What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-21 compared with 2023-05-22 · 481 added, 217 removed, 242 unchanged (74% of the section changed)

6 unchanged sentences

Through our wholly and majority owned subsidiaries and strategic investments, we own and operate a data center at

which we mine Bitcoin, and provide mission-critical products that support a diverse range of industries, including metaverse platform,

oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations

and textiles.

In addition, we own and operate hotels and extend credit to select entrepreneurial businesses through a licensed lending

which we mine 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.

we own and operate hotels and extend credit to select entrepreneurial businesses through a licensed lending subsidiary.

Recent Events and Developments

20 unchanged sentences

of the Agreement.

However, pending approval of the transaction by BMI’s shareholders, the Preferred Stock is subject to a 19.9%

beneficial ownership limitation, including the Series A Convertible Preferred Stock that we acquired from BMI in June of 2022.

The Agreement

provides that BMI will seek shareholder approval (the “Shareholder Approval”) following the closing.

However, pending approval of the transaction by BMI’s shareholders and the Nasdaq Stock Market, the Preferred

Stock is subject to a 19.9% beneficial ownership limitation, including the Series A Convertible Preferred Stock that we acquired from

BMI in June of 2022.

The Agreement provides that BMI will seek shareholder approval (the “Shareholder Approval”) following

Pursuant to the Certificates

22 unchanged sentences

into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”),

pursuant to which we sold, 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”).

The Preferred

Shares are convertible into shares of our common stock at the option of the holders and, in certain circumstances, by us.

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

The Preferred Shares will be convertible into shares of our common stock at the option of the holders and, in certain

circumstances, by us.

Each share of Series E Preferred

7 unchanged sentences

of conversion, subject to a floor price of $0.10.

The Preferred Shares became convertible at the option of the holder following our receipt

of stockholder approval of the Reverse Split (as defined below).

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.

We called a special meeting

of stockholders, which was held on May 15, 2023, to consider an amendment (the “Amendment”) to our Certificate of Incorporation

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.

the option to extend the maturity date by one month, by paying a $30,000 extension fee.

Ault & Company guaranteed repayment of the

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”).

1 unchanged sentence

not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the Preferred Shares until after the Reverse

Pursuant to the certificate of designation of the Series E Preferred Stock, the shares of Series E Preferred Stock had the right

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 had the right to vote on such Amendment.

Each Investor 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 required the approval of the majority of the votes associated with our outstanding capital stock entitled

to vote on the proposal.

On May 15, 2023, we held the

special meeting of stockholders, at which meeting the Reverse Split was approved by the stockholders.

On May 15, 2023, we approved a ratio

with respect to the Reverse Split of one-for-three hundred.

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 this Quarterly Report have been updated to reflect the Reverse Split.

On May 1, 2023, we entered

into a securities purchase agreement (the “Series C Agreement”) with Ault & Company, Inc.

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

The Series G Preferred Stock does not carry any voting rights, except as required by law or expressly provided by its certificate

of designation.

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.

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.

On July 24, 2023, we established

a record date for our second partial distribution of TurnOnGreen Securities.

Stockholders as of this date were entitled to 40 shares of

TurnOnGreen Securities for every share of the Company’s 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 TurnOnGreen.

We distributed 56.4 million TurnOnGreen Securities

in the second distribution.

July 19, 2023 we along with certain of our subsidiaries entered into a First Amendment and Joinder to Loan and Guarantee Agreement (the

“Amendment”) with the institutional investors pursuant to which the (i) Loan and Guarantee Agreement, dated November 7, 2022,

entered into between us and the institutional investors (the “Loan Agreement”) and (ii) Security Agreement, dated November

7, 2022, entered into between the institutional investors and Sentinum (the “Security Agreement”) was amended.

the Amendment, we borrowed an additional $8.8 million.

The net proceeds of the additional loan amount were $7.5 million.

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.

a related party, 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.

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 as set forth in the Series C Agreement.

as of August 10, 2023, we assigned the Term Note to Ault & Company.

As consideration for Ault & Company assuming the Term Note

from us, we issued a 12% demand promissory note in the principal face amount of $1.1 million (the “Second Demand Note”) to

Ault & Company.

As a holding company, our

20 unchanged sentences

companies public through rights offerings and directed share subscription programs.

