | ||||
2023 | $ | 1,029,000 | ||
2024 | 2,026,000 | |||
2025 | 1,926,000 | |||
2026 | 1,826,000 | |||
2027 | 1,826,000 | |||
Thereafter | 7,144,000 | |||
$ | 15,777,000 |
Impairment of AVLP Intangible Assets
Due to indicators of impairment, AVLP intangible assets were tested for impairment as of June 30, 2023. Based on internally developed forecasts of undiscounted expected future cash flows, it was determined that the carrying amount of the assets were not recoverable and, based on an assessment of the fair value of the assets, impairment of $17.0 million was recognized as a non-cash impairment charge during the six months ended June 30, 2023.
The tradenames and patents/developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates of 18% for patents and developed technology and 0.25% for trademarks. The resulting net annual royalty payments are then discounted to present value using a discount factor of 25.7%.
10. GOODWILL
The following table summarizes the changes in the Company’s goodwill for the six months ended June 30, 2023:
Schedule of goodwill | ||||
Goodwill | ||||
Balance as of January 1, 2023 | $ | 27,902,000 | ||
Acquisition of BMI | 17,000 | |||
Impairment of goodwill | (18,570,000 | ) | ||
Effect of exchange rate changes | (191,000 | ) | ||
Balance as of June 30, 2023 | $ | 9,158,000 |
Impairment of AVLP Goodwill
The Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. The Company performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators of impairment related to certain unforeseen business developments and changes in financial projections.
The valuation of the AVLP reporting unit was determined using a market and income approach methodology of valuation.
The income approach was based on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of capital analysis. The market approach utilized the guideline public company method.
The results of the quantitative test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment charge during the six months ended June 30, 2023.
11. CONSOLIDATED VARIABLE INTEREST ENTITY - SMC
During the quarter ended June 30, 2023, the Company’s voting interest in SMC was less than 50%. As a result, the Company assessed its interest in SMC under the Variable Interest Entity Model. As a result of that assessment, the Company consolidates SMC as a variable interest entity (a “VIE”) due to the Company’s significant level of influence and control of SMC, the size of its investment, and its ability to participate in policy making decisions. As a result, the Company is considered the primary beneficiary of the VIE.
12. BUSINESS COMBINATION
BMI Acquisition
On March 6, 2023, the Company closed a Share Exchange Agreement (the “Agreement”) with BMI and sold to BMI all of the outstanding shares of capital stock of the Company’s subsidiary, BitNile.com, Inc. (“BitNile.com”) as well as Ault Iconic, Inc. (formerly Ault Media Group, Inc.) and the securities of Earnity, Inc. (“Earnity”) beneficially owned by BitNile.com as of the date of the Agreement (the “Transaction”). As consideration for the acquisition, BMI issued shares of preferred stock convertible into common stock of BMI representing approximately 73.2% of BMI’s outstanding common stock. Pending approval of the transaction by the Nasdaq Stock Market and BMI’s shareholders, the preferred stock combined are subject to a 19.9% beneficial ownership limitation. The Transaction benefits the Company as BMI is a publicly traded company and provides BitNile.com access to capital markets as the primary focus for BMI to fund the expected growth of the BMI metaverse platform. In addition, there are certain synergies between the Company’s Bitcoin mining operations and BMI’s Agora Digital mining business.
The holders of preferred stock will be entitled to receive dividends at a rate of 5% of the stated value of the preferred stock.
The Company is entitled to appoint three members to the board of directors of BMI and, following shareholder approval, a majority of the board, in each case subject to the approval of the Nasdaq Stock Market.
The Company consolidates BMI as a VIE due to its significant level of influence and control of BMI, the size of its investment, and its ability to participate in policy making decisions. The Company is considered the primary beneficiary of the VIE.
Schedule of variable interest entities | ||||
Ault Alliance investment in BMI | Amount | |||
Common stock | $ | 287,000 |
The total purchase price to acquire BMI has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The goodwill resulting from this acquisition is not tax deductible. The fair value of the acquired assets and assumed liabilities as of the date of acquisition are based on preliminary estimates provided, in part, by a third-party valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences would alter the understanding of the impact of the Transaction on the consolidated financial position and results of operations of the Company.
The preliminary purchase price allocation is as follows:
Schedule of recognized identified assets acquired and liabilities assumed | ||||
Preliminary Allocation | ||||
Fair value of Company interest | $ | 287,000 | ||
Fair value of non-controlling interest | 6,357,000 | |||
Total consideration | $ | 6,644,000 | ||
Identifiable net assets acquired: | ||||
Cash | $ | 67,000 | ||
Investment in equity securities | 8,076,000 | |||
Prepaid expenses and other current assets | 172,000 | |||
Property and equipment, net | 4,109,000 | |||
Right-of-use assets | 339,000 | |||
Accounts payable and accrued expenses | (5,790,000 | ) | ||
Lease liabilities | (346,000 | ) | ||
Net assets acquired | 6,627,000 | |||
Goodwill | $ | 17,000 |
13. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and Ault & Company, Inc. (“Ault & Company”) at June 30, 2023 and December 31, 2022, were comprised of the following:
Investment in Promissory Notes, Related Parties – Ault & Company
Schedule of investment | ||||||||||||
Interest | June 30, | December 31, | ||||||||||
rate | Due Date | 2023 | 2022 | |||||||||
Investment in promissory note of Ault & Company | 8% | December 31, 2023 | $ | 2,500,000 | $ | 2,500,000 | ||||||
Accrued interest receivable, Ault & Company | 468,000 | 368,000 | ||||||||||
Total investment in promissory note, related party | $ | 2,968,000 | $ | 2,868,000 |
Summary of interest income, related party, recorded within interest and other income on the condensed consolidated statement of operations:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest income, related party | $ | 50,000 | $ | 50,000 | $ | 100,000 | $ | 100,000 |
Investment in Common Stock, Related Parties – Alzamend
Schedule of investment in common stock | ||||||||||||
Investments in common stock, related parties at June 30, 2023 | ||||||||||||
Cost | Gross unrealized losses | Fair value | ||||||||||
Common shares | $ | 24,688,000 | $ | (18,852,000 | ) | $ | 5,836,000 |
Investments in common stock, related parties at December 31, 2022 | ||||||||||||
Cost | Gross unrealized losses | Fair value | ||||||||||
Common shares | $ | 24,673,000 | $ | (18,224,000 | ) | $ | 6,449,000 |
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended June 30, 2023 and 2023:
Schedule of investment in warrants and common stock | ||||||||
For the Three Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Balance at April 1 | $ | 4,856,000 | $ | 8,729,000 | ||||
Investment in common stock of Alzamend | 10,000 | 4,469,000 | ||||||
Unrealized gain (loss) in common stock of Alzamend | 970,000 | (4,353,000 | ) | |||||
Balance at June 30 | $ | 5,836,000 | $ | 8,845,000 |
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the six months ended June 30, 2023 and 2023:
For the Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Balance at January 1 | $ | 6,449,000 | $ | 13,230,000 | ||||
Investment in common stock of Alzamend | 15,000 | 4,663,000 | ||||||
Unrealized loss in common stock of Alzamend | (628,000 | ) | (9,048,000 | ) | ||||
Balance at June 30 | $ | 5,836,000 | $ | 8,845,000 |
Unrealized loss in common stock of Alzamend is recorded within revenue from lending and trading activities on the condensed consolidated statements of operations.
14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at June 30, 2023 and December 31, 2022 consisted of:
Schedule of other current liabilities | ||||||||
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Accounts payable | $ | 30,841,000 | $ | 21,347,000 | ||||
Accrued payroll and payroll taxes | 11,625,000 | 9,939,000 | ||||||
Accrued legal | 5,736,000 | 3,168,000 | ||||||
Short position marketable equity securities | 5,253,000 | - | ||||||
Interest payable | 4,064,000 | 3,207,000 | ||||||
Warrant derivative liabilities | 3,028,000 | 651,000 | ||||||
Accrued lender profit participation rights | 2,497,000 | 6,000,000 | ||||||
Related party advances | 213,000 | 352,000 | ||||||
Other accrued expenses | 17,874,000 | 17,980,000 | ||||||
$ | 81,131,000 | $ | 62,644,000 |
15. DIVIDEND PAYABLE IN TURNONGREEN COMMON STOCK
On June 26, 2023, the Company established a record date for its initial distribution of TurnOnGreen securities. Stockholders as of this date were entitled to 40 shares of TurnOnGreen common stock, along with warrants to purchase 40 shares of TurnOnGreen common stock (the “TurnOnGreen Securities”) for every share of the Company's common stock they held on the record date. The initial distribution was finalized in July 2023.
The Company recorded a dividend payable, which was directly offset against equity based on the recorded value of the TurnOnGreen Securities of $5.2 million.
16. PREFERRED STOCK LIABILITY
March 28, 2023 Security Purchase Agreement
On March 28, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company sold, in a private placement (the “Offering”), an aggregate of 100.00 and consisting of (i) shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”), (ii) shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and (iii) shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and collectively, the “Preferred Shares”). The Preferred Shares are convertible into shares of the Company’s common stock at the option of the holders and, in certain circumstances, by the Company.
shares of its preferred stock, with each such share having a stated value of $The purchase price of the Series E Preferred Stock and the Series F Preferred Stock was paid for by the Investors’ canceling outstanding secured promissory notes in the principal amount of $8.4 million, whereas the purchase price of the shares of Series G Preferred Stock consisted primarily of accrued but unpaid interest on these notes. The Company recorded a loss on extinguishment of debt of $0.1 million related to the transaction. The Preferred Shares have been classified as a liability as they embody an unconditional obligation to transfer a variable number of shares, based on a fixed monetary amount known at inception. The Company elected the fair value option to record the Preferred Shares with changes in fair value recorded through earnings.
