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 September 30, |
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, 20172023, 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 September 30, 31, 2022 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 | ||||
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 | F-4 | |||
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, | ||||
Notes to | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||
Item 4. | Controls and Procedures | |||
PART II – OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | |||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 3. | Defaults Upon Senior Securities | |||
Item 4. | ||||
Mine Safety Disclosures | 20 | |||
Item 5. | Other Information | 20 | ||
Item 6. | Exhibits | 20 |
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
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 |
(Unaudited)
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 8,736,000 | $ | 7,942,000 | ||||
Restricted cash | 1,903,000 | 732,000 | ||||||
Cash and marketable securities held in trust account | - | 118,193,000 | ||||||
Marketable equity securities | 72,000 | 6,590,000 | ||||||
Accounts receivable | 24,651,000 | 19,322,000 | ||||||
Inventories | 22,482,000 | 22,036,000 | ||||||
Investment in promissory notes and other, related party | 3,018,000 | 2,868,000 | ||||||
Loans receivable, current | 1,166,000 | 7,593,000 | ||||||
Prepaid expenses and other current assets | 8,709,000 | 5,074,000 | ||||||
Current assets of discontinued operations | 98,596,000 | 5,959,000 | ||||||
TOTAL CURRENT ASSETS | 169,333,000 | 196,309,000 | ||||||
Cash and marketable securities held in trust account | 2,171,000 | - | ||||||
Intangible assets, net | 16,980,000 | 34,786,000 | ||||||
Goodwill | 8,973,000 | 27,902,000 | ||||||
Property and equipment, net | 132,044,000 | 146,779,000 | ||||||
Right-of-use assets | 10,419,000 | 8,419,000 | ||||||
Investments in common stock, related parties | 2,712,000 | 6,449,000 | ||||||
Investments in other equity securities | 26,014,000 | 42,494,000 | ||||||
Other assets | 9,810,000 | 5,841,000 | ||||||
Noncurrent assets of discontinued operations | - | 92,535,000 | ||||||
TOTAL ASSETS | $ | 378,456,000 | $ | 561,514,000 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 88,213,000 | $ | 60,780,000 | ||||
Operating lease liability, current | 1,901,000 | 2,975,000 | ||||||
Notes payable, net | 30,255,000 | 39,621,000 | ||||||
Notes payable, related party | 16,225,000 | - | ||||||
Convertible notes payable, current | 8,601,000 | 1,325,000 | ||||||
Redeemable noncontrolling interests in equity of subsidiaries | - | 117,993,000 | ||||||
Current liabilities of discontinued operations | 69,212,000 | 2,631,000 | ||||||
TOTAL CURRENT LIABILITIES | 214,407,000 | 225,325,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
COMMITMENTS AND CONTINGENCIES | — | — | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Series A Redeemable Convertible Preferred Stock, no par value – | — | — | ||||||
500,000 shares authorized; nil shares issued and outstanding at | ||||||||
September 30, 2017 and December 31, 2016 | ||||||||
Series B Redeemable Convertible Preferred Stock, $10 stated value per | — | — | ||||||
share, no par value – 500,000 shares authorized; 100,000 and nil | ||||||||
shares issued and outstanding at September 30, 2017 and December 31, | ||||||||
2016, respectively (liquidation preference of $1,000 and nil at | ||||||||
September 30, 2017 and December 31, 2016, respectively) | ||||||||
Series C Redeemable Convertible Preferred Stock, $2.40 stated value | — | — | ||||||
per share, no par value – 460,000 shares authorized; 455,002 and | ||||||||
nil shares issued and outstanding at September 30, 2017 and December | ||||||||
31, 2016, respectively (liquidation preference of $1,092 and nil at | ||||||||
September 30, 2017 and December 31, 2016, respectively) | ||||||||
Series D Redeemable Convertible Preferred Stock, $0.01 stated value | — | — | ||||||
per share, no par value – 378,776 shares authorized; 378,776 and | ||||||||
nil shares issued and outstanding at September 30, 2017 and December | ||||||||
31, 2016, respectively (liquidation preference of $0.01 per share) | ||||||||
Series E Redeemable Convertible Preferred Stock, $45 stated value per | — | — | ||||||
share, no par value – 10,000 shares authorized; 10,000 and nil shares | ||||||||
issued and outstanding at September 30, 2017 and December 31, 2016, | ||||||||
respectively (liquidation preference of $0.01 per share) | ||||||||
Preferred Stock, no par value – 151,224 shares authorized; nil shares | — | — | ||||||
issued and outstanding at September 30, 2017 and December 31, 2016 | ||||||||
Common Stock, no par value – 30,000,000 shares authorized; 14,150,154 | ||||||||
and 7,677,637 shares issued and outstanding at September 30, 2017 and | — | — | ||||||
December 31, 2016, respectively | ||||||||
Additional paid-in capital | 24,667 | 16,537 | ||||||
Accumulated deficit | (17,212 | ) | (12,158 | ) | ||||
Accumulated other comprehensive loss | (722 | ) | (820 | ) | ||||
TOTAL DIGITAL POWER STOCKHOLDERS' EQUITY | 6,733 | 3,559 | ||||||
Non-controlling interest | 729 | — | ||||||
TOTAL EQUITY | 7,462 | 3,559 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 18,260 | $ | 5,472 |
(Unaudited)
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | 8,697,000 | 5,836,000 | ||||||
Notes payable | 21,211,000 | 29,831,000 | ||||||
Convertible notes payable | 9,453,000 | 11,451,000 | ||||||
Deferred underwriting commissions of Ault Disruptive Technologies Corporation (“Ault Disruptive”) subsidiary | 3,450,000 | 3,450,000 | ||||||
Noncurrent liabilities of discontinued operations | - | 61,633,000 | ||||||
TOTAL LIABILITIES | 257,218,000 | 337,526,000 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Redeemable noncontrolling interests in equity of subsidiaries | 2,179,000 | - | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Series A Convertible Preferred Stock, $176,000 as of September 30, 2023 and December 31, 2022) | stated value per share, $ par value – shares authorized; shares issued and outstanding at September 30, 2023 and December 31, 2022 (liquidation preference of $- | - | ||||||
Series B Convertible Preferred Stock, $1,190,000 at September 30, 2023 and December 31, 2022) | stated value per share, share, $ par value – shares authorized; shares issued and outstanding at September 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 September 30, 2023 and December 31, 2022, respectively) | stated value per share, $ par value – shares authorized; shares authorized, shares and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively (liquidation preference of $- | - | ||||||
Class A Common Stock, $ | par value – shares authorized; and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively12,000 | 1,000 | ||||||
Class B Common Stock, $ | par value – shares authorized; shares issued and outstanding at September 30, 2023 and December 31, 2022- | - | ||||||
Additional paid-in capital | 589,279,000 | 565,904,000 | ||||||
Accumulated deficit | (467,088,000 | ) | (329,078,000 | ) | ||||
Accumulated other comprehensive loss | (2,102,000 | ) | (1,100,000 | ) | ||||
Treasury stock, at cost | (30,540,000 | ) | (29,235,000 | ) | ||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 89,561,000 | 206,492,000 | ||||||
Non-controlling interest | 29,498,000 | 17,496,000 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 119,059,000 | 223,988,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 378,456,000 | $ | 561,514,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHNSIVECOMPREHENSIVE LOSS
(Unaudited)
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 | ) |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | $ | 28,164,000 | $ | 27,031,000 | $ | 54,594,000 | $ | 43,539,000 | ||||||||
Revenue, cryptocurrency mining | 7,558,000 | 3,874,000 | 23,273,000 | 11,398,000 | ||||||||||||
Revenue, crane operations | 12,490,000 | - | 37,726,000 | - | ||||||||||||
Revenue, lending and trading activities | (249,000 | ) | 13,360,000 | 4,337,000 | 32,224,000 | |||||||||||
Total revenue | 47,963,000 | 44,265,000 | 119,930,000 | 87,161,000 | ||||||||||||
Cost of revenue, products | 20,425,000 | 20,193,000 | 39,248,000 | 30,985,000 | ||||||||||||
Cost of revenue, cryptocurrency mining | 10,228,000 | 5,255,000 | 28,057,000 | 12,206,000 | ||||||||||||
Cost of revenue, crane operations | 7,642,000 | - | 22,671,000 | - | ||||||||||||
Cost of revenue, lending and trading activities | - | - | 1,180,000 | - | ||||||||||||
Total cost of revenue | 38,295,000 | 25,448,000 | 91,156,000 | 43,191,000 | ||||||||||||
Gross profit | 9,668,000 | 18,817,000 | 28,774,000 | 43,970,000 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 1,769,000 | 521,000 | 5,415,000 | 1,945,000 | ||||||||||||
Selling and marketing | 8,034,000 | 7,428,000 | 26,405,000 | 20,888,000 | ||||||||||||
General and administrative | 17,760,000 | 15,362,000 | 59,540,000 | 44,357,000 | ||||||||||||
Impairment of goodwill and intangible assets | - | - | 35,570,000 | - | ||||||||||||
Impairment of property and equipment | 3,895,000 | - | 3,895,000 | - | ||||||||||||
Impairment of deposit due to vendor bankruptcy filing | - | 2,000,000 | - | 2,000,000 | ||||||||||||
Impairment of mined cryptocurrency | 113,000 | 515,000 | 376,000 | 2,930,000 | ||||||||||||
Total operating expenses | 31,571,000 | 25,826,000 | 131,201,000 | 72,120,000 | ||||||||||||
Loss from operations | (21,903,000 | ) | (7,009,000 | ) | (102,427,000 | ) | (28,150,000 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest and other income | 309,000 | 725,000 | 3,888,000 | 1,255,000 | ||||||||||||
Interest expense | (4,414,000 | ) | (2,367,000 | ) | (30,537,000 | ) | (32,063,000 | ) | ||||||||
Loss on extinguishment of debt | (1,546,000 | ) | - | (1,700,000 | ) | - | ||||||||||
Realized and unrealized (loss) gain on marketable securities | 74,000 | 709,000 | (170,000 | ) | 1,016,000 | |||||||||||
Loss from investment in unconsolidated entity | - | - | - | (924,000 | ) | |||||||||||
Impairment of equity securities | - | - | (9,555,000 | ) | - | |||||||||||
(Loss) gain on the sale of fixed assets | (33,000 | ) | - | 2,728,000 | - | |||||||||||
Change in fair value of warrant liability | (562,000 | ) | (3,000 | ) | 2,655,000 | (27,000 | ) | |||||||||
Total other expense, net | (6,172,000 | ) | (936,000 | ) | (32,691,000 | ) | (30,743,000 | ) | ||||||||
Loss before income taxes | (28,075,000 | ) | (7,945,000 | ) | (135,118,000 | ) | (58,893,000 | ) | ||||||||
Income tax (benefit) provision | (565,000 | ) | 144,000 | 540,000 | 361,000 | |||||||||||
Net loss from continuing operations | (27,510,000 | ) | (8,089,000 | ) | (135,658,000 | ) | (59,254,000 | ) | ||||||||
Net (loss) income from discontinued operations | (929,000 | ) | 93,000 | (5,862,000 | ) | (3,614,000 | ) | |||||||||
Net loss | (28,439,000 | ) | (7,996,000 | ) | (141,520,000 | ) | (62,868,000 | ) | ||||||||
Net loss attributable to non-controlling interest | 6,668,000 | 725,000 | 10,420,000 | 1,061,000 | ||||||||||||
Net loss attributable to Ault Alliance, Inc. | (21,771,000 | ) | (7,271,000 | ) | (131,100,000 | ) | (61,807,000 | ) | ||||||||
Preferred dividends | (413,000 | ) | (190,000 | ) | (963,000 | ) | (239,000 | ) | ||||||||
Net loss available to common stockholders | $ | (22,184,000 | ) | $ | (7,461,000 | ) | $ | (132,063,000 | ) | $ | (62,046,000 | ) | ||||
Basic and diluted net income (loss) per common share: | ||||||||||||||||
Continuing operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Discontinued operations | ) | ) | ) | |||||||||||||
Net loss per common share | $ | (3.97 | ) | $ | (7.61 | ) | $ | (49.87 | ) | $ | (82.51 | ) | ||||
Weighted average basic and diluted common shares outstanding | ||||||||||||||||
Comprehensive loss | ||||||||||||||||
Net loss available to common stockholders | $ | (22,184,000 | ) | $ | (7,461,000 | ) | $ | (132,063,000 | ) | $ | (62,046,000 | ) | ||||
Foreign currency translation adjustment | (651,000 | ) | 306,000 | (1,001,000 | ) | (1,452,000 | ) | |||||||||
Other comprehensive loss | (651,000 | ) | 306,000 | (1,001,000 | ) | (1,452,000 | ) | |||||||||
Total comprehensive loss | $ | (22,835,000 | ) | $ | (7,155,000 | ) | $ | (133,064,000 | ) | $ | (63,498,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended September 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, July 1, 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 | |||||||||||||||||||
Stock-based compensation | - | - | - | - | 959,000 | - | - | 1,622,000 | - | 2,581,000 | ||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 10,707,601 | 11,000 | 20,404,000 | - | - | - | - | 20,415,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (715,000 | ) | - | - | - | - | (715,000 | ) | ||||||||||||||||||||||||||||
Issuance of common stock for conversion of preferred stock liabilities | - | - | 105,909 | - | 584,000 | - | - | - | - | 584,000 | ||||||||||||||||||||||||||||||
Common stock issued in connection with issuance of notes payable | - | - | 39,752 | - | 162,000 | - | - | - | - | 162,000 | ||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity | - | - | - | - | - | (530,000 | ) | - | - | - | (530,000 | ) | ||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | - | - | - | (352,000 | ) | - | (352,000 | ) | ||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | 343,000 | - | 343,000 | ||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha LP (“Ault Alpha”) | - | - | - | - | - | - | - | - | (621,000 | ) | (621,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (21,771,000 | ) | - | - | - | (21,771,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | - | (413,000 | ) | - | - | - | (413,000 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (651,000 | ) | - | - | (651,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (6,668,000 | ) | - | (6,668,000 | ) | ||||||||||||||||||||||||||||
Distribution of securities of Imperalis Holding Corp., d/b/a TurnOnGreen, Inc. (“TurnOnGreen”) to Ault Alliance stockholders ($1.44 per share) | - | - | - | - | (5,500,000 | ) | - | - | 10,700,000 | - | 5,200,000 | |||||||||||||||||||||||||||||
Other | - | - | - | (1,000 | ) | (1,000 | ) | (3,000 | ) | (1,000 | ) | - | - | (6,000 | ) | |||||||||||||||||||||||||
BALANCES, September 30, 2023 | 557,237 | $ | - | 12,379,673 | $ | 12,000 | $ | 589,279,000 | $ | (467,088,000 | ) | $ | (2,102,000 | ) | $ | 29,498,000 | $ | (30,540,000 | ) | $ | 119,059,000 |
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 September 30, 2022
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, July 1, 2022 | 278,658 | $ | - | 1,081,469 | $ | 1,000 | $ | 550,036,000 | $ | (200,184,000 | ) | $ | (1,863,000 | ) | $ | 18,048,000 | $ | (20,639,000 | ) | $ | 345,399,000 | |||||||||||||||||||
