Item 1. Financial Statements
Item 1. Financial Statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
December 31,
2023
2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 9,170,000
$ 10,492,000
Restricted cash
1,901,000
3,563,000
Cash and marketable securities held in trust account
119,254,000
118,193,000
Marketable equity securities
1,367,000
6,590,000
Accounts receivable
14,478,000
19,586,000
Inventories
20,199,000
22,080,000
Investment in promissory notes and other, related party
2,918,000
2,868,000
Loans receivable, current
1,165,000
7,593,000
Prepaid expenses and other current assets
16,177,000
14,744,000
TOTAL CURRENT ASSETS
186,629,000
205,709,000
Intangible assets, net
34,536,000
34,786,000
Goodwill
27,813,000
27,902,000
Property and equipment, net
235,138,000
229,914,000
Right-of-use assets
7,902,000
8,419,000
Investments in common stock, related parties
4,856,000
6,449,000
Investments in other equity securities
23,702,000
42,494,000
Other assets
6,331,000
5,841,000
TOTAL ASSETS
$ 526,907,000
$ 561,514,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 64,070,000
$ 63,411,000
Operating lease liability, current
2,994,000
2,975,000
Notes payable, net
26,459,000
39,621,000
Convertible notes payable, current
3,869,000
1,325,000
Series E Convertible Preferred Liability: $ 100 stated value per share, $ 0.001 par value – 83,000 shares authorized; 83,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
7,055,000
-
Series F Convertible Preferred Liability: $ 100 stated value per share, $ 0.001 par value – 1,000 shares authorized; 1,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
85,000
-
Series G Convertible Preferred Liability: $ 100 stated value per share, $ 0.001 par value – 16,000 shares authorized; 16,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
1,360,000
-
Redeemable noncontrolling interests in equity of subsidiaries
118,672,000
117,993,000
TOTAL CURRENT LIABILITIES
224,564,000
225,325,000
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 1
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
March 31,
December 31,
2023
2022
LONG TERM LIABILITIES
Operating lease liability, non-current
5,263,000
5,836,000
Notes payable
91,873,000
91,464,000
Convertible notes payable
11,414,000
11,451,000
Deferred underwriting commissions of Ault Disruptive subsidiary
3,450,000
3,450,000
TOTAL LIABILITIES
336,564,000
337,526,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock, $ 25 stated value per share, $ 0.001
par value – 1,000,000 shares authorized; 7,040 shares issued and outstanding at March 31, 2023 and December 31, 2022 (liquidation
preference of $ 176,000 as of March 31, 2023 and December 31, 2022)
-
-
Series B Convertible Preferred Stock, $ 10 stated value per share, share,
$ 0.001 par value – 500,000 shares authorized; 125,000 shares issued and outstanding at March 31, 2023 and December 31, 2022 (liquidation
preference of $ 1,190,000 as of March 31, 2023 and December 31, 2022)
-
-
Series D Cumulative Redeemable Perpetual Preferred Stock, $ 25 stated
value per share, $ 0.001 par value – 2,000,000 shares authorized; shares authorized, 263,022 shares and 172,838 shares issued and
outstanding at March 31, 2023 and December 31, 2022, respectively (liquidation preference of $ 6,576,000 and $ 4,321,000 as of March 31,
2023 and December 31, 2022)
-
-
Class A Common Stock, $ 0.001 par value – 500,000,000 shares authorized;
1,385,822 and 1,274,157 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
1,000
1,000
Class B Common Stock, $ 0.001 par value – 25,000,000 shares authorized;
0 shares issued and outstanding at March 31, 2023 and December 31, 2022
-
-
Additional paid-in capital
575,073,000
565,904,000
Accumulated deficit
( 378,633,000 )
( 329,078,000 )
Accumulated other comprehensive loss
( 931,000 )
( 1,100,000 )
Treasury stock, at cost
( 29,432,000 )
( 29,235,000 )
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY
166,078,000
206,492,000
Non-controlling interest
24,265,000
17,496,000
TOTAL STOCKHOLDERS’ EQUITY
190,343,000
223,988,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 526,907,000
$ 561,514,000
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 2
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended
March 31,
2023
2022
Revenue, products
$ 13,889,000
$ 8,659,000
Revenue, cryptocurrency mining
7,347,000
3,548,000
Revenue, hotel operations
2,243,000
2,698,000
Revenue, crane operations
12,646,000
-
Revenue, lending and trading activities
( 4,939,000 )
17,921,000
Total revenue
31,186,000
32,826,000
Cost of revenue, products
9,787,000
5,748,000
Cost of revenue, cryptocurrency mining
8,103,000
2,497,000
Cost of revenue, hotel operations
2,688,000
2,249,000
Cost of revenue, crane operations
7,388,000
-
Cost of revenue, lending and trading activities
1,180,000
-
Total cost of revenue
29,146,000
10,494,000
Gross profit
2,040,000
22,332,000
Operating expenses
Research and development
1,842,000
695,000
Selling and marketing
8,796,000
6,481,000
General and administrative
22,681,000
13,687,000
Impairment of mined cryptocurrency
139,000
439,000
Total operating expenses
33,458,000
21,302,000
(Loss) income from operations
( 31,418,000 )
1,030,000
Other income (expense):
Interest and other income
1,197,000
449,000
Interest expense
( 13,730,000 )
( 29,824,000 )
Loss on extinguishment of debt
( 63,000 )
-
Realized (loss) gain on marketable securities
( 38,000 )
109,000
Loss from investment in unconsolidated entity
-
( 533,000 )
Impairment of equity securities
( 9,555,000 )
-
Gain on the sale of fixed assets
4,515,000
-
Change in fair value of warrant liability
-
( 18,000 )
Total other expense, net
( 17,674,000 )
( 29,817,000 )
Loss before income taxes
( 49,092,000 )
( 28,787,000 )
Income tax benefit
( 263,000 )
-
Net loss
( 48,829,000 )
( 28,787,000 )
Net loss attributable to non-controlling interest
183,000
15,000
Net loss attributable to Ault Alliance, Inc.