In June 2023, the Investors converted 91,000 on the conversions of Series F Preferred Stock and Series G Preferred Stock.
shares of Series F Preferred Stock and shares of Series G Preferred Stock into an aggregate of shares of the Company’s common stock. During the six months ended June 30, 2023, the Company recorded a loss of $Preferred stock liability at June 30, 2023 was comprised of the following:
Schedule of preferred stock liability | ||||||||||||||
Preferred Type | Shares | Conversion Price | Stated Value | Fair Value | ||||||||||
Series E Convertible Preferred Liability | 83,000 | See below* | $ | 8,300,000 | $ | 7,055,000 | ||||||||
Series G Convertible Preferred Liability | 14,208 | See below* | 1,421,000 | 1,208,000 | ||||||||||
Total | 97,208 | $ | 9,721,000 | $ | 8,263,000 |
The following table summarizes the changes in the Company’s preferred stock liability for the six months ended June 30, 2023:
Schedule of changes in preferred stock liability | Preferred Stock Liability | |||
Balance at December 31, 2022 | $ | - | ||
Preferred stock issued upon extinguishment of debt | 8,500,000 | |||
Conversion of preferred stock to common stock | (328,000 | ) | ||
Change in fair value | 91,000 | |||
Balance at June 30, 2023 | $ | 8,263,000 |
Subsequent Event – Exchange of Preferred Shares for Secured Debt and Assignment of Secured Note
In August 2023, the Company and the Investors entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the Investors exchanged all of their Preferred Shares as well as their demand notes (the “Demand Notes”) with each Demand Note having a principal outstanding amount of approximately $0.8 million for two new 10% Secured OID Promissory Notes (the “Exchange Notes”), each with a principal face amount of $5.3 million, for an aggregate of amount owed of $10.5 million (the “Principal Amount”). The Company and Milton “Todd” Ault, III, the Company’s Executive Chairman, entered into guaranty agreements with the Investors guaranteeing Ault & Company’s repayment of the Exchange Notes.
Further, the Company assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from the Company, the Company issued a 10% demand promissory note in the principal face amount of $10.5 million to Ault & Company.
17. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY
The Company records redeemable noncontrolling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. As of June 30, 2017
18. NOTES PAYABLE
Notes payable at June 30, 2023 and December 31, 2022, were comprised of the following:
Schedule of notes payable | ||||||||||||||||
Collateral | Guarantors | Interest rate | Due date | June 30, 2023 | December 31, 2022 | |||||||||||
AGREE secured construction loans | AGREE hotels | - | 7.0% | January 1, 2025 | $ | 67,359,000 | $ | 62,395,000 | ||||||||
Circle 8 Crane Services, LLC (“Circle 8”) revolving credit facility | Circle 8 cranes | - | 8.4% | December 16, 2025 | 16,616,000 | 14,724,000 | ||||||||||
8.5% secured promissory notes | 19,389 Antminers, BNI Montana assets, Circle 8 membership interests, Florida property, Michigan property, aircraft | Ault & Company, Ault Lending, Milton C. Ault, III | 8.5% | May 7, 2024 | 16,001,000 | 17,389,000 | ||||||||||
16% senior secured promissory notes* | 12,000 Antminers, Ault Lending securities, | Ault & Company, Sentinum, Ault Lending, Milton C. Ault, III | 16.0% | September 15, 2023 | 12,034,000 | 17,456,000 | ||||||||||
Circle 8 equipment financing notes | Circle 8 equipment | - | 7.2% | November 16, 2026 | 6,715,000 | 10,677,000 | ||||||||||
3% secured promissory notes** | Certain Ault Lending securities | - | 3.0% | May 18, 2023 | 5,455,000 | 5,672,000 | ||||||||||
8% demand loans | - | - | 8.0% | Upon demand | 4,500,000 | - | ||||||||||
Short-term bank credit facilities | - | - | 5.6% | Renews monthly | 2,129,000 | 1,702,000 | ||||||||||
XBTO note payable | 2,482 Antminers | - | 12.5% | December 30, 2023 | 1,645,000 | 2,749,000 | ||||||||||
Note payable, related party | - | - | 9.5% | On demand | 750,000 | - | ||||||||||
10% secured promissory notes | - | - | 10.0% | August 10, 2023 | - | 8,789,000 | ||||||||||
SMC line of credit | SMC assets | - | 8.0% | October 14, 2025 | - | 1,761,000 | ||||||||||
Other*** | - | Ault & Company | 4,595,000 | 858,000 | ||||||||||||
Total notes payable | - | - | $ | 137,799,000 | $ | 144,172,000 | ||||||||||
Less: | - | - | ||||||||||||||
Unamortized debt discounts | - | - | (3,804,000 | ) | (13,087,000 | ) | ||||||||||
Total notes payable, net | - | - | $ | 133,995,000 | $ | 131,085,000 | ||||||||||
Less: current portion | - | - | (46,434,000 | ) | (39,621,000 | ) | ||||||||||
Notes payable – long-term portion | - | - | $ | 87,561,000 | $ | 91,464,000 |
* | Defaults on payment terms in July 2023. Payments subsequent to June 30, 2023 of $10.3 million. Currently the loan maturity date was extended to September 15, 2023 and automatically extends for an additional 30 days for a $0.25 million extension fee for each extension period, with an interest rate of 16% and principal amount outstanding of $2.5 million. |
** | Defaults on payment term as of June 30, 2023. Paid in July 2023. |
*** | $3.4 million defaults on payment terms. $3.1 million paid off in July 2023. $0.3 million TurnOnGreen note payable remains in default. |
Notes Payable Maturities
The contractual maturities of the Company’s notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of June 30, 2023 were:
Schedule of maturities | |||||
Year | |||||
2023 | $ | 36,339,000 | |||
2024 | 15,307,000 | ||||
2025 | 85,712,000 | ||||
2026 | 441,000 | ||||
$ | 137,799,000 |
Interest Expense
Schedule of interest expense | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Contractual interest expense | $ | 2,547,000 | $ | 1,999,000 | $ | 5,942,000 | $ | 2,920,000 | ||||||||
Forbearance fees | 6,198,000 | - | 7,538,000 | 1,203,000 | ||||||||||||
Amortization of debt discount | 7,182,000 | 32,000 | 16,177,000 | 27,732,000 | ||||||||||||
Total interest expense | $ | 15,927,000 | $ | 2,031,000 | $ | 29,657,000 | $ | 31,855,000 |
Ault & Company accountsLoan Agreement
On June 8, 2023, the Company entered into a loan agreement with Ault & Company as lender. The loan agreement provides for debt discount accordingan unsecured, non-revolving credit facility in an aggregate principal amount of up to ASC No. 470-20, Debt with Conversion$10 million. All loans under the loan agreement are due within five business days after request by Ault & Company. Ault & Company is not obligated to make any further advances under the loan agreement after December 8, 2023. Advances under the loan agreement bear interest at the rate of 9.5% per annum and Other Options. Debt discounts are amortized through periodic charges tomay be repaid at any time without penalty or premium. As of June 30, 2023, $750,000 has been advanced under the loan agreement.
Summary of interest expense, related party, recorded within interest expense on the condensed consolidated statement of operations:
Schedule of interest expense, related party | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest income, related party | $ | 5,000 | $ | - | $ | 5,000 | $ | - |
Amendment to 8.5% Secured Promissory Notes
On July 19, 2023, the Company and certain of its subsidiaries entered into an amendment agreement with the institutional investors and increased the principal balance of the secured promissory notes by an additional $8.8 million. The net proceeds to the Company from the amendment agreement were $7.5 million.
10% Secured Promissory Notes
The 10% secured promissory notes were retired in March 2023 and converted into the Preferred Shares, as described in Note 16 – Preferred Stock Liability.
Amendments to 16% Secured Promissory Notes
The Company entered into several amendments subsequent to the initial lending due to certain defaults on payment terms. The amendments included $4.6 million in extension fees and payments subsequent to June 30, 2023 of $10.3 million. Currently the loan maturity date was extended to September 15, 2023 and automatically extends for an additional 30 days for a $0.25 million extension fee for each extension period, with an interest rate of 16% and principal amount outstanding of $2.5 million.
3% Secured Promissory Notes
During the quarter ended June 30, 2023, the holders of the 3% secured promissory notes exercised their rights of future participation whereby Sentinum issued additional promissory notes with a face amount of $10.4 million under the same terms as the existing notes, of which $5.5 million was outstanding and past due as of June 30, 2023. The 3% secured promissory notes were fully paid in July 2023.
8% Demand Promissory Notes
On May 29, 2023, the Company issued two demand promissory notes with a total principal amount of $4.5 million, bearing an interest rate of 8%. The demand notes were issued at a discount, with net proceeds to the Company amounting to $2.0 million. The notes are due upon demand; however no demand may be made within 90 days of the issuance date.