Preferred stock issued | 8,310 | - | - | - | 207,000 | - | - | - | - | 207,000 | ||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | (65,000 | ) | - | - | - | - | (65,000 | ) | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 1,563,000 | - | - | 479,000 | - | 2,042,000 | ||||||||||||||||||||||||||||||
Issuance of Gresham Worldwide, Inc. common stock for acquisition of Giga-tronics Incorporated (“GIGA”) | - | - | - | - | 1,669,000 | - | - | - | - | 1,669,000 | ||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 56,688 | - | 4,557,000 | - | - | - | - | 4,557,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (79,000 | ) | - | - | - | - | (79,000 | ) | ||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | (132,000 | ) | - | - | (1,539,000 | ) | - | (1,671,000 | ) | |||||||||||||||||||||||||||
Non-controlling interest from GIGA acquisition | - | - | - | - | - | - | - | 2,735,000 | - | 2,735,000 | ||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | (8,148,000 | ) | (8,148,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (7,271,000 | ) | - | - | - | (7,271,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | - | (190,000 | ) | - | - | - | (190,000 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | 306,000 | - | - | 306,000 | ||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (725,000 | ) | - | (725,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | - | 2,000 | (2,000 | ) | - | (2,000 | ) | (1,000 | ) | (3,000 | ) | ||||||||||||||||||||||||||
BALANCES, September 30, 2022 | 286,968 | $ | - | 1,138,157 | $ | 1,000 | $ | 557,758,000 | $ | (207,647,000 | ) | $ | (1,557,000 | ) | $ | 18,996,000 | $ | (28,788,000 | ) | $ | 338,763,000 |
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)
Nine Months Ended September 30, 2023
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 | 5,642,000 | - | - | 3,546,000 | - | 9,188,000 | ||||||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 10,917,388 | 11,000 | 25,316,000 | - | - | - | - | 25,327,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (847,000 | ) | - | - | - | - | (847,000 | ) | ||||||||||||||||||||||||||||
Issuance of common stock for conversion of preferred stock liabilities | - | - | 143,402 | - | 912,000 | - | - | - | - | 912,000 | ||||||||||||||||||||||||||||||
Common stock issued in connection with issuance of notes payable | - | - | 39,752 | - | 162,000 | - | - | - | - | 162,000 | ||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity | - | - | - | - | - | (5,945,000 | ) | - | - | - | (5,945,000 | ) | ||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | 13,000 | - | - | (1,597,000 | ) | - | (1,584,000 | ) | ||||||||||||||||||||||||||||
Non-controlling position at RiskOn International, Inc. (“ROI”) subsidiary acquired | - | - | - | - | - | - | - | 6,357,000 | - | 6,357,000 | ||||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | 3,915,000 | - | 3,915,000 | ||||||||||||||||||||||||||||||
Distribution to Circle 8 Crane Services, LLC (“Circle 8”) non-controlling interest | - | - | - | - | - | - | - | (500,000 | ) | - | (500,000 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | (1,306,000 | ) | (1,306,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (131,100,000 | ) | - | - | - | (131,100,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | (963,000 | ) | - | - | - | (963,000 | ) | |||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (1,001,000 | ) | - | - | (1,001,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (10,420,000 | ) | - | (10,420,000 | ) | ||||||||||||||||||||||||||||
Distribution of securities of TurnOnGreen to Ault Alliance stockholders ($2.02 per share) | - | - | - | - | (10,700,000 | ) | - | - | 10,700,000 | - | - | |||||||||||||||||||||||||||||
Other | - | - | - | - | (1,000 | ) | (2,000 | ) | (1,000 | ) | 1,000 | 1,000 | (2,000 | ) | ||||||||||||||||||||||||||
BALANCES, September 30, 2023 | 557,237 | $ | - | 12,379,673 | $ | 12,000 | $ | 589,279,000 | $ | (467,088,000 | ) | $ | (2,102,000 | ) | $ | 29,498,000 | $ | (30,540,000 | ) | $ | 119,059,000 |
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)
Nine Months Ended September 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 | $ | - | 281,149 | $ | - | $ | 385,728,000 | $ | (145,600,000 | ) | $ | (106,000 | ) | $ | 1,613,000 | $ | (13,180,000 | ) | $ | 228,455,000 | |||||||||||||||||||
Issuance of common stock for restricted stock awards | - | - | 1,473 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Preferred stock issued for cash | 154,928 | - | - | - | 3,873,000 | - | - | - | - | 3,873,000 | ||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | (602,000 | ) | - | - | - | - | (602,000 | ) | ||||||||||||||||||||||||||||
Stock-based compensation | 5,190,000 | - | - | 556,000 | - | 5,746,000 | ||||||||||||||||||||||||||||||||||
Issuance of Gresham Worldwide, Inc. common stock for acquisition of GIGA | - | - | - | - | 1,669,000 | - | - | - | - | 1,669,000 | ||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | 855,535 | 1,000 | 167,982,000 | - | - | - | - | 167,983,000 | ||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | (4,103,000 | ) | - | - | - | - | (4,103,000 | ) | ||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | (1,980,000 | ) | - | - | (1,921,000 | ) | - | (3,901,000 | ) | |||||||||||||||||||||||||||
Non-controlling interest from AVLP acquisition | - | - | - | - | - | - | - | 6,738,000 | - | 6,738,000 | ||||||||||||||||||||||||||||||
Non-controlling interest from SMC acquisition | - | - | - | - | - | - | - | 10,336,000 | - | 10,336,000 | ||||||||||||||||||||||||||||||
Non-controlling interest from GIGA acquisition | - | - | - | - | - | - | - | 2,735,000 | - | 2,735,000 | ||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | (15,607,000 | ) | (15,607,000 | ) | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (61,807,000 | ) | - | - | - | (61,807,000 | ) | ||||||||||||||||||||||||||||
Preferred dividends | - | - | - | - | (239,000 | ) | - | - | - | (239,000 | ) | |||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | (1,452,000 | ) | - | - | (1,452,000 | ) | ||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (1,061,000 | ) | - | (1,061,000 | ) | ||||||||||||||||||||||||||||
Other | - | - | - | - | 1,000 | (1,000 | ) | 1,000 | - | (1,000 | ) | - | ||||||||||||||||||||||||||||
BALANCES, September 30, 2022 | 286,968 | $ | - | 1,138,157 | $ | 1,000 | $ | 557,758,000 | $ | (207,647,000 | ) | $ | (1,557,000 | ) | $ | 18,996,000 | $ | (28,788,000 | ) | $ | 338,763,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (141,520,000 | ) | $ | (62,868,000 | ) | ||
Net loss from discontinued operations | (5,862,000 | ) | (3,614,000 | ) | ||||
Net loss from continuing operations | (135,658,000 | ) | (59,254,000 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 20,808,000 | 8,298,000 | ||||||
Amortization of debt discount | 22,463,000 | 26,665,000 | ||||||
Amortization of right-of-use assets | 2,142,000 | 1,193,000 | ||||||
Impairment of goodwill and intangible assets | 35,570,000 | - | ||||||
Impairment of property and equipment | 3,895,000 | - | ||||||
Stock-based compensation | 9,188,000 | 5,746,000 | ||||||
Impairment of deposit due to vendor bankruptcy filing | - | 2,000,000 | ||||||
Gain on the sale of fixed assets | (2,728,000 | ) | - | |||||
Impairment of equity securities | 11,555,000 | - | ||||||
Impairment of cryptocurrencies | 376,000 | 2,930,000 | ||||||
Realized gain on the sale of cryptocurrencies | (404,000 | ) | (829,000 | ) | ||||
Revenue, cryptocurrency mining | (23,273,000 | ) | (11,398,000 | ) | ||||
Realized losses on sale of marketable securities | (33,140,000 | ) | (19,194,000 | ) | ||||
Unrealized (gains) losses on marketable securities | (2,554,000 | ) | 16,937,000 | |||||
Unrealized losses on investments in common stock, related parties | 3,752,000 | 5,676,000 | ||||||
Unrealized gains on equity securities | - | (32,949,000 | ) | |||||
Income from cash held in trust | (2,561,000 | ) | - | |||||
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 | (2,655,000 | ) | (917,000 | ) | ||||
Other | 1,550,000 | (766,000 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Proceeds from the sale of cryptocurrencies | 21,330,000 | 8,952,000 | ||||||
Marketable equity securities | 71,159,000 | 68,532,000 | ||||||
Accounts receivable | (5,582,000 | ) | (3,022,000 | ) | ||||
Inventories | (456,000 | ) | (5,867,000 | ) | ||||
Prepaid expenses and other current assets | (1,530,000 | ) | 1,599,000 | |||||
Other assets | (3,969,000 | ) | (2,944,000 | ) | ||||
Accounts payable and accrued expenses | 13,527,000 | 7,528,000 | ||||||
Lease liabilities | (2,511,000 | ) | (1,334,000 | ) | ||||
Net cash provided by operating activities from continuing operations | 1,474,000 | 21,206,000 | ||||||
Net cash (used in) provided by operating activities from discontinued operations | (3,632,000 | ) | 683,000 | |||||
Net cash (used in) provided by operating activities | (2,158,000 | ) | 21,889,000 | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (8,734,000 | ) | (80,058,000 | ) | ||||
Investment in promissory notes and other, related parties | - | (2,200,000 | ) | |||||
Investments in common stock and warrants, related parties | - | (4,840,000 | ) | |||||
Purchase of SMC, net of cash received | - | (8,239,000 | ) | |||||
Purchase of GIGA, net of cash received | - | (3,687,000 | ) | |||||
Cash received upon acquisition of AVLP | - | 1,245,000 | ||||||
Acquisition of non-controlling interests | (1,584,000 | ) | (3,901,000 | ) | ||||
Purchase of marketable equity securities | - | (1,981,000 | ) | |||||
Sales of marketable equity securities | - | 11,748,000 | ||||||
Investments in loans receivable | (182,000 | ) | (7,081,000 | ) | ||||
Principal payments on loans receivable | - | 10,525,000 | ||||||
Investments in equity securities | (10,702,000 | ) | (22,449,000 | ) | ||||
Proceeds from the sale of fixed assets | 4,515,000 | - | ||||||
Other | (79,000 | ) | - | |||||
Net cash used in investing activities from continuing operations | (16,766,000 | ) | (110,918,000 | ) | ||||
Net cash used in investing activities from discontinued operations | (6,103,000 | ) | (4,442,000 | ) | ||||
Net cash used in investing activities | (22,869,000 | ) | (115,360,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the 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 |
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 |
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of common stock | $ | 25,327,000 | $ | 167,983,000 | ||||
Financing cost in connection with sales of common stock | (847,000 | ) | (4,103,000 | ) | ||||
Proceeds from sales of preferred stock | 6,309,000 | 3,873,000 | ||||||
Financing cost in connection with sales of preferred stock | (3,431,000 | ) | (602,000 | ) | ||||
Proceeds from subsidiaries’ sale of stock to non-controlling interests | 3,915,000 | - | ||||||
Distribution to Circle 8 non-controlling interest | (500,000 | ) | - | |||||
Proceeds from notes payable | 40,406,000 | 15,268,000 | ||||||
Repayment of margin accounts | (767,000 | ) | (16,111,000 | ) | ||||
Payments on notes payable | (58,068,000 | ) | (67,698,000 | ) | ||||
Payments of preferred dividends | (963,000 | ) | (239,000 | ) | ||||
Purchase of treasury stock | (1,306,000 | ) | (15,607,000 | ) | ||||
Proceeds from sales of convertible notes | 9,169,000 | - | ||||||
Payments on convertible notes | (660,000 | ) | - | |||||
Net cash provided by financing activities from continuing operations | 18,584,000 | 82,764,000 | ||||||
Net cash provided by financing activities from discontinued operations | 5,189,000 | 3,297,000 | ||||||
Net cash provided by financing activities | 23,773,000 | 86,061,000 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (311,000 | ) | 920,000 | |||||
Net decrease in cash and cash equivalents and restricted cash | (1,565,000 | ) | (6,490,000 | ) | ||||
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 | 12,490,000 | 14,743,000 | ||||||
Less cash and cash equivalents and restricted cash of discontinued operations at end of period | (1,851,000) | (6,154,000) | ||||||
Cash and cash equivalents and restricted cash of continuing operations at end of period | $ | 10,639,000 | $ | 8,589,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest – continuing operations | $ | 3,990,000 | $ | 1,438,000 | ||||
Cash paid during the period for interest – discontinued operations | $ | 5,513,000 | $ | 3,764,000 | ||||
Non-cash investing and financing activities: | ||||||||
Settlement of accounts payable with digital currency | $ | 20,000 | $ | 417,000 | ||||
Conversion of investment in unconsolidated entity for acquisition of AVLP | $ | - | $ | 20,706,000 | ||||
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 | $ | 40,324,000 | ||||
Conversion of loans receivable to marketable securities | $ | 5,430,000 | $ | 3,650,000 | ||||
Conversion of interest receivable to marketable securities | $ | - | $ | 250,000 | ||||
Recognition of new operating lease right-of-use assets and lease liabilities | $ | 3,952,000 | $ | 2,188,000 | ||||
Remeasurement of Ault Disruptive temporary equity | $ | 5,945,000 | $ | - | ||||
Preferred stock exchanged for notes payable | $ | 9,224,000 | $ | - | ||||
Notes payable exchanged for convertible notes payable | $ | 2,200,000 | $ | - | ||||
Notes payable exchanged for notes payable, related party | $ | 11,645,000 | $ | - | ||||
Redeemable noncontrolling interests in equity of subsidiaries paid with cash and marketable securities held in trust account | $ | 120,064,000 | $ | - | ||||
Dividend paid in TurnOnGreen common stock in additional paid-in capital | $ | 10,700,000 | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 eight 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 – defense industry; |
· | TurnOnGreen – commercial electronics solutions; |
· | RiskOn International, Inc., formerly BitNile Metaverse, Inc. (“ROI”) – immersive metaverse platform; and |
· | 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 September 30, 2017,2023, the Company had cash and cash equivalents of $314, an accumulated deficit of $17,212 and a$8.7 million, negative working capital of $4,174.$45.1 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 September 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 nine months ended September 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 Bitcoin mining under Accounting Standards Codification (“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 the mining pool operator with which 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 are therefore 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 ASC 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for the Preferred Shares (as defined in Note 17). 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 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.