We will continue to consider these (or similar) 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.

10 unchanged sentences

Results of Operations

Results of Operations for the Three Months Ended March 31, 2023

Results of Operations for the Three Months Ended June 30, 2023 and

The following table summarizes

the results of our operations for the three months ended March 31, 2023 and 2022.

For the Three Months Ended March 31,

the results of our operations for the three months ended June 30, 2023 and 2022.

For the Three Months Ended June 30,

Revenue, cryptocurrency mining

Revenue, hotel operations

Revenue, hotel and real estate operations

Revenue, crane operations

Revenue, lending and trading activities

( 4,939,000 )

Total revenue

1 unchanged sentence

Cost of revenue, cryptocurrency mining

Cost of revenue, hotel and real estate operations

Cost of revenue, hotel operations

Cost of revenue, lending and trading activities

Total cost of revenue

Total operating expenses

Loss from operations

(50,505,000 )

(23,719,000 )

Other income (expense):

Interest and other income

Interest expense

(15,927,000 )

Loss on extinguishment of debt

Realized and unrealized (loss) gain on marketable securities

Loss from investment in unconsolidated entity

Loss on the sale of fixed assets

Change in fair value of warrant liability

Loss before income taxes

(62,884,000 )

(25,868,000 )

Income tax provision

(64,252,000 )

(26,085,000 )

Net loss attributable to non-controlling interest

Net loss attributable to Ault Alliance, Inc.

(60,683,000 )

(25,764,000 )

Preferred dividends

Net loss available to common stockholders

$ (61,004,000 )

$ (25,808,000 )

Comprehensive loss

Net loss available to common stockholders

$ (61,004,000 )

$ (25,808,000 )

Other comprehensive loss

Foreign currency translation adjustment

Other comprehensive loss

Total comprehensive loss

$ (61,524,000 )

$ (27,279,000 )

Revenues by segment for the

three months ended June 30, 2023 and 2022 were as follows:

For the Three Months Ended June 30,

Revenue, cryptocurrency mining

Revenue, commercial real estate leases

Revenue, lending and trading activities

Total revenue

The $2.2 million increase

in our GIGA segment revenue for the three months ended June 30, 2023 included $0.7 million attributable to our acquisition of Giga-tronics

Incorporated on September 8, 2022.

Continued conflicts and tensions worldwide are driving defense-related investments in force protection

technologies at GIGA across the United States, UK, Europe, Asia, and the Middle East.

Additionally, demand for key electronics solutions,

particularly for customers in medicine and telecommunications, accelerated in the three months ended June 30, 2023, as businesses rebound

in the post-pandemic COVID-19 economy.

TurnOnGreen revenues were

down $0.3 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 due to a large project in

2022 that was cancelled.

SMC revenues increased by

$2.6 million due to the acquisition of SMC in June 2022.

Revenues from Sentinum’s

cryptocurrency mining operations increased $4.4 million as we increased our cryptocurrency mining activities from the prior period, partially

offset by lower Bitcoin prices and an increase in Bitcoin mining difficulty level in the current year period.

AGREE’s revenues decreased

by $0.2 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, due

to interruptions in business operations as the properties were being renovated through the end of April 2023.

Revenues from our lending

and trading activities were $9.5 million due to significant realized gains for the three months ended June 30, 2023 from our investment

During the three months ended June 30, 2022, Ault Lending generated income from appreciation of investments in marketable securities

as well as shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions.

lending and trading activities for the three months ended June 30, 2023 included an approximate $0.9 million unrealized gain from our

investment in Alzamend.

Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and

interest generated from each loan.

from our trading activities for the three months ended June 30, 2023 included net gains on equity securities, including unrealized gains

and losses from market price changes.

These gains and losses have caused, and will continue to cause, significant volatility in our periodic

Energy revenues increased

by $12.7 million for the three months ended June 30, 2023, due to the acquisition of the Circle 8 crane operations in December 2022.

Gross Margins

Gross margins increased to

38% for the three months ended June 30, 2023, compared to 29% for the three months ended June 30, 2022.

Our gross margins of 38% recognized

during the three months ended June 30, 2023 benefited from favorable margins from our lending and trading activities and were impacted

by negative margins from our Sentinum cryptocurrency mining segment due to the decline in the price of Bitcoin coupled with an increase

in Bitcoin mining difficulty level.