19. CONVERTIBLE NOTES
Convertible notes payable at June 30, 2023 and December 31, 2022, were comprised of the following:
Schedule of convertible notes payable | ||||||||||||||||
Conversion price per share | Interest rate | Due date | June 30, 2023 | December 31, 2022 | ||||||||||||
Convertible promissory note | $4.00 | 4% | May 10, 2024 | $ | 300,000 | $ | 660,000 | |||||||||
AVLP convertible promissory notes | $0.35 (AVLP stock) | 7% | August 22, 2025 | 9,911,000 | 9,911,000 | |||||||||||
GIGA senior secured convertible notes - in default | $0.25 (GIGA stock) | 18% | October 11, 2023 | 2,317,000 | - | |||||||||||
BMI senior secured convertible notes | $3.28 (BMI stock) | OID Only | April 27, 2024 | 6,875,000 | - | |||||||||||
Fair value of embedded conversion options | 2,577,000 | 2,316,000 | ||||||||||||||
Total convertible notes payable | $ | 21,980,000 | $ | 12,887,000 | ||||||||||||
Less: unamortized debt discounts | (6,705,000 | ) | (111,000 | ) | ||||||||||||
Total convertible notes payable, net of financing cost, long term | $ | 15,275,000 | $ | 12,776,000 | ||||||||||||
Less: current portion | (3,326,000 | ) | (1,325,000 | ) | ||||||||||||
Convertible notes payable, net of financing cost – long-term portion | $ | 11,949,000 | $ | 11,451,000 |
The contractual maturities of the Company’s convertible notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of June 30, 2023 were:
Schedule of contractual maturities | ||||
Year | Principal | |||
2023 | $ | 2,317,000 | ||
2024 | 7,175,000 | |||
2025 | 12,488,000 | |||
$ | 21,980,000 |
Significant inputs associated with the AVLP embedded conversion option include:
Schedule of weighted average assumptions | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
Exercise price | Variable | Variable | ||||||
Contractual term in years | ||||||||
Volatility | % | % | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Risk-free interest rate | % | % |
BMI Senior Secured Convertible Notes
On April 27, 2023, BMI sold $6.9 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for net proceeds to BMI of $5.5 million. The notes mature on April 27, 2024 and are secured by all of the assets of BMI and certain of its subsidiaries. There is no stated interest rate on the convertible note unless there is an event of default. The notes are convertible into shares of BMI common stock at $3.28; however there are provision in the convertible note that enables the holders of the notes to receive a lower conversion rate upon future common stock issuances by BMI that fall below the $3.28 price.
As BMI does not have sufficient authorized shares to fulfill the conversion option, the conversion option meets the criteria of a derivative instrument, and the convertible note has been discounted $4.1 million for the fair value of the warrant derivative liability and $1.4 million for the fair value of the embedded conversion option derivative liability at inception. The fair value of the warrant derivative liability is updated quarterly and is recorded within financial instrument liabilities, a component of accounts payable and accrued liabilities and the fair value of the embedded conversion option derivative liability is updated quarterly and is recorded within convertible notes. In addition, BMI has recorded $1.4 million in original issue discount, which is being amortized over the interest method for the term of the BMI senior secured convertible notes. Amortization of discount related to the senior secured convertible notes was $0.2 million for the three months ended June 30, 2023.
Activity related to the embedded conversion option derivative liability for the three months ended June 30, 2023 is as follows:
Schedule of option derivative liability | ||||
April 27, 2023 issuances of convertible note – derivative liability | $ | 1,352,000 | ||
Change in fair value of convertible note derivative liability | (1,029,000 | ) | ||
Ending balance as of June 30, 2023 | $ | 323,000 |
Significant Level 3 inputs associated with the BMI embedded conversion option include:
Schedule of assumptions | |||||||
June 30, 2023 | Inception | ||||||
Contractual term in years | |||||||
Volatility | |||||||
Dividend yield | |||||||
Risk-free interest rate |
20. COMMITMENTS AND CONTINGENCIES
Contingencies
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 instrument usingposition, results of operations, or cash flows. However, the effective interest method.outcome of such matters is inherently unpredictable and subject to significant uncertainties.
As of June 30, 2023, the Company had accrued $5.3 million as a loss contingency related to litigation matters.
SEC Investigation
The Company and certain affiliates and related parties received several subpoenas from the SEC for the production of documents and testimony in the non-public fact-finding investigation referred to as In re DPW Holdings, Inc. The Company and those parties have reached a settlement with the SEC to fully resolve the SEC’s previously disclosed investigation into certain of the Company’s public disclosures and its accounting for certain transactions, among other matters.
Under terms of the settlement, announced on August 15, 2023, the Company, Executive Chairman Milton “Todd” Ault, III, and Chief Executive Officer William B. Horne neither admit nor deny the SEC’s findings, which do not entail intentional misconduct. The Company will pay a civil penalty of $0.7 million that was fully accrued in the fourth quarter of 2022; Mr. Ault will pay disgorgement of $85,504 and a civil penalty of $150,000; and Mr. Horne will pay a civil penalty of $20,720. In addition, the Company has undertaken to retain an independent consultant to conduct a comprehensive review of the Company’s internal control over financial reporting and disclosure controls and procedures, and to issue a report providing recommendations for improvements.
21. STOCKHOLDERS’ EQUITY
2023 Issuances
2022 Common ATM Offering
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”). During the three and nine months ended September 30, 2017,March 31, 2023, the Company recorded amortizationsold an aggregate of debt discounts0.1 million shares of $652common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $4.2 million. Effective March 17, 2023, the 2022 Common ATM Offering was terminated.
2022 Preferred ATM Offering
On June 14, 2022, the Company entered into an At-The-Market sales agreement 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 $46.4 million (the “2022 Preferred ATM Offering”). During the six months ended June 30, 2023, the Company sold an aggregate of shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $2.9 million. Effective June 16, 2023, the 2022 Preferred ATM Offering was terminated.
2023 ATM Offering – Common Stock
On June 9, 2023, the Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital to sell shares of common stock having an aggregate offering price of up to $10 million from time to time, through an “at the market offering” program (the “2023 Common ATM Offering”). During the three months ended June 30, 2023, the Company sold an aggregate of million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $0.8 million.
Issuance of Common Stock Upon Conversion of Preferred Stock
During June 2023, the Investors converted $1,239, shares of Series G Preferred Stock into an aggregate of shares of the Company’s common stock. A loss on extinguishment of $0.1 million was recognized on the issuance of common stock based on the fair value of the Company’s common stock at the date of the conversions.
Issuance of Common Stock for Restricted Stock Awards
During the six months ended June 30, 2023, the Company issued 4,974 shares of common stock upon vesting of restricted stock awards.
Series C Preferred Purchase Agreement
On May 1, 2023, the Company entered into a securities purchase agreement (the “Agreement”) with Ault & Company, pursuant to which the Company agreed to sell to Ault & Company up to 40,000 shares of Series C convertible preferred stock and warrants to purchase up to 1.3 million shares of common stock for a total purchase price of up to $40 million. The consummation of the transactions contemplated by the Agreement are subject to various customary closing conditions and the receipt of certain third party consents. In addition to customary closing conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company of financing in an amount sufficient to consummate the transaction, in whole or in part. The Agreement contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to May 31, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the Agreement.
Proceeds from Subsidiaries’ Sale of Stock to Non-Controlling Interests
During the six months ended June 30, 2023, SMC and BMI sold an aggregate of $2.3 million of common stock pursuant to their respective at-the-market issuance sales agreements.
22. 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 3.0% and 0.8% for the three months ended June 30, 2023 and 2022, respectively, and 1.2% and 0.4% for the six months ended June 30, 2023 and 2022, respectively. The Company did not recognize any debt discount duringrecorded income tax provision of $1.4 million and $0.2 million for the three and nine months ended SeptemberJune 30, 2016.
Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. The Company has included 317,460 warrants, with an exercise price of $.01, in its earnings per share calculationAnti-dilutive securities, which are convertible into or exercisable for the three and nine months ended September 30, 2017. Anti-dilutive securitiesCompany’s common stock, consisted of the following at SeptemberJune 30, 2023 and 2022:
Schedule of anti-dilutive securities | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
Stock options | 19,000 | 21,000 | ||||||
Restricted stock grants | - | 7,000 | ||||||
Warrants | 52,000 | 67,000 | ||||||
Convertible notes | 1,000 | 1,000 | ||||||
Total | 72,000 | 96,000 |
F-30 |
2017 | 2016 | |||||||
Stock options | 2,891,000 | 1,001,000 | ||||||
Warrants | 10,233,199 | — | ||||||
Convertible notes | 3,157,576 | — | ||||||
Conversion of preferred stock | 4,606,131 | — | ||||||
Total | 20,887,906 | 1,001,000 |
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 |
24. SEGMENT AND SUBSIDIARY
The Company had the right, at its option, to convert all or any portion of the principal and accrued interest into shares of common stock of AVLP at approximately $0.74536 per share. Subject to adjustment, the AVLP Notes, inclusive of the original issue discount, were convertible into 2,113,086 shares of the Company’s common stock. During the period from March 29, 2017 to August 16, 2017, the Company funded $1,809 in excess of the $1,500 net loan amount required pursuant to the terms of the AVLP Notes
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 |
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 geographicCompany and its operating segments for the three and presented in accordancesix months ended June 30, 2023:
Schedule of operating segments | ||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
GWW | TurnOn | Fintech | Sentinum | AGREE | Ault Disruptive | SMC | Energy | BMI | Holding Co. | Total | ||||||||||||||||||||||||||||||||||
Revenue | $ | 17,448,000 | $ | 1,600,000 | $ | - | $ | - | $ | - | $ | - | $ | 6,008,000 | $ | 546,000 | $ | 45,000 | $ | - | $ | 25,647,000 | ||||||||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 15,715,000 | - | - | - | - | - | - | 15,715,000 | |||||||||||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 783,000 | - | - | - | - | - | - | 783,000 | |||||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 4,586,000 | - | - | - | - | - | - | - | 4,586,000 | |||||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | - | 25,236,000 | - | - | 25,236,000 | |||||||||||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 6,627,000 | - | - | - | - | - | 6,627,000 | |||||||||||||||||||||||||||||||||
Total revenues | $ | 17,448,000 | $ | 1,600,000 | $ | 4,586,000 | $ | 16,498,000 | $ | 6,627,000 | $ | - | $ | 6,008,000 | $ | 25,782,000 | $ | 45,000 | $ | - | $ | 78,594,000 | ||||||||||||||||||||||
Depreciation and amortization expense | $ | 566,000 | $ | 44,000 | $ | - | $ | 8,570,000 | $ | 1,634,000 | $ | - | $ | 441,000 | $ | 1,980,000 | $ | 120,000 | $ | 1,028,000 | $ | 14,383,000 | ||||||||||||||||||||||
Income (loss) from operations | $ | (5,117,000 | ) | $ | (2,569,000 | ) | $ | 2,130,000 | $ | (1,702,000 | ) | $ | (1,399,000 | ) | $ | (838,000 | ) | $ | (4,779,000 | ) | $ | (32,721,000 | ) | $ | (20,275,000 | ) | $ | (14,653,000 | ) | $ | (81,923,000 | ) | ||||||||||||
Capital expenditures for the six months ended June 30, 2023 | $ | 135,000 | $ | 10,000 | $ | - | $ | 1,165,000 | $ | 5,517,000 | $ | - | $ | 184,000 | $ | 1,336,000 | $ | 407,000 | $ | 2,592,000 | $ | 11,346,000 | ||||||||||||||||||||||
Identifiable assets as of June 30, 2023 | $ | 37,175,000 | $ | 5,704,000 | $ | 38,914,000 | $ | 65,919,000 | $ | 98,588,000 | $ | 2,860,000 | $ | 18,912,000 | $ | 60,070,000 | $ | 8,385,000 | $ | 42,863,000 | $ | 378,390,000 |
Three Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
GWW | TurnOn | Fintech | Sentinum | AGREE | Ault Disruptive | SMC | Energy | BMI | Holding Co. | Total | ||||||||||||||||||||||||||||||||||
Revenue | $ | 8,740,000 | $ | 724,000 | $ | - | $ | - | $ | - | $ | - | $ | 2,625,000 | $ | 82,000 | $ | 45,000 | $ | - | $ | 12,216,000 | ||||||||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 8,368,000 | - | - | - | - | - | - | 8,368,000 | |||||||||||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 325,000 | - | - | - | - | - | - | 325,000 | |||||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 9,525,000 | - | - | - | - | - | - | - | 9,525,000 | |||||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | - | 12,590,000 | - | - | 12,590,000 | |||||||||||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 4,384,000 | - | - | - | - | - | 4,384,000 | |||||||||||||||||||||||||||||||||
Total revenues | $ | 8,740,000 | $ | 724,000 | $ | 9,525,000 | $ | 8,693,000 | $ | 4,384,000 | $ | - | $ | 2,625,000 | $ | 12,672,000 | $ | 45,000 | $ | - | $ | 47,408,000 | ||||||||||||||||||||||
Depreciation and amortization expense | $ | (24,000 | ) | $ | (99,000 | ) | $ | - | $ | 5,235,000 | $ | 796,000 | $ | - | $ | 70,000 | $ | 910,000 | $ | 37,000 | $ | 418,000 | $ | 7,343,000 | ||||||||||||||||||||
Income (loss) from operations | $ | (2,445,000 | ) | $ | (1,589,000 | ) | $ | 9,115,000 | $ | (1,227,000 | ) | $ | 156,000 | $ | (455,000 | ) | $ | (2,528,000 | ) | $ | (34,691,000 | ) | $ | (12,219,000 | ) | $ | (4,622,000 | ) | $ | (50,505,000 | ) | |||||||||||||
Capital expenditures for the three months ended June 30, 2023 | $ | 89,000 | $ | - | $ | - | $ | 113,000 | $ | 2,818,000 | $ | - | $ | 42,000 | $ | 1,005,000 | $ | - | $ | 258,000 | $ | 4,325,000 |
Segment information for the three and six months ended June 30, 2022:
Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
GWW | TurnOnGreen | Fintech | Sentinum | 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 | Fintech | Sentinum | AGREE | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 13,748,000 | $ | 2,191,000 | $ | 19,000 | $ | - | $ | - | $ | - | $ | - | $ | 15,958,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 7,524,000 | - | - | - | 7,524,000 | ||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 550,000 | - | - | - | 550,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 18,864,000 | - | - | - | - | 18,864,000 | ||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 7,296,000 | - | - | 7,296,000 | ||||||||||||||||||||||||
Total revenues | $ | 13,748,000 | $ | 2,191,000 | $ | 18,883,000 | $ | 8,074,000 | $ | 7,296,000 | $ | - | $ | - | $ | 50,192,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 519,000 | $ | 183,000 | $ | 68,000 | $ | 4,140,000 | $ | 1,655,000 | $ | - | $ | 53,000 | $ | 6,618,000 | ||||||||||||||||
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 |
F-32 |
25. CONCENTRATIONS OF CREDIT AND REVENUE RISK
The following table summarizes accounts receivable that are concentrated 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 |
Schedule of concentrations of credit risk | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
Customer A | 15 | % | 13 | % | ||||
Customer B | 2 | % | 14 | % |
The following table provides the percentage of total revenues attributable to a single customercustomers from which 10% or more of total revenues are derived:
For the three months ended Sept. 30, 2017 | For the nine months ended Sept. 30, 2017 | |||||||||||||||
Total Revenues | Total Revenues | |||||||||||||||
by Major | Percentage of | by Major | Percentage of | |||||||||||||
Customers | Total Company | Customers | Total Company | |||||||||||||
(in thousands) | Revenues | (in thousands) | Revenues | |||||||||||||
Customer A | $ | 433 | 13 | % | $ | 1,062 | 16 | % |
For the three months ended Sept. 30, 2016 | For the nine months ended Sept. 30, 2016 | |||||||||||||||
Total Revenues | Total Revenues | |||||||||||||||
by Major | Percentage of | by Major | Percentage of | |||||||||||||
Customers | Total Company | Customers | Total Company | |||||||||||||
(in thousands) | Revenues | (in thousands) | Revenues | |||||||||||||
Customer A | $ | 407 | 22 | % | $ | 1,176 | 21 | % | ||||||||
Customer B | $ | 253 | 14 | % | $ | — | — | |||||||||
Customer C | $ | 196 | 11 | % | $ | — | — |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Customer X (Mining Pool Operator) | Less than 10% | 23% | 15% | 15% | ||||||||||||
Customer Y | Less than 10% | 13% | Less than 10% | Less than 10% |
26. SUBSEQUENT EVENTS
2023 Common ATM Offering
The Company and B were attributableAscendiant Capital entered into an amendment to Digital Power and revenue from Customer C attributablethe At-The-Market issuance sales agreement to DP Limited.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Commercial products | $ | 1,342 | $ | 1,505 | $ | 3,362 | $ | 3,971 | ||||||||
Defense products | 1,878 | 321 | 3,308 | 1,632 | ||||||||||||
Total revenues | $ | 3,220 | $ | 1,826 | $ | 6,670 | $ | 5,603 |
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 |
Advances under Ault & Company Loan Agreement
An additional $3.9 million has been advanced by Ault & Company to the Company under the loan agreement entered into June 8, 2023.
Assignment of Term Note
Effective August 10, 2023, the Company assigned the Term Note to Ault & CompanyCompany. As consideration for $50. Mr. Ault is the Chairman and majority shareholder of Ault & Company.
Second Partial Distribution of TurnOnGreen Securities
On July 24, 2023, the Company established a record date for its second partial distribution of TurnOnGreen Securities. Stockholders as of this date were entitled to 40 shares of its common stock as paymentTurnOnGreen Securities for services to its consultant. The shares were valued at $265, an average of $0.54 per share.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this quarterly report, the “Company,” “Digital Power,“AAI,” “we,” “us” and “our” refer to Digital Power Corporation,Ault Alliance, Inc., a California corporation,Delaware corporation. AAI is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through our wholly-owned subsidiaries, Coolisys Technologies, Inc., Power-Plus Technical Distributors, LLC, Digital Power Lending, LLC, Digital Power Limitedwholly and our majority owned subsidiary, Microphase Corporation.
Recent Events and Board’s current philosophy that occurred asDevelopments
On January 23, 2023, we filed a resultCertificate of a change in control completed in September 2016. Our acquisition and development target strategy includes companies that have developed a “new wayElimination with the Secretary of doing business” in mature, well-developed industries experiencing changes due to new technology; companies that may become profitable or more profitable through efficiency and reductionState of costs; companies that are relatedthe State of Delaware with respect to our core business inSeries C convertible redeemable preferred stock (“Series C Preferred Stock”) which, effective upon filing, eliminated the commercialSeries C Preferred Stock.
On February 8, 2023, we entered into a Share Exchange Agreement (the “Agreement”) with BMI and defense industries;the other signatories thereto. The Agreement provides that, subject to the terms and companies thatconditions set forth therein, BMI will enhanceacquire all of the outstanding shares of capital stock of our overall revenues. It is our goal to substantially increase our gross revenues inthen subsidiary, BitNile.com, Inc. (“BitNile.com”), of which we owned approximately 86%, and the near future.