( 48,646,000 )
( 28,772,000 )
Preferred dividends
( 229,000 )
( 5,000 )
Net loss available to common stockholders
$ ( 48,875,000 )
$ ( 28,777,000 )
Basic net loss per common share
$ ( 41.24 )
$ ( 94.97 )
Diluted net loss per common share
$ ( 41.24 )
$ ( 94.97 )
Weighted average basic and diluted common shares outstanding
1,185,000
303,000
Comprehensive loss
Net loss available to common stockholders
$ ( 48,875,000 )
$ ( 28,777,000 )
Other comprehensive income (loss)
Foreign currency translation adjustment
170,000
( 287,000 )
Total comprehensive loss
$ ( 48,705,000 )
$ ( 29,064,000 )
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 3
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended March 31, 2023
Accumulated
Series A, B & D
Additional
Other
Non-
Total
Preferred Stock
Common Stock
Paid-In
Accumulated
Comprehensive
Controlling
Treasury
Stockholders’
Shares
Amount
Shares
Amount
Capital
Deficit
Loss
Interest
Stock
Equity
BALANCES, January 1, 2023
304,878
$ -
1,274,157
$ 1,000
$ 565,904,000
$ ( 329,078,000 )
$ ( 1,100,000 )
$ 17,496,000
$ ( 29,235,000 )
$ 223,988,000
Issuance of common stock for restricted stock awards
-
-
4,974
-
-
-
-
-
-
-
Preferred stock issued for cash
90,184
-
-
-
2,255,000
-
-
-
-
2,255,000
Preferred stock offering costs
-
-
-
-
( 1,079,000 )
-
-
-
-
( 1,079,000 )
Stock-based compensation
3,931,000
-
-
617,000
-
4,548,000
Issuance of common stock for cash
-
-
106,691
-
4,158,000
-
-
-
-
4,157,000
Financing cost in connection with sales of common stock
-
-
-
-
( 105,000 )
-
-
-
-
( 105,000 )
Remeasurement of Ault Disruptive subsidiary temporary equity
-
-
-
-
-
( 679,000 )
-
-
-
( 679,000 )
Increase in ownership interest of subsidiary
-
-
-
-
11,000
-
-
( 22,000 )
-
( 11,000 )
Non-controlling position at BMI subsidiary acquired
-
-
-
-
-
-
-
6,357,000
-
6,357,000
Purchase of treasury stock - Ault Alpha
-
-
-
-
-
-
-
-
( 197,000 )
( 197,000 )
Net loss
-
-
-
-
-
( 48,645,000 )
-
-
-
( 48,645,000 )
Preferred dividends
-
-
-
-
( 229,000 )
-
-
-
( 229,000 )
Foreign currency translation adjustments
-
-
-
-
-
-
170,000
-
-
170,000
Net loss attributable to non-controlling interest
-
-
-
-
-
-
-
( 183,000 )
-
( 183,000 )
Other
-
-
-
-
( 2,000 )
( 2,000 )
( 1,000 )
-
( 4,000 )
BALANCES, March 31, 2023
395,062
$ -
1,385,822
$ 1,000
$ 575,073,000
$ ( 378,633,000 )
$ ( 931,000 )
$ 24,265,000
$ ( 29,432,000 )
$ 190,343,000
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 4
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended March 31, 2022
Accumulated
Series A & B
Additional
Other
Total
Preferred Stock
Common Stock
Paid-In
Accumulated
Comprehensive
Non-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
-
-
42
-
-
-
-
-
-
-
Stock-based compensation
-
-
-
-
2,644,000
-
-
41,000
-
2,685,000
Issuance of common stock for cash
-
-
468,860
-
110,147,000
-
-
-
-
110,147,000
Financing cost in connection with sales of common stock
-
-
-
-
( 2,758,000 )
-
-
-
-
( 2,758,000 )
Purchase of treasury stock – Ault Alpha
-
-
-
-
-
-
-
-
( 992,000 )
( 992,000 )
Net loss
-
-
-
-
-
( 28,772,000 )
-
-
-
( 28,772,000 )
Preferred dividends
-
-
-
-
( 5,000 )
-
-
-
( 5,000 )
Foreign currency translation adjustments
-
-
-
-
-
-
( 287,000 )
-
-
( 287,000 )
Net loss attributable to non-controlling interest
-
-
-
-
-
-
-
( 15,000 )
-
( 15,000 )
Other
-
-
-
1,000
( 1,000 )
( 1,000 )
-
1,000
-
-
BALANCES, March 31, 2022
132,040
$ -
750,051
$ 1,000
$ 495,760,000
$ ( 174,378,000 )
$ ( 393,000 )
$ 1,640,000
$ ( 14,172,000 )
$ 308,458,000
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 5
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
2023
2022
Cash flows from operating activities:
Net loss
$ ( 48,829,000 )
$ ( 28,787,000 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
6,163,000
2,815,000
Amortization of debt discount
10,400,000
26,461,000
Amortization of right-of-use assets
877,000
339,000
Loss on extinguishment of debt
63,000
-
Stock-based compensation
4,548,000
2,685,000
Gain on the sale of fixed assets
( 4,515,000
)
-
Impairment of equity securities
11,555,000
-
Impairment of cryptocurrencies
139,000
439,000
Realized gain on the sale of cryptocurrencies
( 250,000 )
( 261,000 )
Revenue, cryptocurrency mining
( 7,347,000 )
( 3,548,000 )
Realized losses on sale of marketable securities
3,627,000
5,707,000
Unrealized gains on marketable securities
( 1,908,000 )
( 13,515,000 )
Unrealized losses on investments in common stock, related parties
1,598,000
4,694,000
Unrealized gains on equity securities
-
( 13,461,000 )
Loss from investment in unconsolidated entity
-
533,000
Provision for loan losses
1,180,000
-
Other
( 83,000 )
( 312,000 )
Changes in operating assets and liabilities:
Proceeds from the sale of cryptocurrencies
7,780,000
4,377,000
Marketable equity securities
21,986,000
32,649,000
Accounts receivable
5,144,000
( 621,000 )
Inventories
1,924,000
( 1,723,000 )
Prepaid expenses and other current assets
( 719,000 )
6,947,000
Other assets
( 490,000 )
( 704,000 )
Accounts payable and accrued expenses
( 4,230,000 )
4,961,000
Lease liabilities
( 910,000 )
( 270,000 )
Net cash provided by operating activities
7,703,000
29,405,000
Cash flows from investing activities:
Purchase of property and equipment
( 7,021,000 )
( 35,359,000 )
Investment in promissory notes and other, related parties
-
( 700,000 )
Sales of marketable equity securities
-
10,210,000
Investments in loans receivable
( 181,000 )
( 246,000 )
Principal payments on loans receivable
-
1,500,000
Investments in equity securities
( 102,000 )
( 3,820,000 )
Proceeds from the sale of fixed assets
4,515,000
-
Other
22,000
( 352,000 )
Net cash used in investing activities
( 2,767,000 )
( 28,767,000 )
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 6
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Unaudited)
For the Three Months Ended March 31,
2023
2022
Cash flows from financing activities:
Gross proceeds from sales of common stock
$ 4,158,000
$ 110,147,000
Financing cost in connection with sales of common stock
( 105,000 )
( 2,758,000 )
Proceeds from sales of preferred stock
2,255,000
-
Financing cost in connection with sales of preferred stock
( 1,079,000 )
-
Proceeds from notes payable
4,998,000
295,000
Repayment of margin accounts
( 767,000 )
( 18,488,000 )
Payments on notes payable
( 19,651,000 )
( 65,986,000 )
Payments of preferred dividends
( 229,000 )
( 5,000 )
Purchase of treasury stock
( 197,000 )
( 992,000 )
Proceeds from convertible notes
2,680,000
-
Payments on convertible notes
( 160,000 )
-
Net cash (used in) provided by financing activities
( 8,097,000 )
22,213,000
Effect of exchange rate changes on cash and cash equivalents
177,000
57,000
Net (decrease) increase in cash and cash equivalents and restricted cash
( 2,984,000 )
22,908,000
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
$ 11,071,000
$ 44,141,000
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
$ 4,658,000
$ 2,572,000
Non-cash investing and financing activities:
Settlement of accounts payable with digital currency
$ -
$ 413,000
Conversion of convertible notes payable, related party into shares of common stock
$ 400,000
$ 400,000
Conversion of investments in other equity securities to marketable
securities
$ 13,340,000
$ -
Conversion of loans receivable to marketable securities
$ 5,430,000
$ -
Recognition of new operating lease right-of-use assets and lease liabilities
$ -
$ 2,188,000
Remeasurement of Ault Disruptive temporary equity
$ 679,000
$ -
Notes payable exchanged for series E, F and G convertible preferred stock liabilities
$ 8,500,000
$ -
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
F- 7
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 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 founded
by Milton “Todd” Ault, III, its Executive Chairman and is led by Milton “Todd” Ault, III, William B. Horne, its
Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Counsel. Together, they constitute the Executive
Committee, which manages the day-to-day operations of the Company. All major investment and capital allocation decisions are made for
the Company by the Executive Committee. The Company has the following nine reportable segments:
· Energy and Infrastructure (“Energy”) – crane operations, advanced textiles processing
and oil exploration;
· Technology and Finance (“Fintech”) –commercial lending, activist investing, media, and
digital learning;
· The Singing Machine Company, Inc. (“SMC”) – consumer electronics;
· BitNile, Inc. (“BNI”) – cryptocurrency mining operations;
· Giga-tronics Incorporated (“GIGA”) – defense industry;
· Imperalis Holding Corp., d/b/a TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics
solutions;
· BitNile Metaverse, Inc. (“BMI”) – immersive metaverse platform;
· Ault Global Real Estate Equities, Inc. (“AGREE”) – hotel operations and other commercial
real estate holdings; and
· Ault Disruptive Technologies Corporation (“Ault Disruptive”) – a special purpose acquisition
company (“SPAC”).