Excluding the effects of margin from our lending and trading activities and cryptocurrency mining

operations, our adjusted gross margins for the three months ended June 30, 2023 and 2022 would have been 33% and 36%, respectively.

Research and Development

Research and development expenses

increased by $1.1 million for the three months ended June 30, 2023, due to expenditures related to development work on the BMI metaverse

Selling and Marketing

Selling and marketing expenses

were $9.6 million for the three months ended June 30, 2023, compared to $7.0 million for the three months ended June 30, 2022, an increase

of $2.6 million, or 37%.

The increase was the result of $3.6 million higher advertising and promotion costs related to BMI’s metaverse

platform, partially offset by a $1.4 million decline in employee related costs and consulting expenses.

The increase is also attributable

to $0.4 million increases in sales and marketing costs from SMC, which was acquired in June 2022 and $0.2 million from GIGA, which was

acquired in September 2022.

General and Administrative

General and administrative

expenses were $21.3 million for the three months ended June 30, 2023, compared to $19.0 million for the three months ended June 30,

2022, an increase of $2.3 million, or 12%.

General and administrative expenses increased from the comparative prior period, mainly due

to increases from new acquisitions:

· general and administrative costs of $3.4 million from Circle 8, which was acquired in December 2022;

· general and administrative costs of $3.0 million from BMI, which was acquired in March 2023;

· general and administrative costs of $2.9 million from SMC, which was acquired in June 2022;

· general and administrative costs of $2.3 million from GIGA, which was acquired in September 2022;

· general and administrative costs of $0.6 million from AVLP, which was acquired in June 2022.

The increases above were partially offset by the

following decreases in general and administrative expenses:

· $5.0 million lower performance bonus related to realized gains on trading activities;

· $1.2 million lower corporate legal fees;

· $1.0 million lower corporate bonuses;

· $0.8 million lower general and administrative expenses at AGREE;

· $0.7 million lower corporate consulting fees;

· $0.7 million lower corporate audit fees;

· $0.5 million lower corporate board of directors fees.

Impairment of AVLP Goodwill and Intangible

We test the recorded amount

of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the

goodwill exceeds its carried value.

We performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators

of impairment related to certain unforeseen business developments and changes in financial projections.

The valuation of the AVLP

reporting unit was determined using a market and income approach methodology of valuation.

The income approach was based

on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the

timing and risk of the forecasted cash flows using internally developed forecasts and assumptions.

Under the income approach, the discount

rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.

The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of

capital analysis.

The market approach utilized the guideline public company method.

The results of the quantitative

test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying

value of the goodwill.

As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment

charge during the three months ended June 30, 2023.

Intangible Assets

Due to indicators of impairment,

AVLP intangible assets were tested for impairment as of June 30, 2023.

Based on internally developed forecasts of undiscounted expected

future cash flows, it was determined that the carrying amount of the assets were not recoverable and, based on an assessment of the fair

value of the assets, impairment of $17.0 million was recognized as a non-cash impairment charge during the three months ended June 30,

The tradenames and patents/developed

technology intangible assets were valued using the relief-from-royalty method.

The relief-from-royalty method is one of the methods under

the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate

the company would have paid for the use of the asset if it did not own it.

Royalty payments are estimated by applying royalty rates of

18% for patents and developed technology and 0.25% for trademarks.

The resulting net annual royalty payments are then discounted to present

value using a discount factor of 25.7%.

Impairment of Mined Cryptocurrency

Impairment of mined cryptocurrency

for the three months ended June 30, 2023 and 2022 was $0.1 million and $2.0 million, respectively.

Impairment losses are attributable

to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods.

The impairment

of mined cryptocurrency for the three months ended June 30, 2023 is lower than the comparable prior year period as the average amount

of digital currency held decreased during the three months ended June 30, 2023 as we generally sold our mined digital currency the next

business day.

Interest and Other Income

Interest and other income was

$2.4 million for the three months ended June 30, 2023, compared to $0.1 million for the three months ended June 30, 2022.

in interest and other income is primarily due to higher interest rates resulting in higher income from ADRT’s cash and marketable

securities held in the trust account.

Interest Expense

Interest expense was $15.9

million for the three months ended June 30, 2023, compared to $2.0 million for the three months ended June 30, 2022.