Pursuant to the Certificates of Designations of the Rights, Preferences and Limitations of the Series B Preferred and the Series C Preferred (collectively, the “Preferred Stock Certificates”), each share of Preferred Stock will be convertible into a number of shares of BMI Common Stock determined by dividing the Stated Value by $0.25 (the “Conversion Price”), or 40,000 shares of BMI Common Stock. The Conversion Price will be subject to certain adjustments, including potential downward adjustment if BMI closes a qualified financing resulting in at least $25 million in gross proceeds at a price per share that is lower than the Conversion Price then in effect. The holders of Preferred Stock will be entitled to receive dividends at a rate of 5% of the Stated Value per annum from issuance until February 7, 2033 (the “Dividend Term”). During the first two years of the Dividend Term, dividends will be payable in additional shares of Preferred Stock rather than cash, and thereafter dividends will be payable in either additional shares of Preferred Stock or cash as each holder may elect. If BMI fails to make a dividend payment as required by the Preferred Stock Certificates, the dividend rate will be increased to 12% for as long as such default remains ongoing and uncured. Each share of Preferred Stock will also have an $11,000 liquidation preference in the event of a liquidation, change of control event, dissolution or winding up of BMI, and will rank senior to all other capital stock of BMI with respect thereto, except that the Series B Preferred and Series C Preferred shall rank pari passu. Each share of Series B Preferred was originally entitled to vote with the BMI Common Stock at a rate of 10 votes per share of Common Stock into which the Series B Preferred is convertible, but that provision was subsequently eliminated. Other than certain rights granted to the Company relating to amendments or waiver of various negative covenants, the terms, rights, preferences and limitations of the Preferred Stock Certificates are essentially identical. The Agreement closed on March 6, 2023.
On March 28, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which we agreed to issue and sell, in a private placement, an aggregate of 100,000 shares of our preferred stock, with each such share having a stated value of $100.00 and consisting of (i) 83,000 shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”), (ii) 1,000 shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies(iii) 16,000 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and detector logarithmic video amplifiers (
Each share of Series E Preferred Stock and Series F Preferred Stock had a purchase price of $100.00, equal to each such share’s stated value. The purchase price of the Series E Preferred Stock and the Series F Preferred Stock was paid for by the Investors’ canceling outstanding secured promissory notes in the principal amount of $8.4 million, whereas the purchase price of the shares of Series G Preferred Stock consisted of accrued but unpaid interest on these notes, as well as for other good and valuable consideration. Each Preferred Share is convertible into shares of our common stock at a conversion price equal to 85% of the closing sale price of our common stock on the trading day prior to the military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut.
On April 25, 2017, Digital Power formed Coolisys Technologies, Inc. (“Coolisys”),6, 2023, we issued a wholly-owned subsidiary.term note with a principal amount of $1.1 million, bearing an interest rate of 12% (the “Term Note”). The Term Note was issued at a discount, with net proceeds to us amounting to $1.0 million. The Term Note was scheduled to mature on June 5, 2023. We exercised the option to extend the maturity date by one month, by paying a $30,000 extension fee. Ault & Company intends to operate its existing businesses 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 May 1, 2023, we entered into a California limited liability company (“Power-Plus”securities purchase agreement (the “Series C Agreement”). Power-Plus is an industrial distributor with Ault & Company, pursuant to which we agreed to sell to Ault & Company up to 40,000 shares of value added power supply solutions, UPS systems, fans, filters, line cords,Series C convertible preferred stock and other power-related components.warrants to purchase up to 1.3 million shares of common stock for a total purchase price of up to $40 million. The consummation of the transactions contemplated by the Series C Agreement are subject to various customary closing conditions and the receipt of certain third party consents. In addition to customary closing conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company of financing in an amount sufficient to consummate the transaction, in whole or in part. The Series C Agreement contains customary termination provisions for Ault & Company under certain circumstances, and the Series C Agreement shall automatically terminate if the closing has not occurred prior to May 31, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the Series C Agreement.
Our stockholders approved, at a special meeting of our stockholders called for such purpose, an amendment (the “Amendment”) to our certificate of incorporation to authorize a reverse split of our common stock (the “Reverse Split”). The Investors agreed in the Purchase Agreement to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the Preferred Shares until after the Reverse Split. Pursuant to the certificate of designation of the Series E Preferred Stock, the shares of Series E Preferred Stock have the right to vote on such Amendment on an as converted to common stock basis. In addition, pursuant to the certificate of designation of the Series F Preferred Stock, the shares of Series F Preferred Stock have the right to vote on such Amendment. Each Investor has separately agreed to vote the shares of the Series E Preferred Stock in favor of the Amendment and that the shares of the Series F Preferred Stock shall automatically be voted in a manner that “mirrors” the proportions on which the shares of our common stock and Series E Preferred Stock are voted on the Amendment. The Amendment requires the approval of the majority of the votes associated with our outstanding capital stock entitled to vote on the proposal. Because the Series F Preferred Stock will automatically and without further action of the purchaser be voted in a manner that “mirrors” the proportions on which the shares of common stock and Series E Preferred Stock are voted on the Reverse Split, abstentions by common stockholders will not have any effect on the votes cast by the holders of the Series F Preferred Stock. The Series G Preferred Stock does not carry any voting rights, except as required by law or expressly provided by its currentcertificate of designation.
On June 8, 2023, we entered into a loan agreement with Ault & Company as lender. The loan agreement provides for an unsecured, non-revolving credit facility in an aggregate principal amount of up to $10 million. All loans under the loan agreement are due within five business Power-Plus will servedays after request by Ault & Company and Ault & Company is not obligated to make any further advances under the loan agreement after December 8, 2023. Advances under the loan agreement bear interest at the rate of 9.5% per annum and may be repaid at any time without penalty or premium. As of the date of this report, $4.7 million has been advanced under the loan agreement and not repaid.
On June 9, 2023, we entered into an At-the-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, as sales agent (“Ascendiant Capital”) to sell shares of our common stock having an extendedaggregate offering price of up to $10,000,000 (the “Shares”) from time to time, through an “at the market offering” (the “2023 Common ATM Offering”). On July 12, 2023, we and Ascendiant Capital entered into an amendment to the At-The-Market issuance sales organizationagreement to increase the size of the 2023 Common ATM Offering from $10.0 million to $20.0 million. Through August 14, 2023, we have sold an aggregate of 3.8 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $16.1 million.
On June 26, 2023, we established a record date for our initial distribution of TurnOnGreen securities. Stockholders as of this date were entitled to 40 shares of TurnOnGreen common stock, along with warrants to purchase 40 shares of TurnOnGreen common stock (the “TurnOnGreen Securities”) for every share of our common stock they held on the record date. The initial distribution was finalized in July 2023.
On July 24, 2023, we established a record date for our second partial distribution of TurnOnGreen Securities. Stockholders as of this date were entitled to 40 shares of TurnOnGreen Securities for every share of the Company’s overall flexible power system solutions.
On July 19, 2023 we along with certain of our subsidiaries entered into a First Amendment and Joinder to Loan and Guarantee Agreement (the “Amendment”) with the institutional investors pursuant to which the (i) Loan and Guarantee Agreement, dated November 7, 2022, entered into between us and the institutional investors (the “Loan Agreement”) and (ii) Security Agreement, dated November 7, 2022, entered into between the institutional investors and Sentinum (the “Security Agreement”) was amended. Pursuant to the Amendment, we borrowed an additional $8.8 million. The net proceeds of the additional loan amount were $7.5 million.
Effective August 3, 2023, we and the Investors entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the Investors exchanged all of their Preferred Shares as well as their demand notes (the “Demand Notes”) issued to the Investors by us on or about May 20, 2023, with each Demand Note having a principal outstanding amount of approximately $0.8 million for two new 10% Secured OID Promissory Notes (the “Exchange Notes”), each with a principal face amount of $5.3 million, for an aggregate of amount owed of $10.5 million (the “Principal Amount”). We and Milton “Todd” Ault, III, our Executive Chairman, entered into guaranty agreements with the Investors guaranteeing repayment by Ault & Company, Inc., a related party (“Ault & Company”) of the Exchange Notes.
Effective as of August 3, 2023, we assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from us, we issued a 10% demand promissory note in the principal face amount of $10.5 million (the “First A&C Demand Note”) to Ault & Company.
Effective as of August 10, 2023, we assigned the Term Note to Ault & Company. As consideration for Ault & Company assuming the Term Note from us, we issued a 12% demand promissory note in the principal face amount of $1.1 million (the “Second Demand Note”) to Ault & Company.
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, with the goal of pursuing monetization opportunities and maximizing the value returned to stockholders. We have, are and will consider initiatives including, among others: public offerings, the sale of individual partner companies, the sale of certain or all partner company interests in 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 other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary 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) initiatives 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 fuel the growth of businesses in metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. We have provided capital to subsidiaries as well as partner companies in which we have an equity interest or may be actively involved, influencing development through board representation and management support.
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 $1,8262023 and 2022.