Discontinued operations
The Company records discontinued operations when the disposal of a separately identified business unit constitutes a strategic shift in the Company’s operations, as defined in ASC Topic 205-20, Discontinued Operations (“ASC Topic 205-20”).
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,beginning on January 1, 2023. The adoption of this guidance did not have a material impact on the durationCompany’s condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and extentContract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to whichbe recognized and measured by the fair valueacquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is below cost,effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
4. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
Presentation of AGREE Operations
In September 2023, the Company committed to a plan for its wholly owned subsidiary AGREE to list for sale its four recently renovated Midwest hotels, the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford. The decision to sell the hotels follows the decision to also list the multifamily development site in St. Petersburg, Florida and is driven by the Company’s abilitydesire to focus on its core businesses, Energy, Fintech and intent to holdSentinum. The Company’s real estate properties, which include both hotels and land are currently listed for sale.
In connection with the investmentplanned sale of AGREE assets, the Company concluded that the net assets of AGREE met the criteria for classification as held for sale. In addition, the proposed sale represents a sufficient period of time to allow for recovery of value instrategic shift that will have a significant effect on the foreseeable future.Company’s operations and financial results. As a result, of this analysis, the Company has determined that its cost basis in AVLP equitable securities approximatespresented the current fair value.
As of September 30, 2023, the Company expects the planned sale of AGREE assets to close within one year and, as a direct deduction from the face amount of the convertible promissory notes. Thus,result, the Company has determined thatclassified the amortized costtotal assets and total liabilities associated with AGREE as current in the consolidated balance sheets as of September 30, 2023.
The following table presents the assets and liabilities of AGREE operations:
Schedule of assets and liabilities of agree operations | ||||||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Cash and cash equivalents | $ | 1,851,000 | $ | 2,550,000 | ||||
Restricted cash | - | 2,831,000 | ||||||
Accounts receivable | 256,000 | 264,000 | ||||||
Inventories | 51,000 | 44,000 | ||||||
Prepaid expenses and other current assets | 262,000 | 270,000 | ||||||
Total current assets | 2,420,000 | 5,959,000 | ||||||
Property and equipment, net | 96,176,000 | 92,535,000 | ||||||
Total assets | 98,596,000 | 98,494,000 | ||||||
Accounts payable and accrued expenses | 2,097,000 | 2,631,000 | ||||||
Total current liabilities | 2,097,000 | 2,631,000 | ||||||
Notes payable | 67,115,000 | 61,633,000 | ||||||
Total liabilities | 69,212,000 | 64,264,000 | ||||||
Net assets of discontinued operations | $ | 29,384,000 | $ | 34,230,000 |
A disposal group classified as held for sale shall be measured at the lower of its convertible promissory notes approximatescarrying amount or fair value and are subjectless costs to a periodicsell. No impairment review. The interest income, including amortizationwas recognized up reclassification of the discount arising at acquisition,disposal group as held for sale.
The following table presents the results of AGREE operations:
Schedule of estimated costs to sell and expected | ||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue, hotel and real estate operations | $ | 5,404,000 | $ | 5,513,000 | $ | 12,031,000 | $ | 12,809,000 | ||||||||
Cost of revenue, hotel operations | 3,278,000 | 3,230,000 | 9,086,000 | 8,350,000 | ||||||||||||
Gross profit | 2,126,000 | 2,283,000 | 2,945,000 | 4,459,000 | ||||||||||||
General and administrative | 1,076,000 | 585,000 | 3,294,000 | 4,309,000 | ||||||||||||
Total operating expenses | 1,076,000 | 585,000 | 3,294,000 | 4,309,000 | ||||||||||||
Income (loss) from operations | 1,050,000 | 1,698,000 | (349,000 | ) | 150,000 | |||||||||||
Interest expense | (1,979,000 | ) | (1,605,000 | ) | (5,513,000 | ) | (3,764,000 | ) | ||||||||
Net (loss) income from discontinued operations | $ | (929,000 | ) | $ | 93,000 | $ | (5,862,000 | ) | $ | (3,614,000 | ) |
5. REVENUE DISAGGREGATION
The following tables summarize disaggregated customer contract revenues and the source of the revenue for the convertible promissory notes arethree and nine months ended September 30, 2023 and 2022. Revenues from lending and trading activities included in earnings. Inconsolidated revenues were primarily interest, dividend and other investment income, which are not considered to be revenues from contracts with customers under GAAP.
The Company’s disaggregated revenues consisted of the future, iffollowing for the Company does not expect to recover the entire amortized cost basis, the Company shall recognize other-than-temporary impairments in other comprehensive income (loss).
Schedule of disaggregated revenues | ||||||||||||||||||||||||||||||||
GIGA | TurnOn Green | Fintech | Sentinum | SMC | ROI | Energy | Total | |||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||
North America | $ | 3,711,000 | $ | 1,075,000 | $ | - | $ | 7,891,000 | $ | 15,931,000 | $ | 18,000 | $ | 12,929,000 | $ | 41,555,000 | ||||||||||||||||
Europe | 2,521,000 | 66,000 | - | - | - | - | 2,000 | 2,589,000 | ||||||||||||||||||||||||
Middle East and other | 4,043,000 | 25,000 | - | - | - | - | - | 4,068,000 | ||||||||||||||||||||||||
Revenue from contracts with customers | 10,275,000 | 1,166,000 | - | 7,891,000 | 15,931,000 | 18,000 | 12,931,000 | 48,212,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | (249,000 | ) | - | - | - | - | (249,000 | ) | ||||||||||||||||||||||
Total revenue | $ | 10,275,000 | $ | 1,166,000 | $ | (249,000 | ) | $ | 7,891,000 | $ | 15,931,000 | $ | 18,000 | $ | 12,931,000 | $ | 47,963,000 | |||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||
Radio frequency/microwave filters | $ | 2,201,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,201,000 | ||||||||||||||||
Power supply units & systems | 2,316,000 | 1,074,000 | - | - | - | - | - | 3,390,000 | ||||||||||||||||||||||||
Healthcare diagnostic systems | 1,243,000 | - | - | - | - | - | - | 1,243,000 | ||||||||||||||||||||||||
Defense systems | 4,155,000 | - | - | - | - | - | - | 4,155,000 | ||||||||||||||||||||||||
Digital currency mining | - | - | - | 7,558,000 | - | - | - | 7,558,000 | ||||||||||||||||||||||||
Karaoke machines and related consumer goods | - | - | - | - | 15,931,000 | - | - | 15,931,000 | ||||||||||||||||||||||||
Crane rental | - | - | - | - | - | - | 12,490,000 | 12,490,000 | ||||||||||||||||||||||||
Other | 360,000 | 92,000 | - | 333,000 | - | 18,000 | 441,000 | 1,244,000 | ||||||||||||||||||||||||
Revenue from contracts with customers | 10,275,000 | 1,166,000 | - | 7,891,000 | 15,931,000 | 18,000 | 12,931,000 | 48,212,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | (249,000 | ) | - | - | - | - | (249,000 | ) | ||||||||||||||||||||||
Total revenue | $ | 10,275,000 | $ | 1,166,000 | $ | (249,000 | ) | $ | 7,891,000 | $ | 15,931,000 | $ | 18,000 | $ | 12,931,000 | $ | 47,963,000 | |||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
Goods transferred at a point in time | $ | 5,391,000 | $ | 1,162,000 | $ | - | $ | 7,891,000 | $ | 15,931,000 | $ | 18,000 | $ | 441,000 | $ | 30,834,000 | ||||||||||||||||
Services transferred over time | 4,884,000 | 4,000 | - | - | - | - | 12,490,000 | 17,378,000 | ||||||||||||||||||||||||
Revenue from contracts with customers | $ | 10,275,000 | $ | 1,166,000 | $ | - | $ | 7,891,000 | $ | 15,931,000 | $ | 18,000 | $ | 12,931,000 | $ | 48,212,000 |
The categorizationCompany’s disaggregated revenues consisted of a financial instrument within the valuation hierarchy is based uponfollowing for the lowest levelnine months ended September 30, 2023 (excludes Ault Disruptive, as that segment has no revenue):
GIGA | TurnOn Green | Fintech | Sentinum | SMC | ROI | Energy | Total | |||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||
North America | $ | 8,901,000 | $ | 2,401,000 | $ | - | $ | 24,389,000 | $ | 21,939,000 | $ | 63,000 | $ | 38,604,000 | $ | 96,297,000 | ||||||||||||||||
Europe | 7,232,000 | 77,000 | - | - | - | - | 109,000 | 7,418,000 | ||||||||||||||||||||||||
Middle East and other | 11,590,000 | 288,000 | - | - | - | - | - | 11,878,000 | ||||||||||||||||||||||||
Revenue from contracts with customers | 27,723,000 | 2,766,000 | - | 24,389,000 | 21,939,000 | 63,000 | 38,713,000 | 115,593,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 4,337,000 | - | - | - | - | 4,337,000 | ||||||||||||||||||||||||
Total revenue | $ | 27,723,000 | $ | 2,766,000 | $ | 4,337,000 | $ | 24,389,000 | $ | 21,939,000 | $ | 63,000 | $ | 38,713,000 | $ | 119,930,000 | ||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||
Radio frequency/microwave filters | $ | 5,420,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,420,000 | ||||||||||||||||
Power supply units & systems | 6,994,000 | 2,544,000 | - | - | - | - | - | 9,538,000 | ||||||||||||||||||||||||
Healthcare diagnostic systems | 3,481,000 | - | - | - | - | - | - | 3,481,000 | ||||||||||||||||||||||||
Defense systems | 10,719,000 | - | - | - | - | - | - | 10,719,000 | ||||||||||||||||||||||||
Digital currency mining | - | - | - | 23,273,000 | - | - | - | 23,273,000 | ||||||||||||||||||||||||
Karaoke machines and related consumer goods | - | - | - | - | 21,939,000 | - | - | 21,939,000 | ||||||||||||||||||||||||
Crane rental | - | - | - | - | - | - | 37,726,000 | 37,726,000 | ||||||||||||||||||||||||
Other | 1,109,000 | 222,000 | - | 1,116,000 | - | 63,000 | 987,000 | 3,497,000 | ||||||||||||||||||||||||
Revenue from contracts with customers | 27,723,000 | 2,766,000 | - | 24,389,000 | 21,939,000 | 63,000 | 38,713,000 | 115,593,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 4,337,000 | - | - | - | - | 4,337,000 | ||||||||||||||||||||||||
Total revenue | $ | 27,723,000 | $ | 2,766,000 | $ | 4,337,000 | $ | 24,389,000 | $ | 21,939,000 | $ | 63,000 | $ | 38,713,000 | $ | 119,930,000 | ||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
Goods transferred at a point in time | $ | 15,517,000 | $ | 2,755,000 | $ | - | $ | 24,389,000 | $ | 21,939,000 | $ | 63,000 | $ | 987,000 | $ | 65,650,000 | ||||||||||||||||
Services transferred over time | 12,206,000 | 11,000 | - | - | - | - | 37,726,000 | 49,943,000 | ||||||||||||||||||||||||
Revenue from contracts with customers | $ | 27,723,000 | $ | 2,766,000 | $ | - | $ | 24,389,000 | $ | 21,939,000 | $ | 63,000 | $ | 38,713,000 | $ | 115,593,000 |
The Company’s disaggregated revenues consisted of inputthe following for the three months ended September 30, 2022 (excludes Ault Disruptive, as that is significant tosegment has no revenue):
GIGA | TurnOn Green | Fintech | SMC | Sentinum | Total | |||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||
North America | $ | 2,472,000 | $ | 1,428,000 | $ | - | $ | 16,138,000 | $ | 4,146,000 | $ | 24,184,000 | ||||||||||||
Europe | 2,288,000 | 32,000 | 201,000 | 306,000 | - | 2,827,000 | ||||||||||||||||||
Middle East and other | 3,022,000 | 202,000 | - | 670,000 | - | 3,894,000 | ||||||||||||||||||
Revenue from contracts with customers | 7,782,000 | 1,662,000 | 201,000 | 17,114,000 | 4,146,000 | 30,905,000 | ||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 13,360,000 | - | - | 13,360,000 | ||||||||||||||||||
Total revenue | $ | 7,782,000 | $ | 1,662,000 | $ | 13,561,000 | $ | 17,114,000 | $ | 4,146,000 | $ | 44,265,000 | ||||||||||||
Major Goods or Services | ||||||||||||||||||||||||
Power supply units | $ | 2,799,000 | $ | 1,480,000 | $ | - | $ | - | $ | - | $ | 4,279,000 | ||||||||||||
Digital currency mining, net | - | - | - | - | 3,874,000 | 3,874,000 | ||||||||||||||||||
Karaoke machines and related | - | - | - | 17,114,000 | - | 17,114,000 | ||||||||||||||||||
Other | 4,983,000 | 182,000 | 201,000 | - | 272,000 | 5,638,000 | ||||||||||||||||||
Revenue from contracts with customers | 7,782,000 | 1,662,000 | 201,000 | 17,114,000 | 4,146,000 | 30,905,000 | ||||||||||||||||||
Revenue, lending and trading activities | - | - | 13,360,000 | - | - | 13,360,000 | ||||||||||||||||||
Total revenue | $ | 7,782,000 | $ | 1,662,000 | $ | 13,561,000 | $ | 17,114,000 | $ | 4,146,000 | $ | 44,265,000 | ||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||
Goods transferred at a point in time | $ | 5,821,000 | $ | 1,662,000 | $ | 201,000 | $ | 17,114,000 | $ | 4,146,000 | $ | 28,944,000 | ||||||||||||
Services transferred over time | 1,961,000 | - | - | - | - | 1,961,000 | ||||||||||||||||||
Revenue from contracts with customers | $ | 7,782,000 | $ | 1,662,000 | $ | 201,000 | $ | 17,114,000 | $ | 4,146,000 | $ | 30,905,000 |
The Company’s disaggregated revenues consisted of the fair value measurement. following for the nine months ended September 30, 2022:
GIGA | TurnOn Green | Fintech | SMC | Sentinum | Total | |||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||
North America | $ | 5,094,000 | $ | 3,262,000 | $ | 19,000 | $ | 16,138,000 | $ | 12,220,000 | $ | 36,733,000 | ||||||||||||
Europe | 7,007,000 | 79,000 | 201,000 | 306,000 | - | 7,593,000 | ||||||||||||||||||
Middle East and other | 9,429,000 | 512,000 | - | 670,000 | - | 10,611,000 | ||||||||||||||||||
Revenue from contracts with customers | 21,530,000 | 3,853,000 | 220,000 | 17,114,000 | 12,220,000 | 54,937,000 | ||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 32,224,000 | - | - | 32,224,000 | ||||||||||||||||||
Total revenue | $ | 21,530,000 | $ | 3,853,000 | $ | 32,444,000 | $ | 17,114,000 | $ | 12,220,000 | $ | 87,161,000 | ||||||||||||
Major Goods or Services | ||||||||||||||||||||||||
Power supply units | $ | 6,928,000 | $ | 3,592,000 | $ | - | $ | - | $ | - | $ | 10,520,000 | ||||||||||||
Healthcare diagnostic systems | 2,285,000 | - | - | - | - | 2,285,000 | ||||||||||||||||||
Defense systems | 6,842,000 | - | - | - | - | 6,842,000 | ||||||||||||||||||
Digital currency mining | - | - | - | - | 11,398,000 | 11,398,000 | ||||||||||||||||||
Karaoke machines and related | - | - | - | 17,114,000 | - | 17,114,000 | ||||||||||||||||||
Other | 5,475,000 | 261,000 | 220,000 | - | 822,000 | 6,778,000 | ||||||||||||||||||
Revenue from contracts with customers | 21,530,000 | 3,853,000 | 220,000 | 17,114,000 | 12,220,000 | 54,937,000 | ||||||||||||||||||
Revenue, lending and trading activities | - | - | 32,224,000 | - | - | 32,224,000 | ||||||||||||||||||
Total revenue | $ | 21,530,000 | $ | 3,853,000 | $ | 32,444,000 | $ | 17,114,000 | $ | 12,220,000 | $ | 87,161,000 | ||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||
Goods transferred at a point in time | $ | 12,934,000 | $ | 3,853,000 | $ | 220,000 | $ | 17,114,000 | $ | 12,220,000 | $ | 46,341,000 | ||||||||||||
Services transferred over time | 8,596,000 | - | - | - | - | 8,596,000 | ||||||||||||||||||
Revenue from contracts with customers | $ | 21,530,000 | $ | 3,853,000 | $ | 220,000 | $ | 17,114,000 | $ | 12,220,000 | $ | 54,937,000 |
6. 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 September 30, 2023 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party | $ | 2,712,000 | $ | 2,712,000 | $ | - | $ | - | ||||||||
Investments in marketable equity securities | 72,000 | 72,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 2,171,000 | 2,171,000 | - | - | ||||||||||||
Total assets measured at fair value | $ | 4,955,000 | $ | 4,955,000 | $ | - | $ | - | ||||||||
Liabilities: | ||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 832,000 | $ | - | $ | - | $ | 832,000 | ||||||||
Convertible promissory notes | 18,054,000 | - | - | 18,054,000 | ||||||||||||
Total liabilities measured at fair value | $ | 18,886,000 | $ | - | $ | - | $ | 18,886,000 |
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 effective interest method. Duringchanges in investments in other equity securities measured and carried at fair value on a recurring basis with the three anduse of significant unobservable inputs (Level 3) for the nine months ended September 30, 2017, the Company recorded amortization of debt discounts of $652 and $1,239, respectively. The Company did not recognize any debt discount2023 (no changes during the three months ended September 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 September 30, 2023 | $ | - |
Equity Investments for Which Measurement Alternative Has Been Selected
As of September 30, 2023 and December 31, 2022, the Company held equity investments in other securities, which consisted of investments in preferred stock, valued at $26.0 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 September 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.