The $15.9 million

interest expense for the three months ended June 30, 2023 included amortization of debt discount of $7.2 million, forbearance and extension

fees of $6.2 million and contractual interest of $2.5 million.

The $2.0 million interest expense for the three months ended June 30, 2022

included amortization of debt discount of $32,000 and contractual interest of $2.0 million.

Loss on Extinguishment of Debt

Loss on extinguishment of

debt was $0.1 million for the three months ended June 30, 2023, compared to $0 for the three months ended June 30, 2022.

Loss From Investment in Unconsolidated Entity

Loss from investment in unconsolidated

entity was $0 for the three months ended June 30, 2023, compared to $0.4 million for the three months ended June 30, 2022, representing

our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.

Results of Operations for the Six Months Ended

June 30, 2023 and 2022

The following table summarizes

the results of our operations for the six months ended June 30, 2023 and 2022.

For the Six Months Ended June 30,

Revenue, cryptocurrency mining

Revenue, hotel and real estate operations

Revenue, crane operations

Revenue, lending and trading activities

Total revenue

Cost of revenue, products

Cost of revenue, cryptocurrency mining

Cost of revenue, hotel and real estate operations

Cost of revenue, hotel operations

4 unchanged sentences

(81,923,000 )

(22,689,000 )

Other income (expense):

4 unchanged sentences

Loss on extinguishment of debt

Realized gain on marketable securities

Realized and unrealized (loss) gain on marketable securities

Loss from investment in unconsolidated entity

5 unchanged sentences

(54,655,000 )

Income tax benefit

Income tax provision

(113,081,000 )

12 unchanged sentences

$ (54,585,000 )

Other comprehensive income (loss)

Other comprehensive loss

Foreign currency translation adjustment

Other comprehensive loss

Total comprehensive loss

2 unchanged sentences

Revenues by segment for the

three months ended March 31, 2023 and 2022 were as follows:

For the Three Months Ended

six months ended June 30, 2023 and 2022 were as follows:

For the Six Months Ended June 30,

Revenue, cryptocurrency mining

3 unchanged sentences

Total revenue

$ (1,640,000 )

Our revenues decreased by

$1.6 million, or 5%, to $31.2 million for the three months ended March 31, 2023, from $32.8 million for the three months ended March

The $3.7 million increase

in our GIGA segment revenue for the three months ended March 31, 2023 included $0.4 million attributable to our recent acquisition of

Giga-tronics Incorporated on September 8, 2022.

The improved economic environment following COVID-19 disruptions, along with increased

military spending, drove growth in our GIGA segment, which provides customized solutions for military markets.

Additionally, revenue from

Enertec Systems 2001 Ltd., a subsidiary of Giga-tronics Incorporated, which is primarily recognized over time, increased by 7%, to $3.5 million

for the three months ended March 31, 2023, up $0.2 million from $3.3 million in the prior-year period.

in our GIGA segment revenue for the six months ended June 30, 2023 included $1.1 million attributable to our acquisition of Giga-tronics

Incorporated on September 8, 2022.

Continued conflicts and tensions worldwide are driving defense-related investments in force protection

technologies at GIGA across the United States, UK, Europe, Asia, and the Middle East.

Additionally, demand for key electronics solutions,

particularly for customers in medicine and telecommunications, accelerated in the six months ended June 30, 2023, as businesses rebound

in the post-pandemic COVID-19 economy.

TurnOnGreen revenues were

down $0.3 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

down $0.6 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to a large project in 2022

that was cancelled.

SMC revenues increased by

$6.0 million due to the acquisition of SMC in June 2022.

Revenues from BNI’s

Revenues from Sentinum’s

cryptocurrency mining operations increased $8.2 million as we increased our cryptocurrency mining activities from the prior period, partially

1 unchanged sentence

AGREE’s revenues decreased

by $0.5 million due to interruptions in business operations as the properties were being renovated

during the three months ended March 31, 2023.

The renovations were completed in April 2023 .

by $0.7 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, due

to interruptions in business operations as the properties were being renovated during the six months ended June 30, 2023.

The renovations

were completed in April 2023 .

Revenues from our lending

and trading activities were negative $4.9 million due to significant unrealized losses for the three months ended March 31, 2023 from

our investment portfolio.