For the Three Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Revenue | $ | 12,216,000 | $ | 7,577,000 | ||||
Revenue, cryptocurrency mining | 8,368,000 | 3,976,000 | ||||||
Revenue, hotel and real estate operations | 4,709,000 | 4,870,000 | ||||||
Revenue, crane operations | 12,590,000 | - | ||||||
Revenue, lending and trading activities | 9,525,000 | 943,000 | ||||||
Total revenue | 47,408,000 | 17,366,000 | ||||||
Cost of revenue, products | 9,036,000 | 5,044,000 | ||||||
Cost of revenue, cryptocurrency mining | 9,726,000 | 4,453,000 | ||||||
Cost of revenue, hotel and real estate operations | 3,120,000 | 2,872,000 | ||||||
Cost of revenue, hotel operations | 7,641,000 | - | ||||||
Cost of revenue, lending and trading activities | - | - | ||||||
Total cost of revenue | 29,523,000 | 12,369,000 | ||||||
Gross profit | 17,885,000 | 4,997,000 | ||||||
Total operating expenses | 68,390,000 | 28,716,000 | ||||||
Loss from operations | (50,505,000 | ) | (23,719,000 | ) | ||||
Other income (expense): | ||||||||
Interest and other income | 2,382,000 | 81,000 | ||||||
Interest expense | (15,927,000 | ) | (2,031,000 | ) | ||||
Loss on extinguishment of debt | (91,000 | ) | - | |||||
Realized and unrealized (loss) gain on marketable securities | (206,000 | ) | 198,000 | |||||
Loss from investment in unconsolidated entity | - | (391,000 | ) | |||||
Loss on the sale of fixed assets | (1,754,000 | ) | - | |||||
Change in fair value of warrant liability | 3,217,000 | (6,000 | ) | |||||
Loss before income taxes | (62,884,000 | ) | (25,868,000 | ) | ||||
Income tax provision | 1,368,000 | 217,000 | ||||||
Net loss | (64,252,000 | ) | (26,085,000 | ) | ||||
Net loss attributable to non-controlling interest | 3,569,000 | 321,000 | ||||||
Net loss attributable to Ault Alliance, Inc. | (60,683,000 | ) | (25,764,000 | ) | ||||
Preferred dividends | (321,000 | ) | (44,000 | ) | ||||
Net loss available to common stockholders | $ | (61,004,000 | ) | $ | (25,808,000 | ) | ||
Comprehensive loss | ||||||||
Net loss available to common stockholders | $ | (61,004,000 | ) | $ | (25,808,000 | ) | ||
Other comprehensive loss | ||||||||
Foreign currency translation adjustment | (520,000 | ) | (1,471,000 | ) | ||||
Other comprehensive loss | (520,000 | ) | (1,471,000 | ) | ||||
Total comprehensive loss | $ | (61,524,000 | ) | $ | (27,279,000 | ) |
4 |
Revenues
Revenues by segment for the three months ended SeptemberJune 30, 2016. 2023 and 2022 were as follows:
For the Three Months Ended June 30, | Increase | |||||||||||||||
2023 | 2022 | (Decrease) | % | |||||||||||||
GIGA | $ | 8,740,000 | $ | 6,503,000 | $ | 2,237,000 | 34 | % | ||||||||
TurnOnGreen | 724,000 | 1,062,000 | (338,000 | ) | -32 | % | ||||||||||
SMC | 2,625,000 | - | 2,625,000 | - | ||||||||||||
Sentinum | ||||||||||||||||
Revenue, cryptocurrency mining | 8,368,000 | 3,976,000 | 4,392,000 | 110 | % | |||||||||||
Revenue, commercial real estate leases | 325,000 | 272,000 | 53,000 | 19 | % | |||||||||||
AGREE | 4,384,000 | 4,598,000 | (214,000 | ) | -5 | % | ||||||||||
Fintech: | ||||||||||||||||
Revenue, lending and trading activities | 9,525,000 | 943,000 | 8,582,000 | 910 | % | |||||||||||
Other | 45,000 | 12,000 | 33,000 | 275 | % | |||||||||||
Energy | 12,672,000 | - | 12,672,000 | - | ||||||||||||
Total revenue | $ | 47,408,000 | $ | 17,366,000 | $ | 30,042,000 | 173 | % |
GIGA
The $2.2 million increase in our GIGA segment revenue was primarily duefor the three months ended June 30, 2023 included $0.7 million attributable to our acquisition of 56.4% Giga-tronics Incorporated on September 8, 2022. Continued conflicts and tensions worldwide are driving defense-related investments in force protection technologies at GIGA across the United States, UK, Europe, Asia, and the Middle East. Additionally, demand for key electronics solutions, particularly for customers in medicine and telecommunications, accelerated in the three months ended June 30, 2023, as businesses rebound in the post-pandemic COVID-19 economy.
TurnOnGreen
TurnOnGreen revenues were down $0.3 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 due to a large project in 2022 that was cancelled.
SMC
SMC revenues increased by $2.6 million due to the acquisition of SMC in June 2022.
Sentinum
Revenues from Sentinum’s cryptocurrency mining operations increased $4.4 million as we increased our cryptocurrency mining activities from the prior period, partially offset by lower Bitcoin prices and an increase in Bitcoin mining difficulty level in the current year period.
AGREE
AGREE’s revenues decreased by $0.2 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, due to interruptions in business operations as the properties were being renovated through the end of April 2023.
Fintech
Revenues from our lending and trading activities were $9.5 million due to significant realized gains for the three months ended June 30, 2023 from our investment portfolio. During the three months ended June 30, 2022, Ault Lending generated income from appreciation of investments in marketable securities as well as shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions. Revenue from lending and trading activities for the three months ended June 30, 2023 included an approximate $0.9 million unrealized gain from our investment in Alzamend. Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.
Revenues from our trading activities for the three months ended June 30, 2023 included 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.
Energy
Energy revenues increased by $12.7 million for the three months ended June 30, 2023, due to the acquisition of the outstanding equity interestsCircle 8 crane operations in December 2022.
Gross Margins
Gross margins increased to 38% for the three months ended June 30, 2023, compared to 29% for the three months ended June 30, 2022.
Our gross margins of Microphase on June 2, 2017, combined with our acquisition of all of the outstanding equity interests of Power-Plus on September 1, 2017. Revenues generated by Microphase and Power-Plus38% recognized during the three months ended SeptemberJune 30, 2017, were $1,340 and $224, respectively. Excluding revenues that were generated by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $1702023 benefited from the three months ended September 30, 2016.
Research and Development
Research and development expenses increased by $1.1 million 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 Microphase2023, due to expenditures related to development work on the BMI metaverse platform.
Selling and Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operations would have been $1,313,Marketing
Selling and marketing expenses were $9.6 million for the three months ended June 30, 2023, compared to $7.0 million for the three months ended June 30, 2022, an increase of 5.2%$2.6 million, or 37%. The increase in revenues from our U.S. operations is attributedwas the result of $3.6 million higher advertising and promotion costs related to the recognition of $109 in revenue from the MLSE $50 million purchase order contract which wasBMI’s metaverse platform, partially offset by a slight decrease$1.4 million decline in employee related costs and consulting expenses. The increase is also attributable to $0.4 million increases in sales and marketing costs from SMC, which was acquired in June 2022 and $0.2 million from GIGA, which was acquired in September 2022.
General and Administrative
General and administrative expenses were $21.3 million for the three months ended June 30, 2023, compared to $19.0 million for the three months ended June 30, 2022, an increase of our legacy products. The recognition of revenue$2.3 million, or 12%. General and administrative expenses increased from the MLSE contractcomparative prior period, mainly due to increases from new acquisitions:
· | general and administrative costs of $3.4 million from Circle 8, which was acquired in December 2022; |
· | general and administrative costs of $3.0 million from BMI, which was acquired in March 2023; |
· | general and administrative costs of $2.9 million from SMC, which was acquired in June 2022; |
· | general and administrative costs of $2.3 million from GIGA, which was acquired in September 2022; and |
· | general and administrative costs of $0.6 million from AVLP, which was acquired in June 2022. |
The increases above were partially offset by the following decreases in general and administrative expenses:
· | $5.0 million lower performance bonus related to realized gains on trading activities; |
· | $1.2 million lower corporate legal fees; |
· | $1.0 million lower corporate bonuses; |
· | $0.8 million lower general and administrative expenses at AGREE; |
· | $0.7 million lower corporate consulting fees; |
· | $0.7 million lower corporate audit fees; and |
· | $0.5 million lower corporate board of directors fees. |
Impairment of AVLP Goodwill and Intangible Assets
Goodwill
We test the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. We performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators of impairment related to certain unforeseen business developments and changes in financial projections.
The valuation of the AVLP reporting unit was determined using a market and income approach methodology of valuation.
The income approach was based on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of capital analysis. The market approach utilized the guideline public company method.
The results of the quantitative test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment charge during the three months ended SeptemberJune 30, 2017, represents2023.
Intangible Assets
Due to indicators of impairment, AVLP intangible assets were tested for impairment as of June 30, 2023. Based on internally developed forecasts of undiscounted expected future cash flows, it was determined that the first revenuescarrying amount of the assets were not recoverable and, based on an assessment of the fair value of the assets, impairment of $17.0 million was recognized from this contract, whichas a non-cash impairment charge during the three months ended June 30, 2023.
The tradenames and patents/developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is expectedone of the methods under the income approach wherein estimates of a company’s earnings attributable to extend over several years.
Impairment of Mined Cryptocurrency
Impairment of mined cryptocurrency for the three months ended SeptemberJune 30, 2017, from $5782023 and 2022 was $0.1 million and $2.0 million, respectively. Impairment losses are attributable to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods. The impairment of mined cryptocurrency for the three months ended SeptemberJune 30, 2016, a decrease2023 is lower than the comparable prior year period as the average amount 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.
Interest and Other Income
Interest and other income was $2.4 million for the three months ended SeptemberJune 30, 2016. The decrease in gross margins was mainly attributable2023, compared to the decrease in sales from our European operations combined with slightly lower margins of 34.5% generated by our Microphase and Power-Plus subsidiaries. As the Company integrates its recent acquisitions of Microphase and Power-Plus, it expects that gross margins from its U.S. based operations will be fairly consistent among the three companies.
Interest Expense
Interest expense was $15.9 million for the three months ended SeptemberJune 30, 2016. The increase is partly attributed2023, compared to our acquisition of Microphase, which reported $118 in engineering and product development expenses. The remaining increase was primarily related to an increase in direct manpower cost from the addition of a new Head of Engineering and Technology, a highly-compensated position that was created during the fourth quarter of 2016.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $0.1 million for the three months ended June 30, 2023, compared to $0 for the three months ended June 30, 2022.