On
January 3, 2023, the Company (then known as BitNile Holdings, Inc.) merged its wholly owned subsidiary, Ault Alliance, Inc. with and into
itself. In connection with this upstream merger, Ault Alliance, Inc. was merged out of existence and the business of the Company continued
as it was being conducted. Further, on January 3, 2023, the effective date of the merger, the Company changed its name to Ault Alliance,
Inc. and its ticker was changed to “AULT.” The name change did not affect the rights of security holders of the 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 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 or preferred stock or their 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 the State of Delaware on May 17, 2023. All share amounts in these financial statements have been
updated to reflect the Reverse Split.
2. LIQUIDITY AND FINANCIAL
CONDITION
As
of March 31, 2023, the Company had cash and cash equivalents of $ 9.2 million and negative working capital of $ 37.9 million. The Company
has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. These factors
create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that these
condensed consolidated financial statements are issued.
F- 8
The condensed consolidated
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly,
the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern
and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
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, and 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 outside 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 March 31, 2023, will not be sufficient
to enable the Company to fund its anticipated level of operations through one year from the date these financial statements are issued.
Management anticipates raising additional capital through the private and public sales of the Company’s equity or debt securities
and selling its marketable securities and digital currencies, or a combination thereof. Although management believes that such capital
sources will be available, there can be no assurances that financing will be available to the Company when needed in order to allow the
Company to continue its operations, or if available, on terms acceptable to the Company. If the Company does not raise sufficient capital
in a timely manner, among other things, the Company may be forced to scale back its operations or cease operations altogether.
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 the Company’s
condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially
from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments
that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”), filed with the Securities and Exchange
Commission (the “SEC”) on April 17, 2023. The condensed consolidated balance sheet as of December 31, 2022 was derived from
the Company’s audited 2022 financial statements contained in the above referenced 2022 Annual Report. Results of the three months
ended March 31, 2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
Significant Accounting
Policies
Other
than as noted below, there have been no material changes to the Company’s significant accounting policies previously disclosed in
the 2022 Annual Report.
Preferred Stock
Liabilities
The Company follows ASC 480-10,
“Distinguishing Liabilities from Equity” in its evaluation of the accounting for the Preferred Shares. ASC 480-10-25-14 requires
liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable
number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics:
· A fixed monetary amount known at inception;
· Variations in something other than the fair value of the issuer’s equity shares; or
· Variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty
moves in the opposite direction as the value of the issuer’s shares.
The number of shares delivered
is determined on the basis of (1) the fixed monetary amount determined as the stated value and (2) the current stock price at settlement,
so that the aggregate fair value of the shares delivered equals the monetary value of the obligation, which is fixed or predominantly
fixed. Accordingly, the holder is not significantly exposed to gains and losses attributable to changes in the fair value of the Company’s
equity shares. Instead, the Company is using its own equity shares as currency to settle a monetary obligation.
F- 9
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 net investment
in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology
with a methodology that reflects expected credit losses. This guidance was effective for the Company beginning on January 1, 2023. The
adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In October 2021, the FASB
issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured
by the acquirer 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 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. REVENUE DISAGGREGATION
The following tables summarize
disaggregated customer contract revenues and the source of the revenue for the three months ended March 31, 2023 and 2022. Revenues from
lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which
are not considered to be revenues from contracts with customers under GAAP.