During the three months ended March 31, 2022, Ault Lending generated significant income from appreciation of

investments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to Ault Lending

in certain financing transactions.

Revenue from lending and trading activities for the three months ended March 31, 2023 included an approximate

$1.5 million unrealized loss from our investment in Alzamend.

Under its business model, Ault Lending also generates revenue through origination

fees charged to borrowers and interest generated from each loan.

from our trading activities for the three months ended March 31, 2023 included net losses on equity securities, including unrealized gains

and trading activities were $4.6 million due to realized gains for the six months ended June 30, 2023 from our investment portfolio.

the six months ended June 30, 2022, Ault Lending generated income from appreciation of investments in marketable securities as well as

shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions.

Revenue from lending and

trading activities for the six months ended June 30, 2023 included an approximate $0.6 million unrealized loss from our investment in

Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and interest generated

from each loan.

from our trading activities for the six months ended June 30, 2023 included net losses on equity securities, including unrealized gains

and losses from market price changes.

1 unchanged sentence

Energy revenues increased

by $13.1 million for the three months ended March 31, 2023, primarily due to the acquisition of the Circle 8 crane operations in December

by $25.8 million for the six months ended June 30, 2023, due to the acquisition of the Circle 8 crane operations in December 2022.

Gross Margins

Gross margins decreased to

7% for the three months ended March 31, 2023, compared to 68% for the three months ended March 31, 2022.

Our gross margins have typically

ranged between 33% and 37%, with slight variations depending on the overall composition of our revenue.

25% for the six months ended June 30, 2023, compared to 54% for the six months ended June 30, 2022.

Our gross margins of 25% recognized

during the three months ended March 31, 2023 were impacted by negative margins from our lending and trading activities and negative margins

from our BNI cryptocurrency mining segment due to the decline in the price of Bitcoin coupled with an increase in Bitcoin mining difficulty

Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross

margins for the three months ended March 31, 2023 and 2022 would have been 31% and 30%, respectively, with gross margins slightly lower

than our historical averages due to gross margins from SMC, which were 23%.

during the six months ended June 30, 2023 were impacted by negative margins from our Sentinum cryptocurrency mining segment due to the

decline in the price of Bitcoin coupled with an increase in Bitcoin mining difficulty level, offset by favorable margins from our lending

and trading activities.

Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations,

our adjusted gross margins for the six months ended June 30, 2023 and 2022 would have been 33% and 36%, respectively.

Research and Development

Research and development expenses

increased by $1.1 million for the three months ended March 31, 2023 due to expenditures related to development work on the BMI metaverse

increased by $2.2 million for the six months ended June 30, 2023, primarily due to expenditures related to development work on the BMI

metaverse platform.

Selling and Marketing

Selling and marketing expenses

were $8.8 million for the three months ended March 31, 2023, compared to $6.5 million for the three months ended March 31, 2022, an increase

were $18.4 million for the six months ended June 30, 2023, compared to $13.5 million for the six months ended June 30, 2022, an increase

of $4.9 million, or 36%.

The increase was the result of $5.3 million higher advertising and promotion costs related to BMI’s metaverse

platform, including an increase of $0.6 million related to an advertising sponsorship agreement.

The increase is also attributable to

$0.8 million increases in sales and marketing costs from SMC, which was acquired in June 2022 and $0.3 million from GIGA, which was acquired

in September 2022

platform, partially offset by a $1.8 million decline in employee related costs and consulting expenses.

The increase is also attributable

to $1.3 million increases in sales and marketing costs from SMC, which was acquired in June 2022 and $0.5 million from GIGA, which was

acquired in September 2022.

General and Administrative

General and administrative

expenses were $22.7 million for the three months ended March 31, 2023, compared to $13.7 million for the three months ended March

expenses were $44.0 million for the six months ended June 30, 2023, compared to $32.7 million for the six months ended June 30, 2022,

an increase of $11.3 million, or 34%.

General and administrative expenses increased from the comparative prior period, mainly

General and administrative expenses increased from the comparative prior period, mainly due to increases

from new acquisitions:

· general and administrative costs of $6.4 million from Circle 8, which was acquired in December 2022;

1 unchanged sentence

· general and administrative costs of $3.5 million from GIGA, which was acquired in September 2022;

· higher stock-based compensation of $1.3 million;

· $1.0 million higher travel costs;

· $0.8 million increase in the accrual of a performance bonus related to realized gains on trading activities

during the period;

· general and administrative costs of $3.0 million from BMI, which was acquired in March 2023;

· general and administrative costs of $1.2 million from AVLP, which was acquired in June 2022.