Loss From Investment in Unconsolidated Entity
Loss from investment in unconsolidated entity was $0 for the three months ended June 30, 2023, compared to $0.4 million for the three months ended June 30, 2022, representing our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.
Results of Operations for the Six Months Ended June 30, 2023 and 2022
The following table summarizes the results of our operations for the six months ended June 30, 2023 and 2022.
For the Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Revenue | $ | 25,647,000 | $ | 15,958,000 | ||||
Revenue, cryptocurrency mining | 15,715,000 | 7,524,000 | ||||||
Revenue, hotel and real estate operations | 7,410,000 | 7,846,000 | ||||||
Revenue, crane operations | 25,236,000 | - | ||||||
Revenue, lending and trading activities | 4,586,000 | 18,864,000 | ||||||
Total revenue | 78,594,000 | 50,192,000 | ||||||
Cost of revenue, products | 18,823,000 | 10,792,000 | ||||||
Cost of revenue, cryptocurrency mining | 17,829,000 | 6,950,000 | ||||||
Cost of revenue, hotel and real estate operations | 5,808,000 | 5,121,000 | ||||||
Cost of revenue, hotel operations | 15,029,000 | - | ||||||
Cost of revenue, lending and trading activities | 1,180,000 | - | ||||||
Total cost of revenue | 58,669,000 | 22,863,000 | ||||||
Gross profit | 19,925,000 | 27,329,000 | ||||||
Total operating expenses | 101,848,000 | 50,018,000 | ||||||
Loss from operations | (81,923,000 | ) | (22,689,000 | ) | ||||
Other income (expense): | ||||||||
Interest and other income | 3,579,000 | 530,000 | ||||||
Interest expense | (29,657,000 | ) | (31,855,000 | ) | ||||
Loss on extinguishment of debt | (154,000 | ) | - | |||||
Realized and unrealized (loss) gain on marketable securities | (244,000 | ) | 307,000 | |||||
Loss from investment in unconsolidated entity | - | (924,000 | ) | |||||
Impairment of equity securities | (9,555,000 | ) | - | |||||
Gain on the sale of fixed assets | 2,761,000 | - | ||||||
Change in fair value of warrant liability | 3,217,000 | (24,000 | ) | |||||
Loss before income taxes | (111,976,000 | ) | (54,655,000 | ) | ||||
Income tax provision | 1,105,000 | 217,000 | ||||||
Net loss | (113,081,000 | ) | (54,872,000 | ) | ||||
Net loss attributable to non-controlling interest | 3,752,000 | 336,000 | ||||||
Net loss attributable to Ault Alliance, Inc. | (109,329,000 | ) | (54,536,000 | ) | ||||
Preferred dividends | (550,000 | ) | (49,000 | ) | ||||
Net loss available to common stockholders | $ | (109,879,000 | ) | $ | (54,585,000 | ) | ||
Comprehensive loss | ||||||||
Net loss available to common stockholders | $ | (109,879,000 | ) | $ | (54,585,000 | ) | ||
Other comprehensive loss | ||||||||
Foreign currency translation adjustment | (350,000 | ) | (1,758,000 | ) | ||||
Other comprehensive loss | (350,000 | ) | (1,758,000 | ) | ||||
Total comprehensive loss | $ | (110,229,000 | ) | $ | (56,343,000 | ) |
Revenues
Revenues by segment for the six months ended June 30, 2023 and 2022 were as follows:
For the Six Months Ended June 30, | Increase | |||||||||||||||
2023 | 2022 | (Decrease) | % | |||||||||||||
GIGA | $ | 17,448,000 | $ | 13,748,000 | $ | 3,700,000 | 27 | % | ||||||||
TurnOnGreen | 1,600,000 | 2,191,000 | (591,000 | ) | -27 | % | ||||||||||
SMC | 6,008,000 | - | 6,008,000 | — | ||||||||||||
Sentinum | ||||||||||||||||
Revenue, cryptocurrency mining | 15,715,000 | 7,524,000 | 8,191,000 | 109 | % | |||||||||||
Revenue, commercial real estate leases | 783,000 | 550,000 | 233,000 | 42 | % | |||||||||||
AGREE | 6,627,000 | 7,296,000 | (669,000 | ) | -9 | % | ||||||||||
Fintech: | ||||||||||||||||
Revenue, lending and trading activities | 4,586,000 | 18,864,000 | (14,278,000 | ) | -76 | % | ||||||||||
Other | 45,000 | 19,000 | 26,000 | 137 | % | |||||||||||
Energy | 25,782,000 | - | 25,782,000 | — | ||||||||||||
Total revenue | $ | 78,594,000 | $ | 50,192,000 | $ | 28,402,000 | 57 | % |
GIGA
The $3.7 million increase in our GIGA segment revenue for the six months ended June 30, 2023 included $1.1 million attributable to our acquisition of Giga-tronics Incorporated on September 8, 2022. Continued conflicts and tensions worldwide are driving defense-related investments in force protection technologies at GIGA across the United States, UK, Europe, Asia, and the Middle East. Additionally, demand for key electronics solutions, particularly for customers in medicine and telecommunications, accelerated in the six months ended June 30, 20172023, as businesses rebound in the post-pandemic COVID-19 economy.
TurnOnGreen
TurnOnGreen revenues were down $0.6 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to a large project in 2022 that was cancelled.
SMC
SMC revenues increased by $6.0 million due to the acquisition of SMC in June 2022.
Sentinum
Revenues from Sentinum’s cryptocurrency mining operations increased $8.2 million as we increased our cryptocurrency mining activities from the prior period, partially offset by lower Bitcoin prices and an increase in Bitcoin mining difficulty level in the current year period.
AGREE
AGREE’s revenues decreased by $0.7 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, due to interruptions in business operations as the properties were being renovated during the six months ended June 30, 2023. The renovations were completed in April 2023.
Fintech
Revenues from our lending and trading activities were $4.6 million due to realized gains for the six months ended June 30, 2023 from our investment portfolio. During the six months ended June 30, 2022, Ault Lending generated income from appreciation of investments in marketable securities as well as shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions. Revenue from lending and trading activities for the six months ended June 30, 2023 included an approximate $0.6 million unrealized loss from our investment in Alzamend. Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.
Revenues from our trading activities for the six months ended June 30, 2023 included net losses 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.
Energy
Energy revenues increased by $25.8 million for the six months ended June 30, 2023, due to the acquisition of the Circle 8 crane operations in December 2022.
Gross Margins
Gross margins decreased to 25% for the six months ended June 30, 2023, compared to 54% for the six months ended June 30, 2022.
Our gross margins of 25% recognized during the six months ended June 30, 2023 were impacted by negative margins from our Sentinum cryptocurrency mining segment due to the decline in the price of Bitcoin coupled with an increase in Bitcoin mining difficulty level, offset by favorable margins from our lending and trading activities. 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, 2023 and 2022 would have been 33% and 36%, respectively.
Research and Development
Research and development expenses increased by $2.2 million for the six months ended June 30, 2023, primarily due to expenditures related to development work on the BMI metaverse platform.
Selling and Marketing
Selling and marketing expenses were $18.4 million for the six months ended June 30, 2023, compared to $13.5 million for the six months ended June 30, 2022, an increase of $4.9 million, or 36%. The increase was the result of $5.3 million higher advertising and promotion costs related to BMI’s metaverse platform, partially offset by a $1.8 million decline in employee related costs and consulting expenses. The increase is also attributable to $1.3 million increases in sales and marketing costs from SMC, which was acquired in June 2022 and $0.5 million from GIGA, which was acquired in September 2022.
General and Administrative
General and administrative expenses were $44.0 million for the six months ended June 30, 2023, compared to $32.7 million for the six months ended June 30, 2022, an increase of $11.3 million, or 34%. General and administrative expenses increased from the comparative prior period, mainly due to increases from new acquisitions:
· | general and administrative costs of $6.4 million from Circle 8, which was acquired in December 2022; |
· | general and administrative costs of $5.1 million from SMC, which was acquired in June 2022; |
· | general and administrative costs of $3.5 million from GIGA, which was acquired in September 2022; |
· | general and administrative costs of $3.0 million from BMI, which was acquired in March 2023; and |
· | general and administrative costs of $1.2 million from AVLP, which was acquired in June 2022. |
The increases above were partially offset by the following decreases in general and administrative expenses:
· | $4.2 million lower performance bonus related to realized gains on trading activities; |
· | $2.2 million lower corporate legal fees; and |
· | $1.5 million lower general and administrative expenses at AGREE. |
Impairment of AVLP Goodwill and Intangible Assets
Goodwill
We test the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. We performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators of impairment related to certain unforeseen business developments and changes in financial projections.
The valuation of the AVLP reporting unit was determined using a market and income approach methodology of valuation.
The income approach was based on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of capital analysis. The market approach utilized the guideline public company method.
The results of the quantitative test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment charge during the six months ended June 30, 2023.
Intangible Assets
Due to indicators of impairment, AVLP intangible assets were tested for impairment as of June 30, 2023. Based on internally developed forecasts of undiscounted expected future cash flows, it was determined that the carrying amount of the assets were not recoverable and, based on an assessment of the fair value of the assets, impairment of $17.0 million was recognized as a non-cash impairment charge during the six months ended June 30, 2023.
The tradenames and patents/developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates of 18% for patents and developed technology and 0.25% for trademarks. The resulting net annual royalty payments are then discounted to present value using a discount factor of 25.7%.