The Company’s disaggregated
revenues consisted of the following for the three months ended March 31, 2023 (excludes segments with no revenue):
Schedule of disaggregated revenues
GIGA
TurnOn
Green
Fintech
BNI
AGREE
SMC
Energy
Total
Primary Geographical Markets
North America
$ 2,334,000
$ 785,000
$ -
$ 7,805,000
$ 2,243,000
$ 3,383,000
$ 13,085,000
$ 29,635,000
Europe
2,441,000
4,000
-
-
-
-
25,000
2,470,000
Middle East and other
3,933,000
87,000
-
-
-
-
-
4,020,000
Revenue from contracts with customers
8,708,000
876,000
-
7,805,000
2,243,000
3,383,000
13,110,000
36,125,000
Revenue, lending and trading activities (North America)
-
-
( 4,939,000 )
-
-
-
-
( 4,939,000 )
Total revenue
$ 8,708,000
$ 876,000
$ ( 4,939,000 )
$ 7,805,000
$ 2,243,000
$ 3,383,000
$ 13,110,000
$ 31,186,000
Major Goods or Services
RF/microwave filters
$ 1,247,000
$ -
$ -
$ -
$ -
$ -
$ -
$ 1,247,000
Detector logarithmic video amplifiers
545,000
-
-
-
-
-
-
545,000
Power supply units & systems
3,114,000
825,000
-
-
-
-
-
3,939,000
Healthcare diagnostic systems
1,137,000
-
-
-
-
-
-
1,137,000
Electric vehicle chargers
-
51,000
-
-
-
-
-
51,000
Defense systems
2,665,000
-
-
-
-
-
-
2,665,000
Digital currency mining
-
-
-
7,347,000
-
-
-
7,347,000
Hotel operations
-
-
-
-
2,243,000
-
-
2,243,000
Karaoke machines and related
-
-
-
-
-
3,383,000
-
3,383,000
Crane rental
-
-
-
-
-
-
12,646,000
12,646,000
Other
-
-
-
458,000
-
-
464,000
922,000
Revenue from contracts with customers
8,708,000
876,000
-
7,805,000
2,243,000
3,383,000
13,110,000
36,125,000
Revenue, lending and trading activities
-
-
( 4,939,000 )
-
-
-
-
( 4,939,000 )
Total revenue
$ 8,708,000
$ 876,000
$ ( 4,939,000 )
$ 7,805,000
$ 2,243,000
$ 3,383,000
$ 13,110,000
$ 31,186,000
Timing of Revenue Recognition
Goods transferred at a point in time
$ 5,406,000
$ 873,000
$ -
$ 7,805,000
$ 2,243,000
$ 3,383,000
$ 464,000
$ 20,174,000
Services transferred over time
3,302,000
3,000
-
-
-
-
12,646,000
15,951,000
Revenue from contracts with customers
$ 8,708,000
$ 876,000
$ -
$ 7,805,000
$ 2,243,000
$ 3,383,000
$ 13,110,000
$ 36,125,000
F- 10
The Company’s disaggregated
revenues consisted of the following for the three months ended March 31, 2022:
GIGA
TurnOn
Green
Fintech
BNI
AGREE
Total
Primary Geographical Markets
North America
$ 1,511,000
$ 1,012,000
$ -
$ 3,833,000
$ 2,698,000
$ 9,054,000
Europe
2,179,000
19,000
-
-
-
2,198,000
Middle East and other
3,555,000
98,000
-
-
-
3,653,000
Revenue from contracts with customers
7,245,000
1,129,000
-
3,833,000
2,698,000
14,905,000
Revenue, lending and trading activities (North America)
-
-
17,921,000
-
-
17,921,000
Total revenue
$ 7,245,000
$ 1,129,000
$ 17,921,000
$ 3,833,000
$ 2,698,000
$ 32,826,000
Major Goods or Services
RF/microwave filters
$ 1,511,000
$ -
$ -
$ -
$ -
$ 1,511,000
Detector logarithmic video amplifiers
-
1,096,000
-
-
-
1,096,000
Power supply units & systems
2,479,000
-
-
-
-
2,479,000
Electric vehicle chargers
-
33,000
-
-
-
33,000
Defense systems
3,255,000
-
-
-
-
3,255,000
Digital currency mining
-
-
-
3,548,000
-
3,548,000
Hotel operations
-
-
-
-
2,698,000
2,698,000
Other
-
-
-
285,000
-
285,000
Revenue from contracts with customers
7,245,000
1,129,000
-
3,833,000
2,698,000
14,905,000
Revenue, lending and trading activities
-
-
17,921,000
-
-
17,921,000
Total revenue
$ 7,245,000
$ 1,129,000
$ 17,921,000
$ 3,833,000
$ 2,698,000
$ 32,826,000
Timing of Revenue Recognition
Goods transferred at a point in time
$ 3,512,000
$ 1,129,000
$ -
$ 3,833,000
$ 2,698,000
$ 11,172,000
Services transferred over time
3,733,000
-
-
-
-
3,733,000
Revenue from contracts with customers
$ 7,245,000
$ 1,129,000
$ -
$ 3,833,000
$ 2,698,000
$ 14,905,000
F- 11
5. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The
following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within
the fair value hierarchy:
Fair value, assets measured on recurring basis
Fair Value Measurement at March 31, 2023
Total
Level 1
Level 2
Level 3
Assets:
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party
$ 4,856,000
$ 4,856,000
$ -
$ -
Investments in marketable equity securities
1,367,000
1,367,000
-
-
Cash and marketable securities held in trust account
119,254,000
119,254,000
-
-
Total assets measured at fair value
$ 125,477,000
$ 125,477,000
$ -
$ -
Liabilities:
Series E, F and G preferred stock liabilities
$ 8,500,000
$ -
$ -
$ 8,500,000
Convertible promissory notes
15,283,000
-
-
15,283,000
Total liabilities measured at fair value
$ 23,783,000
$ -
$ -
$ 23,783,000
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:
Convertible promissory notes
$ 12,776,000
$ -
$ -
$ 12,776,000
The Company assesses the inputs
used to measure fair value using the three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable
in the market. For investments where little or no public market exists, management’s determination of fair value is based on the
best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking
into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities
and liquidity risks.
The
following table summarizes the changes in investments in other equity securities measured and carried at fair value on a recurring basis
with the use of significant unobservable inputs (Level 3) for the three months ended March 31, 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 March 31, 2023
$
-
Equity Investments
for Which Measurement Alternative Has Been Selected
As
of March 31, 2023 and December 31, 2022, the Company held equity investments in other securities, consisting of investments in preferred
stock, valued at $ 23.7 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.
F- 12
6. Marketable EQUITY Securities
Marketable equity securities
with readily determinable market prices consisted of the following as of March 31, 2023 and December 31, 2022:
Schedule of marketable securities
Marketable equity securities at March 31, 2023
Gross unrealized
Gross unrealized
Cost
gains
losses
Fair value
Common shares
$ 7,086,000
$ 55,000
$ ( 5,773,000 )
$ 1,368,000
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.
F- 13
7. DIGITAL CURRENCIES
The following table presents
the activities of the digital currencies (included in prepaid expenses and other current assets) for the three months ended March 31,
2023 and 2022:
Schedule of activities of the digital currencies
Digital
Currencies
Balance at January 1, 2023
$ 554,000
Additions of mined digital currencies
7,347,000
Impairment of mined cryptocurrency
( 139,000 )
Sale of digital currencies
( 7,780,000 )
Realized gain on sale of digital currencies
250,000
Balance at March 31, 2023
$ 232,000
Digital
Currencies
Balance at January 1, 2022
$ 2,165,000
Additions of mined digital currencies
3,548,000
Payments to vendors
( 412,000 )
Impairment of mined cryptocurrency
( 439,000 )
Sale of digital currencies
( 4,377,000 )
Realized gain on sale of digital currencies
260,000
Balance at March 31, 2022
$ 745,000
8. PROPERTY AND EQUIPMENT, NET
At March 31, 2023 and December
31, 2022, property and equipment consisted of:
Schedule of property and equipment
March 31, 2023
December 31, 2022
Building and improvements
$ 84,647,000
$ 81,102,000
Bitcoin mining equipment
42,550,000
42,438,000
Crane rental equipment
32,644,000
32,453,000
Land
25,646,000
25,646,000
Computer, software and related equipment
27,528,000
23,168,000
Aircraft
15,983,000
15,983,000
Vehicles
3,393,000
3,314,000
Office furniture and equipment
2,954,000
2,854,000
Oil and natural gas properties, unproved properties
3,564,000
972,000
238,909,000
227,930,000
Accumulated depreciation and amortization
( 15,099,000 )
( 9,344,000 )
Property and equipment placed in service, net
223,810,000
218,586,000
Deposits on cryptocurrency machines
11,328,000
11,328,000
Property and equipment, net
$ 235,138,000
$ 229,914,000
Summary of depreciation expense:
Schedule of depreciation
For the Three Months Ended
March 31,
2023
2022
Depreciation expense
$ 5,910,000
$ 2,562,000
F- 14
9. INTANGIBLE ASSETS, NET
At March 31, 2023 and December 31, 2022,
intangible assets consisted of:
Schedule of intangible asset
Useful Life
March 31,
2023
December 31,
2022
Trade name and trademark
Indefinite life
$ 1,503,000
$ 1,493,000
Trade names
5 - 10 years
4,316,000
4,316,000
Customer list
8 - 10 years
5,843,000
5,865,000
Developed technology
3 - 8 years
24,584,000
24,584,000
Domain name and other intangible assets
5 years
614,000
630,000
36,860,000
36,888,000
Accumulated amortization
( 2,324,000 )
( 2,102,000 )
Intangible assets, net
$ 34,536,000
$ 34,786,000
The Company’s trade
names and trademarks were determined to have an indefinite life. The remaining definite lived intangible assets are primarily being amortized
on a straight-line basis over their estimated useful lives. Amortization expense was $ 0.3 million and $ 0.1 million, respectively, for
the three months ended March 31, 2023 and 2022.