· partially offset by a decrease in corporate legal fees of $1.0 million.

The increases above were partially offset by the

following decreases in general and administrative expenses:

· $4.2 million lower performance bonus related to realized gains on trading activities;

· $2.2 million lower corporate legal fees;

· $1.5 million lower general and administrative expenses at AGREE.

Impairment of AVLP Goodwill and Intangible

We test the recorded amount

of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the

goodwill exceeds its carried value.

We performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators

of impairment related to certain unforeseen business developments and changes in financial projections.

The valuation of the AVLP

reporting unit was determined using a market and income approach methodology of valuation.

The income approach was based

on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the

timing and risk of the forecasted cash flows using internally developed forecasts and assumptions.

Under the income approach, the discount

rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.

The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of

capital analysis.

The market approach utilized the guideline public company method.

The results of the quantitative

test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying

value of the goodwill.

As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment

charge during the six months ended June 30, 2023.

Intangible Assets

Due to indicators of impairment,

AVLP intangible assets were tested for impairment as of June 30, 2023.

Based on internally developed forecasts of undiscounted expected

future cash flows, it was determined that the carrying amount of the assets were not recoverable and, based on an assessment of the fair

value of the assets, impairment of $17.0 million was recognized as a non-cash impairment charge during the six months ended June 30, 2023.

The tradenames and patents/developed

technology intangible assets were valued using the relief-from-royalty method.

The relief-from-royalty method is one of the methods under

the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate

the company would have paid for the use of the asset if it did not own it.

Royalty payments are estimated by applying royalty rates of

18% for patents and developed technology and 0.25% for trademarks.

The resulting net annual royalty payments are then discounted to present

value using a discount factor of 25.7%.

Impairment of Mined Cryptocurrency

Impairment of mined cryptocurrency

for the three months ended March 31, 2023 and 2022 was $0.1 million and $0.4 million, respectively, attributable to the volatility of

the Bitcoin market as market price of Bitcoin drops below the Company’s carrying value within the respective periods.

for the six months ended June 30, 2023 and 2022 was $0.3 million and $2.4 million, respectively.

Impairment losses are attributable to

the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods.

The impairment

of mined cryptocurrency for the six months ended June 30, 2023 is lower than the comparable prior year period as the average amount of

digital currency held decreased during the first half of 2023 as we generally sold our mined digital currency the next business day.

Interest and Other Income

Interest and other income was

$1.2 million for the three months ended March 31, 2023, compared to $0.4 million for the three months ended March 31, 2022.

in interest and other income is primarily due to higher interest rates resulting in higher income from ADRT’s cash and marketable

securities held in the trust account.

$3.6 million for the six months ended June 30, 2023, compared to $0.5 million for the six months ended June 30, 2022.

The increase in

interest and other income is primarily due to higher interest rates resulting in higher income from ADRT’s cash and marketable securities

held in the trust account.

Interest Expense

Interest expense was $29.7

million for the three months ended March 31, 2023, compared to $29.8 million for the three months ended March 31, 2022.

The $29.8 million

interest expense for the three months ended March 31, 2022 related primarily to amortization of debt discount of $26.3 million from the

issuance of warrants, a non-cash charge, and original issue discount, in connection with the $66.0 million of senior notes issued in December

2021, which were fully paid in March 2022.

Interest expense for the three months ended March 31, 2023 includes $9.0 amortization of debt

discount primarily related to new debt agreements compared to the prior year period.

million for the six months ended June 30, 2023, compared to $31.9 million for the six months ended June 30, 2022.

The $29.7 million interest

expense for the six months ended June 30, 2023 included amortization of debt discount of $16.2 million, forbearance and extension fees

of $7.5 million and contractual interest of $5.9 million.

The $29.8 million interest expense for the six months ended June 30, 2022 related

primarily to amortization of debt discount of $26.3 million from the issuance of warrants, a non-cash charge, and original issue discount,

in connection with the $66.0 million of senior notes issued in December 2021, which were fully paid in March 2022.