Impairment of Mined Cryptocurrency
Impairment of mined cryptocurrency for the six months ended June 30, 2023 and 2022 was $0.3 million and $2.4 million, respectively. Impairment losses are attributable to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods. The impairment of mined cryptocurrency for the six months ended June 30, 2023 is lower than the comparable prior year period as the average amount of digital currency held decreased during the first half of 2023 as we generally sold our mined digital currency the next business day.
Interest and Other Income
Interest and other income was $3.6 million for the six months ended June 30, 2023, compared to $0.5 million for the six months ended June 30, 2022. The increase in interest and other income is primarily relateddue to higher interest rates resulting in higher income from ADRT’s cash and marketable securities held in the trust account.
Interest Expense
Interest expense was $29.7 million for the six months ended June 30, 2023, compared to $31.9 million for the six months ended June 30, 2022. The $29.7 million interest expense for the six months ended June 30, 2023 included amortization of debt discount inof $16.2 million, forbearance and extension fees of $7.5 million and contractual interest of $5.9 million. The $29.8 million interest expense for the aggregate amountsix months ended June 30, 2022 related primarily to amortization of $669, resultingdebt discount of $26.3 million from the issuance of warrants, in conjunction with the sale of debta non-cash charge, and equity instruments of $3,452. During the three months ended September 30, 2017, as a result of these issuances, non-cash interest expense of $669 was recorded from the amortization of debt discount and debt financing costs. The remaining increase in interest expense, net, was due to an increase in the amount of the Company’s total borrowings. At September 30, 2017, the outstanding balance of the Company’s convertible notes payable and notes payable was $3,458. Conversely, at September 30, 2016, the Company did not have any outstanding convertible notes payable or notes payable. Interest expense was partially offset by interest income and the accretion of original issue discount, pursuantin connection with the $66.0 million of senior notes issued in December 2021, which were fully paid in March 2022.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $0.2 million for the six months ended June 30, 2023, compared to $0 for the six months ended June 30, 2022.
Loss From Investment in Unconsolidated Entity
Loss from investment in unconsolidated entity was $0 for the six months ended June 30, 2023, compared to $0.9 million for the six months ended June 30, 2022, representing our share of losses from our equity method investment in AVLP prior to the LoanJune 1, 2022 acquisition.
Impairment of Equity Securities
Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at June 30, 2023 were $9.6 million.
Liquidity and Security Agreement entered into on September 6, 2017, between the Company and AVLP (“AVLP Loan Agreement”) of $141.
On June 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.
Net cash provided by operating activities totaled $12.9 million for the six months ended June 30, 2023, compared to $19.4 million for the ninesix months ended SeptemberJune 30, 2016 was mainly due2022. Cash provided by operating activities for the six months ended June 30, 2023 included $41.2 million net cash provided by marketable securities from trading activities related to the September 30, 2017 nine months lossoperations of $4,916. The net loss wasAult Lending and $15.0 million proceeds from the sale of cryptocurrencies from our Sentinum Bitcoin mining operations, 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$21.8 million for the ninesix months ended SeptemberJune 30, 20172023, compared to $12$87.1 million for the six months ended June 30, 2022, which included $72.8 million of netcapital expenditures, primarily for Bitcoin mining equipment. Net cash provided byused in investing activities for the ninesix months ended SeptemberJune 30, 2016. The increase of the net usage of cash from investing activities2023 was primarily related to the investment in AVLP, loans to third partiescapital expenditures and the purchase of Power-Plus.
Net cash provided by financing activities was $5,194 and nil$12.8 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively. The2023, compared to net cash provided by financing activities related toof $75.5 million for the sale of 1,309,545 shares of common stock for net proceeds of $672,six months ended June 30, 2022, and primarily reflects 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.
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· | $7.8 million proceeds from convertible notes |
Financing Transactions Subsequent to continueJune 30, 2023
Financing transactions subsequent to incur lossesJune 30, 2023 included the following:
2023 Common ATM Offering
During the period between July 1, 2023 through August 14, 2023, we sold an aggregate of 3.9 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $15.6 million.
Amendment to 8.5% Secured Promissory Notes
On July 19, 2023, we and certain of our subsidiaries entered into an amendment agreement with the institutional investors and increased the principal balance of the secured promissory notes by an additional $8.8 million. The net proceeds to us from the amendment agreement were $7.5 million.
Advances under Ault & Company Loan Agreement
Subsequent to June 30, 2023, $3.9 million has been advanced by Ault & Company to us under the loan agreement entered into June 8, 2023.
Exchange of Preferred Shares for Secured Debt and Assignment of Secured Note
Effective August 3, 2023, we and the Investors entered into the Exchange Agreement pursuant to which the Investors exchanged all of their Preferred Shares as well as their Demand Notes issued to the Investors by us on or about May 20, 2023, with each Demand Note having a principal outstanding amount of approximately $0.9 million for the foreseeableExchange Notes, each with a principal face amount of approximately $5.3 million, for an aggregate of amount owed of $10.5 million. We and Milton “Todd” Ault, III, our Executive Chairman issued entered into guaranty agreements with the Investors guaranteeing Ault & Company’s repayment of the Exchange Notes.
Effective as of August 3, 2023, we assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from us, we issued the First A&C Demand Note to Ault & Company.
Assignment of Term Note
Effective as of August 10, 2023, we assigned the Term Note to Ault & Company. As consideration for Ault & Company assuming the Term Note from us , we issued a 12% demand promissory note in the principal face amount of $1.1 million (the “Second Demand Note”) to Ault & Company.
Critical Accounting Policies
Variable Interest Entities
The accounting guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a Variable Interest Entity (“VIE”); to eliminate the solely quantitative approach previously required for determining the primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide readers of financial statements with more transparent information about an enterprise’s involvement in a VIE.
For VIEs, the Company assesses whether it is the primary beneficiary as prescribed by the accounting guidance on the consolidation of a VIE.
The Company evaluates its business relationships with related parties to identify potential VIEs under Accounting Standards Codification (“ASC”) 810, Consolidation. The Company consolidates VIEs in which it is considered to be the primary beneficiary. Entities are considered to be the primary beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (ii) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Company’s judgment with respect to its level of influence or control of an entity involves the consideration of various factors including the form of its ownership interest, its representation in the entity’s governance, the size of its investment, estimates of future cash flows, its ability to participate in policy making decisions and will be requiredthe rights of the other investors to raise additional capitalparticipate in the decision making process and to continuereplace the Company as manager and/or liquidate the joint venture, if applicable.
Business Combination
We allocate the purchase price of an acquired business to support our working capital requirements. We believe that the MLSEtangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition 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, trade names 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 and has determined thatreport. Based upon our disclosure controls and procedures were not effective asevaluation, each of June 30, 2017 due to certain material weaknesses as described herein.
Management has identified the following material weaknesses which have caused management to conclude that as of June 30, 2017 our internal controls over financial reporting (“ICFR”) were not effective at the reasonable assurance level:
1. | We do not have sufficient resources in our accounting |
2. | 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 |
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 designed and/or implemented effectively. We |
4. | The Company did not design and/or implement user access controls to ensure appropriate segregation of duties or program change management controls for certain financially relevant systems impacting the Company’s processes around revenue recognition and digital assets to ensure that |
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 somematerial 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 weaknesses described above, including a greater level of involvement by our Audit Committee. We intend tomanagement 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; |
· | Implementing new applications and systems that are aligned with management’s focus on creating strong internal controls; and |
· | Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong Sarbanes Oxley and internal control backgrounds. |
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. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Despite the existence of these material weaknesses, we believe that the condensed 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 resources permit.
PART II — OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
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.
SEC Investigation
The Company and certain affiliates and related parties received several subpoenas from the SEC for the production of documents and testimony in the non-public fact-finding investigation referred to as In re DPW Holdings, Inc. The Company and those parties have reached a settlement with the SEC to fully resolve the SEC’s previously disclosed investigation into certain of the Company’s public disclosures and its accounting for certain transactions, among other matters.
Under terms of the settlement, announced on August 15, 2023, the Company, Executive Chairman Milton “Todd” Ault, III, and Chief Executive Officer William B. Horne neither admit nor deny the SEC’s findings, which do not entail intentional misconduct. The Company will pay a civil penalty of $0.7 million that was fully accrued in the fourth quarter of 2022; Mr. Ault will pay disgorgement of $85,504 and a civil penalty of $150,000; and Mr. Horne will pay a civil penalty of $20,720. In addition, the Company has undertaken to retain an independent consultant to conduct a comprehensive review of the Company’s internal control over financial reporting and disclosure controls and procedures, and to issue a report providing recommendations for improvements.
ITEM 1A. | RISK FACTORS |
There are no updates or changes to the risk factors set forth in our amended Annual Report on Form 10-K/A for the year ended December 31, 2022.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
From April 1, 2023 through June 30, 2023, Ault Alpha LP purchased 19,659 shares of common stock. The seller of the intellectual property and purchaser of the common stock was an accredited investor.
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, 2023 – April 30, 2023 | 5,816 | $ | 29.15 | |||||||||||||
May 1, 2023 – May 31, 2023 | 13,843 | $ | 22.97 | |||||||||||||
June 1, 2023 – June 30, 2023 | - | $ | - | |||||||||||||
Total | 19,659 | $ | 24.80 | - | - |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
Filed herewith. |
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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
/s/ William B. Horne | |||
William B. Horne | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
By: | /s/ Kenneth S. Cragun | ||
Kenneth S. Cragun | |||
Chief Financial Officer | |||
(Principal Accounting |
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