The customer
relationships, developed technology and certain trade names are subject to amortization over their estimated useful lives, which
range between 5 and 10 years with an average remaining useful life of 8.2 years. The following table presents estimated amortization expense
for each of the succeeding five calendar years and thereafter.
Schedule of estimated amortization expense
2023
$ 4,188,000
2024
4,442,000
2025
4,342,000
2026
4,242,000
2027
4,242,000
Thereafter
11,577,000
$ 33,033,000
10. GOODWILL
The following table summarizes
the changes in the Company’s goodwill for the three months ended March 31, 2023:
Schedule of goodwill
Goodwill
Balance as of January 1, 2023
$ 27,902,000
Acquisition of BMI
17,000
Effect of exchange rate changes
( 106,000 )
Balance as of March 31, 2023
$ 27,813,000
11. BUSINESS COMBINATION
BMI Acquisition
On March 6, 2023, the Company
closed into a Share Exchange Agreement (the “Agreement”) with BMI and sold to BMI all of the outstanding shares of capital
stock of the Company’s subsidiary, BitNile.com, Inc. (“BitNile.com”) as well as the securities of Earnity, Inc. (“Earnity”)
beneficially owned by BitNile.com as of the date of the Agreement (the “Transaction”). As consideration for the acquisition,
BMI issued shares of preferred stock convertible into common stock of BMI representing approximately 73.2% of BMI’s outstanding
common stock. Pending approval of the transaction by BMI’s shareholders, the preferred stock combined are subject to a 19.9% beneficial
ownership limitation. The Transaction benefits the Company as BMI is a publicly traded company and provides BitNile.com access to capital
markets as the primary focus for BMI to fund the expected growth of the BMI metaverse platform. In addition, there are certain synergies
between the Company’s Bitcoin mining operations and BMI’s Agora Digital mining business.
The holders of preferred
stock will be entitled to receive dividends at a rate of 5% of the stated value of the preferred stock.
F- 15
The Company is entitled to
appoint three members to the board of directors of BMI and, following shareholder approval, a majority of the board.
The Company consolidates
BMI as a variable interest entity (a “VIE”) due to its significant level of influence and control of BMI, the size of its
investment, and its ability to participate in policy making decisions. The Company is considered the primary beneficiary of the VIE.
Schedule of variable interest entities
Ault Alliance investment in BMI
Amount
Common stock
$ 287,000
The total purchase price
to acquire BMI has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any
excess purchase price allocated to goodwill. The goodwill resulting from this acquisition is not tax deductible. The fair value of the
acquired assets and assumed liabilities as of the date of acquisition are based on preliminary estimates provided, in part, by a third-party
valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected
to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in
asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences
would alter the understanding of the impact of this 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
$ 39,000
Investment in equity securities
6,000,000
Prepaid expenses and other current assets
1,032,000
Property and equipment, net
4,113,000
Right-of-use assets
350,000
Accounts payable and accrued expenses
( 4,551,000 )
Lease liabilities
( 356,000 )
Net assets acquired
6,627,000
Goodwill
$ 17,000
12. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and
Ault & Company, Inc. (“Ault & Company”) at March 31, 2023 and December 31, 2022, were comprised of the following:
Investment in Promissory Notes, Related
Parties
Schedule of investment
Interest
March 31,
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
418,000
368,000
Total investment in promissory note, related party
$ 2,918,000
$ 2,868,000
F- 16
Summary of interest income,
related party, recorded within interest and other income on the condensed consolidated statement of operations:
For the Three Months Ended
March 31,
2023
2022
Interest income, related party
$ 50,000
$ 50,000
Investment in Common Stock and Options,
Related Parties
March 31,
December 31,
2023
2022
Investment in common stock of Alzamend
$ 4,856,000
$ 6,449,000
The following table summarizes
the changes in the Company’s investments in Alzamend during the three months ended March 31, 2023:
Schedule of investment in warrants and common stock
Investment in
common stock of
Alzamend
Balance at January 1, 2023
$ 6,449,000
Investment in common stock of Alzamend
5,000
Unrealized loss in common stock of Alzamend
( 1,598,000 )
Balance at March 31, 2023
$ 4,856,000
Unrealized loss in common
stock of Alzamend is recorded within revenue from lending and trading activities on the condensed consolidated statements of operations.
Investments in
Alzamend Common Stock
The
following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended March
31, 2023:
Schedule of investment of common stock
Shares of
Per Share
Investment in
Common Stock
Price
Common Stock
Balance at January 1, 2023
11,415,000
$ 0.56
$ 6,449,000
Open market purchases after initial public offering
10,000
$ 0.50
5,000
Unrealized loss in common stock of Alzamend
-
$ -
( 1,598,000 )
Balance at March 31, 2023
11,425,000
$ 0.43
$ 4,856,000
F- 17
13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at March 31,
2023 and December 31, 2022 consisted of:
Schedule of other current liabilities
March 31,
December 31,
2023
2022
Accounts payable
$ 25,411,000
$ 21,347,000
Accrued payroll and payroll taxes
11,265,000
9,939,000
Interest payable
4,079,000
3,207,000
Accrued legal
3,075,000
3,168,000
Accrued lender profit participation rights
-
6,000,000
Financial instrument liabilities
1,226,000
651,000
Related party advances
289,000
352,000
Other accrued expenses
15,725,000
17,980,000
$ 64,070,000
$ 62,644,000
Accrued Lender Profit Participation Rights
During the quarter ended March
31, 2023, the $ 6.0 million accrued lender profit participation rights obligation was paid in full.
14. 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 100,000 shares of its 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”). 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.
Preferred stock liability
at March 31, 2023 was comprised of the following:
Schedule of preferred stock liability
Preferred Type
Shares
Conversion
Price
Stated
Value
Fair Value
Series E Convertible Preferred Liability
83,000
See below*
$ 8,300,000
$ 7,055,000
Series F Convertible Preferred Liability
1,000
See below*
100,000
82,000
Series G Convertible Preferred Liability
16,000
See below*
1,600,000
1,360,000
Total
100,000
$ 10,000,000
$ 8,500,000
* Each Preferred
Share is convertible into such number of shares of the Company’s common stock equal to the stated value per share divided by the
conversion price, which is equal to 85% of the closing sale price of the common stock on the trading day prior to the date of conversion,
subject to a floor price of $0.10, which floor price is not affected by the recently consummated reverse split.
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 other good and valuable consideration. 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.
F- 18
15. 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 March 31, 2023, the carrying amount of the redeemable noncontrolling interest in equity of subsidiaries was recorded at its redemption
value of $ 118.7 million. These redeemable noncontrolling interests are classified as current liabilities in the condensed consolidated
balance sheets. This classification is due to the expiry of time that was allotted for Ault Disruptive to consummate its initial business
combination, which occurred on December 20, 2022. Ault Disruptive announced two, three-month extension periods, however, the deposits
associated with these extensions have yet to be made.
16. NOTES PAYABLE
Notes payable at March 31,
2023 and December 31, 2022, were comprised of the following:
Schedule of notes payable
Interest
rate
Due date
March 31,
2023
December 31,
2022
Short-term notes payable – in default
5.0 %
January 3, 2023
$ 375,000
$ 700,000
AGREE Madison secured construction loans
7.0 %
January 1, 2025
64,893,000
62,395,000
SMC line of credit *
8.0 %
October 14, 2025
-
1,761,000
SMC installment notes
7.6 %
June 18, 2024
139,000
158,000
Circle 8 revolving credit facility
8.4 %
December 16, 2025
13,903,000
14,724,000
Circle 8 equipment financing notes
7.2 %
November 16, 2026
9,400,000
10,677,000
XBTO note payable
12.5 %
December 30, 2023
2,093,000
2,749,000
16% senior secured promissory note
16.0 %
May 31, 2023
10,456,000
17,456,000
3% secured promissory notes
3.0 %
May 18, 2023
-
5,672,000
8.5% secured promissory notes
8.5 %
May 7, 2024
17,191,000
17,389,000
10% secured promissory notes
10.0 %
August 10, 2023
-
8,789,000
Short-term bank credit facilities
6.3 %
Renews monthly
3,340,000
1,702,000
Total notes payable
$ 121,790,000
$ 144,172,000
Less: Unamortized debt discounts
( 3,458,000 )
( 13,087,000 )
Total notes payable, net
$ 118,332,000
$ 131,085,000
Less: current portion
( 26,459,000 )
( 39,621,000 )
Notes payable – long-term portion
$ 91,873,000
$ 91,464,000
* As of March 31, 2023, SMC was in violation of a financial covenant on this line of credit. However, SMC subsequently obtained a waiver
for this covenant violation in May 2023.
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 March 31, 2023 were:
Schedule Of maturities
Year
2023
$ 25,508,000
2024
15,307,000
2025
66,630,000
2026
14,345,000
$ 121,790,000
Interest Expense
Schedule of interest expense
For the Three Months Ended
March 31,
2023
2022
Contractual interest expense
$ 2,727,000
$ 921,000
Forbearance fees
603,000
1,203,000
Amortization of debt discount
10,400,000
27,700,000
Total interest expense
$ 13,730,000
$ 29,824,000
10% Secured Promissory Notes
The 10% secured promissory
notes were retired in March 2023 and converted into the Preferred Shares, as described in Note 14 – Preferred Stock Liability.
F- 19
Amendments to 16% Secured Promissory Notes
On April 6, 2023, the Company
entered into an amendment agreement, effective as of March 16, 2023, with the initial investor related to the December 2022 16% secured
promissory note extending the due date on the note to May 31, 2023, which will automatically extend to June 30, 2023 if the Company repays
the balance outstanding on the note as of the extension date, which was $8.3 million, by May 31, 2023. The Company agreed to increase
the principal amount of the note by approximately $2.0 million, reflecting a $1.7 million extension fee and $0.4 million of liquidated
damages for failure to obtain an effective registration statement.
On May 4, 2023, the Company
entered into an amendment agreement, effective as of March 16, 2023, with the subsequent investor related to the December 2022 16% secured
promissory note extending the due date on the note to June 30, 2023. The Company agreed to increase the principal amount of the note by
approximately $0.8 million, reflecting a $0.6 million extension fee and $0.2 million amendment fee.
17. CONVERTIBLE NOTES
Convertible notes payable at March 31, 2023 and
December 31, 2022, were comprised of the following:
Schedule of convertible notes payable
Conversion price per
share
Interest
rate
Due date
March 31,
2023
December 31,
2022
Convertible promissory note
$ 4.00
4 %
May 10, 2024
$ 500,000
$ 660,000
AVLP convertible promissory notes, principal
$ 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
3,333,000
-
Fair value of embedded options and derivatives
2,283,000
2,316,000
Less: unamortized debt discounts
( 744,000 )
( 111,000 )
Total convertible notes payable, net of financing cost, long term
$ 15,283,000
$ 12,776,000
Less: current portion
( 3,869,000 )
( 1,325,000 )
Convertible notes payable, net of financing cost – long-term portion
$ 11,414,000
$ 11,451,000
Significant
inputs associated with the embedded option include:
Schedule of weighted average assumptions
March 31, 2023
December 31, 2022
Exercise price
Variable
Variable
Contractual term in years
2.7
2.7
Volatility
75 % – 97 %
75 % – 93 %
Dividend yield
0 %
0 %
Risk-free interest rate
4.6 %
4.0 %
GIGA Senior Secured Convertible Notes
On January 11, 2023,
GIGA entered into a Securities Purchase Agreement (“GIGA SPA”) with two accredited investors (the “Lenders”)
pursuant to which GIGA sold to the Lenders $ 3.3
million 10 %
original issue discount Senior Secured Convertible Notes (the “Notes”) and five-year warrants (the “Warrants”) to purchase
shares of common stock, no par value for total gross proceeds of $3.0 million. The net proceeds shall be used primarily for working
capital.
The Notes are secured by the
assets of GIGA pursuant to a Security Agreement entered into for such purpose, and are senior to the indebtedness payable to Ault and
Ault Lending, pursuant to a Subordination Agreement entered into in connection with the GIGA SPA.
The Notes mature on the earlier
of (i) nine months from the issuance date, or October 11, 2023, or (ii) completion of the uplist transaction pursuant to which GIGA’s
common stock becomes listed for trading on a national securities exchange operated by The Nasdaq Stock Market or the New York Stock Exchange
(an “Uplist Transaction”). The Notes accrue interest at a rate of 6 % per annum payable monthly, which increases to 18% upon
an event of default. In addition, under the Notes upon an event of default GIGA is required to pay 20% of its consolidated revenues monthly
on each interest payment date in reduction of the principal amount of the Notes then outstanding.
F- 20
The Notes provide for certain
events of default which include failure of the Uplist Transaction to occur by the maturity date, failure to maintain effectiveness of
the registration statement under the Registration Rights Agreement (as described below), suspension of trading of GIGA’s common
stock for five consecutive trading days, failure to timely deliver shares issuable upon conversion of the Notes or exercise of the Warrants,
failure to timely make payments under the Notes, default under other indebtedness, and certain other customary events of default, subject
to certain exceptions and limitations.
Upon an event of default,
the holders will have the right to require GIGA to prepay the Notes at a 125% premium. Further, upon a bankruptcy event of default or
a change of control event, GIGA will be required to prepay the Notes at a premium. If the conversion price falls below $0.25, GIGA may
also elect to prepay the notes at a 125% premium.
The Notes are convertible
upon the earlier of the Uplist Transaction and an event of default at a conversion price equal to the greater of (a) 90% of the lowest
volume weighted average price (“VWAP”) for the 10 trading days prior to the conversion date and (b) $0.25 per share, subject
to adjustment including downward adjustment upon any dilutive issuance of securities.
GIGA repaid its existing
line of credit with Western Alliance Bank which had an existing balance of approximately $ 59,000 .
Under the Notes, GIGA may enter into a factoring agreement of $2 million using GIGA’s accounts receivable as collateral.
The Warrants entitle the holders
to purchase a total of 1.7 million shares of common stock for a five-year period from issuance, at an exercise price determined as follows:
(i) beginning on the issuance date and for a period of 90 days thereafter, $0.78, (ii) if the Uplist Transaction has occurred as of the
date of exercise, the lower of (A) $0.78 and (B) 110% of the per share offering price to the public in the Uplist Transaction, and (iii)
if neither of (i) and (ii) apply, the lower of (A) $0.78 and (B) 90% of the lowest VWAP for the 10 trading days prior to the date of the
exercise, subject to adjustment including downward adjustment upon any dilutive issuance of securities. If the Uplist Transaction is not
completed prior to the maturity date of the Notes, the number of shares of common stock that may be purchased upon exercise of the Warrants
will be doubled, without an adjustment to the exercise price.
The GIGA SPA, Warrants and
Notes require a reserve of authorized but unissued shares of common stock initially equal to approximately 15.0 million shares of common
stock, subject to reduction as the Notes and Warrants are converted and exercised, respectively.
Spartan Capital Securities,
LLC (the “Placement Agent”) served as placement agent in the offering and received a cash commission in the amount of 8% of
the gross proceeds, or $0.2 million. In addition, GIGA agreed to pay the Placement Agent an expense allowance of $30,000. Furthermore,
GIGA agreed to issue the Placement Agent five-year warrants (the “Placement Agent Warrants”) to purchase a number of shares
of common stock equal to 8% of the total number of shares of common stock underlying the Notes and Warrants sold in the offering, or 1.2
million shares. The Placement Agent Warrants have an exercise price of 110% of the Warrant exercise price.
Under the GIGA SPA, GIGA
reimbursed the Lenders a total of $ 60,000
out of the proceeds from the offering for fees and expenses incurred in connection therewith.
In connection with the GIGA
SPA, GIGA entered into a Registration Rights Agreement pursuant to which it agreed to register the resale by the Lenders of the common
stock issuable upon conversion of the Notes and Warrants. Pursuant to the Registration Rights Agreement, the initial registration statement
on Form S-1 must be filed 30 days after the Notes become convertible, and to cause the registration statement to be declared effective
within 90 days thereafter, subject to certain limitations and exceptions. GIGA did not complete the registration statement in a timely
manner, which is an event of default. The Lenders required GIGA to terminate the Financing Agreement as a condition of lending it the
$3 million and GIGA’s issuance of the Notes.
18. 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.
F- 21
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 March 31, 2023, the Company
had accrued $ 3.1 million as a loss contingency related to litigation matters.
SEC Investigation
The Company and certain affiliates
and related parties received several subpoenas from the SEC for the production of documents and testimony in the non-public fact-finding
investigation referred to as In re DPW Holdings, Inc. The Company and those parties have engaged in discussions with the SEC regarding
the matters at issue in the investigation, and those discussions have progressed. No final resolution regarding the matters at issue in
the investigation has been reached however, and there can be no assurance as to the outcome of this matter. The Company recorded a $1.0
million loss contingency related to this matter.
19. 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 equity offering program with Ascendiant Capital under which it may sell, from time to time,
shares of its Series D Preferred Stock for aggregate gross proceeds of up to $ 46.4
million (the “2022 Preferred ATM Offering”). During the three months ended March 31, 2023, the Company sold an aggregate
of 90,184
shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $ 1.2
million.
20. INCOME TAXES
The
Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income
Taxes. The Company’s effective tax rate (“ETR”) from continuing operations was ( 0.5 %) and 0 %
for the three months ended March 31, 2023 and 2022, respectively. The Company recorded an income tax benefit of $ 0.3 million
and $ 0 for the three months ended
March 31, 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.
F- 22
21. NET LOSS PER SHARE
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. Anti-dilutive securities, which are convertible into or exercisable
for the Company’s common stock, consisted of the following at March 31, 2023 and 2022:
Schedule of net loss per share
March 31,
2023
2022
Stock options
19,000
21,000
Restricted stock grants
-
7,000
Warrants
52,000
67,000
Convertible notes
1,000
1,000
Total
72,000
96,000
22. SEGMENT AND CUSTOMERS INFORMATION
The Company had nine reportable
segments as of March 31, 2023 and seven as of March 31, 2022; see Note 1 for a brief description of the Company’s business.
The following data presents
the revenues, expenditures and other operating data of the Company’s operating segments for the three months ended March 31, 2023:
Schedule of operating segments
GWW
TurnOnGreen
Fintech
BNI
AGREE
Ault
Disruptive
SMC
Energy
BMI
Holding
Company
Total
Revenue
$ 8,708,000
$ 876,000
$ -
$ -
$ -
$ -
$ 3,383,000
$ 25,000
$ -
$ -
$ 12,992,000
Revenue, cryptocurrency mining
-
-
-
7,347,000
-
-
-
-
-
-
7,347,000
Revenue, commercial real estate leases
-
-
-
458,000
-
-
-
439,000
-
-
897,000
Revenue, lending and trading activities
-
-
( 4,939,000 )
-
-
-
-
-
-
-
( 4,939,000 )
Revenue, crane operations
-
-
-
-
-
-
-
12,646,000
-
-
12,646,000
Revenue, hotel operations
-
-
-
-
2,243,000
-
-
-
-
-
2,243,000
Total revenues
$ 8,708,000
$ 876,000
$ ( 4,939,000 )
$ 7,805,000
$ 2,243,000
$ -
$ 3,383,000
$ 13,110,000
$ -
$ -
$ 31,186,000
Depreciation and amortization expense
$ 590,000
$ 143,000
$ -
$ 3,335,000
$ 838,000
$ -
$ 371,000
$ 1,070,000
$ 83,000
$ 610,000
$ 7,040,000
Income (loss) from operations
$ ( 2,672,000 )
$ ( 980,000 )
$ ( 6,985,000 )
$ ( 475,000 )
$ ( 1,555,000 )
$ ( 383,000 )
$ ( 2,251,000 )
$ 1,970,000
$ ( 8,056,000 )
$ ( 10,031,000 )
$ ( 31,418,000 )
Capital expenditures for the three months ended March 31, 2023
$ 46,000
$ 10,000
$ -
$ 1,052,000
$ 2,699,000
$ -
$ 142,000
$ 331,000
$ 407,000
$ 2,334,000
$ 7,021,000
Identifiable assets as of March 31, 2023
$ 37,952,000
$ 6,293,000
$ 27,109,000
$ 73,589,000
$ 97,519,000
$ 119,649,000
$ 21,013,000
$ 95,942,000
$ 12,929,000
$ 34,913,000
$ 526,907,000
Segment information for the
three months ended March 31, 2022:
GWW
TurnOnGreen
Ault
Alliance
BNI
AGREE
Ault
Disruptive
Holding
Company
Total
Revenue
$ 7,245,000
$ 1,129,000
$ 7,000
$ -
$ -
$ -
$ -
$ 8,381,000
Revenue, cryptocurrency mining
-
-
-
3,548,000
-
-
-
3,548,000
Revenue, commercial real estate leases
-
-
-
278,000
-
-
-
278,000
Revenue, lending and trading activities
-
-
17,921,000
-
-
-
-
17,921,000
Revenue, hotel operations
-
-
-
-
2,698,000
-
-
2,698,000
Total revenues
$ 7,245,000
$ 1,129,000
$ 17,928,000
$ 3,826,000
$ 2,698,000
$ -
$ -
$ 32,826,000
Depreciation and amortization expense
$ 294,000
$ 298,000
$ 34,000
$ 1,527,000
$ 828,000
$ -
$ 173,000
$ 3,154,000
Income (loss) from operations
$ ( 144,000 )
$ ( 1,175,000 )
$ 11,912,000
$ ( 363,000 )
$ ( 1,382,000 )
$ ( 297,000 )
$ ( 7,521,000 )
$ 1,030,000
Capital expenditures for the three months ended March 31, 2022
$ 129,000
$ 75,000
$ 88,000
$ 34,987,000
$ 34,000
$ -
$ 46,000
$ 35,359,000
Identifiable assets as of March 31, 2022
$ 34,479,000
$ 6,342,000
$ 71,852,000
$ 131,833,000
$ 92,473,000
$ 118,650,000
$ 63,295,000
$ 518,924,000
F- 23
23. CONCENTRATIONS OF CREDIT AND REVENUE RISK
The following table summarizes
accounts receivable that are concentrated with certain large customers as of March 31, 2023 and December 31, 2022:
Schedule of concentrations of credit risk
March 31, 2023
December 31, 2023
Customer A
15.9 %
12.8 %
Customer B
6.9 %
13.5 %
For
the year three months ended March 31, 2023 and 2022, no customer represented 10% or
more of consolidated revenues.
24. SUBSEQUENT EVENTS
2022 Preferred
ATM Offering
During
the period between April 1, 2023 through May 19, 2023, the Company sold an aggregate of 105,475
shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $ 1.2 million .
Investments in Alpha Fund
During the period between
April 1, 2023 through May 19, 2023, Ault Lending purchased an additional $0.3 million of limited
partnership interests in Alpha Fund.
12% Term Note
On April 5, 2023, the Company
issued a term note with a principal amount of $ 1.1 million, bearing an interest rate of 12 % . The term note was issued at a discount, with
net proceeds to the Company amounting to $ 1.0 million. The note is scheduled to mature on June 5, 2023 . The Company has the option to
extend the maturity date by one month, upon payment of a $30,000 extension fee. Ault & Company, a related party, guaranteed the term
note.
Series C Preferred Purchase Agreement
On
May 1, 2023, the Company entered into a securities purchase agreement (the “Agreement”) with Ault & Company, pursuant
to which the Company agreed to sell to Ault & Company up to 40,000 shares of Series C convertible preferred stock and warrants to
purchase up to 1.3 million shares of common stock for a total purchase price of up to $ 40 million. The consummation of the transactions
contemplated by the Agreement are subject to various customary closing conditions and the receipt of certain third party consents. In
addition to customary closing conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company of
financing in an amount sufficient to consummate the transaction. The Agreement contains customary termination provisions for Ault &
Company under certain circumstances, and the Agreement shall automatically terminate if the closing has not occurred prior to May 31,
2023, although such date may be extended by Ault & Company as set forth in the Agreement.
Amendment to 16% Secured Promissory Note
On May 2, 2023, the Company
entered into a second amendment agreement, effective as of April 18, 2023, with the Initial Investor related to the December 2022 16%
secured promissory note extending the due date on the date for which the Company was required to make a payment of $1.0 million. The Company
agreed to increase the principal amount of the note by $0.2 million as an extension fee and to grant the Investors an additional 2,000
miners as collateral for repayment of the notes.
Original Issuance Discount Term Notes
On May 15, 2023, the Company
issued a term note with a principal amount of $ 1.3 million, which does not bear interest unless there is an event of default. The term
note was issued at a discount, with net proceeds to the Company amounting to $ 1.0 million. The Company is obligated to repay $1.0 million
of the note on June 15, 2023 and the remaining $0.3 million on June 30, 2023. Upon an event of default, the Company will pledge its ownership
of the membership interests in 456 Lux Hotel NYC, LLC, which is a limited partner in NYREIC 456 LP. Milton “Todd” Ault, III,
the Company’s Executive Chairman, and his wife, guaranteed repayment of the term note.
On May 16, 2023, the Company
issued a term note with a principal amount of $ 120,000 ,
which does not bear interest. The term note was issued at a discount, with net proceeds to the Company amounting to $ 100,000 .
The note is scheduled to mature on June
16, 2023 . The
Company has the option to extend the maturity date by 15 days, upon payment of an extension fee equal to 1% of the amount then outstanding.
On May 17, 2023, the Company
issued a term note with a principal amount of $ 1.3 million, which does not bear interest unless there is an event of default. The term
note was issued at a discount, with net proceeds to the Company amounting to $ 1.0 million. The note is scheduled to mature on July 17,
2023 . Milton “Todd” Ault, III, the Company’s Executive Chairman, and Ault & Company guaranteed repayment of the
term note.
BMI Securities Purchase Agreement
On April 27, 2023, BMI entered
into a securities purchase agreement with certain accredited investors providing for the issuance of senior secured convertible notes
with an aggregate principal face amount of $ 6.9 million convertible into shares of BMI common stock and five-year warrants to purchase
an aggregate of 63.0 million shares of BMI common stock at an exercise price of $ 0.1091 per share, subject to adjustment. The Notes are
secured by a guaranty provided by the Company, as well as by Milton “Todd” Ault, III, the Company’s Executive Chairman,
and Ault & Company guaranteed repayment of the term note.
BMI and the investors entered
into a registration rights agreement whereby BMI agreed to file a registration statement to register the conversion shares and warrant
shares.
The senior secured convertible notes bear no interest as they were issued with an original issuance discount.
The maturity date of the Notes is April 27, 2024 . The senior secured convertible notes are convertible at a price per share equal to
the lower of (i) $0.1091 or (ii) the greater of (A) $0.0168 and (B) 85% of the lowest volume weighted average price of BMI common stock
during the 10 trading days prior to the date of conversion, subject to adjustment.
F- 24
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.