Loss on Extinguishment of Debt

Loss on extinguishment of

debt was $0.1 million for the three months ended March 31, 2023, compared to $0 for the three months ended March 31, 2022.

period loss on extinguishment of debt relates to the issuance of $8.5 million fair value of convertible preferred stock liabilities to

satisfy $8.4 million of principal amount of secured promissory notes.

debt was $0.2 million for the six months ended June 30, 2023, compared to $0 for the six months ended June 30, 2022.

Loss From Investment in Unconsolidated Entity

Loss from investment in unconsolidated

entity was $0 for the three months ended March 31, 2023, compared to $0.5 million for the three months ended March 31, 2022, representing

entity was $0 for the six months ended June 30, 2023, compared to $0.9 million for the six months ended June 30, 2022, representing

our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.

1 unchanged sentence

Cumulative downward adjustments

for impairments for our equity securities without readily determinable fair values held at March 31, 2023 were $9.6 million.

Other Comprehensive (Loss) Income

Other comprehensive gain was

$0.2 million compared to other comprehensive loss of $0.3 million for the three months ended March 31, 2023 and 2022, respectively.

balance of other comprehensive income for both years was caused by foreign currency translation adjustments between our functional currency,

Dollar, and the British Pound and Israeli Shekel.

for impairments for our equity securities without readily determinable fair values held at June 30, 2023 were $9.6 million.

Liquidity and Capital Resources

On March 31, 2023, we had

cash and cash equivalents of $9.2 million (excluding restricted cash of $1.9 million), compared to cash and cash equivalents of $10.5

million (excluding restricted cash of $3.6 million) at December 31, 2022.

The decrease in cash and cash equivalents was primarily due

the payment of debt and purchases of property and equipment partially offset by cash provided by financing activities related to the

sale of common and preferred stock, as well as proceeds from notes payable and cash provided by operating activities.

On June 30, 2023, we had cash

and cash equivalents of $19.7 million (excluding restricted cash of $1.1 million), compared to cash and cash equivalents of $10.5 million

(excluding restricted cash of $3.6 million) at December 31, 2022.

The increase in cash and cash equivalents was primarily due cash provided

by operating activities and cash provided by financing activities related to the sale of common and preferred stock, as well as proceeds

from convertible notes partially offset by the payment of debt, purchases of property and equipment and investments in equity securities.

Net cash provided by operating

activities totaled $12.2 million for the three months ended March 31, 2023, compared to $29.4 million for the three months ended

March 31, 2022.

Cash provided by operating activities for the three months ended March 31, 2023 included $22.0 million net cash provided

by marketable securities from trading activities related to the operations of Ault Lending, partially offset by operating losses and changes

in working capital.

activities totaled $12.9 million for the six months ended June 30, 2023, compared to $19.4 million for the six months ended June

Cash provided by operating activities for the six months ended June 30, 2023 included $41.2 million net cash provided by marketable

securities from trading activities related to the operations of Ault Lending and $15.0 million proceeds from the sale of cryptocurrencies

from our Sentinum Bitcoin mining operations, partially offset by operating losses and changes in working capital.

Net cash used in investing

activities was $2.8 million for the three months ended March 31, 2023, compared to $28.8 million for the three months ended March 31,

Net cash used in investing activities for the three months ended March 31, 2023 was primarily related to capital expenditures, partially

offset by proceeds from the sale of fixed assets of $4.5 million.

Net cash used in financing

activities was $8.1 million for the three months ended March 31, 2023, compared to net cash provided by financing activities of $22.2 million

for the three months ended March 31, 2022, and reflects the following transactions:

· 2022 Common ATM Offering – During the three months ended March 31, 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.

Effective March 17,

2023, we terminated the 2022 Common ATM Offering;

· 2022 Preferred ATM Offering – During the three months ended March 31, 2023, we 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;

activities was $21.8 million for the six months ended June 30, 2023, compared to $87.1 million for the six months ended June 30, 2022,

which included $72.8 million of capital expenditures, primarily for Bitcoin mining equipment.

Net cash used in investing activities for

the six months ended June 30, 2023 was primarily related to capital expenditures and the purchase of equity securities, partially offset

by proceeds from the sale of fixed assets of $4.5 million.