7. Marketable EQUITY Securities
Marketable equity securities with readily determinable market prices consisted of the following as of September 30, 2023 and December 31, 2022:
Schedule of marketable securities | ||||||||||||||||
Marketable equity securities at September 30, 2023 | ||||||||||||||||
Gross unrealized | Gross unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Common shares | $ | 5,133,000 | $ | 26,000 | $ | (5,087,000 | ) | $ | 72,000 |
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.
8. DIGITAL CURRENCIES
The following table presents the activities of the digital currencies (included in prepaid expenses and other current assets) for the nine months ended September 30, 2016.
Schedule of activities of the digital currencies | ||||
Digital Currencies | ||||
Balance at January 1, 2023 | $ | 554,000 | ||
Additions of mined digital currencies | 21,103,000 | |||
Payments to vendors | (20,000 | ) | ||
Impairment of mined cryptocurrency | (376,000 | ) | ||
Sale of digital currencies | (21,330,000 | ) | ||
Realized gain on sale of digital currencies | 404,000 | |||
Balance at September 30, 2023 | $ | 335,000 |
Digital Currencies | ||||
Balance at January 1, 2022 | $ | 2,165,000 | ||
Additions of mined digital currencies | 11,398,000 | |||
Payments to vendors | (418,000 | ) | ||
Impairment of mined cryptocurrency | (2,930,000 | ) | ||
Sale of digital currencies | (8,952,000 | ) | ||
Realized gain on sale of digital currencies | 829,000 | |||
Balance at September 30, 2022 | $ | 2,092,000 |
9. PROPERTY AND EQUIPMENT, NET
At September 30, 2023 and December 31, 2022, property and equipment consisted of:
Schedule of property and equipment | ||||||||
September 30, 2023 | December 31, 2022 | |||||||
Building and improvements | $ | 11,796,000 | $ | 10,428,000 | ||||
Bitcoin mining equipment | 50,640,000 | 42,438,000 | ||||||
Crane rental equipment | 34,341,000 | 32,453,000 | ||||||
Land | 2,692,000 | 2,567,000 | ||||||
Computer, software and related equipment | 23,517,000 | 23,168,000 | ||||||
Aircraft | 15,983,000 | 15,983,000 | ||||||
Vehicles | 4,797,000 | 3,314,000 | ||||||
Office furniture and equipment | 682,000 | 610,000 | ||||||
Oil and natural gas properties, unproved properties | 3,878,000 | 972,000 | ||||||
148,326,000 | 131,933,000 | |||||||
Accumulated depreciation and amortization | (25,726,000 | ) | (5,882,000 | ) | ||||
Property and equipment placed in service, net | 122,600,000 | 126,051,000 | ||||||
Construction in progress AVLP equipment | 9,444,000 | 9,400,000 | ||||||
Deposits on cryptocurrency machines | - | 11,328,000 | ||||||
Property and equipment, net | $ | 132,044,000 | $ | 146,779,000 |
Summary of depreciation expense:
Schedule of depreciation | ||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Depreciation expense | $ | 7,805,000 | $ | 2,779,000 | $ | 20,047,000 | $ | 7,742,000 |
10. INTANGIBLE ASSETS, NET
At September 30, 2023 and December 31, 2022, intangible assets consisted of:
Schedule of intangible asset | ||||||||||
Useful Life | September 30, 2023 | December 31, 2022 | ||||||||
Definite-lived intangible assets: | ||||||||||
Developed technology | 3-8 years | $ | 7,984,000 | $ | 24,584,000 | |||||
Customer list | 8-10 years | 5,755,000 | 5,865,000 | |||||||
Trade names | 5-10 years | 3,916,000 | 4,316,000 | |||||||
Domain name and other intangible assets | 5 years | 580,000 | 630,000 | |||||||
18,235,000 | 35,395,000 | |||||||||
Accumulated amortization | (2,753,000 | ) | (2,102,000 | ) | ||||||
Total definite-lived intangible assets | $ | 15,482,000 | $ | 33,786,000 | ||||||
Indefinite-lived intangible assets: | ||||||||||
Trade name and trademark | Indefinite life | 1,498,000 | 1,493,000 | |||||||
Total intangible assets, net | $ | 16,980,000 | $ | 34,786,000 |
Certain of 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 Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Amortization expense | $ | 254,000 | $ | 223,000 | $ | 761,000 | $ | 381,000 |
As of September 30, 2023, intangible assets subject to amortization have an average remaining useful life of 9.5 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.
Schedule of estimated amortization expense | ||||
2023 | $ | 507,000 | ||
2024 | 2,026,000 | |||
2025 | 1,926,000 | |||
2026 | 1,826,000 | |||
2027 | 1,826,000 | |||
Thereafter | 7,371,000 | |||
$ | 15,482,000 |
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 nine months ended September 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 whereby 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%.
11. GOODWILL
The following table summarizes the changes in the Company’s goodwill for the nine months ended September 30, 2023:
Schedule of goodwill | ||||
Goodwill | ||||
Balance as of January 1, 2023 | $ | 27,902,000 | ||
Acquisition of ROI | 17,000 | |||
Impairment of goodwill | (18,570,000 | ) | ||
Effect of exchange rate changes | (376,000 | ) | ||
Balance as of September 30, 2023 | $ | 8,973,000 |
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 that 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 nine months ended September 30, 2023.
12. CONSOLIDATED VARIABLE INTEREST ENTITY - SMC
During the quarter ended September 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.
13. BUSINESS COMBINATION
ROI Acquisition
On March 6, 2023, the Company closed a Share Exchange Agreement (the “Agreement”) with ROI and sold to ROI all of the outstanding shares of capital stock of the Company’s subsidiary, BitNile.com, Inc. (“BitNile.com”) as well as RiskOn360, Inc. (formerly Ault Iconic, 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, ROI issued shares of preferred stock convertible into common stock of ROI representing approximately 73.2% of ROI’s outstanding common stock. Pending approval of the transaction by the Nasdaq Stock Market and ROI’s shareholders, the preferred stock combined are subject to a 19.99% beneficial ownership limitation. The Transaction benefits the Company as ROI is a publicly traded company and provides BitNile.com access to capital markets as the primary focus for ROI to fund the expected growth of the ROI metaverse platform.
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 consolidates ROI as a VIE due to its significant level of influence and control of ROI, 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 ROI | Amount | |||
Common stock | $ | 287,000 |
The total purchase price to acquire ROI 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 |
14. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and Ault & Company, Inc. (“Ault & Company”) at September 30, 2023 and December 31, 2022, were comprised of the following:
Investment in Promissory Notes, Related Parties – Ault & Company
Schedule of investment | ||||||||||||
Interest | September 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 | 518,000 | 368,000 | ||||||||||
Total investment in promissory note, related party | $ | 3,018,000 | $ | 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 Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest income, related party | $ | 50,000 | $ | 50,000 | $ | 150,000 | $ | 150,000 |
Investment in Common Stock, Related Parties – Alzamend
Schedule of investment in common stock | ||||||||||||
Investments in common stock, related parties at September 30, 2023 | ||||||||||||
Cost | Gross unrealized losses | Fair value | ||||||||||
Common shares | $ | 24,688,000 | $ | (21,976,000 | ) | $ | 2,712,000 |
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 September 30, 2023 and 2022:
Schedule of investment in warrants and common stock | ||||||||
For the Three Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Balance at July 1 | $ | 5,836,000 | $ | 8,845,000 | ||||
Investment in common stock of Alzamend | - | 177,000 | ||||||
Unrealized gain (loss) in common stock of Alzamend | (3,124,000 | ) | 3,372,000 | |||||
Balance at September 30 | $ | 2,712,000 | $ | 12,394,000 |
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the nine months ended September 30, 2023 and 2022:
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Balance at January 1 | $ | 6,449,000 | $ | 13,230,000 | ||||
Investment in common stock of Alzamend | 15,000 | 4,840,000 | ||||||
Unrealized loss in common stock of Alzamend | (3,752,000 | ) | (5,676,000 | ) | ||||
Balance at September 30 | $ | 2,712,000 | $ | 12,394,000 |
Unrealized loss in common stock of Alzamend is recorded within revenue from lending and trading activities on the condensed consolidated statements of operations.
15. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at September 30, 2023 and December 31, 2022 consisted of:
Schedule of other current liabilities | ||||||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Accounts payable | $ | 36,883,000 | $ | 20,027,000 | ||||
Accrued payroll and payroll taxes | 12,420,000 | 9,789,000 | ||||||
Financial instrument liabilities | 863,000 | 651,000 | ||||||
Interest payable | 3,946,000 | 3,207,000 | ||||||
Accrued legal | 4,390,000 | 3,168,000 | ||||||
Accrued lender profit participation rights | 2,497,000 | 6,000,000 | ||||||
Related party advances | 68,000 | 352,000 | ||||||
Other accrued expenses | 27,146,000 | 17,586,000 | ||||||
$ | 88,213,000 | $ | 60,780,000 |
16. DIVIDEND PAYABLE IN TURNONGREEN COMMON STOCK
During the nine months ended September 30, 2023, the Company, in connection with a planned distribution of its holdings of TurnOnGreen, distributed to its stockholders 10.7 million based on the recorded value of the Company’s holdings in TurnOnGreen at the record dates of the distributions.
million shares of TurnOnGreen common stock and warrants to purchase million shares of TurnOnGreen common stock, which resulted in an adjustment to additional paid in capital and increase to non-controlling interest of $17. 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.
During the nine months ended September 30, 2023, the Investors converted 0.3 million 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 nine months ended September 30, 2023, the Company recorded a loss of $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 83,000 shares of Series E Convertible Stock and 9,244 shares of Series G Convertible Stock 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 recorded a loss on extinguishment of debt of $1.5 million related to the transaction based on the difference between the carrying amount of the preferred stock liability and the value of the Exchange Notes.
Concurrent with the Exchange Agreement, 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. 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.
Certificates of Elimination of Series E Preferred Stock, Series F Preferred Stock, and the Series G Preferred Stock
On August 17, 2023, the Company filed certificates of elimination with respect to the Company’s Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock.
18. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY LIABILITY
The Company records redeemable noncontrolling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. As of September 30, 2023, the carrying amount of the redeemable noncontrolling interest in equity of subsidiaries was recorded at its redemption value of $2.2 million. In June 2023, approximately million shares of Ault Disruptive common stock were redeemed at a redemption price of $ per Share
The following table summarizes the changes in the Company’s redeemable noncontrolling interests in equity of subsidiaries during the nine months ended September 30, 2023:
Redeemable noncontrolling interests in equity of subsidiaries as of December 31, 2022 | $ | 117,993,000 | ||
Redemption of ADRT common stock | (120,064,000 | ) | ||
Remeasurement of carrying value to redemption value | 4,250,000 | |||
Redeemable noncontrolling interests in equity of subsidiaries as of September 30, 2023 | $ | 2,179,000 |
19. NOTES PAYABLE
Notes payable at September 30, 2023 and December 31, 2022, were comprised of the following:
Schedule of notes payable | ||||||||||||||||
Collateral | Guarantors | Interest rate | Due date | September 30, 2023 | December 31, 2022 | |||||||||||
Circle 8 revolving credit facility | Circle 8 cranes | - | 8.4% | December 16, 2025 | $ | 16,960,000 | $ | 14,724,000 | ||||||||
8.5% secured promissory notes | Deposit accounts, 19,389 Antminers, BNI Montana assets, Circle 8 membership interests, Florida property, Michigan property, aircraft | Ault & Company, Ault Lending, Sentinum, Alliance Cloud Services, Inc., Ault Aviation, LLC, Third Avenue Apartments LLC, BNI Montana, LLC, Milton C. Ault, III | 8.5% | May 7, 2024 | 22,749,000 | 17,389,000 | ||||||||||
16% promissory notes | - | Ault & Company, Sentinum, Ault Lending, Milton C. Ault, III | 16.0% | December 16, 2023 | 2,662,000 | 17,456,000 | ||||||||||
Circle 8 equipment financing notes | Circle 8 equipment | - | 7.2% | Various dates from March 15, 2024 to November 15, 2026 | 7,375,000 | 10,677,000 | ||||||||||
3% secured promissory notes | - | - | 3.0% | N/A | - | 5,672,000 | ||||||||||
8% demand loans | - | - | 8.0% | Upon demand | 1,800,000 | - | ||||||||||
Short-term bank credit facilities | - | - | 5.7% | Renews monthly | 2,056,000 | 1,702,000 | ||||||||||
XBTO note payable | 2,482 Antminers | - | 12.5% | December 30, 2023 | 1,087,000 | 2,749,000 | ||||||||||
10% secured promissory notes | - | - | 10.0% | N/A | - | 8,789,000 | ||||||||||
SMC line of credit | SMC assets | - | 8.0% | October 14, 2025 | - | 1,761,000 | ||||||||||
Other ($0.4 million in default) | - | - | 400,000 | 858,000 | ||||||||||||
Total notes payable | - | - | $ | 55,089,000 | $ | 81,777,000 | ||||||||||
Less: | - | - | ||||||||||||||
Unamortized debt discounts | - | - | (3,623,000 | ) | (12,325,000 | ) | ||||||||||
Total notes payable, net | - | - | $ | 51,466,000 | $ | 69,452,000 | ||||||||||
Less: current portion | - | - | (30,255,000 | ) | (39,621,000 | ) | ||||||||||
Notes payable – long-term portion | - | - | $ | 21,211,000 | $ | 29,831,000 |
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 September 30, 2023 were:
Schedule of maturities | ||||
Year | ||||
2023 | $ | 12,546,000 | ||
2024 | 23,405,000 | |||
2025 | 18,697,000 | |||
2026 | 441,000 | |||
$ | 55,089,000 |
Interest Expense
Schedule of interest expense | ||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Contractual interest expense | $ | 3,262,000 | $ | 2,263,000 | $ | 5,002,000 | $ | 4,373,000 | ||||||||
Forbearance fees | 518,000 | - | 7,319,000 | 1,203,000 | ||||||||||||
Amortization of debt discount | 634,000 | 104,000 | 18,216,000 | 26,487,000 | ||||||||||||
Total interest expense | $ | 4,414,000 | $ | 2,367,000 | $ | 30,537,000 | $ | 32,063,000 |
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 17 – Preferred Stock Liability.
20. NOTES PAYABLE, RELATED PARTY
Notes payable, related party at September 30, 2023 and December 31, 2022, were comprised of the following:
Schedule of notes payable related party | ||||||||||||||
Interest rate | Due date | September 30, 2023 | December 31, 2022 | |||||||||||
Loan agreement | 9.5 | % | Upon demand | $ | 4,580,000 | $ | - | |||||||
12% demand promissory note | 12.0 | % | Upon demand | 1,100,000 | - | |||||||||
10% demand promissory note | 10.0 | % | Upon demand | 10,545,000 | - | |||||||||
Total notes payable, related party | $ | 16,225,000 | $ | - |
Ault & Company Loan Agreement
On June 8, 2023, the Company 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 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 may be repaid at any time without penalty or premium. As of September 30, 2023, $4.6 million has been advanced under the loan agreement.
In August 2023, Ault & Company assumed $11.6 million of secured promissory notes previously issued by the Company for which the Company has issued term notes to Ault & Company in the same amount. One term note has a principal amount of $1.1 million and bears interest at 12% and the second term note has a principal amount of $10.5 million and bears interest at 10%.
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 Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest expense, related party | $ | 287,000 | $ | - | $ | 292,000 | $ | - |
21. CONVERTIBLE NOTES
Convertible notes payable at September 30, 2023 and December 31, 2022, were comprised of the following:
Schedule of convertible notes payable | ||||||||||||||
Conversion price per share | Interest rate | Due date | September 30, 2023 | December 31, 2022 | ||||||||||
Convertible promissory note | $4.00 | 4% | May 10, 2024 | $ | - | $ | 660,000 | |||||||
Convertible promissory note - OID only | OID Only | September 28, 2024 | 2,200,000 | - | ||||||||||
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 | - | |||||||||
ROI senior secured convertible notes | $3.28 (ROI stock) | OID Only | April 27, 2024 | 6,875,000 | - | |||||||||
Fair value of embedded conversion options | 528,000 | 2,316,000 | ||||||||||||
Total convertible notes payable | $ | 21,831,000 | $ | 12,887,000 | ||||||||||
Less: unamortized debt discounts | (3,777,000 | ) | (111,000 | ) | ||||||||||
Total convertible notes payable, net of financing cost, long term | $ | 18,054,000 | $ | 12,776,000 | ||||||||||
Less: current portion | (8,601,000 | ) | (1,325,000 | ) | ||||||||||
Convertible notes payable, net of financing cost – long-term portion | $ | 9,453,000 | $ | 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 September 30, 2023 were:
Schedule of contractual maturities | ||||
Year | Principal | |||
2023 | $ | 2,317,000 | ||
2024 | 9,075,000 | |||
2025 | 10,439,000 | |||
$ | 21,831,000 |
Significant inputs associated with the embedded conversion options include:
Schedule of weighted average assumptions | ||||||||||
September 30, 2023 | December 31, 2022 | At Inception | ||||||||
Contractual term in years | – | |||||||||
Volatility | – | % | % | |||||||
Dividend yield | 0% | 0 | % | % | ||||||
Risk-free interest rate | – | % | % |
Activity related to the embedded conversion option derivative liabilities for the nine months ended September 30, 2023 was as follows:
Schedule of derivative liabilities | ||||
Balance as of December 31, 2022 | $ | 2,316,000 | ||
Fair value of embedded conversion options issued | 1,652,000 | |||
Change in fair value | (3,440,000 | ) | ||
Ending balance as of September 30, 2023 | $ | 528,000 |
22. 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 position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
As of September 30, 2023, the Company had accrued $4.4 million as a loss contingency related to litigation matters.
23. 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 months ended March 31, 2023, the Company sold an aggregate of 0.1 million shares of common 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 nine months ended September 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”). On July 13, 2023 and September 8, 2023, the sales agreement was amended increasing the size of the 2023 ATM Offering to $20 million and $50 million, respectively. During the nine months ended September 30, 2023, the Company sold an aggregate of 10.8 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $21.2 million.
Issuance of Common Stock Upon Conversion of Preferred Stock
During the nine months ended September 30, 2023, the Investors converted
shares of Series F Preferred Stock and shares of Series G Preferred Stock into an aggregate of shares of the Company’s common stock. A loss on extinguishment of $0.3 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 nine months ended September 30, 2023, the Company issued 4,974 shares of common stock upon vesting of restricted stock awards.
Proceeds from Subsidiaries’ Sale of Stock to Non-Controlling Interests
During the nine months ended September 30, 2023, SMC and ROI sold an aggregate of $2.3 million of common stock pursuant to their respective at-the-market issuance sales agreements.
24. 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 (2.0%) and 1.8% for the three months ended September 30, 2023 and 2022, respectively, and 0.4% and 0.6% for the nine months ended September 30, 2023 and 2022, respectively. The Company recorded income tax (benefit) provision of ($0.6) million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.5 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively. The difference between the ETR and federal statutory rate of 21% is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes and changes in valuation allowance.
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 September 30, 2023 and 2022:
Schedule of anti-dilutive securities | ||||||||
September 30, | ||||||||
2023 | 2022 | |||||||
Stock options | 19,000 | 21,000 | ||||||
Restricted stock grants | - | 7,000 | ||||||
Warrants | 52,000 | 62,000 | ||||||
Convertible notes | - | 1,000 | ||||||
Total | 71,000 | 91,000 |
F-28 |
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 |
26. 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 accordancenine months ended September 30, 2023:
Schedule of operating segments | ||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
GIGA | TurnOn Green | Fintech | Sentinum | Ault Disruptive | SMC | Energy | ROI | Holding Co. | Total | |||||||||||||||||||||||||||||||
Revenue | $ | 27,723,000 | $ | 2,766,000 | $ | - | $ | 1,116,000 | $ | - | $ | 21,939,000 | $ | 987,000 | $ | 63,000 | $ | - | $ | 54,594,000 | ||||||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 23,273,000 | - | - | - | - | - | 23,273,000 | ||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 4,337,000 | - | - | - | - | - | - | 4,337,000 | ||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | 37,726,000 | - | - | 37,726,000 | ||||||||||||||||||||||||||||||
Total revenues | $ | 27,723,000 | $ | 2,766,000 | $ | 4,337,000 | $ | 24,389,000 | $ | - | $ | 21,939,000 | $ | 38,713,000 | $ | 63,000 | $ | - | $ | 119,930,000 | ||||||||||||||||||||
Depreciation and amortization expense | $ | 852,000 | $ | 68,000 | $ | - | $ | 14,362,000 | $ | - | $ | 779,000 | $ | 3,053,000 | $ | 152,000 | $ | 1,542,000 | $ | 20,808,000 | ||||||||||||||||||||
Income (loss) from operations | $ | (5,620,000 | ) | $ | (4,067,000 | ) | $ | 1,091,000 | $ | (4,363,000 | ) | $ | (1,052,000 | ) | $ | (4,598,000 | ) | $ | (30,216,000 | ) | $ | (33,590,000 | ) | $ | (20,012,000 | ) | $ | (102,427,000 | ) | |||||||||||
Capital expenditures for the nine months ended September 30, 2023 | $ | 410,000 | $ | 131,000 | $ | - | $ | 1,426,000 | $ | - | $ | 383,000 | $ | 12,471,000 | $ | 407,000 | $ | 2,906,000 | $ | 18,134,000 | ||||||||||||||||||||
Segment identifiable assets as of September 30, 2023 | $ | 36,917,000 | $ | 5,461,000 | $ | 24,727,000 | $ | 63,327,000 | $ | 2,465,000 | $ | 36,653,000 | $ | 73,447,000 | $ | 10,939,000 | $ | 25,924,000 | 279,860,000 | |||||||||||||||||||||
Assets of discontinued operations | 98,596,000 | |||||||||||||||||||||||||||||||||||||||
Total identifiable assets as of September 30, 2023 | $ | 378,456,000 |
Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
GIGA | TurnOn Green | Fintech | Sentinum | Ault Disruptive | SMC | Energy | ROI | Holding Co. | Total | |||||||||||||||||||||||||||||||
Revenue | $ | 10,275,000 | $ | 1,166,000 | $ | - | $ | 333,000 | $ | - | $ | 15,931,000 | $ | 441,000 | $ | 18,000 | $ | - | $ | 28,164,000 | ||||||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 7,558,000 | - | - | - | - | - | 7,558,000 | ||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | (249,000 | ) | - | - | - | - | - | - | (249,000 | ) | ||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | 12,490,000 | - | - | 12,490,000 | ||||||||||||||||||||||||||||||
Total revenues | $ | 10,275,000 | $ | 1,166,000 | $ | (249,000 | ) | $ | 7,891,000 | $ | - | $ | 15,931,000 | $ | 12,931,000 | $ | 18,000 | $ | - | $ | 47,963,000 | |||||||||||||||||||
Depreciation and amortization expense | $ | 286,000 | $ | 24,000 | $ | - | $ | 5,792,000 | $ | - | $ | 338,000 | $ | 1,073,000 | $ | 32,000 | $ | 514,000 | $ | 8,059,000 | ||||||||||||||||||||
Income (loss) from operations | $ | (503,000 | ) | $ | (1,498,000 | ) | $ | (1,039,000 | ) | $ | (2,661,000 | ) | $ | (214,000 | ) | $ | 181,000 | $ | 2,505,000 | $ | (13,315,000 | ) | $ | (5,359,000 | ) | $ | (21,903,000 | ) | ||||||||||||
Capital expenditures for the three months ended September 30, 2023 | $ | 275,000 | $ | 121,000 | $ | - | $ | 261,000 | $ | - | $ | 199,000 | $ | 11,135,000 | $ | - | $ | 314,000 | $ | 12,305,000 | ||||||||||||||||||||
Identifiable assets as of September 30, 2023 | $ | 36,917,000 | $ | 5,461,000 | $ | 24,727,000 | $ | 63,327,000 | $ | 2,465,000 | $ | 36,653,000 | $ | 73,447,000 | $ | 10,939,000 | $ | 25,924,000 | 279,860,000 | |||||||||||||||||||||
Assets of discontinued operations | 98,596,000 | |||||||||||||||||||||||||||||||||||||||
Total identifiable assets as of September 30, 2023 | $ | 378,456,000 |
Segment information for the three and nine months ended September 30, 2022:
Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
GIGA | TurnOn Green | Fintech | Sentinum | Ault Disruptive | SMC | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 21,530,000 | $ | 3,853,000 | $ | 220,000 | $ | 822,000 | $ | - | $ | 17,114,000 | $ | - | $ | 43,539,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 11,398,000 | - | - | - | 11,398,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 32,224,000 | - | - | - | - | 32,224,000 | ||||||||||||||||||||||||
Total revenues | $ | 21,530,000 | $ | 3,853,000 | $ | 32,444,000 | $ | 12,220,000 | $ | - | $ | 17,114,000 | $ | - | $ | 87,161,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 1,259,000 | $ | 403,000 | $ | 240,000 | $ | 6,949,000 | $ | - | $ | 166,000 | $ | 474,000 | $ | 9,491,000 | ||||||||||||||||
Income (loss) from operations | $ | (1,881,000 | ) | $ | (2,577,000 | ) | $ | 4,212,000 | $ | (8,139,000 | ) | $ | (1,100,000 | ) | $ | 597,000 | $ | (19,262,000 | ) | $ | (28,150,000 | ) | ||||||||||
Capital expenditures for the nine months ended September 30, 2022 | $ | 612,000 | $ | 176,000 | $ | 1,739,000 | $ | 77,299,000 | $ | - | $ | 66,000 | $ | 166,000 | $ | 80,058,000 |
Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
GIGA | TurnOn Green | Fintech | Sentinum | Ault Disruptive | SMC | Holding Company | Total | |||||||||||||||||||||||||
Revenue | $ | 7,781,000 | $ | 1,662,000 | $ | 201,000 | $ | 273,000 | $ | - | $ | 17,114,000 | $ | - | $ | 27,031,000 | ||||||||||||||||
Revenue, cryptocurrency mining | - | - | - | 3,874,000 | - | - | - | 3,874,000 | ||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 13,360,000 | - | - | - | - | 13,360,000 | ||||||||||||||||||||||||
Total revenues | $ | 7,781,000 | $ | 1,662,000 | $ | 13,561,000 | $ | 4,147,000 | $ | - | $ | 17,114,000 | $ | - | $ | 44,265,000 | ||||||||||||||||
Depreciation and amortization expense | $ | 740,000 | $ | 393,000 | $ | 172,000 | $ | 2,809,000 | $ | - | $ | 166,000 | $ | (264,000 | ) | $ | 4,016,000 | |||||||||||||||
Income (loss) from operations | $ | (661,000 | ) | $ | (957,000 | ) | $ | 3,786,000 | $ | (4,322,000 | ) | $ | (314,000 | ) | $ | 597,000 | $ | (5,138,000 | ) | $ | (7,009,000 | ) | ||||||||||
Capital expenditures for the three months ended September 30, 2022 | $ | 327,000 | $ | 51,000 | $ | 890,000 | $ | 5,915,000 | $ | - | $ | 66,000 | $ | 47,000 | $ | 7,296,000 |
27. 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 | ||||||||
September 30, 2023 | December 31, 2022 | |||||||
Customer A | * | 13 | % | |||||
Customer B | 18 | % | 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 Nine Months Ended | |||||||
September 30, | September 30, | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Customer V (Mining Pool Operator) | * | * | 10% | * | ||||
Customer W (Mining Pool Operator) | 13% | * | * | * | ||||
Customer X | 12% | 17% | * | * | ||||
Customer Y | * | 11% | * | * | ||||
Customer Z | * | * | * | 10% |
* | Less than 10% |
28. SUBSEQUENT EVENTS
2023 Common ATM Offering
During the period between October 1, 2023 through November 17, 2023, the Company sold an aggregate of Digital Power and revenue from Customer C attributable to DP Limited.
Note Conversions
In October 2023, an investor converted $0.5 million in principal of a convertible note into million shares of the Company’s product lines are as follows:
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 |
Senior Secured Convertible Note, Related Party
On October 4, 2017,13, 2023 (the “Closing Date”), the Company entered into a Securities Purchase Agreement to sell 75,000 shares of common stock and warrants tonote purchase 75,000 shares of common stock at $0.60 per share toagreement with Ault & Company, for $50. Mr. Ault is the Chairman and majority shareholder of Ault & Company.
The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Mr. Ault.
The Note has a principal face amount of $1,111$17,519,832 and has a maturity date of October 12, 2028 (the “First Convertible Debenture”“Maturity Date”) and (ii). The Note bears interest at the second closing, an additional 10% Original Issue Discount Convertible Debenture for an aggregate purchase pricerate of $990 with an aggregate principal face amount of $1,089 (the “Second Convertible Debenture”, and together with10% per annum. Interest is payable, at the First Convertible Debenture, the “Convertible Debentures”). The Company and the Purchaser consummated the first closing on November 2, 2017. The second closing, if any, shall occur only at both parties’ mutual agreement at any time following the Company’s registration for resale of the Restricted Shares andPurchaser’s option, in cash or shares of common stock underlyingCommon Stock at the First Convertible Debenture, and shareholder approvalapplicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault & Company has the option, on not less than 10 calendar days’ notice to the Company, to require payment of the transactions contemplated by the Purchase Agreementaccrued but unpaid interest on a monthly basis in accordance with Section 713 of the NYSE American Company Guide.
The Convertible Debentures have a term of eight months, bear interest at 5% per year and the principal of the Convertible Debentures and interest earned thereon may be convertedNote is convertible into shares of common stock at $0.60a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. Inadjustment in the event that the Company consummates any debt or equity financing with gross proceeds to the Company equal to or greater than $7,500, then the Company shall prepay to the holder in cash 110% of the outstanding principal amounts of the Convertible Debentures and any accrued and unpaid interest if the closing of such transaction occurs within ninety days from the original issue date of a debenture, and the Company shall prepay to the holder in cash 115% of the outstanding principal amounts of the Convertible Debentures and any accrued and unpaid interest if the closing of such transaction occurs between 91 days from the original issue date and the maturity date of the Convertible Debenture. The Company has the option to prepay all amounts owed under the Convertible Debentures in cash at a rate of 110% within 90 days from the original issue date and 115% from 91 days from the original issue date through the maturity date.
The Warrants grant Ault & Company the right to purchase exercisable at any time commencing six months from$0.1837, which is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.
In addition, the Company and various subsidiaries of the Company granted Ault & Company a senior security interest in substantially all of their assets as collateral for the repayment of the Note, which is subordinated to the security interest granted to the holders of the outstanding secured promissory notes.
Series C Preferred Purchase Agreement, Related Party
On November 6, 2023, the Company entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which the Company agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may be tendered for cancellation. The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of issuance through five years from the dateAgreement, are subject to various customary closing conditions as well as regulatory and stockholder approval. In addition to customary closing conditions, the closing of issuance.the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The WarrantSPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date may be exercised for cash or on a “cashless” basis if there is no effective registration statement registering, or no current prospectus available for the resale of, all of the shares of Common Stock underlying the Warrant. Holders of the Warrant have “piggy-back” registration rightsextended by Ault & Company for a period of five years from90 days as set forth in the date of issue.
Series D Preferred Purchase Agreement, with I.AM, Inc.
On November 1, 2017,15, 2023, the Company purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by the Company to ROI between January 1, 2023 and I.AM, Inc. (“I.AM”) enteredNovember 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible into a Loan and Security Agreement (“Loan Agreement”) pursuant to whichnumber of shares of ROI’s common stock determined by dividing the Company will provide I.AM a non-revolving credit facilitystated value by $0.51, or an aggregate of up to $1,300, for a period ending on September 25, 2022,29.6 million shares of ROI common stock, subject to the terms and conditions statedadjustment in the Loan Agreement, including thatevent of an issuance of ROI common stock at a price per share lower than the Company having available fundsconversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders are entitled to grant such credit. Advances on the credit facility accruereceive dividends at a rate of 6.0%10% per annum from issuance until November 14, 2033.
In addition, for as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain from the Company consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
Payment of Related Party Advances
On October 5, 2023, William B. Horne, the Company’s Chief Executive Officer, loaned the Company $262,500, including a $12,500 original issue discount. On October 12, 2023, the loan was repaid.
On October 10, 2023, ROI repaid $52,000 of advances payable to Mr. Horne, the Company’s Chief Executive Officer and director of ROI.
Eco Pack Acquisition
On November 10, 2023, the Company’s wholly owned subsidiary, Eco Pack Technologies, Inc., completed the acquisition of an 80% ownership interest in Eco Pack Technologies Limited, a company incorporated in England and Wales. As of the closing date, the total consideration paid amounted to $0.8 million. Additionally, the Company is committed to providing approximately $2.5 million in further funding over the next two years.
Deficiency Letter from the NYSE American
On November 13, 2023, the Company received a deficiency letter (the “Letter”) from the NYSE American LLC (the “NYSE American” or the “Exchange”) indicating that the Company is not in compliance with the Exchange’s continued listing standard set forth in Section 1003(f)(v) of the NYSE American Company Guide (the “Company Guide”) because the shares of common stock of the Company (the “Common Stock”) for a substantial period of time have been selling at a low price per share, which the Exchange determined to be a 30-trading day average price of less than $0.20 per share. The Letter has no immediate effect on the outstanding daily balance.listing or trading of the Company’s Common Stock and the Common Stock will continue to trade on the NYSE American under the symbol “AULT”. Additionally, the Letter does not result in the immediate delisting of the Common Stock from the NYSE American.
Pursuant to Section 1003(f)(v) of the Company Guide, the NYSE American staff determined that the Company’s continued listing is predicated on it demonstrating sustained price improvement within a reasonable period of time or effecting a reverse stock split of its common stock, which the staff determined to be no later than May 13, 2024. The Loan AgreementCompany intends to regain compliance with the NYSE American’s continued listing standards by undertaking a measure or measures that are in the best interests of the Company and its stockholders.
The Company intends to closely monitor the price of its common stock and consider available options if the Common Stock does not trade at a consistent level likely to result in the Company regaining compliance by May 13, 2024. The Company’s receipt of the Letter does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange Commission. The Company is secured byactively engaged in discussions with the assets of I.AM’s membership interests in three restaurant LLCs.
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 ROI and defense industries;the other signatories thereto. The Agreement provides that, subject to the terms and companies thatconditions set forth therein, ROI 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 ROI Common Stock determined by dividing the Stated Value by $7.50 (the “Conversion Price”), or 1,333 shares of ROI Common Stock. The Conversion Price will be subject to certain adjustments, including potential downward adjustment if ROI 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 ROI 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 ROI, and will rank senior to all other capital stock of ROI 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 ROI 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 sophisticated 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 (iii) 16,000 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and collectively, the “Preferred Shares”).
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 date of conversion, subject to a floor price of $0.10. The Preferred Shares are convertible at the option of the holder at any time following our receipt of stockholder approval of the Reverse Split (as defined below). The private placement closed on March 30, 2023.
On April 6, 2023, we issued a 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 guaranteed repayment of the Term Note.
On May 1, 2023, we entered into a securities purchase agreement (the “Series C Agreement”) with Ault & Company, pursuant to which we 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 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 certificate 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 days 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 aggregate 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 agreement 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. We distributed 58.7 million TurnOnGreen Securities in the first distribution.
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 15 shares of TurnOnGreen Securities for every share of the Company’s common stock they held on the record date. The second distribution was finalized on August 7, 2023, whereby we relinquished control of voting interests of Microphase CorporationTurnOnGreen. We distributed 56.4 million TurnOnGreen Securities in the second distribution.
On July 19, 2023 we along with certain of our subsidiaries entered into a First Amendment and Joinder to Loan and Guarantee Agreement (the
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 military, aerospace and telecommunications industries. Microphase is headquartered in Shelton, Connecticut.
On October 13, 2023 (the “Closing Date”), we entered into a note purchase agreement with Ault & Company, pursuant to which we sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”) and flexible power system solutionswarrants (the “Warrants”) to purchase shares of our common stock for a total purchase price of up to $17.5 million (the “Transaction”).
The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to us since June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by us to Ault & Company in exchange for Ault & Company assuming liability for the medical, military, telecompayment of $11.6 million of secured notes; and industrial markets, other(iii) the retirement of $1.25 million stated value of 125,000 shares of our Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to us.
The Note has a principal face amount of $17.5 million and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note bears interest at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at the applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault & Company has the option, on not less than 10 calendar days’ notice to us, to require payment of accrued but unpaid interest on a monthly basis in arrears.
The Note is convertible into shares of common stock at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the European marketsConversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.
The Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the Closing Date. The exercise price of the Warrants is $0.1837, which are primarily served by DP Limited,is subject to adjustment in Coolisys.
In addition, we and various of our subsidiaries granted Ault & Company a senior security interest in substantially all of our assets as collateral for the repayment of the Note, which is subordinated to the security interest granted to the holders of the outstanding membership interestssecured promissory notes.
On November 6, 2023, we entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which we agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may be tendered for cancellation. The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock and the exercise of the warrants in Power-Plus Technical Distributors, LLC, a California limited liability company (“Power-Plus”). Power-Plus is an industrial distributoraggregate number in excess of value added power supply solutions, UPS systems, fans, filters, line cords,19.99% on the execution date of the Agreement, are subject to various customary closing conditions as well as regulatory and other power-related components.stockholder approval. In addition to customary closing conditions, the closing of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The SPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the SPA.
On November 15, 2023, we purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by us to ROI between January 1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033. In addition, for as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain our consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
Presentation of AGREE as Discontinued Operations
In September 2023, we committed to a plan for our wholly owned subsidiary AGREE to list for sale its currentfour recently renovated Midwest hotels, the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford. The decision to sell the hotels follows the decision to also list the multifamily development site in St. Petersburg, Florida and is driven by our desire to focus on our core businesses, Energy, Fintech and Sentinum. We plan to use the proceeds from the sales of the hotel properties to pay off debt and commit more capital to our core businesses. Our real estate properties, which include both hotels and land are currently listed for sale.
In connection with the planned sale of AGREE assets, we concluded that the net assets of AGREE met the criteria for classification as held for sale. In addition, the proposed sale represents a strategic shift that will have a major effect on our operations and financial results. As a result, we have presented the results of operations, cash flows and financial position of AGREE as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.
General
As a holding company, our business Power-Plusobjective 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 serveconsider 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 extended sales organization for the Company’s overall flexible power system solutions.
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 September 30, 2017 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016
The following table summarizes the results of our operations for the three months ended September 30, 2017, from $1,8262023 and 2022.
For the Three Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Revenue | $ | 28,164,000 | $ | 27,031,000 | ||||
Revenue, cryptocurrency mining | 7,558,000 | 3,874,000 | ||||||
Revenue, crane operations | 12,490,000 | - | ||||||
Revenue, lending and trading activities | (249,000 | ) | 13,360,000 | |||||
Total revenue | 47,963,000 | 44,265,000 | ||||||
Cost of revenue, products | 20,425,000 | 20,193,000 | ||||||
Cost of revenue, cryptocurrency mining | 10,228,000 | 5,255,000 | ||||||
Cost of revenue, crane operations | 7,642,000 | - | ||||||
Total cost of revenue | 38,295,000 | 25,448,000 | ||||||
Gross profit | 9,668,000 | 18,817,000 | ||||||
Total operating expenses | 31,571,000 | 25,826,000 | ||||||
Loss from operations | (21,903,000 | ) | (7,009,000 | ) | ||||
Other income (expense): | ||||||||
Interest and other income | 309,000 | 725,000 | ||||||
Interest expense | (4,414,000 | ) | (2,367,000 | ) | ||||
Loss on extinguishment of debt | (1,546,000 | ) | - | |||||
Realized and unrealized gain on marketable securities | 74,000 | 709,000 | ||||||
Loss on the sale of fixed assets | (33,000 | ) | - | |||||
Change in fair value of warrant liability | (562,000 | ) | (3,000 | ) | ||||
Total other expense, net | (6,172,000 | ) | (936,000 | ) | ||||
Loss before income taxes | (28,075,000 | ) | (7,945,000 | ) | ||||
Income tax (benefit) provision | (565,000 | ) | 144,000 | |||||
Net loss from continuing operations | (27,510,000 | ) | (8,089,000 | ) | ||||
Net income (loss) from discontinued operations | (929,000 | ) | 93,000 | |||||
Net loss | (28,439,000 | ) | (7,996,000 | ) | ||||
Net loss attributable to non-controlling interest | 6,668,000 | 725,000 | ||||||
Net loss attributable to Ault Alliance, Inc. | (21,771,000 | ) | (7,271,000 | ) | ||||
Preferred dividends | (413,000 | ) | (190,000 | ) | ||||
Net loss available to common stockholders | $ | (22,184,000 | ) | $ | (7,461,000 | ) | ||
Comprehensive loss | ||||||||
Net loss available to common stockholders | $ | (22,184,000 | ) | $ | (7,461,000 | ) | ||
Other comprehensive loss | ||||||||
Foreign currency translation adjustment | (651,000 | ) | 306,000 | |||||
Other comprehensive loss | (651,000 | ) | 306,000 | |||||
Total comprehensive loss | $ | (22,835,000 | ) | $ | (7,155,000 | ) |
5 |
Revenues
Revenues by segment for the three months ended September 30, 2016. The increase in revenue was primarily due2023 and 2022 were as follows:
For the Three Months Ended September 30, | Increase | |||||||||||||||
2023 | 2022 | (Decrease) | % | |||||||||||||
GIGA | $ | 10,275,000 | $ | 7,781,000 | $ | 2,493,000 | 32 | % | ||||||||
TurnOnGreen | 1,166,000 | 1,662,000 | (496,000 | ) | -30 | % | ||||||||||
SMC | 15,931,000 | 17,114,000 | (1,183,000 | ) | -7 | % | ||||||||||
Sentinum | ||||||||||||||||
Revenue, cryptocurrency mining | 7,558,000 | 3,874,000 | 3,684,000 | 95 | % | |||||||||||
Revenue, commercial real estate leases | 333,000 | 273,000 | 61,000 | 22 | % | |||||||||||
Fintech: | ||||||||||||||||
Revenue, lending and trading activities | (249,000 | ) | 13,360,000 | (13,609,000 | ) | -102 | % | |||||||||
Other | 18,000 | 201,000 | (183,000 | ) | -91 | % | ||||||||||
Energy | 12,931,000 | - | 12,931,000 | — | ||||||||||||
Total revenue | $ | 47,963,000 | $ | 44,265,000 | $ | 3,698,000 | 8 | % |
GIGA
GIGA revenues were up $2.5 million for the three months ended September 30, 2023, including $0.4 million growth 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, U.K., 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 September 30, 2023.
TurnOnGreen
TurnOnGreen revenues were down $0.5 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022 due to the cancellation of large projects that contributed to revenue in 2022.
SMC
SMC revenues decreased by $1.2 million primarily due to timing of shipments to a large customer.
Sentinum
Revenues from Sentinum’s cryptocurrency mining operations increased $3.7 million as we increased our cryptocurrency mining activities from the prior period, and further increased by a 32% increase in the average Bitcoin price, partially offset an 84% increase in the average Bitcoin mining difficulty level in the current year period.
Fintech
Revenues from our lending and trading activities were negative $0.2 million. Revenue from lending and trading activities for the three months ended September 30, 2023 included an approximate $3.0 million unrealized losses from our investment in Alzamend, partially offset by realized gains from our investment portfolio for the three months ended September 30, 2023. During the three months ended September 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. 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 September 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 $12.9 million for the three months ended September 30, 2023, due to the acquisition of the outstanding equity interestsCircle 8 crane operations in December 2022.
Gross Margins
Gross margins decreased to 20% for the three months ended September 30, 2023, compared to 43% for the three months ended September 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-Plus21% recognized during the three months ended September 30, 2017,2023 were $1,340 and $224, respectively. Excluding revenues that were generatednegatively impacted by our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $1,656, a decrease of $170 from the three months ended September 30, 2016.
Research and Development
Research and development expenses increased by $1.2 million for the three months ended September 30, 2016. As previously noted, our consolidated revenues include $1,564 in revenues generated from our recent acquisitions of Microphase2023, due to expenditures related to development work on ROI’s BitNile 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 $8.0 million for the three months ended September 30, 2023, compared to $7.4 million for the three months ended September 30, 2022, an increase of 5.2%$0.6 million, or 8%. The increase in revenues from our U.S. operations is attributedwas primarily the result of higher advertising and promotion costs related to the recognition of $109 in revenue from the MLSE $50 million purchase order contract which wasROI’s BitNile metaverse platform, partially offset by a slight decreasedecline in salesemployee related costs and consulting expenses.
General and Administrative
General and administrative expenses were $17.8 million for the three months ended September 30, 2023, compared to $15.4 million for the three months ended September 30, 2022, an increase of our legacy products. The recognition of revenue$2.4 million, or 16%. General and administrative expenses increased from the MLSE contractcomparative prior period, mainly due to increases from new acquisitions:
· | general and administrative costs of $2.2 million from ROI, which was acquired in March 2023; |
· | general and administrative costs of $2.0 million from Circle 8, which was acquired in December 2022; and |
· | general and administrative costs of $0.7 million from GIGA, which was acquired in September 2022. |
The increases above were partially offset by a $2.4 million decrease performance bonus related to realized gains on trading activities.
Impairment of Property and Equipment
During the three months ended September 30, 2023, we recognized an impairment charge of $3.9 million related to property and equipment at ROI’s Agora and Bitstream Bitcoin mining operations as they have been unable to commence Bitcoin mining operations, either for themselves or from others through hosting arrangements.
Impairment of Deposit Due to Vendor Bankruptcy Filing
During the three months ended September 30, 2022, Compute North Holdings, Inc. (along with its affiliated debtors, collectively, “Compute North”), filed for chapter 11 bankruptcy protection. We had a deposit of approximately $2.0 million with Compute North for services yet to be performed by Compute North. We assessed this financial exposure and recorded an impairment of the deposit totaling $2.0 million during the three months ended September 30, 2017, represents the first revenues recognized from this contract, which is expected to extend over several years.
Impairment of Mined Cryptocurrency
Impairment of mined cryptocurrency for the three months ended September 30, 2017, from $5782023 and 2022 was $0.1 million and $0.5 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 September 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.
Other Expense, Net
Other expense, net was $6.2 million for the three months ended September 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 and other income was $0.3 million for the three months ended September 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.
Interest expense was $4.4 million for the three months ended September 30, 2016, an increase of $188. Our acquisition of Microphase and Power-Plus accounted2023, compared to $2.4 million for $46 and $55, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed to an increase in personnel costs directly attributed to sales and marketing personnel at the Company’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the three months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses2022. Interest expense increased due to the significant amounthigher levels of time in which he devoted to the sales process. The increase in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate matters related to our restructuring and expansion. As such,borrowing during the three months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, or $75 per quarter, was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed2023 as compared to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.
The $1.5 million loss on extinguishment of $83debt for the three months ended September 30, 2016.2023 related to the August 2023 exchange of preferred stock liabilities for secured notes. The increase in operating loss is mostly attributablepreferred stock liabilities were remeasured from their fair value prior to the increaseexchange to the fair value of general and administrative expenses.
Income Tax (Benefit) Provision
Benefit from income taxes was $0.6 million during the three months ended September 30, 2023 compared to a provision of $0.1 million during the three months ended September 30, 2022. The Company recorded a net loss of $2,071effective income tax benefit rate was 2.0% for the three months ended September 30, 20172023 as compared to a net lossprovision of $381.8% for the three months ended September 30, 2016 as a result2022.
Results of Operations for the aforementioned changes. After taking into considerationNine Months Ended September 30, 2023 and 2022
The following table summarizes the loss attributable to the non-controlling interestresults of the minority shareholders of Microphase, the net loss attributable to the Company was $1,967 and 38 respectively.
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Revenue | $ | 54,594,000 | $ | 43,539,000 | ||||
Revenue, cryptocurrency mining | 23,273,000 | 11,398,000 | ||||||
Revenue, crane operations | 37,726,000 | - | ||||||
Revenue, lending and trading activities | 4,337,000 | 32,224,000 | ||||||
Total revenue | 119,930,000 | 87,161,000 | ||||||
Cost of revenue, products | 39,248,000 | 30,985,000 | ||||||
Cost of revenue, cryptocurrency mining | 28,057,000 | 12,206,000 | ||||||
Cost of revenue, crane operations | 22,671,000 | - | ||||||
Cost of revenue, lending and trading activities | 1,180,000 | - | ||||||
Total cost of revenue | 91,156,000 | 43,191,000 | ||||||
Gross profit | 28,774,000 | 43,970,000 | ||||||
Total operating expenses | 131,201,000 | 72,120,000 | ||||||
Loss from operations | (102,427,000 | ) | (28,150,000 | ) | ||||
Other income (expense): | ||||||||
Interest and other income | 3,888,000 | 1,255,000 | ||||||
Interest expense | (30,537,000 | ) | (32,063,000 | ) | ||||
Loss on extinguishment of debt | (1,700,000 | ) | - | |||||
Realized and unrealized (loss) gain on marketable securities | (170,000 | ) | 1,016,000 | |||||
Loss from investment in unconsolidated entity | - | (924,000 | ) | |||||
Impairment of equity securities | (9,555,000 | ) | - | |||||
(Loss) gain on the sale of fixed assets | 2,728,000 | - | ||||||
Change in fair value of warrant liability | 2,655,000 | (27,000 | ) | |||||
Total other expense, net | (32,691,000 | ) | (30,743,000 | ) | ||||
Loss before income taxes | (135,118,000 | ) | (58,893,000 | ) | ||||
Income tax provision | 540,000 | 361,000 | ||||||
Net loss from continuing operations | (135,658,000 | ) | (59,254,000 | ) | ||||
Net income (loss) from discontinued operations | (5,862,000 | ) | (3,614,000 | ) | ||||
Net loss | (141,520,000 | ) | (62,868,000 | ) | ||||
Net loss attributable to non-controlling interest | 10,420,000 | 1,061,000 | ||||||
Net loss attributable to Ault Alliance, Inc. | (131,100,000 | ) | (61,807,000 | ) | ||||
Preferred dividends | (963,000 | ) | (239,000 | ) | ||||
Net loss available to common stockholders | $ | (132,063,000 | ) | $ | (62,046,000 | ) | ||
Comprehensive loss | ||||||||
Net loss available to common stockholders | $ | (132,063,000 | ) | $ | (62,046,000 | ) | ||
Other comprehensive loss | ||||||||
Foreign currency translation adjustment | (1,001,000 | ) | (1,452,000 | ) | ||||
Other comprehensive loss | (1,001,000 | ) | (1,452,000 | ) | ||||
Total comprehensive loss | $ | (133,064,000 | ) | $ | (63,498,000 | ) |
9 |
Revenues
Revenues by segment for the nine months ended September 30, 2016. 2023 and 2022 were as follows:
For the Nine Months Ended September 30, | Increase | |||||||||||||||
2023 | 2022 | (Decrease) | % | |||||||||||||
GIGA | $ | 27,723,000 | $ | 21,530,000 | $ | 6,193,000 | 29 | % | ||||||||
TurnOnGreen | 2,766,000 | 3,853,000 | (1,087,000 | ) | -28 | % | ||||||||||
SMC | 21,939,000 | 17,114,000 | 4,825,000 | 28 | % | |||||||||||
Sentinum | ||||||||||||||||
Revenue, cryptocurrency mining | 23,273,000 | 11,398,000 | 11,875,000 | 104 | % | |||||||||||
Revenue, commercial real estate leases | 1,116,000 | 822,000 | 294,000 | 36 | % | |||||||||||
Fintech: | ||||||||||||||||
Revenue, lending and trading activities | 4,337,000 | 32,224,000 | (27,887,000 | ) | -87 | % | ||||||||||
Other | 63,000 | 220,000 | (157,000 | ) | -71 | % | ||||||||||
Energy | 38,713,000 | - | 38,713,000 | — | ||||||||||||
Total revenue | $ | 119,930,000 | $ | 87,161,000 | $ | 32,769,000 | 38 | % |
GIGA
The $6.2 million increase in our GIGA segment revenue was primarily duefor the nine months ended September 30, 2023 included $1.6 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 nine months ended September 30, 2023.
TurnOnGreen
TurnOnGreen revenues were down $1.1 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to the cancellation of large projects that contributed to revenue in 2022.
SMC
SMC revenues increased by $4.8 million primarily due to the acquisition of SMC in June 2022.
Sentinum
Revenues from Sentinum’s cryptocurrency mining operations increased $11.9 million as we increased our cryptocurrency mining activities from the prior period, partially offset by 17% lower average Bitcoin prices and a 66% increase in average Bitcoin mining difficulty level in the current year period.
Fintech
Revenues from our lending and trading activities were $4.3 million due to realized gains for the nine months ended September 30, 2023 from our investment portfolio. During the nine months ended September 30, 2022, Ault Lending generated income from realized gains from 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 nine months ended September 30, 2023 included an approximate $3.6 million unrealized loss from our investment in Alzamend. Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.
Revenues from our trading activities for the nine months ended September 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 $38.7 million for the nine months ended September 30, 2023, due to the acquisition of the outstanding equity interestsCircle 8 crane operations in December 2022.
Gross Margins
Gross margins decreased to 24% for the nine months ended September 30, 2023, compared to 50% for the nine months ended September 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-Plus24% recognized during the nine months ended September 30, 2017,2023 were $1,563 and $224, respectively. Excluding revenues that were generatedimpacted by negative margins from our recent acquisitions of Microphase and Power-Plus, the Company generated revenues of $4,883. As discussed below, the decrease of $720 from the nine months ended September 30, 2016, was primarilySentinum cryptocurrency mining segment due to a decreasethe decline in revenuesthe price of Bitcoin coupled with an increase in Bitcoin mining difficulty level, offset by favorable margins from our European operations.
Research and Development
Research and development expenses increased by $3.5 million for the nine months ended September 30, 2016. As previously noted, our consolidated revenues include $1,787 in revenues generated from our recent acquisitions of Microphase2023, primarily due to expenditures related to development work on ROI’s BitNile metaverse platform.
Selling and Power-Plus. If we had not closed on these acquisition, then revenues from our U.S. operations would have been $3,419, an increase of 0.3%. The increase in revenues from our U.S. operations is attributed to the recognition of $109 in revenue from the MLSE $50Marketing
Selling and marketing expenses were $26.4 million purchase order contract which was offset by a slight decrease in sales of our legacy products.
General 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.
General and administrative expenses were $59.5 million for the nine months ended September 30, 2016. The increase in gross margins was mainly attributable2023, compared to the increase in sales of our commercial products sold in our U.S. operations, which have greater gross margins, combined with the decrease in sales from our European operations.
· | general and administrative costs of $8.4 million from Circle 8, which was acquired in December 2022; |
· | general and administrative costs of $5.3 million from SMC, which was acquired in June 2022; |
· | general and administrative costs of $5.3 million from ROI, which was acquired in March 2023; |
· | general and administrative costs of $4.3 million from GIGA, which was acquired in September 2022; 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:
· | $6.5 million lower performance bonus related to realized gains on trading activities; and |
· | $2.4 million lower corporate legal 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 nine months ended September 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 nine months ended September 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 Property and Equipment
During the nine months ended September 30, 2023, we recognized an impairment charge of $3.9 million related to property and equipment at ROI’s Agora and Bitstream Bitcoin mining operations as they have been unable to commence Bitcoin mining operations, either for themselves or from others through hosting arrangements.
Impairment of Deposit Due to Vendor Bankruptcy Filing
During the nine months ended September 30, 2022, Compute North filed for chapter 11 bankruptcy protection. We had a deposit of approximately $2.0 million with Compute North for services yet to be performed by Compute North. We assessed this financial exposure and recorded an impairment of the deposit totaling $2.0 million during the nine months ended September 30, 2022.
Impairment of Mined Cryptocurrency
Impairment of mined cryptocurrency for the nine months ended September 30, 2016.2023 and 2022 was $0.4 million and $2.9 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 increase is partly attributed to our acquisitionimpairment of Microphase, which reported $173 in engineering and product development expenses. The remaining increase is attributed to a $95 increase in personnel costs directly attributed to engineering and product development at Digital Power’s U.S. based operations. During the fourth quarter of 2016, as part of its growth plan, Digital Power hired a new Head of Engineering and Technology, a highly-compensated position.
Other Expense, Net
Other expense, net was $32.7 million for the nine months ended September 30, 2016, an increase of $322. Our acquisition of Microphase and Power-Plus accounted for $55 and $65, respectively, of the increase in selling and marketing expenses. The remaining increase is attributed2023, compared to an increase in personnel costs directly attributed to sales and marketing personnel at Digital Power’s U.S. based operations. Beginning in December 2016 and throughout the quarter ended March 31, 2017, we augmented our sales and marketing team with the addition of a Vice President of Business Development and two regional sales managers. During the nine months ended September 30, 2016, the services of our current Chief Executive Officer were reported within selling and marketing expenses due to the significant amount of time in which he devoted to the sales process. The increase in the headcount of our sales and marketing team allowed our CEO to spend the majority of his time on general corporate matters related to our restructuring and expansion. As such, during the nine months ended September 30, 2017, the salary of our Chief Executive officer, which is $300 per year, was reported within general and administrative expenses. The increase in selling and marketing expenses is attributed to the increase in salaries and benefits and travel related costs for the three new sales and marketing positions and partially offset by the allocation of our Chief Executive Officer’s salary to general and administrative expense.
Interest and other income was $3.9 million for the nine months ended September 30, 2016, an increase of $3,125. Our acquisition of Microphase accounted for $577 of the increase in general and administrative expenses. The adjusted increase of $2,548 from the comparative prior period was mainly due2023, compared to higher stock based compensation expenses, an increase in legal and audit costs, an increase in investor relationship costs and hiring of additional consultants to build an infrastructure in anticipation of our future growth and the allocation of our Chief Executive Officer’s salary to general and administrative expense. The remaining increase in general and administrative expenses is due to various costs, none of which are significant individually.
Interest expense was $30.5 million for the nine months ended September 30, 2016. The increase in interest2023, compared to $32.1 million for the nine months ended September 30, 2022. Interest expense for the nine months ended September 30, 2017 is primarily related to debt discount, in the aggregate amount of $1,269, resulting from the issuance of warrants in conjunction with the sale of debt and equity instruments of $6,706. During the nine months ended September 30, 2017, as a result of these issuances, non-cash interest expense of $1,269 was recorded from the2023 included amortization of debt discount of $18.2 million, forbearance and debt financing costs. The remaining increase inextension fees of $7.3 million and contractual interest expense, net, was due to an increase in the amount of the Company’s total borrowings.$5.0 million. Interest expense was partially offset by interest income and the accretion of original issue discount on the AVLP Loan Agreement of $242.
The $1.5 million loss on extinguishment of $272debt for the nine months ended September 30, 2016.2023 related to the August 2023 exchange of preferred stock liabilities for secured notes. The increasepreferred stock liabilities were remeasured from their fair value prior to the exchange to the fair value of the secured notes at the date of the exchange.
Loss from investment in operating loss is mostly attributable from the increase of general and administrative expenses.
Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at September 30, 2023 were $9.6 million.
Income Tax Provision
Provision for income taxes was $0.5 million during the three months ended September 30, 2023 compared to a provision of the minority shareholders of Microphase and an income tax benefit that was recognized$0.4 million during the nine months ended September 30, 2016,2022. The effective income tax provision rate was 0.4% for the net loss attributablenine months ended September 30, 2023 as compared to a provision of 0.6% for the Company was $4,700nine months ended September 30, 2022.
Liquidity and $165, respectively.
On September 30, 2017,2023, excluding cash and cash equivalents from discontinued operations, we had cash and cash equivalents of $314. This compares with$8.7 million (excluding restricted cash of $1.9 million), compared to cash and cash equivalents of $996$7.9 million (excluding restricted cash of $0.7 million) at December 31, 2016.2022. The decreaseincrease in cash and cash equivalents was primarily due to cash used inprovided by operating activities and investing activities in excess of fundscash provided by financing activities.
Net cash used in operating activities totaled $1,577$2.2 million for the nine months ended September 30, 2017,2023, compared to net cash provided by operating activities of $138$21.9 million for the nine months ended September 30, 2016. During2022. Cash used in operating activities for the nine months ended September 30, 2017, the decrease in2023 included $71.2 million net cash provided by marketable securities from trading activities related to the operations of Ault Lending and $21.3 million proceeds from the sale of cryptocurrencies from our Sentinum Bitcoin mining operations, offset by operating losses and changes in working capital. Net cash used in operating activities compared tofor the nine months ended September 30, 2016 was mainly due to the September 30, 2017 nine months loss of $4,916. The net loss was partially offset by non-cash charges, the amortization of debt discount of $1,239 and stock-based compensation of $1,269, an increase2023 included $3.6 million cash used 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$22.9 million for the nine months ended September 30, 20172023, compared to $12$115.4 million for the nine months ended September 30, 2022, which included $80.1 million of netcapital expenditures, primarily for Bitcoin mining equipment. Net cash provided byused in investing activities for the nine months ended September 30, 2016. The increase of the net usage of cash from investing activities2023 was primarily related to the investment in AVLP, loans to third parties$8.7 million capital expenditures and the $10.7 million purchase of Power-Plus.
Net cash provided by financing activities was $5,194 and nil$23.8 million for the nine months ended September 30, 2017 and 2016, respectively. The2023, compared to net cash provided by financing activities relatedof $86.1 million for the nine months ended September 30, 2022, and primarily reflects the following transactions:
· | 2022 Common ATM Offering – During the nine months ended September 30, 2023, we sold an aggregate of 0.1 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $4.2 million and effective March 17, 2023, the 2022 Common ATM Offering was terminated; |
· | 2022 Preferred ATM Offering – During the nine months ended September 30, 2023, we sold an aggregate of 162,175 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $3.0 million and effective June 16, 2023, the 2022 Preferred ATM Offering was terminated; |
· | 2023 Common ATM Offering –On June 9, 2023, we entered into the 2023 Common ATM Offering with Ascendiant Capital. During the nine months ended September 30, 2023, we sold an aggregate of 10.8 million shares of common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $21.2 million; |
· | $58.1 million payments on notes payable, partially offset by $40.6 million proceeds from notes payable; and |
· | $9.2 million proceeds from convertible notes payable, partially offset by $0.7 million payments on convertible notes payable. |
Net provided by financing activities for the nine months ended September 30, 2023 included $5.2 million cash provided by financing activities from discontinued operations.
Financing Transactions Subsequent to September 30, 2023
Financing transactions subsequent to September 30, 2023 included the following:
2023 Common ATM Offering
During the period between October 1, 2023 through November 17, 2023, we sold an aggregate of 54.2 million shares of common stock pursuant to the sale2023 Common ATM Offering for gross proceeds of 1,309,545$10.0 million.
Senior Secured Convertible Note, Related Party
On October 13, 2023 (the “Closing Date”), we entered into a note purchase agreement with Ault & Company, pursuant to which we sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”) and warrants (the “Warrants”) to purchase shares of our common stock for a total purchase price of up to $17.5 million (the “Transaction”).
The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to us since June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by us to Ault & Company in exchange for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25 million stated value of 125,000 shares of our Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to us.
The Note has a principal face amount of $17.5 million and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note bears interest at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at the applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault & Company has the option, on not less than 10 calendar days’ notice to us, to require payment of accrued but unpaid interest on a monthly basis in arrears.
The Note is convertible into shares of common stock at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.
The Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the Closing Date. The exercise price of the Warrants is $0.1837, which is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.
In addition, we and various of our subsidiaries granted Ault & Company a senior security interest in substantially all of our assets as collateral for the repayment of the Note, which is subordinated to the security interest granted to the holders of the outstanding secured promissory notes.
Series C Preferred Purchase Agreement, Related Party
On November 6, 2023, we entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which we agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million shares of common stock for net proceedsa total purchase price of $672,up to $50 million, of which up to $17.5 million of the saleNote may be tendered for cancellation. The consummation of Series B andthe transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of the Agreement, are subject to various customary closing conditions as well as regulatory and stockholder approval. In addition to customary closing conditions, the closing of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The SPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the SPA.
Series D Preferred Purchase Agreement, Related Party
On November 15, 2023, we purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price of $1,540, gross proceeds$15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by us to ROI between January 1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033. In addition, for as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain our consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
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 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 debt financingsjudgment with respect to its level of $2,649, gross proceeds from advancesinfluence 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 receiptscash flows, its ability to participate in policy making decisions and the rights of $1,772the other investors to participate in the decision making process and payments on debt facilities of $626.
Business Combination
We allocate the purchase price of convertible debt, promissory notesan acquired business to the tangible and equity securities. During 2017, as reflected below,intangible assets acquired and liabilities assumed based upon their estimated fair values on the Company continues to successfully obtain additional equity and debt financing and in restructuring existing debt. The following financings transactions were consummated during 2017:
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.
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 July 7, 2017, the Company entered into an asset purchase agreement to acquire the intellectual property of Coolisys.com, in consideration for, in part, 50,0001, 2023 through September 30, 2023, Ault Alpha LP purchased 147,000 shares of common stock. Ault Alpha LP may be deemed to be an “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended. 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 | |||||||||||||
July 1, 2023 – July 31, 2023 | 147,000 | $ | 4.22 | |||||||||||||
August 1, 2023 – August 31, 2023 | - | $ | - | |||||||||||||
September 1, 2023 – September 30, 2023 | - | $ | - | |||||||||||||
Total | 147,000 | $ | 4.22 | - | - |
From July 1, 2023 through September 30, 2023, Ault Alpha LP purchased 9,500 shares of our common stock at a purchase price equal to $0.55 per share and (ii) warrants to purchase up to 272,727 shares of our common stock at $0.65 per share, which become exercisable six months after the issuance date, to two accredited investors for an aggregate purchase price of $150. The shares have yetseries D preferred stock. Ault Alpha LP may be deemed to be issued byan “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Company and are subject to approval from the NYSE American prior to issuance.
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 | |||||||||||||
July 1, 2023 – July 31, 2023 | 9,500 | $ | 15.50 | |||||||||||||
August 1, 2023 – August 31, 2023 | - | $ | - | |||||||||||||
September 1, 2023 – September 30, 2023 | - | $ | - | |||||||||||||
Total | 9,500 | $ | 15.50 | - | - |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
On November 15, 2023, we filed the certificate of designation of the Series C convertible preferred stock to be issued pursuant to the SPA entered into with Ault & Company on November 6, 2023. As of the date of this filing, no shares of Series C convertible preferred stock have been issued.
ITEM 6. | EXHIBITS |
_______________________
* | Filed herewith. | ||
** |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 20, 2017
AULT ALLIANCE, INC. | ||||
By: | /s/ William B. Horne | |||
William B. Horne | ||||
Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
By: | /s/ Kenneth S. Cragun | |||
Kenneth S. Cragun | ||||
Chief Financial Officer | ||||
(Principal Accounting |
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