Net cash provided by financing activities

was $12.8 million for the six months ended June 30, 2023, compared to net cash provided by financing activities of $75.5 million

for the six months ended June 30, 2022, and primarily reflects the following transactions:

· 2022 Common ATM Offering – During the six months ended June 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 six months ended June 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 six months ended June 30, 2023, we sold an aggregate of 0.1 million shares of common stock pursuant to

the 2023 Common ATM Offering for gross proceeds of $0.8 million;

· $34.1 million payments on notes payable, partially offset by $30.7 million proceeds from notes payable;

1 unchanged sentence

notes payable.

Financing Transactions Subsequent to March

Financing Transactions Subsequent to June

Financing transactions subsequent

to March 31, 2023 included the following:

2022 Preferred ATM

the period between April 1, 2023 through May 18, 2023, we sold an aggregate of 105,475 shares of

Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $ 1.1 million.

12% Term Note

On April 5, 2023, we 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 us amounting to $1.0 million.

The note is scheduled to mature on June 5, 2023.

We have 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.

Original Issuance Discount Term Notes

On May 15, 2023, we 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 us amounting to $1.0 million.

We are 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, we will pledge our ownership of the membership interests

in 456 Lux Hotel NYC, LLC, which is a limited partner in NYREIC 456 LP.

Milton “Todd” Ault, III, our Executive Chairman, and

his wife, guaranteed repayment of the term note.

On May 16, 2023, we 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 us amounting to $100,000.

The note is scheduled to mature on June 16, 2023.

We have 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, we 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 us amounting to $1.0 million.

The note is scheduled to mature on July 17, 2023.

Milton “Todd”

Ault, III, our 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 us, as well as by Milton “Todd” Ault, III, our 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

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.

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.

to June 30, 2023 included the following:

2023 Common ATM Offering

the period between July 1, 2023 through August 14, 2023, we sold an aggregate of 3.9 million shares of common stock pursuant

to the 2023 Common ATM Offering for gross proceeds of $15.6 million.

Amendment to 8.5% Secured Promissory Notes

On July 19, 2023, we and certain

of our subsidiaries entered into an amendment agreement with the institutional investors and increased the principal balance of the secured

promissory notes by an additional $8.8 million.

The net proceeds to us from the amendment agreement were $7.5 million.

Advances under Ault

& Company Loan Agreement

to June 30, 2023, $3.9 million has been advanced by Ault & Company to us under the loan agreement entered into June 8, 2023.

Exchange of Preferred

Shares for Secured Debt and Assignment of Secured Note

August 3, 2023, we and the Investors entered into the Exchange Agreement pursuant to which the Investors exchanged all of their Preferred

Shares as well as their Demand Notes issued to the Investors by us on or about May 20, 2023, with each Demand Note having a principal

outstanding amount of approximately $0.9 million for the Exchange Notes, each with a principal face amount of approximately $5.3 million,

for an aggregate of amount owed of $10.5 million.

We and Milton “Todd” Ault, III, our Executive Chairman issued entered into

guaranty agreements with the Investors guaranteeing Ault & Company’s repayment of the Exchange Notes.

as of August 3, 2023, we assigned the Exchange Notes to Ault & Company.

As consideration for Ault & Company assuming the Exchange

Notes from us, we issued the First A&C Demand Note to Ault & Company.

Assignment of Term

as of August 10, 2023, we assigned the Term Note to Ault & Company.

As consideration for Ault & Company assuming the Term Note

from us , we issued a 12% demand promissory note in the principal face amount of $1.1 million (the “Second Demand Note”) to

Ault & Company.

Critical Accounting Policies

30 unchanged sentences

Business Combination

We allocate the purchase

price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair

values on the acquisition date.

We allocate the purchase price

of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values

on the acquisition date.

Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

Acquired customer relations, technology, trade names and know how are recognized at fair value.

The purchase price allocation process

requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets.

Direct transaction costs associated with the business combination are expensed as incurred.

The allocation of the consideration transferred

in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may

be up to one year from the acquisition date.

customer relations, technology, trade names and know how are recognized at fair value.

The purchase price allocation process requires

management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets.

transaction costs associated with the business combination are expensed as incurred.

The allocation of the consideration transferred in

certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up

to one year from the acquisition date.

We include the results of operations of the business that we have acquired in our consolidated

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis