UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended June 30, 2024 |
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the transition period from ________ to ________. |
Commission file number 1-12711
AULT ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 94-1721931 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
11411 Southern Highlands Parkway, Suite 240
Las Vegas, NV 89141
(Address of principal executive offices) (Zip code)
(949) 444-5464
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.001 par value | AULT | NYSE American | ||
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share | AULT PRD | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding year (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer x | Smaller reporting company x |
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At August 16, 2024, the registrant had outstanding 38,846,318 shares of Class A common stock.
AULT ALLIANCE, INC.
TABLE OF CONTENTS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, particularly the “Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 9,551,000 | $ | 9,706,000 | ||||
Restricted cash | 7,264,000 | 5,663,000 | ||||||
Marketable equity securities | 33,000 | 27,000 | ||||||
Accounts receivable, net | 13,205,000 | 11,086,000 | ||||||
Inventories | 7,499,000 | 8,434,000 | ||||||
Investment in promissory notes and other, related party | - | 3,968,000 | ||||||
Loans receivable, current | 1,362,000 | 1,234,000 | ||||||
Prepaid expenses and other current assets | 8,292,000 | 9,725,000 | ||||||
TOTAL CURRENT ASSETS | 47,206,000 | 49,843,000 | ||||||
Cash and marketable securities held in trust account | 794,000 | 2,200,000 | ||||||
Intangible assets, net | 5,324,000 | 5,754,000 | ||||||
Goodwill | 5,916,000 | 6,088,000 | ||||||
Property and equipment, net | 180,766,000 | 197,354,000 | ||||||
Right-of-use assets | 6,794,000 | 6,432,000 | ||||||
Investments in common stock and equity securities, related party | 2,404,000 | 679,000 | ||||||
Investments in other equity securities | 13,812,000 | 21,767,000 | ||||||
Other assets | 7,763,000 | 9,073,000 | ||||||
TOTAL ASSETS | $ | 270,779,000 | $ | 299,190,000 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 68,794,000 | $ | 69,425,000 | ||||
Operating lease liability, current | 2,371,000 | 2,140,000 | ||||||
Notes payable, current | 89,654,000 | 12,866,000 | ||||||
Notes payable, related party, current | 283,000 | 2,375,000 | ||||||
Convertible notes payable, current | 9,606,000 | 11,763,000 | ||||||
Guarantee liability | 38,900,000 | 38,900,000 | ||||||
TOTAL CURRENT LIABILITIES | 209,608,000 | 137,469,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | 4,743,000 | 4,498,000 | ||||||
Notes payable, non-current | 16,448,000 | 85,420,000 | ||||||
Convertible notes payable, non-current | 9,453,000 | 9,453,000 | ||||||
Deferred underwriting commissions of Ault Disruptive Technologies Corporation (“Ault Disruptive”) subsidiary | 3,450,000 | 3,450,000 | ||||||
TOTAL LIABILITIES | 243,702,000 | 240,290,000 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Redeemable non-controlling interests in equity of subsidiaries | 795,000 | 2,224,000 | ||||||
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 June 30, 2024 and December 31, 2023 (liquidation preference of $176,000 as of June 30, 2024 and December 31, 2023) | - | - | ||||||
Series C Convertible Preferred Stock, $1,000 stated value per share, share, $0.001 par value – 75,000 shares authorized; 44,000 and 41,500 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively (liquidation preference of $44,000,000 and $41,500,000 at June 30, 2024 and December 31, 2023, respectively) | - | - | ||||||
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated value per share, $0.001 par value – 2,000,000 shares authorized; 323,835 shares and 425,197 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively (liquidation preference of $8,096,000 as of June 30, 2024 and December 31, 2023) | - | - | ||||||
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized; 35,846,318 and 4,483,459 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | 36,000 | 4,000 | ||||||
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2024 and December 31, 2023 | - | - | ||||||
Additional paid-in capital | 660,036,000 | 644,852,000 | ||||||
Accumulated deficit | (600,282,000 | ) | (567,469,000 | ) | ||||
Accumulated other comprehensive loss | (2,497,000 | ) | (2,097,000 | ) | ||||
Treasury stock, at cost | (30,571,000 | ) | (30,571,000 | ) | ||||
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY | 26,722,000 | 44,719,000 | ||||||
Non-controlling interest | (440,000 | ) | 11,957,000 | |||||
TOTAL STOCKHOLDERS’ EQUITY | 26,282,000 | 56,676,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 270,779,000 | $ | 299,190,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Revenue | $ | 12,588,000 | $ | 12,216,000 | $ | 23,754,000 | $ | 25,647,000 | ||||||||
Revenue, digital assets mining | 8,490,000 | 8,368,000 | 19,937,000 | 15,715,000 | ||||||||||||
Revenue, hotel and real estate operations | 5,389,000 | 4,709,000 | 8,697,000 | 7,410,000 | ||||||||||||
Revenue, crane operations | 11,700,000 | 12,590,000 | 24,618,000 | 25,236,000 | ||||||||||||
Revenue, lending and trading activities | (9,763,000 | ) | 9,525,000 | (664,000 | ) | 4,586,000 | ||||||||||
Total revenue | 28,404,000 | 47,408,000 | 76,342,000 | 78,594,000 | ||||||||||||
Cost of revenue, products | 8,643,000 | 9,036,000 | 17,807,000 | 18,823,000 | ||||||||||||
Cost of revenue, digital assets mining | 9,039,000 | 9,726,000 | 17,583,000 | 17,829,000 | ||||||||||||
Cost of revenue, hotel and real estate operations | 3,318,000 | 3,120,000 | 6,135,000 | 5,808,000 | ||||||||||||
Cost of revenue, crane operations | 8,032,000 | 7,641,000 | 15,747,000 | 15,029,000 | ||||||||||||
Cost of revenue, lending and trading activities | - | - | - | 1,180,000 | ||||||||||||
Total cost of revenue | 29,032,000 | 29,523,000 | 57,272,000 | 58,669,000 | ||||||||||||
Gross profit | (628,000 | ) | 17,885,000 | 19,070,000 | 19,925,000 | |||||||||||
Operating expenses | ||||||||||||||||
Research and development | 852,000 | 1,804,000 | 1,924,000 | 3,646,000 | ||||||||||||
Selling and marketing | 3,993,000 | 9,575,000 | 8,653,000 | 18,371,000 | ||||||||||||
General and administrative | 13,497,000 | 21,317,000 | 26,844,000 | 43,998,000 | ||||||||||||
Impairment of property and equipment | 7,955,000 | - | 7,955,000 | - | ||||||||||||
Impairment of goodwill and intangible assets | - | 35,570,000 | - | 35,570,000 | ||||||||||||
Impairment of mined digital assets | - | 124,000 | - | 263,000 | ||||||||||||
Total operating expenses | 26,297,000 | 68,390,000 | 45,376,000 | 101,848,000 | ||||||||||||
Loss from operations | (26,925,000 | ) | (50,505,000 | ) | (26,306,000 | ) | (81,923,000 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest and other income | 809,000 | 2,176,000 | 1,392,000 | 3,335,000 | ||||||||||||
Interest expense | (5,383,000 | ) | (15,927,000 | ) | (12,306,000 | ) | (29,657,000 | ) | ||||||||
Gain on conversion of investment in equity securities to marketable equity securities | - | - | 17,900,000 | - | ||||||||||||
(Loss) gain on extinguishment of debt | (663,000 | ) | (91,000 | ) | 742,000 | (154,000 | ) | |||||||||
Loss from investment in unconsolidated entity | (1,291,000 | ) | - | (1,958,000 | ) | - | ||||||||||
Impairment of equity securities | (6,266,000 | ) | - | (6,266,000 | ) | (9,555,000 | ) | |||||||||
Provision for loan losses, related party | - | - | (3,068,000 | ) | - | |||||||||||
Change in fair value of warrant liability | - | 3,217,000 | - | 3,217,000 | ||||||||||||
(Loss) gain on the sale of fixed assets | (36,000 | ) | (1,754,000 | ) | 32,000 | 2,761,000 | ||||||||||
Total other income (expense), net | (12,830,000 | ) | (12,379,000 | ) | (3,532,000 | ) | (30,053,000 | ) | ||||||||
Loss before income taxes | (39,755,000 | ) | (62,884,000 | ) | (29,838,000 | ) | (111,976,000 | ) | ||||||||
Income tax provision (benefit) | 24,000 | 1,368,000 | (20,000 | ) | 1,105,000 | |||||||||||
Net loss | (39,779,000 | ) | (64,252,000 | ) | (29,818,000 | ) | (113,081,000 | ) | ||||||||
Net (income) loss attributable to non-controlling interest | 5,852,000 | 3,569,000 | (392,000 | ) | 3,752,000 | |||||||||||
Net loss attributable to Ault Alliance, Inc. | (33,927,000 | ) | (60,683,000 | ) | (30,210,000 | ) | (109,329,000 | ) | ||||||||
Preferred dividends | (1,308,000 | ) | (321,000 | ) | (2,568,000 | ) | (550,000 | ) | ||||||||
Net loss available to common stockholders | $ | (35,235,000 | ) | $ | (61,004,000 | ) | $ | (32,778,000 | ) | $ | (109,879,000 | ) | ||||
Basic net loss per common share | $ | (1.08 | ) | $ | (1,244.98 | ) | $ | (1.35 | ) | $ | (2,289.15 | ) | ||||
Diluted net loss per common share | $ | (1.08 | ) | $ | (1,244.98 | ) | $ | (1.35 | ) | $ | (2,289.15 | ) | ||||
Weighted average basic and diluted common shares outstanding | 32,606,000 | 49,000 | 24,361,000 | 48,000 | ||||||||||||
Comprehensive loss | ||||||||||||||||
Net loss available to common stockholders | $ | (35,235,000 | ) | $ | (61,004,000 | ) | $ | (32,778,000 | ) | $ | (109,879,000 | ) | ||||
Foreign currency translation adjustment | (436,000 | ) | (520,000 | ) | (400,000 | ) | (350,000 | ) | ||||||||
Other comprehensive loss | (436,000 | ) | (520,000 | ) | (400,000 | ) | (350,000 | ) | ||||||||
Total comprehensive loss | $ | (35,671,000 | ) | $ | (61,524,000 | ) | $ | (33,178,000 | ) | $ | (110,229,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended June 30, 2024
Preferred Stock | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series C | Series D | Class A Common Stock | Paid-In | Accumulated | Comprehensive | Controlling | Treasury | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Par Amount | Shares | Par Amount | Shares | Par Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Stock | Equity | |||||||||||||||||||||||||||||||||||||||||||
BALANCES, April 1, 2024 | 7,040 | $ | - | - | 43,500 | $ | - | 323,835 | $ | - | 30,065,339 | $ | 30,000 | $ | 656,587,000 | $ | (565,035,000 | ) | $ | (2,061,000 | ) | $ | 6,069,000 | $ | (30,571,000 | ) | $ | 65,019,000 | ||||||||||||||||||||||||||||
Issuance of Series C preferred stock, related party | - | - | 500 | - | - | - | - | - | 497,000 | - | - | - | - | 497,000 | ||||||||||||||||||||||||||||||||||||||||||
Fair value of warrants issued in connection with Series C preferred stock, related party |
- | - | - | - | - | - | - | - | 3,000 | - | - | - | - | 3,000 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 238,000 | - | - | - | - | 238,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock for conversion of debt | - | - | - | - | - | - | 5,780,979 | 6,000 | 2,710,000 | - | - | - | - | 2,716,000 | ||||||||||||||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity | - | - | - | - | - | - | - | - | - | (11,000 | ) | - | - | - | (11,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | - | - | - | - | - | - | - | (893,000 | ) | - | (893,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | - | - | - | - | 292,000 | - | 292,000 | ||||||||||||||||||||||||||||||||||||||||||
Distribution to Circle 8 Crane Services, LLC (“Circle 8”) non-controlling interest |
- | - | - | - | - | - | - | - | - | - | - | - | (56,000 | ) | - | (56,000 | ) | |||||||||||||||||||||||||||||||||||||||
Net loss attributable to Ault Alliance, Inc. | - | - | - | - | - | - | - | - | - | (33,927,000 | ) | - | - | - | (33,927,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series A preferred dividends ($0.71 per share) | - | - | - | - | - | - | - | - | - | (5,000 | ) | - | - | - | (5,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series C preferred dividends ($23.63 per share) | - | - | - | - | - | - | - | - | - | (1,040,000 | ) | - | - | - | (1,040,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series D preferred dividends ($0.81 per share) | - | - | - | - | - | - | - | - | - | (263,000 | ) | - | - | - | (263,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (436,000 | ) | - | - | (436,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | (5,852,000 | ) | - | (5,852,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | - | 1,000 | (1,000 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
BALANCES, June 30, 2024 | 7,040 | $ | - | - | 44,000 | $ | - | 323,835 | $ | - | 35,846,318 | $ | 36,000 | $ | 660,036,000 | $ | (600,282,000 | ) | $ | (2,497,000 | ) | $ | (440,000 | ) | $ | (30,571,000 | ) | $ | 26,282,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended June 30, 2023
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Series D | Class A Common Stock | Paid-In | Accumulated | Comprehensive | Controlling | Treasury | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Par Amount | Shares | Par Amount | Shares | Par Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Stock | Equity | |||||||||||||||||||||||||||||||||||||||||||
BALANCES, April 1, 2023 | 7,040 | $ | - | 125,000 | $ | - | 263,022 | $ | - | 55,433 | $ | - | $ | 575,074,000 | $ | (378,633,000 | ) | $ | (931,000 | ) | $ | 24,265,000 | $ | (29,432,000 | ) | $ | 190,343,000 | |||||||||||||||||||||||||||||
Preferred stock issued for cash | - | - | - | - | 162,175 | - | - | - | 5,090,000 | - | - | - | - | 5,090,000 | ||||||||||||||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | - | - | - | - | (3,388,000 | ) | - | - | - | - | (3,388,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 752,000 | - | - | 1,307,000 | - | 2,059,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for cash | - | - | - | - | - | - | 4,123 | - | 754,000 | - | - | - | - | 754,000 | ||||||||||||||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | - | - | - | - | (27,000 | ) | - | - | - | - | (27,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for conversion of preferred stock liabilities |
- | - | - | - | - | - | 1,500 | 328,000 | - | 328,000 | ||||||||||||||||||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity |
- | - | - | - | - | - | - | - | - | (4,736,000 | ) | - | - | - | (4,736,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | - | - | - | - | 2,000 | - | - | (1,223,000 | ) | - | (1,221,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | - | - | - | - | 3,572,000 | - | 3,572,000 | ||||||||||||||||||||||||||||||||||||||||||
Distribution to Circle 8 non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | (500,000 | ) | - | (500,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha LP (“Ault Alpha”) | - | - | - | - | - | - | - | - | - | - | - | - | (488,000 | ) | (488,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss attributable to Ault Alliance, Inc. | - | - | - | - | - | - | - | - | - | (60,683,000 | ) | - | - | - | (60,683,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series A preferred dividends ($0.63 per share) | - | - | - | - | - | - | - | - | - | (4,000 | ) | - | - | - | (4,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series D preferred dividends ($0.81 per share) | - | - | - | - | - | - | - | - | - | (254,000 | ) | - | - | - | (254,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (520,000 | ) | - | - | (520,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | (3,569,000 | ) | - | (3,569,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Distribution of securities of TurnOnGreen, Inc. (“TurnOnGreen”) to Ault Alliance Class A common stockholders ($88.07 per share) |
- | - | - | - | - | - | - | - | (5,200,000 | ) | - | - | - | - | (5,200,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | - | 3,000 | (61,000 | ) | 1,000 | 1,000 | 1,000 | (55,000 | ) | ||||||||||||||||||||||||||||||||||||||||
BALANCES, June 30, 2023 | 7,040 | $ | - | 125,000 | $ | - | 425,197 | $ | - | 61,056 | $ | - | $ | 573,388,000 | $ | (444,371,000 | ) | $ | (1,450,000 | ) | $ | 23,853,000 | $ | (29,919,000 | ) | $ | 121,501,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Six Months Ended June 30, 2024
Preferred Stock | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series C | Series D | Class A Common Stock | Paid-In | Accumulated | Comprehensive | Controlling | Treasury | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Par Amount | Shares | Par Amount | Shares | Par Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Stock | Equity | |||||||||||||||||||||||||||||||||||||||||||
BALANCES, January 1, 2024 | 7,040 | $ | - | 41,500 | $ | - | 425,197 | $ | - | 4,483,459 | $ | 4,000 | $ | 644,852,000 | $ | (567,469,000 | ) | $ | (2,097,000 | ) | $ | 11,957,000 | $ | (30,571,000 | ) | $ | 56,676,000 | |||||||||||||||||||||||||||||
Issuance of Series C preferred stock, related party | - | - | 2,500 | - | - | - | - | - | 2,315,000 | - | - | - | - | 2,315,000 | ||||||||||||||||||||||||||||||||||||||||||
Fair value of warrants issued in connection with Series C preferred stock, related party |
- | - | - | - | - | - | - | - | 185,000 | - | - | - | - | 185,000 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 815,000 | - | - | - | - | 815,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock for cash | - | - | - | - | - | - | 25,609,079 | 26,000 | 14,573,000 | - | - | - | - | 14,599,000 | ||||||||||||||||||||||||||||||||||||||||||
Financing cost in connection with sales of Class A common stock |
- | - | - | - | - | - | - | - | (513,000 | ) | - | - | - | - | (513,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock for conversion of debt | - | - | - | - | - | - | 5,780,979 | 6,000 | 2,710,000 | - | - | - | - | 2,716,000 | ||||||||||||||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity |
- | - | - | - | - | - | - | - | - | (34,000 | ) | - | - | - | (34,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | - | - | - | - | - | - | - | (893,000 | ) | - | (893,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | - | - | - | - | 1,777,000 | - | 1,777,000 | ||||||||||||||||||||||||||||||||||||||||||
Distribution to Circle 8 non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | (226,000 | ) | - | (226,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of ROI convertible note | - | - | - | - | - | - | - | - | - | - | - | 863,000 | - | 863,000 | ||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to Ault Alliance, Inc. | - | - | - | - | - | - | - | - | - | (30,210,000 | ) | - | - | - | (30,210,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series A preferred dividends ($1.28 per share) | - | - | - | - | - | - | - | - | - | (9,000 | ) | - | - | - | (9,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series C preferred dividends ($47.17 per share) | - | - | - | - | - | - | - | - | - | (2,032,000 | ) | - | - | - | (2,032,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series D preferred dividends ($1.62 per share) | - | - | - | - | - | - | - | - | - | (527,000 | ) | - | - | - | (527,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (400,000 | ) | - | - | (400,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | 392,000 | - | 392,000 | ||||||||||||||||||||||||||||||||||||||||||
Distribution of securities of TurnOnGreen to Ault Alliance Class A common stockholders ($2.02 per share) |
- | - | - | - | - | - | - | - | (4,900,000 | ) | - | - | 4,900,000 | - | - | |||||||||||||||||||||||||||||||||||||||||
Distribution of ROI investment in White River to ROI stockholders |
- | - | - | - | - | - | - | - | - | - | - | (19,210,000 | ) | - | (19,210,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | (101,362 | ) | - | (27,199 | ) | - | (1,000 | ) | (1,000 | ) | - | - | - | (2,000 | ) | |||||||||||||||||||||||||||||||||||||
BALANCES, June 30, 2024 | 7,040 | $ | - | 44,000 | $ | - | 323,835 | $ | - | 35,846,318 | $ | 36,000 | $ | 660,036,000 | $ | (600,282,000 | ) | $ | (2,497,000 | ) | $ | (440,000 | ) | $ | (30,571,000 | ) | $ | 26,282,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Six Months Ended June 30, 2023
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Series D | Class A Common Stock | Paid-In | Accumulated | Comprehensive | Controlling | Treasury | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Par Amount | Shares | Par Amount | Shares | Par Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Stock | Equity | |||||||||||||||||||||||||||||||||||||||||||
BALANCES, January 1, 2023 | 7,040 | $ | - | 125,000 | $ | - | 172,838 | $ | - | 50,966 | $ | - | $ | 565,905,000 | $ | (329,078,000 | ) | $ | (1,100,000 | ) | $ | 17,496,000 | $ | (29,235,000 | ) | $ | 223,988,000 | |||||||||||||||||||||||||||||
Issuance of Class A common stock for restricted stock awards | - | - | - | - | - | - | 199 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Preferred stock issued for cash | - | - | - | - | 252,359 | - | - | - | 6,309,000 | - | - | - | - | 6,309,000 | ||||||||||||||||||||||||||||||||||||||||||
Preferred stock offering costs | - | - | - | - | - | - | - | - | (3,431,000 | ) | - | - | - | - | (3,431,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 4,683,000 | - | - | 1,924,000 | - | 6,607,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock for cash | - | - | - | - | - | - | 8,391 | - | 4,912,000 | - | - | - | - | 4,912,000 | ||||||||||||||||||||||||||||||||||||||||||
Financing cost in connection with sales of common stock | - | - | - | - | - | - | - | - | (132,000 | ) | - | - | - | - | (132,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock for conversion of preferred stock liabilities |
- | - | - | - | - | - | 1,500 | 328,000 | - | - | - | - | 328,000 | |||||||||||||||||||||||||||||||||||||||||||
Remeasurement of Ault Disruptive subsidiary temporary equity |
- | - | - | - | - | - | - | - | - | (5,415,000 | ) | - | - | - | (5,415,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Increase in ownership interest of subsidiary | - | - | - | - | - | - | - | - | 13,000 | - | - | (1,245,000 | ) | - | (1,232,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Non-controlling position at ROI subsidiary acquired | - | - | - | - | - | - | - | - | - | - | - | 6,357,000 | - | 6,357,000 | ||||||||||||||||||||||||||||||||||||||||||
Sale of subsidiary stock to non-controlling interests | - | - | - | - | - | - | - | - | - | - | - | 3,572,000 | - | 3,572,000 | ||||||||||||||||||||||||||||||||||||||||||
Distribution to Circle 8 non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | (500,000 | ) | - | (500,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock - Ault Alpha | - | - | - | - | - | - | - | - | - | - | - | - | (685,000 | ) | (685,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss attributable to Ault Alliance, Inc. | - | - | - | - | - | - | - | - | - | (109,329,000 | ) | - | - | - | (109,329,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series A preferred dividends ($1.25 per share) | - | - | - | - | - | - | - | - | - | (9,000 | ) | - | - | - | (9,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Series D preferred dividends ($1.62 per share) | - | - | - | - | - | - | - | - | - | (416,000 | ) | - | - | - | (416,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | - | - | - | - | - | (350,000 | ) | - | - | (350,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | (3,752,000 | ) | - | (3,752,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Distribution of securities of TurnOnGreen to Ault Alliance Class A common stockholders ($88.07 per share) |
- | - | - | - | - | - | - | - | (5,200,000 | ) | - | - | - | - | (5,200,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | - | 1,000 | (124,000 | ) | - | 1,000 | 1,000 | (121,000 | ) | ||||||||||||||||||||||||||||||||||||||||
BALANCES, June 30, 2023 | 7,040 | $ | - | 125,000 | $ | - | 425,197 | $ | - | 61,056 | $ | - | $ | 573,388,000 | $ | (444,371,000 | ) | $ | (1,450,000 | ) | $ | 23,853,000 | $ | (29,919,000 | ) | $ | 121,501,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (29,818,000 | ) | $ | (113,081,000 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 12,141,000 | 14,383,000 | ||||||
Amortization of debt discount | 5,916,000 | 16,418,000 | ||||||
Amortization of right-of-use assets | 1,211,000 | 1,446,000 | ||||||
Impairment of goodwill and intangible assets | - | 35,570,000 | ||||||
Stock-based compensation | 815,000 | 6,607,000 | ||||||
Gain on the sale of fixed assets | (32,000 | ) | (2,761,000 | ) | ||||
Impairment of property and equipment | 7,955,000 | - | ||||||
Impairment of equity securities | 6,266,000 | 11,555,000 | ||||||
Impairment of digital assets | - | 263,000 | ||||||
Realized gain on the sale of digital assets | - | (348,000 | ) | |||||
Change in fair value of digital assets | (678,000 | ) | - | |||||
Revenue, digital assets mining | (15,201,000 | ) | (14,714,000 | ) | ||||
Realized gains on sale of marketable securities | (4,000 | ) | (2,946,000 | ) | ||||
Gain on conversion of investment in equity securities to marketable equity securities | (17,900,000 | ) | - | |||||
Unrealized losses (gains) on marketable securities | 504,000 | (3,367,000 | ) | |||||
Unrealized losses on investments in common stock, related parties | 383,000 | 628,000 | ||||||
Income from cash held in trust | (21,000 | ) | (2,533,000 | ) | ||||
Loss from investment in unconsolidated entity | 1,958,000 | - | ||||||
Provision for loan losses | - | 1,180,000 | ||||||
Provision for loan losses, related party | 3,068,000 | - | ||||||
Change in the fair value of warrant liability | - | (3,217,000 | ) | |||||
(Gain) loss on extinguishment of debt | (742,000 | ) | 154,000 | |||||
Other | (1,196,000 | ) | (100,000 | ) | ||||
Changes in operating assets and liabilities: | - | |||||||
Proceeds from the sale of digital assets | 15,534,000 | 15,040,000 | ||||||
Marketable equity securities | (7,000 | ) | 41,197,000 | |||||
Accounts receivable | (2,374,000 | ) | 6,088,000 | |||||
Inventories | 925,000 | 1,124,000 | ||||||
Prepaid expenses and other current assets | 429,000 | (2,078,000 | ) | |||||
Other assets | (648,000 | ) | (211,000 | ) | ||||
Accounts payable and accrued expenses | (1,002,000 | ) | 8,148,000 | |||||
Lease liabilities | (1,414,000 | ) | (1,532,000 | ) | ||||
Net cash (used in) provided by operating activities | (13,932,000 | ) | 12,913,000 | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (3,897,000 | ) | (11,346,000 | ) | ||||
Investments in loans receivable | (134,000 | ) | (181,000 | ) | ||||
Investments in non-marketable equity securities | (120,000 | ) | (10,544,000 | ) | ||||
Proceeds from the sale of fixed assets | 626,000 | 4,515,000 | ||||||
Other | (269,000 | ) | (1,310,000 | ) | ||||
Net cash used in investing activities | (3,794,000 | ) | (18,866,000 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
AULT ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sales of Class A common stock | $ | 14,599,000 | $ | 4,912,000 | ||||
Financing cost in connection with sales of Class A common stock | (513,000 | ) | (132,000 | ) | ||||
Proceeds from sales of Series D preferred stock | - | 6,309,000 | ||||||
Financing cost in connection with sales of Series D preferred stock | - | (3,431,000 | ) | |||||
Proceeds from sales of Series C preferred stock and warrants, related party | 2,500,000 | - | ||||||
Proceeds from subsidiaries’ sale of stock to non-controlling interests | 1,777,000 | 3,572,000 | ||||||
Distribution to Circle 8 non-controlling interest | (226,000 | ) | (500,000 | ) | ||||
Proceeds from notes payable | 10,660,000 | 30,665,000 | ||||||
Repayment of margin accounts | - | (767,000 | ) | |||||
Payments on notes payable | (5,887,000 | ) | (34,057,000 | ) | ||||
Payments on convertible notes payable, related party | (193,000 | ) | - | |||||
Payments on notes payable, related party | (1,898,000 | ) | - | |||||
Payments of preferred dividends | (2,568,000 | ) | (550,000 | ) | ||||
Purchase of treasury stock | - | (685,000 | ) | |||||
Proceeds from sales of convertible notes | 1,800,000 | 7,817,000 | ||||||
Payments on convertible notes | (1,230,000 | ) | (360,000 | ) | ||||
Net cash provided by financing activities | 18,821,000 | 12,793,000 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 352,000 | (98,000 | ) | |||||
Net increase in cash and cash equivalents and restricted cash | 1,447,000 | 6,742,000 | ||||||
Cash and cash equivalents and restricted cash at beginning of period | 15,368,000 | 14,055,000 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 16,815,000 | $ | 20,797,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest - continuing operations | $ | 1,945,000 | $ | 4,658,000 | ||||
Non-cash investing and financing activities: | ||||||||
Settlement of accounts payable with digital assets | $ | 19,000 | $ | 13,000 | ||||
Settlement of interest payable with digital assets | $ | 142,000 | $ | - | ||||
Settlement of notes payable with digital assets | $ | 506,000 | $ | - | ||||
Conversion of convertible notes payable, related party into shares of Class A common stock | $ | - | $ | 400,000 | ||||
Conversion of debt and equity securities to marketable securities | $ | 1,810,000 | $ | 23,703,000 | ||||
Conversion of loans receivable to marketable securities | $ | - | $ | 5,430,000 | ||||
Exchange of related party advances for investment in other equity securities, related party | $ | 2,000,000 | $ | - | ||||
Recognition of new operating lease right-of-use assets and lease liabilities | $ | 1,889,000 | $ | - | ||||
Remeasurement of Ault Disruptive temporary equity | $ | 34,000 | $ | 5,415,000 | ||||
Dividend of ROI investment in White River to ROI shareholders | $ | 19,210,000 | $ | - | ||||
Redeemable non-controlling interests in equity of subsidiaries paid with cash and marketable securities held in trust account | $ | 1,463,000 | $ | 120,064,000 | ||||
Dividend paid in TurnOnGreen common stock in additional paid-in capital | $ | 4,900,000 | $ | 5,200,000 | ||||
Debt discount from accrued lender profit participation rights | $ | - | $ | 8,591,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F- |
1. DESCRIPTION OF BUSINESS
Ault Alliance, Inc., a Delaware corporation (“Ault Alliance” or the “Company”) is a diversified holding company pursuing growth by acquiring and developing undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin and offers colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provides mission-critical products that support a diverse range of industries, including a metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary.
The Company has the following reportable segments:
· | Energy and Infrastructure (“Energy”) – crane operations, advanced textiles processing and oil exploration; |
· | Technology and Finance (“Fintech”) – commercial lending, activist investing, and stock trading; |
· | Sentinum, Inc. (“Sentinum”) – digital assets mining operations and colocation and hosting services for the emerging artificial intelligence ecosystems and other industries; |
· | Gresham Worldwide, Inc., formerly known as Giga-tronics Incorporated (“GIGA”) – defense industry; |
· | TurnOnGreen – electric vehicle electrification infrastructure and commercial electronics solutions; |
· | ROI – immersive metaverse platform, media, and digital learning; |
· | Ault Global Real Estate Equities, Inc. (“AGREE”) – hotel operations and other commercial real estate holdings; and |
· | Ault Disruptive – a special purpose acquisition company. |
2. LIQUIDITY AND FINANCIAL CONDITION
As of June 30, 2024, the Company had cash and cash equivalents of $9.6 million, negative working capital of $162.4 million and a history of net operating losses. 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.
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, as well as obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources beyond the Company’s direct control that management expects to be available within the next 12 months.
Management expects that the Company’s existing cash and cash equivalents, accounts receivable and marketable securities as of June 30, 2024, 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 as well as digital assets, 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 or cease its operations altogether.
F- |
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, 2023 (the “2023 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2024. The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited 2023 financial statements contained in the above referenced 2023 Annual Report. Results of the three and six months ended June 30, 2024, are not necessarily indicative of the results to be expected for the full year ending December 31, 2024.
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 2023 Annual Report.
Revenue Recognition Digital Asset Mining
The Company has entered into a digital asset mining pool by executing a contract with a mining pool operator to provide hash calculation services to the mining pool. The Company’s customer, as defined in Accounting Standards Codification (“ASC”) 606-10-20, is the mining pool operator with which the Company has agreed to the terms of service and user service agreement. The Company supplies hash calculation services, in exchange for consideration, to the pool operator who in turn provides transaction verification services to third parties via a mining pool that includes other participants. The Company’s performance obligation is the provision of hash calculation services to the pool operator and this performance obligation is an output of the Company’s ordinary activities for which it decides when to provide services under the contract.
The Company’s enforceable right to compensation begins only when, and lasts as long as, the Company provides hash calculation services to the mining pool operator and is created as power is provided over time. The only consideration due to the Company relates to the provision of hash calculation services. The contract with the pool operator provides both parties the unilateral enforceable right to terminate the contract at any time without penalty. The customer termination option results in a contract that continuously renews throughout the day and therefore has a duration of less than 24 hours. The implied renewal option is not a material right because there are no upfront or incremental fees in the initial contract and the terms, conditions, and compensation amount for the renewal options are at the then market rates. Providing such hash calculation services is the only performance obligation in the Company’s contracts with mining pool operators.
The transaction consideration the Company receives, if any, is non-cash consideration in the form of Bitcoin. Changes in the fair value of the non-cash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and are therefore not included in revenue. The mining pool operator charges fees to cover the costs of maintaining the pool and are deducted from amounts the Company may otherwise earn and are treated as a reduction to the consideration earned. Fees fluctuate and historically have been approximately 0.3% per reward earned, on average.
The Company participated in mining pools that used the full pay-per-share (“FPPS”) payout method for the six months ended June 30, 2024. The Company is entitled to compensation once it begins to perform hash calculations for the pool operator in accordance with the operator’s specifications over a 24-hour period beginning midnight UTC and ending 23:59:59 UTC on a daily basis. The non-cash consideration that the Company is entitled to for providing hash calculations to the pool operator under the FPPS payout method is made up of block rewards and transaction fees less pool operator fees determined as follows:
· | The non-cash consideration in the form of a block reward is based on the total blocks expected to be generated on the Bitcoin network for the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: the daily hash calculations that the Company provided to the pool operator as a percent of the Bitcoin network’s implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin network block rewards expected to be generated for the same daily period. |
· | The non-cash consideration in the form of transaction fees paid by transaction requestors is based on the share of standard transaction fees over the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC. The pool operator calculates the standard transaction fee during the 24-hour period using a rolling 144 block moving average of actual transaction fees. |
F- |
· | The block reward and transaction fees earned by the Company are reduced by mining pool fees charged by the operator for operating the pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent the Company performs hash calculations and generates revenue in accordance with the pool operator’s payout formula during the same 24-hour period beginning midnight UTC daily. |
The contract is in effect until terminated by either party.
All consideration pursuant to this arrangement is variable. It is not probable that a significant reversal of cumulative revenue will occur. The Company is able to calculate the payout based on the contractual formula, non-cash revenue is estimated and recognized based on the fair value of Bitcoin on the date of contract inception. Fair value of the crypto asset consideration is determined using the midnight UTC spot price of the Company’s principal market for Bitcoin. The Company recognizes non-cash consideration on the same day that control of the contracted service is transferred to the pool operator, which is the same day as the contract inception.
There is no significant financing component in these transactions.
Expenses associated with running the digital assets mining business, such as equipment depreciation and electricity costs, are recorded as a component of cost of revenues.
Revenue Recognition Hotel Operations
The primary sources of revenue include room and food and beverage revenue from the Company’s hotels.
Rooms revenue represents revenue from the occupancy of the Company’s hotel rooms, which is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue from guest no-shows, daily use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay at the daily transaction price agreed to under the contract.
Food and beverage revenue consists of revenue from the restaurants and lounges, in room dining and mini bars, and banquet/catering revenue from group and social functions. Payment of the transaction price is due immediately when the customer purchases the goods and services. Therefore, revenue is recognized at a point in time when the physical possession has transferred to the customer.
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 Issued Accounting Standards
On December 14, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires entities to disclose specific rate reconciliations, amount of income taxes separated by federal and individual jurisdiction, and the amount of income (loss) from continuing operations before income tax expense (benefit) disaggregated between federal, state, and foreign. The new standard is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard.
On November 27, 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is designed to improve the reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. The new standard is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard.
4. CHANGE IN PLAN OF SALE OF AGREE HOTEL PROPERTIES
On April 30, 2024, the Company had a change in plan of sale for its four hotels owned and operated by AGREE. As a result, as of April 30, 2024, the assets no longer met the held for sale criteria and were required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the not to sell.
F- |
For presentation purposes, the assets and liabilities previously held for sale as of December 31, 2023, were reclassified in the December 31, 2023 balance sheet in the accompanying financial statements back to their original asset and liability groups at their previous carrying values. In connection with this change in plan of sale, the Company recorded a loss on impairment of property and equipment related to the real estate assets of AGREE of $8.0 million during the three months ended June 30, 2024. The fair values of property and equipment related to the real estate assets of AGREE were based on a discounted cash flow income approach for the hotel properties and a comparable sales market approach for the vacant land assets.
5. REVENUE DISAGGREGATION
The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three months ended June 30, 2024 and 2023. 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 June 30, 2024 (excludes Ault Disruptive, as that segment has no revenue):
Schedule of disaggregated revenues | ||||||||||||||||||||||||||||||||||||
GIGA | TurnOnGreen | Fintech | Sentinum | AGREE | Energy | ROI | Holding Co. | Total | ||||||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||||||
North America | $ | 3,158,000 | $ | 1,181,000 | $ | - | $ | 8,745,000 | $ | 5,134,000 | $ | 11,699,000 | $ | 39,000 | $ | 672,000 | $ | 30,628,000 | ||||||||||||||||||
Europe | 2,173,000 | 10,000 | - | - | - | 30,000 | - | - | 2,213,000 | |||||||||||||||||||||||||||
Middle East and other | 5,281,000 | 45,000 | - | - | - | - | - | - | 5,326,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 10,612,000 | 1,236,000 | - | 8,745,000 | 5,134,000 | 11,729,000 | 39,000 | 672,000 | 38,167,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | (9,763,000 | ) | - | - | - | - | - | (9,763,000 | ) | |||||||||||||||||||||||||
Total revenue | $ | 10,612,000 | $ | 1,236,000 | $ | (9,763,000 | ) | $ | 8,745,000 | $ | 5,134,000 | $ | 11,729,000 | $ | 39,000 | $ | 672,000 | $ | 28,404,000 | |||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||||||
Radio frequency/microwave filters | $ | 3,125,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,125,000 | ||||||||||||||||||
Power supply units and systems | 2,166,000 | 1,236,000 | - | - | - | - | - | - | 3,402,000 | |||||||||||||||||||||||||||
Healthcare diagnostic systems | 569,000 | - | - | - | - | - | - | - | 569,000 | |||||||||||||||||||||||||||
Defense systems | 4,752,000 | - | - | - | - | - | - | - | 4,752,000 | |||||||||||||||||||||||||||
Digital assets mining | - | - | - | 8,490,000 | - | - | - | - | 8,490,000 | |||||||||||||||||||||||||||
Hotel and real estate operations | - | - | - | 255,000 | 5,134,000 | - | - | - | 5,389,000 | |||||||||||||||||||||||||||
Crane rental | - | - | - | - | - | 11,700,000 | - | - | 11,700,000 | |||||||||||||||||||||||||||
Other | - | - | - | - | - | 29,000 | 39,000 | 672,000 | 740,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 10,612,000 | 1,236,000 | - | 8,745,000 | 5,134,000 | 11,729,000 | 39,000 | 672,000 | 38,167,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | (9,763,000 | ) | - | - | - | - | - | (9,763,000 | ) | |||||||||||||||||||||||||
Total revenue | $ | 10,612,000 | $ | 1,236,000 | $ | (9,763,000 | ) | $ | 8,745,000 | $ | 5,134,000 | $ | 11,729,000 | $ | 39,000 | $ | 672,000 | $ | 28,404,000 | |||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||||||
Goods and services transferred at a point in time | $ | 5,511,000 | $ | - | $ | - | $ | 8,745,000 | $ | 5,134,000 | $ | 30,000 | $ | 39,000 | $ | 672,000 | $ | 20,131,000 | ||||||||||||||||||
Services transferred over time | 5,101,000 | 1,236,000 | - | - | - | 11,699,000 | - | - | 18,036,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | $ | 10,612,000 | $ | 1,236,000 | $ | - | $ | 8,745,000 | $ | 5,134,000 | $ | 11,729,000 | $ | 39,000 | $ | 672,000 | $ | 38,167,000 |
The Company’s disaggregated revenues consisted of the following for the six months ended June 30, 2024 (excludes Ault Disruptive, as that segment has no revenue):
GIGA | TurnOnGreen | Fintech | Sentinum | AGREE | Energy | ROI | Holding Co. | Total | ||||||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||||||
North America | $ | 5,222,000 | $ | 2,338,000 | $ | - | $ | 20,494,000 | $ | 8,140,000 | $ | 24,618,000 | $ | 67,000 | $ | 973,000 | $ | 61,852,000 | ||||||||||||||||||
Europe | 4,684,000 | 14,000 | - | - | - | 68,000 | - | - | 4,766,000 | |||||||||||||||||||||||||||
Middle East and other | 10,279,000 | 109,000 | - | - | - | - | - | - | 10,388,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 20,185,000 | 2,461,000 | - | 20,494,000 | 8,140,000 | 24,686,000 | 67,000 | 973,000 | 77,006,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | (664,000 | ) | - | - | - | - | - | (664,000 | ) | |||||||||||||||||||||||||
Total revenue | $ | 20,185,000 | $ | 2,461,000 | $ | (664,000 | ) | $ | 20,494,000 | $ | 8,140,000 | $ | 24,686,000 | $ | 67,000 | $ | 973,000 | $ | 76,342,000 | |||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||||||
Radio frequency/microwave filters | $ | 5,216,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,216,000 | ||||||||||||||||||
Power supply units and systems | 4,426,000 | 2,461,000 | - | - | - | - | - | - | 6,887,000 | |||||||||||||||||||||||||||
Healthcare diagnostic systems | 1,100,000 | - | - | - | - | - | - | - | 1,100,000 | |||||||||||||||||||||||||||
Defense systems | 9,443,000 | - | - | - | - | - | - | - | 9,443,000 | |||||||||||||||||||||||||||
Digital assets mining | - | - | - | 19,937,000 | - | - | - | - | 19,937,000 | |||||||||||||||||||||||||||
Hotel and real estate operations | - | - | - | 557,000 | 8,140,000 | - | - | - | 8,697,000 | |||||||||||||||||||||||||||
Crane rental | - | - | - | - | - | 24,618,000 | - | - | 24,618,000 | |||||||||||||||||||||||||||
Other | - | - | - | - | - | 68,000 | 67,000 | 973,000 | 1,108,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 20,185,000 | 2,461,000 | - | 20,494,000 | 8,140,000 | 24,686,000 | 67,000 | 973,000 | 77,006,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | (664,000 | ) | - | - | - | - | - | (664,000 | ) | |||||||||||||||||||||||||
Total revenue | $ | 20,185,000 | $ | 2,461,000 | $ | (664,000 | ) | $ | 20,494,000 | $ | 8,140,000 | $ | 24,686,000 | $ | 67,000 | $ | 973,000 | $ | 76,342,000 | |||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||||||
Goods and services transferred at a point in time | $ | 10,274,000 | $ | 9,000 | $ | - | $ | 20,494,000 | $ | 8,140,000 | $ | 68,000 | $ | 67,000 | $ | 973,000 | $ | 40,025,000 | ||||||||||||||||||
Services transferred over time | 9,911,000 | 2,452,000 | - | - | - | 24,618,000 | - | - | 36,981,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | $ | 20,185,000 | $ | 2,461,000 | $ | - | $ | 20,494,000 | $ | 8,140,000 | $ | 24,686,000 | $ | 67,000 | $ | 973,000 | $ | 77,006,000 |
F- |
The Company’s disaggregated revenues consisted of the following for the three months ended June 30, 2023 (excludes Ault Disruptive, as that segment has no revenue):
GIGA |
TurnOn Green |
Fintech | Sentinum | AGREE | SMC | BMI | Energy | Total | ||||||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||||||
North America | $ | 2,856,000 | $ | 541,000 | $ | - | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,590,000 | $ | 31,734,000 | ||||||||||||||||||
Europe | 2,270,000 | 7,000 | - | - | - | - | - | 82,000 | 2,359,000 | |||||||||||||||||||||||||||
Middle East and other | 3,614,000 | 176,000 | - | - | - | - | - | - | 3,790,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 8,740,000 | 724,000 | - | 8,693,000 | 4,384,000 | 2,625,000 | 45,000 | 12,672,000 | 37,883,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 9,525,000 | - | - | - | - | - | 9,525,000 | |||||||||||||||||||||||||||
Total revenue | $ | 8,740,000 | $ | 724,000 | $ | 9,525,000 | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,672,000 | $ | 47,408,000 | ||||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||||||
RF/microwave filters | $ | 1,972,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 1,972,000 | ||||||||||||||||||
Power supply units & systems | 1,564,000 | 645,000 | - | - | - | - | - | - | 2,209,000 | |||||||||||||||||||||||||||
Healthcare diagnostic systems | 1,101,000 | - | - | - | - | - | - | - | 1,101,000 | |||||||||||||||||||||||||||
Defense systems | 3,899,000 | - | - | - | - | - | - | - | 3,899,000 | |||||||||||||||||||||||||||
Digital assets mining | - | - | - | 8,368,000 | - | - | - | - | 8,368,000 | |||||||||||||||||||||||||||
Hotel and real estate operations | - | - | - | 325,000 | 4,384,000 | - | - | - | 4,709,000 | |||||||||||||||||||||||||||
Karaoke machines and related consumer goods | - | - | - | - | - | 2,625,000 | - | - | 2,625,000 | |||||||||||||||||||||||||||
Crane rental | - | - | - | - | - | - | - | 12,590,000 | 12,590,000 | |||||||||||||||||||||||||||
Other | 204,000 | 79,000 | - | - | - | - | 45,000 | 82,000 | 410,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 8,740,000 | 724,000 | - | 8,693,000 | 4,384,000 | 2,625,000 | 45,000 | 12,672,000 | 37,883,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 9,525,000 | - | - | - | - | - | 9,525,000 | |||||||||||||||||||||||||||
Total revenue | $ | 8,740,000 | $ | 724,000 | $ | 9,525,000 | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,672,000 | $ | 47,408,000 | ||||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||||||
Goods transferred at a point in time | $ | 4,720,000 | $ | 722,000 | $ | - | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 82,000 | $ | 21,271,000 | ||||||||||||||||||
Services transferred over time | 4,020,000 | 2,000 | - | - | - | - | - | 12,590,000 | 16,612,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | $ | 8,740,000 | $ | 724,000 | $ | - | $ | 8,693,000 | $ | 4,384,000 | $ | 2,625,000 | $ | 45,000 | $ | 12,672,000 | $ | 37,883,000 |
The Company’s disaggregated revenues consisted of the following for the six months ended June 30, 2023 (excludes Ault Disruptive, as that segment has no revenue):
GIGA |
TurnOn Green |
Fintech | Sentinum | AGREE | SMC | BMI | Energy | Total | ||||||||||||||||||||||||||||
Primary Geographical Markets | ||||||||||||||||||||||||||||||||||||
North America | $ | 5,190,000 | $ | 1,326,000 | $ | - | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,675,000 | $ | 61,369,000 | ||||||||||||||||||
Europe | 4,711,000 | 11,000 | - | - | - | - | - | 107,000 | 4,829,000 | |||||||||||||||||||||||||||
Middle East and other | 7,547,000 | 263,000 | - | - | - | - | - | - | 7,810,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 17,448,000 | 1,600,000 | - | 16,498,000 | 6,627,000 | 6,008,000 | 45,000 | 25,782,000 | 74,008,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities (North America) | - | - | 4,586,000 | - | - | - | - | - | 4,586,000 | |||||||||||||||||||||||||||
Total revenue | $ | 17,448,000 | $ | 1,600,000 | $ | 4,586,000 | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,782,000 | $ | 78,594,000 | ||||||||||||||||||
Major Goods or Services | ||||||||||||||||||||||||||||||||||||
RF/microwave filters | $ | 3,219,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,219,000 | ||||||||||||||||||
Power supply units & systems | 4,678,000 | 1,470,000 | - | - | - | - | - | - | 6,148,000 | |||||||||||||||||||||||||||
Healthcare diagnostic systems | 2,238,000 | - | - | - | - | - | - | - | 2,238,000 | |||||||||||||||||||||||||||
Defense systems | 6,564,000 | - | - | - | - | - | - | - | 6,564,000 | |||||||||||||||||||||||||||
Digital assets mining | - | - | - | 15,715,000 | - | - | - | - | 15,715,000 | |||||||||||||||||||||||||||
Hotel and real estate operations | - | - | - | 783,000 | 6,627,000 | - | - | - | 7,410,000 | |||||||||||||||||||||||||||
Karaoke machines and related consumer goods | - | - | - | - | - | 6,008,000 | - | - | 6,008,000 | |||||||||||||||||||||||||||
Crane rental | - | - | - | - | - | - | - | 25,236,000 | 25,236,000 | |||||||||||||||||||||||||||
Other | 749,000 | 130,000 | - | - | - | - | 45,000 | 546,000 | 1,470,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | 17,448,000 | 1,600,000 | - | 16,498,000 | 6,627,000 | 6,008,000 | 45,000 | 25,782,000 | 74,008,000 | |||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 4,586,000 | - | - | - | - | - | 4,586,000 | |||||||||||||||||||||||||||
Total revenue | $ | 17,448,000 | $ | 1,600,000 | $ | 4,586,000 | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,782,000 | $ | 78,594,000 | ||||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||||||
Goods transferred at a point in time | $ | 10,126,000 | $ | 1,595,000 | $ | - | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 546,000 | $ | 41,445,000 | ||||||||||||||||||
Services transferred over time | 7,322,000 | 5,000 | - | - | - | - | - | 25,236,000 | 32,563,000 | |||||||||||||||||||||||||||
Revenue from contracts with customers | $ | 17,448,000 | $ | 1,600,000 | $ | - | $ | 16,498,000 | $ | 6,627,000 | $ | 6,008,000 | $ | 45,000 | $ | 25,782,000 | $ | 74,008,000 |
F- |
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
Fair value, assets measured on recurring basis | ||||||||||||||||
Fair Value Measurement at June 30, 2024 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party |
$ | 304,000 | $ | 304,000 | $ | - | $ | - | ||||||||
Investments in marketable equity securities | 33,000 | 33,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 794,000 | 794,000 | - | - | ||||||||||||
Digital assets | 224,000 | 224,000 | - | - | ||||||||||||
Total assets measured at fair value | $ | 1,355,000 | $ | 1,355,000 | $ | - | $ | - | ||||||||
Liabilities: | ||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 733,000 | $ | - | $ | - | $ | 733,000 | ||||||||
Convertible promissory notes | 18,980,000 | - | - | 18,980,000 | ||||||||||||
Total liabilities measured at fair value | $ | 19,713,000 | $ | - | $ | - | $ | 19,713,000 |
Fair Value Measurement at December 31, 2023 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Investment in common stock of Alzamend | $ | 679,000 | $ | 679,000 | $ | - | $ | - | ||||||||
Investments in marketable equity securities | 27,000 | 27,000 | - | - | ||||||||||||
Cash and marketable securities held in trust account | 2,200,000 | 2,200,000 | - | - | ||||||||||||
Total assets measured at fair value | $ | 2,906,000 | $ | 2,906,000 | $ | - | $ | - | ||||||||
Liabilities: | ||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 1,742,000 | $ | - | $ | - | $ | 1,742,000 | ||||||||
Convertible promissory notes | 22,485,000 | - | - | 22,485,000 | ||||||||||||
Total liabilities measured at fair value | $ | 24,227,000 | $ | - | $ | - | $ | 24,227,000 |
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.
F- |
The changes in Level 3 fair value hierarchy during the three and six months ended June 30, 2024 and 2023 were as follows:
Schedule of changes in fair value hierarchy | ||||||||||||||||||||
Level 3 Balance at Beginning of Period |
Fair Value Adjustments |
Purchases, Sales and Settlements |
Transfer in and/or out of Level 3 |
Level 3 Balance at End of Period |
||||||||||||||||
Six months ended June 30, 2024 | ||||||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 1,742,000 | $ | (1,009,000 | ) | $ | - | $ | - | $ | 733,000 | |||||||||
Convertible promissory notes | 22,485,000 | - | 770,000 | (4,275,000 | ) | 18,980,000 | ||||||||||||||
Six months ended June 30, 2023 | ||||||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 2,967,000 | $ | (3,222,000 | ) | $ | 5,860,000 | $ | - | $ | 5,605,000 | |||||||||
Series E, F and G preferred stock liabilities | - | 91,000 | 8,500,000 | (328,000 | ) | 8,263,000 | ||||||||||||||
Convertible promissory notes | 10,571,000 | - | 8,832,000 | - | 19,403,000 | |||||||||||||||
Level 3 Balance at Beginning of Period |
Fair Value Adjustments |
Purchases, Sales and Settlements |
Transfer in and/or out of Level 3 |
Level 3 Balance at End of Period |
||||||||||||||||
Three months ended June 30, 2024 | ||||||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 715,000 | $ | 18,000 | $ | - | $ | - | $ | 733,000 | ||||||||||
Convertible promissory notes | 21,180,000 | - | - | (2,200,000 | ) | 18,980,000 | ||||||||||||||
Three months ended June 30, 2023 | ||||||||||||||||||||
Warrant and embedded conversion feature liabilities | $ | 3,186,000 | $ | (1,911,000 | ) | $ | 4,330,000 | $ | - | $ | 5,605,000 | |||||||||
Series E, F and G preferred stock liabilities | 8,500,000 | 91,000 | - | (328,000 | ) | 8,263,000 | ||||||||||||||
Convertible promissory notes | 12,776,000 | - | 6,627,000 | - | 19,403,000 |
7. EQUITY INVESTMENTS FOR WHICH MEASUREMENT ALTERNATIVE HAS BEEN SELECTED
As of June 30, 2024 and December 31, 2023, the Company held equity investments in other securities valued at $13.8 million and $21.8 million, respectively, that were valued using a measurement alternative. These investments are included in other equity securities in the accompanying consolidated balance sheets.
The Company has made cumulative downward adjustments for impairments for equity securities that do not have readily determinable fair values for the three months ended June 30, 2024 and 2023, totaling $6.3 million and $11.6 million, respectively. Approximately $6.3 million of the impairment charge for the three and six months ended June 30, 2024 was reflected in other income (expense) on the condensed consolidated statement of operations and comprehensive loss. Approximately $9.6 million of the impairment charge for the three months ended June 30, 2023 was reflected in other income (expense) and $2.0 million of the impairment charge related to Fintech lending operations and was recorded against revenue from lending and trading activities on the condensed consolidated statement of operations and comprehensive loss.
8. MARKETABLE EQUITY SECURITIES
Marketable equity securities with readily determinable market prices consisted of the following as of June 30, 2024 and December 31, 2023:
Schedule of marketable securities | ||||||||||||||||
Marketable equity securities at June 30, 2024 | ||||||||||||||||
Gross unrealized | Gross unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Common shares | $ | 5,591,000 | $ | 6,000 | $ | (5,064,000 | ) | $ | 33,000 | |||||||
Marketable equity securities at December 31, 2023 | ||||||||||||||||
Gross unrealized | Gross unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Common shares | $ | 5,119,000 | $ | 12,000 | $ | (5,104,000 | ) | $ | 27,000 |
The Company’s investment in marketable equity securities is revalued on each balance sheet date.
9. DIGITAL ASSETS
The following table presents revenue from mined digital assets for the three and six months ended June 30, 2024 and 2023:
Schedule of revenue from digital assets | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Revenue from mined digital assets at Sentinum owned and operated facilities | $ | 6,339,000 | $ | 7,367,000 | $ | 15,201,000 | $ | 14,714,000 | ||||||||
Revenue from Sentinum digital mining equipment hosted at third-party facilities | 2,151,000 | 1,001,000 | 4,736,000 | 1,001,000 | ||||||||||||
Revenue, digital assets mining | $ | 8,490,000 | $ | 8,368,000 | $ | 19,937,000 | $ | 15,715,000 |
F- |
The following table presents the activities of the digital assets (included in prepaid expenses and other current assets) for the six months ended June 30, 2024 and 2023:
Schedule of activities of the digital assets | ||||
Digital Assets | ||||
Balance at January 1, 2024 | $ | 546,000 | ||
Additions of mined digital assets | 15,201,000 | |||
Sale of digital assets | (15,534,000 | ) | ||
Payments to vendors with digital assets | (19,000 | ) | ||
Payment of notes payable with digital assets | (506,000 | ) | ||
Payment of interest payable with digital assets | (142,000 | ) | ||
Realized gain on sale of digital assets | 651,000 | |||
Unrealized gain on digital assets | 27,000 | |||
Balance at June 30, 2024 | $ | 224,000 |
Digital Assets | ||||
Balance at January 1, 2023 | $ | 554,000 | ||
Additions of mined digital assets | 14,714,000 | |||
Sale of digital assets | (15,040,000 | ) | ||
Payments to vendors with digital assets | (13,000 | ) | ||
Impairment of mined digital assets | (263,000 | ) | ||
Realized gain on sale of digital assets | 348,000 | |||
Balance at June 30, 2023 | $ | 300,000 |
10. PROPERTY AND EQUIPMENT, NET
At June 30, 2024 and December 31, 2023, property and equipment consisted of:
Schedule of property and equipment | ||||||||
June 30, 2024 | December 31, 2023 | |||||||
Building, land and improvements | $ | 94,148,000 | $ | 101,524,000 | ||||
Digital assets mining equipment | 50,640,000 | 50,640,000 | ||||||
Crane rental equipment | 34,364,000 | 34,469,000 | ||||||
Computer, software and related equipment | 15,012,000 | 14,335,000 | ||||||
Aircraft | 15,983,000 | 15,983,000 | ||||||
Other property and equipment | 12,985,000 | 11,356,000 | ||||||
223,132,000 | 228,307,000 | |||||||
Accumulated depreciation and amortization | (42,366,000 | ) | (30,953,000 | ) | ||||
Property and equipment, net | $ | 180,766,000 | $ | 197,354,000 |
Summary of depreciation expense:
Schedule of depreciation | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Depreciation expense | $ | 6,151,000 | $ | 7,966,000 | $ | 11,929,000 | $ | 13,876,000 |
F- |
11. INTANGIBLE ASSETS, NET
At June 30, 2024 and December 31, 2023, intangible assets consisted of:
Schedule of intangible asset | ||||||||||
Useful Life | June 30, 2024 | December 31, 2023 | ||||||||
Definite lived intangible assets: | ||||||||||
Developed technology | 3-8 years | $ | 1,769,000 | $ | 1,949,000 | |||||
Customer list | 8-10 years | 3,540,000 | 3,596,000 | |||||||
Trade names | 5-10 years | 1,030,000 | 1,030,000 | |||||||
Domain name and other intangible assets | 5 years | 590,000 | 612,000 | |||||||
6,929,000 | 7,187,000 | |||||||||
Accumulated amortization | (2,079,000 | ) | (1,910,000 | ) | ||||||
Total definite-lived intangible assets | $ | 4,850,000 | $ | 5,277,000 | ||||||
Indefinite lived intangible assets: | ||||||||||
Trade name and trademark | Indefinite life | 474,000 | 477,000 | |||||||
Total intangible assets, net | $ | 5,324,000 | $ | 5,754,000 |
Certain of the Company’s trade names and trademarks were determined to have an indefinite life. The remaining definite-lived intangible assets are primarily being amortized on a straight-line basis over their estimated useful lives.
Summary of amortization expense:
Schedule of amortization expense | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Amortization expense | $ | 55,000 | $ | 254,000 | $ | 212,000 | $ | 507,000 |
As of June 30, 2024, intangible assets subject to amortization have an average remaining useful life of 7.5 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.
Schedule of estimated amortization expense | ||||
2024 (remainder) | $ | 569,000 | ||
2025 | 698,000 | |||
2026 | 698,000 | |||
2027 | 698,000 | |||
2028 | 688,000 | |||
2029 | 467,000 | |||
Thereafter | 1,032,000 | |||
$ | 4,850,000 |
12. GOODWILL
The following table summarizes the changes in the Company’s goodwill for the six months ended June 30, 2024:
Schedule of goodwill | ||||
Goodwill | ||||
Balance as of January 1, 2024 | $ | 6,088,000 | ||
Effect of exchange rate changes | (172,000 | ) | ||
Balance as of June 30, 2024 | $ | 5,916,000 |
F- |
13. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and Ault & Company, Inc. (“Ault & Company”) at June 30, 2024 and December 31, 2023, were comprised of the following:
Investment in Promissory Notes, Related Parties – Ault & Company
Schedule of investment | ||||||||||||
Interest | Due | June 30, | December 31, | |||||||||
Rate | Date | 2024 | 2023 | |||||||||
Promissory note, related party | 8% | Dec. 31, 2024 | $ | - | $ | 2,500,000 | ||||||
Accrued interest receivable Ault & Company | - | 568,000 | ||||||||||
Other - Alzamend | - | 900,000 | ||||||||||
Total investment in promissory notes and other, related parties | $ | - | $ | 3,968,000 |
Summary of interest income, related party, recorded within interest and other income on the condensed consolidated statement of operations:
Schedule of Interest income, related party | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Interest income, related party | $ | - | $ | 50,000 | $ | - | $ | 100,000 |
During the three months ended March 31, 2024, due to uncertainties surrounding collection, the Company recorded a loan loss reserve of $3.1 million related to the promissory note from Ault & Company, reversed the related accrued receivable and did not record interest income on the note.
Investment in Alzamend Series B Convertible Preferred Stock, Warrants and Common Stock, Related Parties – Alzamend
Schedule of investment in common stock | ||||||||||||
Investments in common stock, related parties at June 30, 2024 | ||||||||||||
Cost | Gross unrealized losses | Fair value | ||||||||||
Common shares | $ | 24,697,000 | $ | (24,393,000 | ) | $ | 304,000 | |||||
Alzamend series B convertible preferred stock, warrants | $ | 2,100,000 | $ | - | $ | 2,100,000 |
Investments in common stock, related parties at December 31, 2023 | ||||||||||||
Cost | Gross unrealized losses | Fair value | ||||||||||
Common shares | $ | 24,688,000 | $ | (24,009,000 | ) | $ | 679,000 |
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended June 30, 2024 and 2023:
Schedule of investment in warrants and common stock | ||||||||
For the Three Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Balance at April 1 | $ | 768,000 | $ | 4,856,000 | ||||
Investment in common stock of Alzamend | 3,000 | 10,000 | ||||||
Unrealized gain (loss) in common stock of Alzamend | (467,000 | ) | 970,000 | |||||
Balance at June 30 | $ | 304,000 | $ | 5,836,000 |
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the six months ended June 30, 2024 and 2023:
For the Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Balance at January 1 | $ | 679,000 | $ | 6,449,000 | ||||
Investment in common stock of Alzamend | 8,000 | 15,000 | ||||||
Unrealized gain (loss) in common stock of Alzamend | (383,000 | ) | (628,000 | ) | ||||
Balance at June 30 | $ | 304,000 | $ | 5,836,000 |
F- |
Ault Lending, LLC (“Ault Lending”) Investment in Alzamend Series B Convertible Preferred Stock and Warrants
Schedule of investment in warrants and preferred stock | ||||||||
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
Investment in Alzamend preferred stock | $ | 2,100,000 | $ | - | ||||
Total investment in other investments securities, related party | $ | 2,100,000 | $ | - |
In connection with a securities purchase agreement entered into with Alzamend in January 2024, the Company purchased 2,100 shares of Alzamend Series B Convertible Preferred Stock and warrants to purchase 2.1 million shares of Alzamend common stock with a five-year term and an exercise price of $1.20 per share for a total purchase price of $2.1 million.
The Agreement provides that Ault Lending may purchase up to $6 million of Alzamend Series B Convertible Preferred Stock in one or more closings.
The Company has elected to account for investment in other investments securities, related party, using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments.
Messrs. Ault, Horne and Nisser are each paid $50,000 annually by Alzamend.
14. EQUITY METHOD INVESTMENT
Equity Investments in Unconsolidated Entity – The Singing Machine Company, Inc. (“SMC”)
The following table summarizes the changes in the Company’s equity investments in an unconsolidated entity, SMC, included in other assets on the condensed consolidated balance sheet, during the three months ended June 30, 2024:
Schedule of equity investments in unconsolidated entity – SMC | ||||
Rollforward investment in unconsolidated entity | Amount | |||
Beginning balance - April 1, 2024 | $ | 1,290,000 | ||
Loss from investment in unconsolidated entity | (1,290,000 | ) | ||
Ending balance - June 30, 2024 | $ | - |
The following table summarizes the changes in the Company’s equity investments in an unconsolidated entity, SMC, included in other assets on the condensed consolidated balance sheet, during the six months ended June 30, 2024:
Rollforward investment in unconsolidated entity | Amount | |||
Beginning balance - January 1, 2024 | $ | 1,957,000 | ||
Loss from investment in unconsolidated entity | (1,957,000 | ) | ||
Ending balance - June 30, 2024 | $ | - |
The following table provides summarized financial information for the Company’s ownership interest in SMC accounted for under the equity method and has been compiled from SMC’s financial statements. Amounts presented represent totals at the investee level and not the Company’s proportionate share:
Summarized Statements of Operations
Schedule of summarized statements of operations | ||||||||
For the Three Months Ended |
For the Six Months Ended |
|||||||
June 30, | June 30, | |||||||
2024 | 2024 | |||||||
Revenue | $ | 2,440,000 | $ | 4,866,000 | ||||
Gross profit | $ | 324,000 | $ | 826,000 | ||||
Loss from operations | $ | (6,154,000 | ) | $ | (8,441,000 | ) | ||
Net loss | $ | (6,119,000 | ) | $ | (8,486,000 | ) |
F- |
Summarized Balance Sheet Information
Schedule of summarized balance sheet information | ||||||||
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
Current assets | $ | 11,791,000 | $ | 23,206,000 | ||||
Non-current assets | $ | 576,000 | $ | 4,509,000 | ||||
Current liabilities | $ | 9,103,000 | $ | 16,209,000 | ||||
Non-current liabilities | $ | 4,136,000 | $ | 3,928,000 |
15. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at June 30, 2024 and December 31, 2023 consisted of:
Schedule of other current liabilities | ||||||||
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
Accounts payable | $ | 27,038,000 | $ | 34,485,000 | ||||
Accrued payroll and payroll taxes | 9,961,000 | 9,963,000 | ||||||
Financial instrument liabilities | 578,000 | 832,000 | ||||||
Interest payable | 7,397,000 | 4,197,000 | ||||||
Accrued legal | 2,502,000 | 2,340,000 | ||||||
Accrued lender profit participation rights | 1,642,000 | 1,661,000 | ||||||
Other accrued expenses | 19,676,000 | 15,947,000 | ||||||
$ | 68,794,000 | $ | 69,425,000 |
16. DIVIDEND PAYABLE IN TURNONGREEN COMMON STOCK
In March 2024, the Company, in connection with a planned distribution of its common stock holdings of TurnOnGreen, announced the distribution to its stockholders 25.0 million shares of TurnOnGreen common stock and warrants to purchase 25.0 million shares of TurnOnGreen common stock, which resulted in an adjustment to additional paid in capital and increase to non-controlling interest of $4.9 million based on the recorded value of the Company’s holdings in TurnOnGreen at the record date of the distribution.
17. ROI TRANSFERS OF WHITE RIVER COMMON STOCK
In January of 2024, ROI announced that it had concluded that, for regulatory reasons, ROI would be unable to effect the distribution of its shares of common stock of White River as contemplated by a registration statement previously filed by White River. In an effort to attempt to fulfill its original intent to transfer the shares to ROI shareholders of record as of September 30, 2022, ROI would send such shareholders an agreement whereby qualified shareholders can demonstrate to ROI’s satisfaction that they in fact were beneficial shareholders of ROI’s common or preferred stock as of September 30, 2022 and affirm that they are “accredited investors” by July 26, 2024.
During the six months ended June 30, 2024, ROI transferred 12.0 million shares of White River common stock with a fair value of $19.2 million at the date of transfer to certain of its accredited investors to resolve the matters discussed above.
In conjunction with the transfers to non-controlling interests, shares of ROI’s investment in White River’s Series A Convertible Preferred Stock were converted into shares of White River common stock, resulting in a non-cash $17.9 million gain on conversion.
Ault Lending Transfer
On February 14, 2024, ROI transferred 2.5 million shares of White River common stock with a carryover basis of $0.5 million and a fair value of $7.5 million on the date of transfer to Ault Lending.
F- |
18. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY LIABILITY
The Company records redeemable noncontrolling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. As of June 30, 2024, the carrying amount of the redeemable noncontrolling interest in equity of subsidiaries was recorded at its redemption value of $0.8 million. During the six months ended June 30, 2024, shares of Ault Disruptive common stock were redeemed for an aggregate redemption amount of $1.4 million.
The following table summarizes the changes in the Company’s redeemable noncontrolling interests in equity of subsidiaries during the three months ended June 30, 2024 and 2023:
Redeemable noncontrolling interests in equity of subsidiary liability | ||||||||
For the Three Months Ended | ||||||||
June 30, | ||||||||
2024 | 2023 | |||||||
Redeemable noncontrolling interests in equity of subsidiaries as of April 1 | $ | 784,000 | $ | 118,672,000 | ||||
Redemption of ADRT common stock | - | (120,064,000 | ) | |||||
Remeasurement of carrying value to redemption value | 11,000 | 3,343,000 | ||||||
Redeemable noncontrolling interests in equity of subsidiaries as of June 30 | $ | 795,000 | $ | 1,951,000 |
The following table summarizes the changes in the Company’s redeemable noncontrolling interests in equity of subsidiaries during the six months ended June 30, 2024 and 2023:
For the Six Months Ended | ||||||||
June 30, | ||||||||
2024 | 2023 | |||||||
Redeemable noncontrolling interests in equity of subsidiaries as of January 1 | $ | 2,224,000 | $ | 117,993,000 | ||||
Redemption of ADRT common stock | (1,463,000 | ) | (120,064,000 | ) | ||||
Remeasurement of carrying value to redemption value | 34,000 | 4,022,000 | ||||||
Redeemable noncontrolling interests in equity of subsidiaries as of June 30 | $ | 795,000 | $ | 1,951,000 |
F- |
19. NOTES PAYABLE
Notes payable at June 30, 2024 and December 31, 2023, were comprised of the following:
Schedule of notes payable | ||||||||||||||||
Collateral | Guarantors | Interest rate | Due date | June 30, 2024 | December 31, 2023 | |||||||||||
AGREE secured construction loans | AGREE hotels | 7.0% | January 1, 2025 | $ | 68,689,000 | $ | 67,632,000 | |||||||||
Circle 8 revolving credit facility | Circle 8 cranes with a book value of $30.2 million | - | 8.4% | December 16, 2025 | 15,031,000 | 15,907,000 | ||||||||||
16% promissory note (in default) | - | Ault & Company and Milton C. Ault, III | 16.0% | July 15, 2024 | 4,822,000 | 2,572,000 | ||||||||||
Circle 8 equipment financing notes | Circle 8 equipment with a book value of $4.5 million | - | 10.5% | September 15, 2025 through June 15, 2027 | 4,638,000 | 5,629,000 | ||||||||||
15% term notes | - | Milton C. Ault, III | 15.0% | September 30, 2024 | 3,499,000 | - | ||||||||||
15% promissory notes | - | Milton C. Ault, III | 15.0% | December 4, 2024 | 2,400,000 | - | ||||||||||
8% demand loans | - | - | 8.0% | Upon demand | - | 950,000 | ||||||||||
Short-term bank credit facilities | - | - | 5.2% | Renews monthly | 2,718,000 | 1,464,000 | ||||||||||
Sentinum note payable | - | - | 12.5% | - | - | 1,067,000 | ||||||||||
ROI promissory note (in default) | - | - | 18.0% | April 30, 2024 | 2,094,000 | - | ||||||||||
Other ($0.9 million in default) | - | - | - | - | 2,948,000 | 3,518,000 | ||||||||||
Total notes payable | $ | 106,839,000 | $ | 98,739,000 | ||||||||||||
Less: | ||||||||||||||||
Unamortized debt discounts | (748,000 | ) | (453,000 | ) | ||||||||||||
Total notes payable, net | $ | 106,091,000 | $ | 98,286,000 | ||||||||||||
Less: current portion | (89,643,000 | ) | (12,866,000 | ) | ||||||||||||
Notes payable – long-term portion | $ | 16,448,000 | $ | 85,420,000 |
F- |
ROI 15% Term Note
On February 9, 2024, ROI entered into a $1.77 million term note agreement with an institutional investor bearing interest of 15%. The term note was issued at a discount, with net proceeds to ROI of $1.75 million. The term note was scheduled to mature February 14, 2024. This note has been guaranteed by Ault & Company and Mr. Ault. The term note was subsequently amended to increase the principal amount due to $2.1 million, increase the interest rate to 18% and extend the maturity date to April 30, 2024. The term note is in default as of May 1, 2024.
15% Term Notes
On April 29, 2024, the Company entered into note agreements totaling $3.5 million with an institutional investor bearing interest of 15%. The term notes were issued at a discount, with net proceeds to the Company of $3.1 million. The term notes were amended to extend the maturity dates to September 30, 2024.
$20 Million Credit Agreement
On June 4, 2024 the Company entered into a Loan Agreement (the “Credit Agreement”) with two institutional investors (collectively, the “Lender”). The Credit Agreement provides for an unsecured, non-revolving credit facility with an aggregate draw limit of $20.0 million. However, the Company is restricted to having no more than $2.0 million in principal amount of outstanding advances at any given time under the Credit Agreement. As of June 30, 2024, $2.0 million has been advanced, exclusive of $0.4 million original issue discount.
All loans under the Credit Agreement will be evidenced by a promissory note. The Lender made an Advance to the Company of $1.5 million on the execution date. The advances are due December 4, 2024, provided, however, that if on such date, the Company has executed an equity line of credit agreement relating to the sale of shares of the Company’s 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, has an effective registration statement relating thereto and is not currently in default under such agreement, then the maturity date shall be automatically extended until June 4, 2025. The Lender is not obligated to make any further Advances under the Credit Agreement after the maturity date. Advances under the Credit Agreement will include the addition of an original issuance discount of 20% to the amount of each Advance and all Advances will bear interest at the rate of 15.0% per annum and may be repaid at any time without penalty or premium.
The obligations of the Company under the Credit Agreement are secured by a guaranty provided by Milton C. Ault, the Executive Chairman of the Company.
Notes Payable Maturities
The contractual maturities of the Company’s notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of June 30, 2024 were:
Schedule of maturities | ||||
Year | ||||
2024 (remainder) | $ | 20,930,000 | ||
2025 | 85,497,000 | |||
2026 | 382,000 | |||
2027 | 15,000 | |||
2028 | 15,000 | |||
$ | 106,839,000 |
Interest Expense
Schedule of interest expense | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Contractual interest expense | $ | 3,336,000 | $ | 2,547,000 | $ | 6,622,000 | $ | 5,942,000 | ||||||||
Forbearance fees | 750,000 | 6,198,000 | 2,250,000 | 7,538,000 | ||||||||||||
Amortization of debt discount | 1,297,000 | 7,182,000 | 3,434,000 | 16,177,000 | ||||||||||||
Total interest expense | $ | 5,383,000 | $ | 15,927,000 | $ | 12,306,000 | $ | 29,657,000 |
F- |
20. NOTES PAYABLE, RELATED PARTY
Notes payable, related party at June 30, 2024 and December 31, 2023, were comprised of the following:
Schedule of notes payable, related party | ||||||||||||
Interest rate | Due date | June 30, 2024 | December 31, 2023 | |||||||||
Notes from officers – Ault Alliance | 18% | - | $ | - | $ | 98,000 | ||||||
Notes from officers - TurnOnGreen | 14% | Past due | 46,000 | 51,000 | ||||||||
Notes from board member - ROI | No interest | Upon demand | 50,000 | 90,000 | ||||||||
Ault & Company advances | No interest | Upon demand | - | 1,909,000 | ||||||||
Advances from officers - GIGA | 8% | Upon demand | 53,000 | 52,000 | ||||||||
Other related party advances | No interest | Upon demand | 134,000 | 175,000 | ||||||||
Total notes payable | $ | 283,000 | $ | 2,375,000 |
Summary of interest expense, related party, recorded within interest expense on the condensed consolidated statement of operations:
Schedule of interest expense, related party | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Interest expense, related party | $ | 3,000 | $ | - | $ | 19,000 | $ | - |
21. CONVERTIBLE NOTES
Convertible notes payable at June 30, 2024 and December 31, 2023, were comprised of the following:
Schedule of convertible notes payable | ||||||||||||||
Conversion price per share |
Interest rate | Due date | June 30, 2024 | December 31, 2023 | ||||||||||
Convertible promissory note – original issue discount (“OID”) only | 90% of 5-day VWAP | OID Only | September 28, 2024 | $ | 443,000 | $ | 1,673,000 | |||||||
Avalanche International Corp. (“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(1) | $0.25 (GIGA stock) | 18% | October 11, 2024 | 4,381,000 | 4,388,000 | |||||||||
ROI senior secured convertible note - in default(1) | $0.11 (ROI stock) | OID Only | April 27, 2024 | 4,245,000 | 6,513,000 | |||||||||
Fair value of embedded conversion options | 154,000 | 910,000 | ||||||||||||
Total convertible notes payable | 19,134,000 | 23,395,000 | ||||||||||||
Less: unamortized debt discounts | (75,000 | ) | (2,179,000 | ) | ||||||||||
Total convertible notes payable, net of financing cost, long term | $ | 19,059,000 | $ | 21,216,000 | ||||||||||
Less: current portion | (9,606,000 | ) | (11,763,000 | ) | ||||||||||
Convertible notes payable, net of financing cost – long-term portion | $ | 9,453,000 | $ | 9,453,000 |
(1) | See Arena litigation discussed in Note 22 below. |
6% Convertible Promissory Notes
On March 11, 2024, the Company entered into a note purchase agreement with two institutional investors pursuant to which the investors agreed to acquire, and the Company agreed to issue and sell in a registered direct offering to the investors an aggregate of $2.0 million convertible promissory notes, bearing interest of 6%. The convertible promissory notes were converted into shares of Class A common stock in May 2024 at a conversion price of $0.35 per share and the Company recognized a $0.7 million loss on extinguishment of debt.
F- |
ROI Gain on Extinguishment of Senior Secured Convertible Notes
During the six months ended June 30, 2024, ROI converted $2.3 million of ROI senior secured convertible notes that had a fair value of $0.9 million at the time of conversion and recognized a $1.4 million gain on extinguishment of debt.
The contractual maturities of the Company’s convertible notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of June 30, 2024 were:
Schedule of contractual maturities | ||||
Year | Principal | |||
2024 | $ | 9,069,000 | ||
2025 | 9,911,000 | |||
$ | 18,980,000 |
Significant inputs associated with the embedded conversion options include:
Schedule of weighted average assumptions | ||||||
June 30, 2024 | December 31, 2023 | At Inception | ||||
Contractual term in years | Variable | 2.7 | 1.0 | |||
Volatility | 75% | 82% | 111% | |||
Dividend yield | 0% | 0% | 0% | |||
Risk-free interest rate | 4.9% | 4.0% | 3.5% |
Activity related to the embedded conversion option derivative liabilities for the six months ended June 30, 2024 was as follows:
Schedule of derivative liabilities | ||||
Balance as of January 1, 2024 | $ | 910,000 | ||
Change in fair value | (756,000 | ) | ||
Ending balance as of June 30, 2024 | $ | 154,000 |
22. COMMITMENTS AND CONTINGENCIES
Contingencies
Litigation Matters
The Company is involved in litigation arising from other matters in the ordinary course of business. The Company is regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
Arena Litigation
Arena Investors, LP (ROI Litigation)
On May 30, 2024, Arena Investors, LP (“Arena”), in its capacity as collateral agent for five noteholders, filed a filed a Complaint (the “ROI Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and ROI, in action captioned Arena Investors, LP v. Ault Alliance, Inc. and RiskOn International, Inc., Index No. 652792/2024.
The ROI Complaint asserts a cause of action for breach of contract against the Company based on a Guaranty, dated April 27, 2023, and entered into, amongst others, the Company and Arena, and seeks damages in the amount of in excess of $3.75 million, plus interest, attorneys’ fees, costs, expenses, and disbursements.
The ROI Complaint also asserts a cause of action for breach of contract against ROI based on an alleged breach of that certain Security Agreement, dated April 27, 2023, and entered into among ROI and Arena. In connection with this cause of action, Arena seeks, among other things, costs and expenses from the Company and ROI.
F- |
On July 31, 2024, the Company and ROI filed a motion to dismiss seeking to partially dismiss the ROI Complaint, as against the Company, and to dismiss the Compliant, in its entirety, as against ROI.
The deadline for Arena to file its opposition to the motion to dismiss is September 27, 2024.
Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion of the notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.
Arena Investors, LP (Gresham Litigation)
On June 6, 2024, Arena, in its capacity as collateral agent for Arena and Walleye Opportunities Master Fund Ltd. (“Walleye”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and GIGA, in action captioned Arena Investors, LP v. Gresham Worldwide, Inc. f/k/a Giga-Tronics Incorporated and Ault Alliance, Inc., Index No. 652898/2024.
On July 8, 2024, Arena filed an Amended Complaint (the “Amended Complaint”) in the above-referenced action. The Amended Complaint asserts a cause of action against the Company for declaratory and injunctive relief seeking an injunction enjoining the Company, and its agent, affiliates, servants, and employees from taking actions in breach of that certain Subordination Agreement, dated January 9, 2023, and entered into among Walleye, Arena, and the Company.
The Amended Complaint also asserts causes of action for breach of contract against GIGA based on two discrete convertible promissory notes (the “Notes”) that GIGA entered into with each of Arena and Walleye, as well as a claim for breach duty of good faith and fair dealing, against GIGA, and seeks, among other things, monetary damages in excess of $4.2 million, with interest thereon, attorneys’ fees, costs, and disbursements. The Amended Complaint further asserts another cause of action against GIGA for breach of contract seeking declaratory and injunctive relief based on alleged inspection rights contained in a Security Agreement, dated January 9, 2023 (the “Security Agreement”), and entered into between the Walleye, Arena, and GIGA, which seeks the issuance of an injunction related to such alleged inspection rights, plus the costs and out-of-pocket expenses associated with the enforcement of same.
On July 12, 2024, the Court granted injunctive relief to Arena and ordered GIGA to comply with the inspection rights provision of the Security Agreement by July 17, 2024.
On July 19, 2024, Arena voluntarily discontinued its cause of action for breach duty of good faith and fair dealing claim against GIGA.
On July 29, 2024, the Company and GIGA filed a motion to dismiss, strike, and for sanctions (the “Motion”), in response to the Amended Complaint, on the grounds that, amongst other things, the underlying Notes are criminally usurious under New York.
The deadline for Arena to file its opposition to the Motion is September 19, 2024.
Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion of the Notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.
Other Litigation 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.
F- |
The Company had accrued loss contingencies related to litigation matters of $2.5 million and $2.3 million as of June 30, 2024 and December 31, 2023, respectively.
23. STOCKHOLDERS’ EQUITY
Reverse Stock Split
On January 12, 2024, pursuant to the authorization provided by the Company’s stockholders at the annual meeting of stockholders, the Company’s board of directors approved an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding common stock by a ratio of one-for-twenty-five (the “1-for-25 Reverse Split”). The 1-for-25 Reverse Split did not affect the number of authorized shares of common stock, preferred stock or their respective par value per share. As a result of the 1-for-25 Reverse Split, each twenty-five shares of common stock issued and outstanding prior to the 1-for-25 Reverse Split were converted into one share of common stock. The 1-for-25 Reverse Split became effective in the State of Delaware on January 16, 2024.
2023 Issuances
Common ATM Offering
During the three and six months ended June 30, 2024, the Company sold an aggregate of 0 and 25.6 million shares of Class A common stock pursuant to the At-The-Market issuance sales agreement, as amended, entered into with Ascendiant Capital Markets, LLC in 2023 (the “2023 Common ATM Offering”) for gross proceeds of $0 and $14.6 million, respectively.
Series C Convertible Preferred Stock Offering, Related Party
During the three and six months ended June 30, 2024, the Company sold to Ault & Company an aggregate of 500 and 2,500 shares of Series C Preferred Stock and Warrants to purchase 0.1 million and 0.7 million shares of Class A common stock, for a total purchase price of $0.5 million and $2.5 million, respectively.
ELOC Purchase Agreement
On June 20, 2024, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with Orion Equity Partners, LLC (“Orion”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right to direct Orion to purchase up to an aggregate of $25.0 million of shares of the Company’s 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share (the “Preferred Shares”) over the 36-month term of the ELOC Purchase Agreement at a purchase price equal to 91% of the average closing stock price during the seven consecutive trading days immediately preceding a given purchase date. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, including, without limitation, the effectiveness of a resale registration statement registering the Preferred Shares for sale (the “Registration Statement”).
In consideration for Orion’s execution of the ELOC Purchase Agreement, the Company is required to issue to Orion, as a commitment fee, a number of Preferred Shares having an aggregate dollar value equal to $0.5 million (“Commitment Fee Shares”), payable in five, equal tranches on each of (i) one business day of the effectiveness of the Registration Statement (the “Initial Issuance”) and (ii) the two, four, six and eight month anniversaries of the Initial Issuance.
The ELOC Purchase Agreement may be terminated by the Company at any time after commencement, at its discretion, provided that at the time of termination, the Company does not have any outstanding amounts owed to the Lenders, who are affiliates of Orion, pursuant to the Credit Agreement.
24. INCOME TAXES
The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes. The Company’s effective tax rate (“ETR”) from continuing operations was 0.1% and 2.2% for the three months ended June 30, 2024 and 2023, respectively, and (0.1%) and 1.0% for the six months ended June 30, 2024 and 2023, respectively. The Company recorded an income tax provision of $24,000 and $1.4 million for the three months ended June 30, 2024 and 2023, respectively, and an income tax benefit of ($20,000) and an income tax provision of $1.1 million for the six months ended June 30, 2024 and 2023, 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- |
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 June 30, 2024 and 2023:
Schedule of net loss per share | ||||||||
June 30, | June 30, | |||||||
2024 | 2023 | |||||||
Convertible preferred stock | 125,748,000 | - | ||||||
Warrants | 14,918,000 | 2,000 | ||||||
Convertible notes | 355,000 | - | ||||||
Stock options | 1,000 | 1,000 | ||||||
Total | 141,022,000 | 3,000 |
F- |
26. SEGMENT AND CUSTOMERS INFORMATION
The Company had the following reportable segments as of June 30, 2024 and 2023; 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 and its operating segments for the three and six months ended June 30, 2024:
Six months ended June 30, 2024
Schedule of operating segments | ||||||||||||||||||||||||||||||||||||||||
GIGA | TurnOnGreen | Fintech | Sentinum | AGREE | Ault Disruptive |
Energy | ROI | Holding Co. | Total | |||||||||||||||||||||||||||||||
Revenue | $ | 20,185,000 | $ | 2,461,000 | $ | - | $ | - | $ | - | $ | - | $ | 68,000 | $ | 67,000 | $ | 973,000 | $ | 23,754,000 | ||||||||||||||||||||
Revenue, digital assets mining | - | - | - | 19,937,000 | - | - | - | - | - | 19,937,000 | ||||||||||||||||||||||||||||||
Revenue, hotel and real estate operations | - | - | - | 557,000 | 8,140,000 | - | - | - | - | 8,697,000 | ||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | 24,618,000 | - | - | 24,618,000 | ||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | (664,000 | ) | - | - | - | - | - | - | (664,000 | ) | ||||||||||||||||||||||||||||
Total revenues | $ | 20,185,000 | $ | 2,461,000 | $ | (664,000 | ) | $ | 20,494,000 | $ | 8,140,000 | $ | - | $ | 24,686,000 | $ | 67,000 | $ | 973,000 | $ | 76,342,000 | |||||||||||||||||||
Depreciation and amortization expense | $ | 392,000 | $ | 48,000 | $ | - | $ | 8,152,000 | $ | 391,000 | $ | - | $ | 2,087,000 | $ | 38,000 | $ | 1,033,000 | $ | 12,141,000 | ||||||||||||||||||||
Impairment of property and equipment | $ | - | $ | - | $ | - | $ | - | $ | 7,955,000 | $ | - | $ | - | $ | - | $ | - | $ | 7,955,000 | ||||||||||||||||||||
(Loss) income from operations | $ | (3,033,000 | ) | $ | (1,302,000 | ) | $ | (850,000 | ) | $ | 2,821,000 | $ | (7,582,000 | ) | $ | (664,000 | ) | $ | 950,000 | $ | (7,014,000 | ) | $ | (9,632,000 | ) | $ | (26,306,000 | ) | ||||||||||||
Interest expense | $ | (769,000 | ) | $ | (157,000 | ) | $ | (8,000 | ) | $ | (118,000 | ) | $ | (2,983,000 | ) | $ | (38,000 | ) | $ | (2,011,000 | ) | $ | (2,543,000 | ) | $ | (3,679,000 | ) | $ | (12,306,000 | ) | ||||||||||
Capital expenditures for the six months ended June 30, 2024 | $ | 244,000 | $ | 8,000 | $ | - | $ | 985,000 | $ | 662,000 | $ | - | $ | 1,866,000 | $ | 59,000 | $ | 73,000 | $ | 3,897,000 | ||||||||||||||||||||
Segment identifiable assets as of June 30, 2024 | $ | 26,949,000 | $ | 3,939,000 | $ | 18,306,000 | $ | 52,949,000 | $ | 84,379,000 | $ | 847,000 | $ | 50,359,000 | $ | 1,179,000 | $ | 25,956,000 | $ | 264,863,000 |
Three months ended June 30, 2024
GIGA | TurnOnGreen | Fintech | Sentinum | AGREE | Ault Disruptive |
Energy | ROI | Holding Co. | Total | |||||||||||||||||||||||||||||||
Revenue | $ | 10,612,000 | $ | 1,236,000 | $ | - | $ | - | $ | - | $ | - | $ | 29,000 | $ | 39,000 | $ | 672,000 | $ | 12,588,000 | ||||||||||||||||||||
Revenue, digital assets mining | - | - | - | 8,490,000 | - | - | - | - | - | 8,490,000 | ||||||||||||||||||||||||||||||
Revenue, hotel and real estate operations | - | - | - | 255,000 | 5,134,000 | - | - | - | - | 5,389,000 | ||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | 11,700,000 | - | - | 11,700,000 | ||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | (9,763,000 | ) | - | - | - | - | - | - | (9,763,000 | ) | ||||||||||||||||||||||||||||
Total revenues | $ | 10,612,000 | $ | 1,236,000 | $ | (9,763,000 | ) | $ | 8,745,000 | $ | 5,134,000 | $ | - | $ | 11,729,000 | $ | 39,000 | $ | 672,000 | $ | 28,404,000 | |||||||||||||||||||
Depreciation and amortization expense | $ | 95,000 | $ | 24,000 | $ | - | $ | 4,101,000 | $ | 391,000 | $ | - | $ | 1,057,000 | $ | 20,000 | $ | 518,000 | $ | 6,206,000 | ||||||||||||||||||||
Impairment of property and equipment | $ | - | $ | - | $ | - | $ | - | $ | 7,955,000 | $ | - | $ | - | $ | - | $ | - | $ | 7,955,000 | ||||||||||||||||||||
(Loss) income from operations | $ | 445,000 | $ | (807,000 | ) | $ | (9,858,000 | ) | $ | (548,000 | ) | $ | (7,804,000 | ) | $ | (278,000 | ) | $ | (238,000 | ) | $ | (3,352,000 | ) | $ | (4,485,000 | ) | $ | (26,925,000 | ) | |||||||||||
Interest expense | $ | (142,000 | ) | $ | (88,000 | ) | $ | (3,000 | ) | $ | - | $ | (960,000 | ) | $ | (22,000 | ) | $ | (944,000 | ) | $ | (942,000 | ) | $ | (2,282,000 | ) | $ | (5,383,000 | ) | |||||||||||
Capital expenditures for the three months ended June 30, 2024 | $ | 193,000 | $ | - | $ | - | $ | 692,000 | $ | 73,000 | $ | - | $ | 1,415,000 | $ | 29,000 | $ | 24,000 | $ | 2,426,000 |
F- |
The following data presents the revenues, expenditures and other operating data of the Company and its operating segments for the three and six months ended June 30, 2023:
Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
GIGA |
TurnOn Green |
Fintech | Sentinum | AGREE | Ault
Disruptive |
SMC | Energy | ROI | Holding Co. | Total | ||||||||||||||||||||||||||||||||||
Revenue | $ | 17,448,000 | $ | 1,600,000 | $ | - | $ | - | $ | - | $ | - | $ | 6,008,000 | $ | 546,000 | $ | 45,000 | $ | - | $ | 25,647,000 | ||||||||||||||||||||||
Revenue, digital assets mining | - | - | - | 15,715,000 | - | - | - | - | - | - | 15,715,000 | |||||||||||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 783,000 | - | - | - | - | - | - | 783,000 | |||||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 4,586,000 | - | - | - | - | - | - | - | 4,586,000 | |||||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | - | 25,236,000 | - | - | 25,236,000 | |||||||||||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 6,627,000 | - | - | - | - | - | 6,627,000 | |||||||||||||||||||||||||||||||||
Total revenues | $ | 17,448,000 | $ | 1,600,000 | $ | 4,586,000 | $ | 16,498,000 | $ | 6,627,000 | $ | - | $ | 6,008,000 | $ | 25,782,000 | $ | 45,000 | $ | - | $ | 78,594,000 | ||||||||||||||||||||||
Depreciation and amortization expense | $ | 566,000 | $ | 44,000 | $ | - | $ | 8,570,000 | $ | 1,634,000 | $ | - | $ | 441,000 | $ | 1,980,000 | $ | 120,000 | $ | 1,028,000 | $ | 14,383,000 | ||||||||||||||||||||||
Income (loss) from operations | $ | (5,117,000 | ) | $ | (2,569,000 | ) | $ | 2,130,000 | $ | (1,702,000 | ) | $ | (1,399,000 | ) | $ | (838,000 | ) | $ | (4,779,000 | ) | $ | (32,721,000 | ) | $ | (20,275,000 | ) | $ | (14,653,000 | ) | $ | (81,923,000 | ) | ||||||||||||
Capital expenditures for the six months ended June 30, 2023 | $ | 135,000 | $ | 10,000 | $ | - | $ | 1,165,000 | $ | 5,517,000 | $ | - | $ | 184,000 | $ | 1,336,000 | $ | 407,000 | $ | 2,592,000 | $ | 11,346,000 | ||||||||||||||||||||||
Identifiable assets as of December 31, 2023 | $ | 31,374,000 | $ | 4,714,000 | $ | 17,027,000 | $ | 59,903,000 | $ | 90,991,000 | $ | 2,347,000 | $ | - | $ | 46,557,000 | $ | 9,920,000 | $ | 30,266,000 | $ | 293,102,000 |
Three Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
GIGA |
TurnOn Green |
Fintech | Sentinum | AGREE | Ault
Disruptive |
SMC | Energy | ROI | Holding Co. | Total | ||||||||||||||||||||||||||||||||||
Revenue | $ | 8,740,000 | $ | 724,000 | $ | - | $ | - | $ | - | $ | - | $ | 2,625,000 | $ | 82,000 | $ | 45,000 | $ | - | $ | 12,216,000 | ||||||||||||||||||||||
Revenue, digital assets mining | - | - | - | 8,368,000 | - | - | - | - | - | - | 8,368,000 | |||||||||||||||||||||||||||||||||
Revenue, commercial real estate leases | - | - | - | 325,000 | - | - | - | - | - | - | 325,000 | |||||||||||||||||||||||||||||||||
Revenue, lending and trading activities | - | - | 9,525,000 | - | - | - | - | - | - | - | 9,525,000 | |||||||||||||||||||||||||||||||||
Revenue, crane operations | - | - | - | - | - | - | - | 12,590,000 | - | - | 12,590,000 | |||||||||||||||||||||||||||||||||
Revenue, hotel operations | - | - | - | - | 4,384,000 | - | - | - | - | - | 4,384,000 | |||||||||||||||||||||||||||||||||
Total revenues | $ | 8,740,000 | $ | 724,000 | $ | 9,525,000 | $ | 8,693,000 | $ | 4,384,000 | $ | - | $ | 2,625,000 | $ | 12,672,000 | $ | 45,000 | $ | - | $ | 47,408,000 | ||||||||||||||||||||||
Depreciation and amortization expense | $ | (24,000 | ) | $ | (99,000 | ) | $ | - | $ | 5,235,000 | $ | 796,000 | $ | - | $ | 70,000 | $ | 910,000 | $ | 37,000 | $ | 418,000 | $ | 7,343,000 | ||||||||||||||||||||
Income (loss) from operations | $ | (2,445,000 | ) | $ | (1,589,000 | ) | $ | 9,115,000 | $ | (1,227,000 | ) | $ | 156,000 | $ | (455,000 | ) | $ | (2,528,000 | ) | $ | (34,691,000 | ) | $ | (12,219,000 | ) | $ | (4,622,000 | ) | $ | (50,505,000 | ) | |||||||||||||
Capital expenditures for the three months ended June 30, 2023 | $ | 89,000 | $ | - | $ | - | $ | 113,000 | $ | 2,818,000 | $ | - | $ | 42,000 | $ | 1,005,000 | $ | - | $ | 258,000 | $ | 4,325,000 |
F- |
27. CONCENTRATIONS OF CREDIT AND REVENUE RISK
Significant customers are those that represent more than 10% of the Company’s total revenue or accounts receivable balances for the periods and as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenue and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
Schedule of gross accounts receivable | ||||||||||||||||||||||||
Accounts Receivable | Revenue | |||||||||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||
June 30, | December 31, | June 30, | June 30, | |||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Customer A | * | * | 22% | * | 20% | * | ||||||||||||||||||
Customer B | * | * | * | * | * | 15% | ||||||||||||||||||
Customer C | 26% | 15% | 16% | * | 11% | * |
* |
less than 10% |
28. SUBSEQUENT EVENTS
Additional Closing of Series C Preferred Stock, Related Party
On August 2, 2024, the Company sold to Ault & Company 300 shares of Series C Preferred Stock and Warrants to purchase 0.1 million shares of Class A common stock, for a total purchase price of $0.3 million.
Term Note
On July 2, 2024, the Company entered into a term note agreement with institutional investors of up to $2.6 million, of which the principal amount of $1.8 million was immediately funded. The term note was issued at a discount, with net proceeds to the Company of $1.5 million. The term note does not accrue any interest. The term note was scheduled to mature on August 2, 2024. The term note is guaranteed by Mr. Ault. The term note maturity was extended to September 16, 2024, and an extension fee of $0.2 million accrues monthly until the term note is paid in full.
Amendment to Loan and Guarantee Agreement
On July 25, 2024, the loan and guarantee agreement, dated as of December 14, 2023, as amended, pursuant to which the Company has guaranteed financial obligations of Ault & Company borrowings, was amended to extend the deadline, from July 22, 2024 to July 31, 2024, by which date the Company was required to have the $7.4 minimum balance in the restricted cash account and required that the Company deposit $600,000 in the Segregated account on July 25, 2024.
On August 16, 2024, the Company agreed to deposit, by no later than September 1, 2024, an additional $1.5 million into the Segregated Account as well as make a modification payment to the institutional lenders in the amount of $0.3 million by no later than September 15, 2024. As a result of the foregoing amendments, the Company is required to deposit additional incremental amounts such that at or prior to the nine-month anniversary, the one-year anniversary and the two-year anniversary of December 14, 2023, the Company shall have deposited the required funds such that the balance in the Segregated Account shall not be less than $15.0 million, $20.0 million and $27.5 million, respectively.
Convertible Promissory Note
On July 18, 2024 the Company entered into a note purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”) pursuant to which the Investor purchased from the Company, on July 19, 2024, in a registered direct offering, a $5.4 million 10% OID Convertible Promissory Note (the “Note”). The Note was sold to the Investor for a purchase price of $4.9 million, which includes an original issue discount of $0.5 million. The Note accrues interest at the rate of 15%. The Note will mature on October 19, 2024. The Note is convertible into shares of Series A common stock at a conversion price of $0.22 per share (the “Conversion Price”), subject to adjustment. If, on September 2, 2024 (the “Adjustment Date”), the closing bid price of the Series A common stock is lower than the Conversion Price, then the Conversion Price shall be reduced to eighty-five percent (85%) of the closing bid price of the Series A common stock on the Adjustment Date. However, if, after the issuance date and prior to the date on which the Company obtains stockholder approval of the Note (the “Stockholder Approval”), the holder of the Note has converted a portion of the outstanding amount under the Note into Series A common stock in an aggregate amount equal to 19.99% of the total shares of Series A common stock issued and outstanding as of the execution date of the Purchase Agreement, in accordance with the rules and regulations of the NYSE, then the Adjustment Date shall be extended by such number of days between such date and the date on which the Company obtains Stockholder Approval.
Merger Agreement
On June 23, 2024, Ault Disruptive entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) by and among Ault Disruptive, ADRT Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Ault Disruptive (“Merger Sub”), and Gresham Worldwide, Inc., a California corporation (“GIGA”). The transactions contemplated by the Merger Agreement are referred to herein as the “Business Combination.”
Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, the Merger Sub was intended to merge with and into GIGA (the “Merger”), with GIGA being the surviving corporation and thereby becoming a wholly owned subsidiary of Ault Disruptive. Upon the Closing of the Business Combination (the “Effective Time”), it was expected that Ault Disruptive would be renamed Gresham Worldwide, Inc., and thereafter remain listed on the NYSE American under a new ticker symbol, “GWWI.”
However, on August 14, 2024, GIGA filed a petition for reorganization under Chapter XI of the bankruptcy laws. Consequently, Ault Disruptive was required to terminate the Merger Agreement, which it did on August 15, 2024. Ault Disruptive does not presently intend to enter into a new agreement and plan of merger with a third party.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In this quarterly report on Form 10-Q (the “Quarterly Report”), the “Company,” “AAI,” “we,” “us” and “our” refer to Ault Alliance, Inc., a Delaware corporation. AAI is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through our wholly and majority owned subsidiaries and strategic investments, we own and operate a data center at which we mine Bitcoin and offer colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, 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, hotel operations and textiles. In addition, we own and operate hotels and extend credit to select entrepreneurial businesses through a licensed lending subsidiary.
Recent Events and Developments
On December 14, 2023, we, along with our wholly owned subsidiaries Sentinum, Third Avenue, ACS, BNI Montana, Ault Lending, Ault Aviation and AGREE (collectively with our company, Sentinum, Third Avenue, ACS, BNI Montana, Ault Lending and Ault Aviation, the “Guarantors”) entered into a Loan and Guaranty Agreement (the “2023 Loan Agreement”) with institutional lenders, pursuant to which Ault & Company, Inc. (“Ault & Company”), a related party, borrowed $36 million and issued secured promissory notes to the lenders in the aggregate amount of $38.9 million (collectively, the “Secured Notes”; and the transaction, the “Loan”). The 2023 Loan Agreement was amended as of April 15, 2024.
Pursuant to the 2023 Loan Agreement, the Guarantors, as well as Milton C. Ault, III, our Executive Chairman and the Chief Executive Officer of Ault & Company, agreed to act as guarantors for repayment of the Secured Notes. In addition, certain Guarantors entered into various agreements as collateral in support of the guarantee of the Secured Notes, including (i) a security agreement by Sentinum, pursuant to which Sentinum granted to the Lenders a security interest in (a) 19,226 Antminers (the “Miners”), (b) all of the digital currency mined or otherwise generated from the Miners and (c) the membership interests of ACS, (ii) a security agreement by the Company, Ault Lending, BNI Montana and AGREE, pursuant to which those entities granted to the lenders a security interest in substantially all of their assets, as well as a pledge of equity interests in Ault Aviation, AGREE, Sentinum, Third Avenue, Ault Energy, LLC, our wholly owned subsidiary (“Ault Energy”), ADTC, Eco Pack, and Circle 8 Holdco, (iii) a mortgage and security agreement by Third Avenue on the real estate property owned by Third Avenue in St. Petersburg, Florida (the “Florida Property”), (iv) a future advance mortgage by ACS on the real estate property owned by ACS in Dowagiac, Michigan (the “Michigan Property”), (v) an aircraft mortgage and security agreement by Ault Aviation on a private aircraft owned by Ault Aviation (the “Aircraft”), and (vi) deposit account control agreements over certain bank accounts held by certain of our subsidiaries.
In addition, pursuant to the 2023 Loan Agreement, we agreed to establish a segregated deposit account (the “Segregated Account”), which would be used as a further guarantee of repayment of the Secured Notes. $3.5 million of cash was paid into the Segregated Account on the closing date. We are required to have the minimum balance in the Segregated Account be not less than $7 million, $15 million, $20 million and $27.5 million on the five-month, nine-month, one-year and two-year anniversaries of the closing date, respectively. In addition, starting on March 31, 2024, we were required to deposit $0.3 million monthly into the Segregated Account, which increases to $0.4 million monthly starting March 31, 2025. Further, we agreed to deposit into the Segregated Account, (i) up to the first $7 million of net proceeds, if any, from the sale of the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford; (ii) 50% of cash dividends (on a per dividend basis) received from Circle 8 on or after June 30, 2024; (iii) 30% of the net proceeds from any bond offerings we conduct, which shall not exceed $9 million in the aggregate; and (iv) 25% of the net proceeds from cash flows, collections and revenues from loans or other investments made by Ault Lending (including but not limited to sales of loans or investments, dividends, interest payments and amortization payments), which shall not exceed $5 million in the aggregate. In addition, if we decide to sell certain assets, we further agreed to deposit funds into the Segregated Account from the sale of those assets, including, (i) $15 million from the sale of the Florida Property, (ii) $11 million from the sale of the Aircraft, (iii) $17 million from the sale of the Michigan Property, (iv) $350 per Miner, subject to a de minimis threshold of $1 million, and (v) $10 million from the sale of Circle 8.
On May 15, 2024, the 2023 Loan Agreement was amended to extend the date by which we were required to have a specified minimum balance in the Segregated Account from May 15, 2024 to July 22, 2024 and the specified minimum balance to be in the account as of such date was increased from $7 million to $7.4 million. On July 25, 2024, the 2023 Loan Agreement was further amended to extend the date by which we were required to have a specified minimum balance in the Segregated Account from July 22, 2024 to July 31, 2024 and to require that we deposit $600,000 in the Segregated account on July 25, 2024.
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On August 16, 2024, we agreed to deposit, by no later than September 1, 2024, an additional $1.5 million into the Segregated Account as well as make a modification payment to the institutional lenders in the amount of $0.3 million by no later than September 15, 2024. As a result of the foregoing amendments, we are required to deposit additional incremental amounts such that at or prior to the nine-month anniversary, the one-year anniversary and the two-year anniversary of December 14, 2023, we shall have deposited the required funds such that the balance in the Segregated Account shall not be less than $15.0 million, $20.0 million and $27.5 million, respectively.
On January 12, 2024, pursuant to the approval provided by our stockholders at the annual meeting of stockholders, we filed an Amendment to our Certificate of Incorporation with the State of Delaware to effectuate a reverse stock split of our common stock affecting both the authorized and issued and outstanding number of such shares by a ratio of one-for-twenty-five. The reverse stock split became effective on January 16, 2024. All share amounts in this report have been updated to reflect the reverse stock split.
On January 31, 2024, Ault Lending entered into a securities purchase agreement (the “January 2024 SPA”) with Alzamend Neuro, Inc. (“Alzamend”), pursuant to which Alzamend agreed to sell, in one or more closings, to Ault Lending up to 6,000 shares of Series B convertible preferred stock (the “ALZN Series B Preferred”) and warrants to purchase up to 6.0 million shares of Alzamend common stock (the “ALZN Series B Warrants”) for a total purchase price of up to $6.0 million. On January 31, 2024, Ault Lending purchased 1,220 shares of ALZN Series B Preferred and warrants to purchase 122,000 shares for a total purchase price of $1.22 million. The purchase price was paid by the cancellation of $1.22 million of cash advances made by Ault Lending to Alzamend between November 9, 2023 and January 31, 2023. Each share of ALZN Series B Preferred has a stated value of $1.00 per share and is convertible into a number of shares of Alzamend’s common stock determined by dividing the stated value by $10.00, subject to adjustment in the event of an issuance of Alzamend common stock at a price per share lower than the conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The ALZN Series B Warrants are exercisable on the first business day after the six-month anniversary of issuance and have a five-year term, expiring on the fifth anniversary of the initial exercise date. The exercise price of the ALZN Series B Warrants is $12.00, subject to adjustment in the event of an issuance of Alzamend common stock at a price per share lower than the conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events.
On each of March 7, 2024, March 8, 2024, March 18, 2024, March 19, 2024 and April 17, 2024 pursuant to the securities purchase agreement we entered into with Ault & Company, dated as of November 6, 2023 (the “November 2023 SPA”), we sold to Ault & Company 500 shares of Series C Convertible Preferred Stock and warrants to purchase 147,820 shares of common stock to the Purchaser, for a purchase price of $0.5 million. On August 2, 2024, pursuant to the November 2023 SPA, we sold to Ault & Company 300 shares of Series C Convertible Preferred Stock and warrants to purchase 88,692 shares of common stock to the Purchaser, for a purchase price of $500,000. As of the date of this report, Ault & Company has purchased an aggregate of 44,300 shares of Series C Convertible Preferred Stock and warrants to purchase an aggregate of 13,096,823 shares of common stock, for an aggregate purchase price of $44.3 million.
On March 11, 2024, we entered into a note purchase agreement with two institutional investors (the “Buyers”) pursuant to which the Buyers purchased from the Company, on March 12, 2024 in a registered direct offering to the Buyers an aggregate of $2.0 million principal face amount convertible promissory notes (the “Notes”). The Notes were sold to the Buyers for an aggregate purchase price of $1.8 million, which reflects an original issue discount of $0.2 million. The Notes accrue interest at the rate of 6% per annum, unless an event of default (as defined in the Notes) occurs, at which time the Notes would accrue interest at 12% per annum. The Notes were subsequently converted in full into shares of common stock at a conversion price of $0.35 per share.
On March 26, 2024, pursuant to the January 2024 SPA, Ault Lending purchased 780 shares of ALZN Series B Preferred Stock and ALZN Series B Warrants to purchase 78,000 shares of Alzamend common, for a purchase price of $0.8 million. As of the date of this report, Ault Lending has purchased an aggregate of 2,000 shares of ALZN Series B Preferred and ALZN Series B Warrants to purchase an aggregate of 0.2 million shares of Alzamend common stock, for an aggregate purchase price of $2.0 million.
On March 25, 2024 we entered into an amendment to the (i) November 2023 SPA, (ii) the related Certificate of Designation of Preferences, Rights and Limitations of the Series C Preferred Convertible Stock and (iii) the number of Series C Warrants, to provide for (A) an increase in the dollar amount of the Series C Convertible Preferred Stock that Ault & Company may purchase from us from $50.0 million to $75.0 million and (B) extended the date of on which the final closing may occur to June 30, 2024, subject to Ault & Company’s ability to further extended such date for ninety days.
On April 15, 2024, we established a record date for our final distribution of securities of TurnOnGreen. Stockholders as of this date were entitled to 0.83 shares of TurnOnGreen common stock, along with warrants to purchase 0.83 shares of TurnOnGreen common stock (the “TurnOnGreen Securities”) for every share of our common stock they held on the record date. The final distribution was paid on April 29, 2024. We distributed 25.0 million TurnOnGreen Securities in the final distribution.
Effective April 29, 2024, we issued to an accredited investor a term note with a principal face amount of $1.7 million. The note bears interest at the rate of 15% per annum and the note was issued with an original issuance discount. The maturity date of the note was May 17, 2024. The note contained a standard and customary event of default for failure to make payments when due under the note. The purchase price for the note was $1.6 million. The term note was amended on May 16, 2024 to extend the maturity date to June 15, 2024 and further amended on June 18, 2024 to extend the maturity date to July 31, 2024.
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On June 4, 2024, we entered into a Loan Agreement (the “2024 Credit Agreement”) with OREE Lending Company, LLC and Helios Funds LLC, as lenders. The 2024 Credit Agreement provides for an unsecured, non-revolving credit facility in an aggregate draw limit of up to $20.0 million, provided, however, that at no point will we be allowed to have outstanding loans under the 2024 Credit Agreement in a principal amount received of more than $2.0 million. The lenders made a loan to the Company of $1.5 million on June 4, 2024. The loans under the 2024 Credit Agreement are due December 4, 2024, provided, however, that if on such date, we have executed an equity line of credit agreement relating to the sale of shares of the Series D Preferred Stock, which was executed on June 20, 2024, have an effective registration statement relating thereto and are not currently in default under such agreement, then the maturity date shall be automatically extended until June 4, 2025. The lenders are not obligated to make any further loans under the 2024 Credit Agreement after the maturity date described above. Loans under the 2024 Credit Agreement will be evidenced by promissory notes (the “Promissory Notes”) and will include the addition of an original issuance discount of 20% to the amount of each loan and all loans will bear interest at the rate of 15.0% per annum and may be repaid at any time without penalty or premium.
On June 23, 2024, Ault Disruptive entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) by and among Ault Disruptive, ADRT Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Ault Disruptive (“Merger Sub”), and Gresham Worldwide, Inc., a California corporation (“GIGA”). The transactions contemplated by the Merger Agreement are referred to herein as the “Business Combination.”
Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, the Merger Sub was intended to merge with and into GIGA (the “Merger”), with GIGA being the surviving corporation and thereby becoming a wholly owned subsidiary of Ault Disruptive. Upon the Closing of the Business Combination (the “Effective Time”), it was expected that Ault Disruptive
would be renamed Gresham Worldwide, Inc., and thereafter remain listed on the NYSE American under a new ticker symbol, “GWWI.”
However, on August 14, 2024, GIGA filed a petition for reorganization under Chapter XI of the bankruptcy laws. Consequently, Ault Disruptive was required to terminate the Merger Agreement, which it did on August 15, 2024. Ault Disruptive does not presently intend to enter into a new agreement and plan of merger with a third party.
On July 18, 2024, we entered into a note purchase agreement with an institutional investor pursuant to which the institutional investor agreed to acquire, and we agreed to issue and sell in a registered direct offering to the institutional investor, a $5.4 million 10% OID Convertible Promissory Note (the “OID Note”). The OID Note was sold to the institutional investor for a purchase price of $4.9 million, an original issue discount of $0.5 million. The OID Note will accrue interest at the rate of 15% per annum, unless an event of default occurs, at which time the OID Note would accrue interest at 18% per annum. The OID Note will mature on October 19, 2024. In addition, the OID Note is convertible at any time after NYSE American approval of a Supplemental Listing Application into shares of our common stock at a conversion price of $0.22 per share (the “OID Conversion Price”), subject to adjustment. However, we may not issue shares of common stock upon conversion of the OID Note to the extent such issuance would result in an aggregate number of shares of common stock exceeding 19.99% of the total shares of common stock issued and outstanding as of July 18, 2024, in accordance with the rules and regulations of the New York Stock Exchange (the “NYSE Limit”) unless we first obtain stockholder approval (“Stockholder Approval”).
If, on September 2, 2024 (the “Adjustment Date”), the closing bid price of our common stock is lower than the OID Conversion Price, then the OID Conversion Price will be reduced to 85% of the closing bid price of the common stock on September 2, 2024. However, if after July 19, 2024, and prior to the date on which Stockholder Approval is obtained, the holder of the OID Note has converted a portion of the outstanding amount under the OID Note into shares of our common stock in an aggregate amount equal to the NYSE Limit, then the Adjustment Date will be extended by such number of days between such date and the date on which we obtain Stockholder Approval.
Change in Plan of Sales of AGREE Hotel Properties
On April 30, 2024, we had a change in plan of sale for our four hotels owned and operated by AGREE. As a result, as of April 30, 2024, the assets no longer met the held for sale criteria and were required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the not to sell.
For presentation purposes, the assets and liabilities previously held for sale as of December 31, 2023, were reclassified in the December 31, 2023 balance sheet in the accompanying financial statements back to their original asset and liability groups at their previous carrying values. In connection with this change in plan of sale, we recorded a loss on impairment of property and equipment related to the real estate assets of AGREE of $8.0 million during the three months ended June 30, 2024.
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General
As a holding company, our business objective is to increase stockholder value through developing and growing our subsidiaries. Under the strategy we have adopted, we are focused on managing and financially supporting our existing subsidiaries and partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to stockholders. We have, are and will consider initiatives including, among others: public offerings, the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations and working capital needs.
From time to time, we engage in discussions with other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary or partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our stockholders’ best interests, we will seek to sell all or a portion of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner companies public through rights offerings and directed share subscription programs. We will continue to consider these (or similar) initiatives and the sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our stockholders.
In recent years, we have provided capital and relevant expertise to fuel the growth of businesses in metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, hotel operations and textiles. We have provided capital to subsidiaries as well as partner companies in which we have an equity interest or may be actively involved, influencing development through board representation and management support.
We are a Delaware corporation with our corporate office located at 11411 Southern Highlands Pkwy, Suite 240, Las Vegas, NV 89141. Our phone number is 949-444-5464 and our website address is www.ault.com.
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Results of Operations
Results of Operations for the Three Months Ended June 30, 2024 and 2023
The following table summarizes the results of our operations for the three months ended June 30, 2024 and 2023.
For the Three Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Revenue | $ | 12,588,000 | $ | 12,216,000 | ||||
Revenue, digital assets mining | 8,490,000 | 8,368,000 | ||||||
Revenue, hotel and real estate operations | 5,389,000 | 4,709,000 | ||||||
Revenue, crane operations | 11,700,000 | 12,590,000 | ||||||
Revenue, lending and trading activities | (9,763,000 | ) | 9,525,000 | |||||
Total revenue | 28,404,000 | 47,408,000 | ||||||
Cost of revenue, products | 8,643,000 | 9,036,000 | ||||||
Cost of revenue, digital assets mining | 9,039,000 | 9,726,000 | ||||||
Cost of revenue, hotel and real estate operations | 3,318,000 | 3,120,000 | ||||||
Cost of revenue, crane operations | 8,032,000 | 7,641,000 | ||||||
Cost of revenue, lending and trading activities | - | - | ||||||
Total cost of revenue | 29,032,000 | 29,523,000 | ||||||
Gross profit | (628,000 | ) | 17,885,000 | |||||
Operating expenses | ||||||||
Research and development | 852,000 | 1,804,000 | ||||||
Selling and marketing | 3,993,000 | 9,575,000 | ||||||
General and administrative | 13,497,000 | 21,317,000 | ||||||
Impairment of property and equipment | 7,955,000 | - | ||||||
Impairment of goodwill and intangible assets | - | 35,570,000 | ||||||
Impairment of mined digital assets | - | 124,000 | ||||||
Total operating expenses | 26,297,000 | 68,390,000 | ||||||
Loss from operations | (26,925,000 | ) | (50,505,000 | ) | ||||
Other income (expense): | ||||||||
Interest and other income | 809,000 | 2,176,000 | ||||||
Interest expense | (5,383,000 | ) | (15,927,000 | ) | ||||
Loss on extinguishment of debt | (663,000 | ) | (91,000 | ) | ||||
Loss from investment in unconsolidated entity | (1,291,000 | ) | - | |||||
Impairment of equity securities | (6,266,000 | ) | - | |||||
Change in fair value of warrant liability | - | 3,217,000 | ||||||
Gain on the sale of fixed assets | (36,000 | ) | (1,754,000 | ) | ||||
Total other income (expense), net | (12,830,000 | ) | (12,379,000 | ) | ||||
Loss before income taxes | (39,755,000 | ) | (62,884,000 | ) | ||||
Income tax provision | 24,000 | 1,368,000 | ||||||
Net loss | (39,779,000 | ) | (64,252,000 | ) | ||||
Net (income) loss attributable to non-controlling interest | 5,852,000 | 3,569,000 | ||||||
Net loss attributable to Ault Alliance, Inc. | (33,927,000 | ) | (60,683,000 | ) | ||||
Preferred dividends | (1,308,000 | ) | (321,000 | ) | ||||
Net loss available to common stockholders | $ | (35,235,000 | ) | $ | (61,004,000 | ) | ||
Comprehensive loss | ||||||||
Net loss available to common stockholders | $ | (35,235,000 | ) | $ | (61,004,000 | ) | ||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (436,000 | ) | (520,000 | ) | ||||
Other comprehensive income | (436,000 | ) | (520,000 | ) | ||||
Total comprehensive loss | $ | (35,671,000 | ) | $ | (61,524,000 | ) |
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Revenues
Revenues by segment for the three months ended June 30, 2024 and 2023 were as follows:
For the Three Months Ended June 30, | Increase | |||||||||||||||
2024 | 2023 | (Decrease) | % | |||||||||||||
Sentinum | ||||||||||||||||
Revenue, digital assets mining | $ | 8,490,000 | $ | 8,368,000 | $ | 122,000 | 1 | % | ||||||||
Revenue, commercial real estate leases | 255,000 | 325,000 | (70,000 | ) | -22 | % | ||||||||||
Energy | ||||||||||||||||
Revenue, crane operations | 11,700,000 | 12,590,000 | (890,000 | ) | -7 | % | ||||||||||
Other | 29,000 | 82,000 | (53,000 | ) | -65 | % | ||||||||||
Fintech | ||||||||||||||||
Revenue, lending and trading activities | (9,763,000 | ) | 9,525,000 | (19,288,000 | ) | -202 | % | |||||||||
GIGA | 10,612,000 | 8,740,000 | 1,872,000 | 21 | % | |||||||||||
AGREE | 5,134,000 | 4,384,000 | 750,000 | 17 | % | |||||||||||
The Singing Machine Company, Inc. (“SMC”) | - | 2,625,000 | (2,625,000 | ) | -100 | % | ||||||||||
TurnOnGreen | 1,236,000 | 724,000 | 512,000 | 71 | % | |||||||||||
ROI | 39,000 | 45,000 | (6,000 | ) | -13 | % | ||||||||||
Other | 672,000 | - | 672,000 | - | ||||||||||||
Total revenue | $ | 28,404,000 | $ | 47,408,000 | $ | (19,004,000 | ) | -40 | % |
Sentinum
Revenues from Sentinum’s digital assets mining operations increased $0.1 million due primarily to a $1.2 million increase in revenue from Sentinum digital mining equipment hosted at third-party facilities and a 134% increase in the average Bitcoin price, partially offset by a 71% increase in the average Bitcoin mining difficulty level and the estimated $4.4 million unfavorable impact of the April 19, 2024 Bitcoin halving event occurred on the Bitcoin network.
Halving is a key part of the Bitcoin protocol and serves to control the overall supply and reduce the risk of inflation in digital assets using a proof-of-work consensus algorithm. The Bitcoin halving event reduced the block subsidy by half from 6.25 to 3.125 Bitcoin. Transaction fees were not directly impacted by the halving.
Energy
Energy revenues from the Circle 8 crane operations decreased by $0.9 million, or 7%, for the three months ended June 30, 2024. This decrease was primarily due to lower utilization of the crane fleet, as five cranes were out of service during the three months ended June 30, 2024.
Fintech
Revenues from our lending and trading activities were negative $9.8 million for the three months ended June 30, 2024, primarily due to a $9.4 million unrealized loss on 2.5 million shares of White River Energy Corp. (“White River”) common stock and a $0.5 million unrealized loss from our investment in Alzamend included in revenue from lending and trading activities. Revenues from our lending and trading activities were $9.5 million for the three months ended June 30, 2023, due to an aggregate $6.6 million of net realized gains and $1.5 million of net unrealized gains on our investments in marketable equity securities, and a $1.5 million unrealized gain from our investment in Alzamend.
Revenues from our trading activities for the three months ended June 30, 2024 included net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.
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GIGA
For the three-month period ending June 30, 2024, GIGA revenues increased by $1.9 million. This growth is driven by ongoing global conflicts and tensions, which have spurred investments in force protection technologies in the United States, U.K., Europe, Asia and the Middle East.
SMC
Due to the significant change in our ownership and voting rights, we determined that we no longer met the criteria of the primary beneficiary and, accordingly, we deconsolidated SMC as of November 20, 2023. SMC revenues were $0 for the three months ended June 30, 2024, a decrease of $2.6 million compared to the corresponding period in 2023.
TurnOnGreen
TurnOnGreen's revenues increased by $0.5 million for the three months ended June 30, 2024, compared to the corresponding period in 2023. This rise was primarily due to higher sales from a single, higher-margin customer in the defense industry during the three months ended June 30, 2024.
Gross Margins
Gross margins decreased to (2%) for the three months ended June 30, 2024, compared to 38% for the three months ended June 30, 2023. Our gross margins recognized during the three months ended June 30, 2024 and 2023 were impacted by margins from our lending and trading activities, with a negative impact during the three months ended June 30, 2024 and a positive impact during the three months ended June 30, 2023. Excluding the effects of margin from our lending and trading activities, our adjusted gross margins for the three months ended June 30, 2024 and 2023 would have been 24% and 22%, respectively. Our gross margins (excluding the effects of margin from our lending and trading activities) improved, in part, due to high margin revenue from Sentinum digital mining equipment hosted at third-party facilities.
Research and Development
Research and development expenses decreased by $1.0 million for the three months ended June 30, 2024, due to lower expenditures related to development work on ROI’s BitNile metaverse platform.
Selling and Marketing
Selling and marketing expenses were $4.0 million for the three months ended June 30, 2024, compared to $9.6 million for the three months ended June 30, 2023, a decrease of $5.6 million, or 58%. The decrease was primarily the result of a $4.8 million decrease in sales and marketing expenses at ROI primarily due to lower advertising and promotion costs and a $0.4 million decrease in sales and marketing expenses from SMC due to the deconsolidation of SMC as of November 20, 2023.
General and Administrative
General and administrative expenses were $13.5 million for the three months ended June 30, 2024, compared to $21.3 million for the three months ended June 30, 2023, a decrease of $7.8 million, or 37%. General and administrative expenses decreased from the comparative prior period, mainly due to the following:
· | $3.0 million lower professional fees; |
· | $2.9 million decrease in general and administrative expenses from SMC due to the deconsolidation of SMC as of November 20, 2023; |
· | $1.0 million lower salaries and benefits; |
· | $0.6 million lower operating expenses at ROI primarily related to ceased operations at Agora Digital Holdings, Inc. (“Agora Digital”), ROI’s wholly owned subsidiary; and |
· | $0.4 million lower stock compensation. |
Other Income (Expense), Net
Other expense, net was $12.8 million for the three months ended June 30, 2024, compared to other expense, net of $12.4 million for the three months ended June 30, 2023.
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Interest and other income was $0.8 million for the three months ended June 30, 2024, compared to $2.2 million for the three months ended June 30, 2023. The decrease in interest and other income is primarily due to the decline in Ault Disruptive’s interest income as a result of the decline in cash and marketable securities held in the trust account as a result of redemptions of Ault Disruptive common stock subject to possible redemption.
Interest expense was $5.4 million for the three months ended June 30, 2024, compared to $15.9 million for the three months ended June 30, 2023. Interest expense for the three months ended June 30, 2024 included contractual interest of $3.3 million, amortization of debt discount of $1.3 million and forbearance and extension fees of $0.8 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.
During the three months ended June 30, 2024, holders of our convertible notes converted $2.0 million of convertible notes that had a fair value of $2.7 million at the time of conversion and recognized a $0.7 million loss on extinguishment of debt.
Loss from investment in unconsolidated entity was $1.3 million for the three months ended June 30, 2024, representing our share of losses from our equity method investment in SMC.
Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at were $6.3 million for the three months ended June 30, 2024.
Income Tax Provision
The income tax provision was $24,000 and $1.4 million during the three months ended June 30, 2024 and 2023, respectively. The effective income tax provision rate was 0.1% and 2.2% for the three months ended June 30, 2024 and 2023, respectively. The lower income tax provision during the three months ended June 30, 2024 related primarily to lower dividend income compared to the prior year period as a result of the decline in cash and marketable securities held in the trust account as a result of redemptions of Ault Disruptive common stock subject to possible redemption.
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Results of Operations for the Six Months Ended June 30, 2024 and 2023
The following table summarizes the results of our operations for the six months ended June 30, 2024 and 2023.
For the Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
Revenue | $ | 23,754,000 | $ | 25,647,000 | ||||
Revenue, digital assets mining | 19,937,000 | 15,715,000 | ||||||
Revenue, hotel and real estate operations | 8,697,000 | 7,410,000 | ||||||
Revenue, crane operations | 24,618,000 | 25,236,000 | ||||||
Revenue, lending and trading activities | (664,000 | ) | 4,586,000 | |||||
Total revenue | 76,342,000 | 78,594,000 | ||||||
Cost of revenue, products | 17,807,000 | 18,823,000 | ||||||
Cost of revenue, digital assets mining | 17,583,000 | 17,829,000 | ||||||
Cost of revenue, hotel and real estate operations | 6,135,000 | 5,808,000 | ||||||
Cost of revenue, crane operations | 15,747,000 | 15,029,000 | ||||||
Cost of revenue, lending and trading activities | - | 1,180,000 | ||||||
Total cost of revenue | 57,272,000 | 58,669,000 | ||||||
Gross profit | 19,070,000 | 19,925,000 | ||||||
Operating expenses | ||||||||
Research and development | 1,924,000 | 3,646,000 | ||||||
Selling and marketing | 8,653,000 | 18,371,000 | ||||||
General and administrative | 26,844,000 | 43,998,000 | ||||||
Impairment of property and equipment | 7,955,000 | - | ||||||
Impairment of goodwill and intangible assets | - | 35,570,000 | ||||||
Impairment of mined digital assets | - | 263,000 | ||||||
Total operating expenses | 45,376,000 | 101,848,000 | ||||||
Loss from operations | (26,306,000 | ) | (81,923,000 | ) | ||||
Other income (expense): | ||||||||
Interest and other income | 1,392,000 | 3,335,000 | ||||||
Interest expense | (12,306,000 | ) | (29,657,000 | ) | ||||
Gain on conversion of investment in equity securities to marketable equity securities | 17,900,000 | - | ||||||
Gain (loss) on extinguishment of debt | 742,000 | (154,000 | ) | |||||
Loss from investment in unconsolidated entity | (1,958,000 | ) | - | |||||
Impairment of equity securities | (6,266,000 | ) | (9,555,000 | ) | ||||
Provision for loan losses, related party | (3,068,000 | ) | - | |||||
Change in fair value of warrant liability | - | 3,217,000 | ||||||
Gain on the sale of fixed assets | 32,000 | 2,761,000 | ||||||
Total other income (expense), net | (3,532,000 | ) | (30,053,000 | ) | ||||
Loss before income taxes | (29,838,000 | ) | (111,976,000 | ) | ||||
Income tax provision (benefit) | (20,000 | ) | 1,105,000 | |||||
Net loss | (29,818,000 | ) | (113,081,000 | ) | ||||
Net (income) loss attributable to non-controlling interest | (392,000 | ) | 3,752,000 | |||||
Net loss attributable to Ault Alliance, Inc. | (30,210,000 | ) | (109,329,000 | ) | ||||
Preferred dividends | (2,568,000 | ) | (550,000 | ) | ||||
Net loss available to common stockholders | $ | (32,778,000 | ) | $ | (109,879,000 | ) | ||
Comprehensive loss | ||||||||
Net loss available to common stockholders | $ | (32,778,000 | ) | $ | (109,879,000 | ) | ||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (400,000 | ) | (350,000 | ) | ||||
Other comprehensive income | (400,000 | ) | (350,000 | ) | ||||
Total comprehensive loss | $ | (33,178,000 | ) | $ | (110,229,000 | ) |
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Revenues
Revenues by segment for the six months ended June 30, 2024 and 2023 were as follows:
For the Six Months Ended June 30, | Increase | |||||||||||||||
2024 | 2023 | (Decrease) | % | |||||||||||||
Sentinum | ||||||||||||||||
Revenue, digital assets mining | $ | 19,937,000 | $ | 15,715,000 | $ | 4,222,000 | 27 | % | ||||||||
Revenue, commercial real estate leases | 557,000 | 783,000 | (226,000 | ) | -29 | % | ||||||||||
Energy | ||||||||||||||||
Revenue, crane operations | 24,618,000 | 25,236,000 | (618,000 | ) | -2 | % | ||||||||||
Other | 68,000 | 546,000 | (478,000 | ) | -88 | % | ||||||||||
Fintech | ||||||||||||||||
Revenue, lending and trading activities | (664,000 | ) | 4,586,000 | (5,250,000 | ) | -114 | % | |||||||||
GIGA | 20,185,000 | 17,448,000 | 2,737,000 | 16 | % | |||||||||||
AGREE | 8,140,000 | 6,627,000 | 1,513,000 | 23 | % | |||||||||||
SMC | - | 6,008,000 | (6,008,000 | ) | -100 | % | ||||||||||
TurnOnGreen | 2,461,000 | 1,600,000 | 861,000 | 54 | % | |||||||||||
ROI | 67,000 | 45,000 | 22,000 | 49 | % | |||||||||||
Other | 973,000 | - | 973,000 | - | ||||||||||||
Total revenue | $ | 76,342,000 | $ | 78,594,000 | $ | (2,252,000 | ) | -3 | % |
Sentinum
Revenues from Sentinum’s digital assets mining operations increased $4.2 million due primarily to a $3.7 million increase in revenue from Sentinum digital mining equipment hosted at third-party facilities and a 134% increase in the average Bitcoin price, partially offset by an 84% increase in the average Bitcoin mining difficulty level and the impact of the April 19, 2024 Bitcoin halving event occurred on the Bitcoin network.
Energy
Energy revenues from the Circle 8 crane operations increased by $0.6 million, or 2%, for the six months ended June 30, 2024. This increase reflects higher crane service utilization from Circle 8’s largest customer during the six months ended June 30, 2024.
Fintech
Revenues from our lending and trading activities were negative $0.7 million for the six months ended June 30, 2024, primarily due to a $0.4 million unrealized loss from our investment in Alzamend included in revenue from lending and trading activities. Revenues from our lending and trading activities were $4.6 million for the six months ended June 30, 2023, due to an aggregate $6.8 million of net realized and unrealized gains on our investments in marketable equity securities, a $0.6 million unrealized loss from our investment in Alzamend, and a $2.0 million impairment related to investments in equity securities.
Revenues from our trading activities for the six months ended June 30, 2024 included net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings.
GIGA
For the six-month period ending June 30, 2024, GIGA revenues increased by $2.7 million. This growth is driven by ongoing global conflicts and tensions, which have spurred investments in force protection technologies in the United States, U.K., Europe, Asia and the Middle East.
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SMC
Due to the significant change in our ownership and voting rights, we determined that we no longer met the criteria of the primary beneficiary and, accordingly, we deconsolidated SMC as of November 20, 2023. SMC revenues were $0 for the six months ended June 30, 2024, a decrease of $6.0 million compared to the corresponding period in 2023.
TurnOnGreen
TurnOnGreen's revenues increased by $0.9 million for the six months ended June 30, 2024, compared to the corresponding period in 2023. This rise was primarily due to higher sales from a single, higher-margin customer in the defense industry during the six months ended June 30, 2024.
Gross Margins
Gross margins were 25% for the six months ended June 30, 2024, compared to 25% for the six months ended June 30, 2023. Our gross margins during the six months ended June 30, 2024 and 2023 were unfavorably impacted by margins from our lending and trading activities. Excluding the effects of margin from our lending and trading activities, our adjusted gross margins for the six months ended June 30, 2024 and 2023 would have been 26% and 22%, respectively. Our gross margins improved, in part, due to high margin revenue from Sentinum digital mining equipment hosted at third-party facilities.
Research and Development
Research and development expenses decreased by $1.7 million for the six months ended June 30, 2024, due to lower expenditures related to development work on ROI’s BitNile metaverse platform.
Selling and Marketing
Selling and marketing expenses were $8.7 million for the six months ended June 30, 2024, compared to $18.4 million for the six months ended June 30, 2023, a decrease of $9.7 million, or 53%. The decrease was primarily the result of an $8.2 million decrease in sales and marketing expenses at ROI primarily due to lower advertising and promotion costs and a $1.3 million decrease in sales and marketing expenses from SMC due to the deconsolidation of SMC as of November 20, 2023.
General and Administrative
General and administrative expenses were $26.8 million for the six months ended June 30, 2024, compared to $44.0 million for the six months ended June 30, 2023, a decrease of $17.2 million, or 39%. General and administrative expenses decreased from the comparative prior period, mainly due to the following:
· | $5.1 million decrease in general and administrative expenses from SMC due to the deconsolidation of SMC as of November 20, 2023; |
· | $4.6 million lower stock compensation expense; |
· | $3.5 million lower professional fees; |
· | $1.0 million lower salaries and benefits; |
· | $1.0 million lower performance bonus related to realized gains on trading activities; |
· | $0.6 million lower filings fees; and |
· | $0.6 million lower operating expenses at ROI primarily related to ceased operations at Agora Digital. |
Other Income (Expense), Net
Other expense, net was $3.5 million for the six months ended June 30, 2024, compared to other expense, net of $30.1 million for the six months ended June 30, 2023.
Interest and other income was $1.4 million for the six months ended June 30, 2024, compared to $3.3 million for the six months ended June 30, 2023. The decrease in interest and other income is primarily due to the decline in Ault Disruptive’s interest income as a result of the decline in cash and marketable securities held in the trust account as a result of redemptions of Ault Disruptive common stock subject to possible redemption.
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Interest expense was $12.3 million for the six months ended June 30, 2024, compared to $29.7 million for the six months ended June 30, 2023. Interest expense for the six months ended June 30, 2024 included contractual interest of $6.6 million, amortization of debt discount of $3.4 million, and forbearance and extension fees of $2.3 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.
Gain on conversion of investment in equity securities to marketable equity securities of $17.9 million relates to ROI conversion of White River common stock. During the six months ended June 30, 2024, ROI transferred 14.5 million shares of White River common stock with a fair value of $19.2 million at the date of transfer. In conjunction with the transfers, ROI converted a portion of their White River’s Series A Convertible Preferred Stock into common stock and recorded a noncash $17.9 million gain on conversion.
During the three months ended March 31, 2024, ROI converted $2.3 million of ROI senior secured convertible notes that had a fair value of $0.9 million at the time of conversion and recognized a $1.4 million gain on extinguishment of debt. During the three months ended June 30, 2024, holders of our convertible notes converted $2.0 million of convertible notes that had a fair value of $2.7 million at the time of conversion and recognized a $0.7 million loss on extinguishment of debt.
Loss from investment in unconsolidated entity was $2.0 million for the six months ended June 30, 2024, representing our share of losses from our equity method investment in SMC.
For the six months ended June 30, 2024, the provision for loan losses on the related party note receivable from Ault & Company was $3.1 million, due to uncertainties regarding collection. This compares to no provision for the same period in 2023.
Cumulative downward adjustments for impairments for our equity securities without readily determinable fair values held at were $6.3 million for the six months ended June 30, 2024.
Income Tax Provision (Benefit)
The income tax provision (benefit) was ($20,000) and $1.1 million during the six months ended June 30, 2024 and 2023, respectively. The effective income tax (benefit) provision rate was (0.1%) and 1.0% for the six months ended June 30, 2024 and 2023, respectively. The lower income tax provision during the six months ended June 30, 2024 related primarily to lower dividend income compared to the prior year period as a result of the decline in cash and marketable securities held in the trust account as a result of redemptions of Ault Disruptive common stock subject to possible redemption.
Liquidity and Capital Resources
On June 30, 2024, we had cash and cash equivalents of $9.6 million (excluding restricted cash of $7.3 million), compared to cash and cash equivalents of $9.7 million (excluding restricted cash of $5.7 million) at December 31, 2023. The decrease in cash and cash equivalents was primarily due to the payment of debt, purchases of property and equipment and cash used in operating activities, 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 convertible notes.
Net cash used in operating activities totaled $13.9 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $12.9 million for the six months ended June 30, 2023. Cash used in operating activities for the six months ended June 30, 2024 included $15.5 million proceeds from the sale of digital assets from our Sentinum Bitcoin mining operations, offset by operating losses and changes in working capital.
Net cash used in investing activities was $3.8 million for the six months ended June 30, 2024, compared to $18.9 million for the six months ended June 30, 2023. Net cash used in investing activities for the six months ended June 30, 2024 was primarily related to $3.9 million capital expenditures.
Net cash provided by financing activities was $18.8 million for the six months ended June 30, 2024, compared to $12.8 million for the six months ended June 30, 2023, and primarily reflects the following transactions:
· | During the period between January 1, 2024 through March 13, 2024, we sold an aggregate of 25.6 million shares of common stock pursuant to the At-The-Market issuance sales agreement, as amended, entered into with Ascendiant Capital Markets, LLC in 2023 (the “2023 Common ATM Offering”) for gross proceeds of $14.6 million and effective March 14, 2024, the 2023 Common ATM Offering was terminated; |
· | $10.7 million proceeds from notes payable, partially offset by $5.9 million payments on notes payable; |
· | $2.5 million proceeds from sales of Series C preferred stock, related party; |
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· | $1.8 million proceeds from subsidiaries’ sale of stock to non-controlling interests; |
· | $1.8 million proceeds from convertible notes payable, partially offset by $1.2 million payments on notes payable; |
· | $2.6 million payments of preferred dividends; and |
· | $1.9 million payments on notes payable, related party. |
Financing Transactions Subsequent to June 30, 2024
On July 2, 2024, we entered into a term note agreement with institutional investors of up to $2.6 million, of which the principal amount of $1.8 million was immediately funded. The term note was issued at a discount, with net proceeds to us of $1.5 million. The term note does not accrue any interest. The term note was scheduled to mature on August 2, 2024. The term note is guaranteed by Mr. Ault. The term note is in default and a default fee of $0.2 million accrues monthly until the term note is paid in full.
On July 18, 2024, we entered into a note purchase agreement with an institutional investor pursuant to which the institutional investor agreed to acquire, and we agreed to issue and sell in a registered direct offering to the institutional investor, the OID Note. The OID Note was sold to the institutional investor for a purchase price of $4.9 million, an original issue discount of $0.5 million. The OID Note will accrue interest at the rate of 15% per annum, unless an event of default occurs, at which time the OID Note would accrue interest at 18% per annum. The OID Note will mature on October 19, 2024. In addition, the OID Note is convertible at any time after NYSE American approval of a Supplemental Listing Application into shares of our common stock at the OID Conversion Price, subject to adjustment. However, we may not issue shares of common stock upon conversion of the OID Note to the extent such issuance would result in an aggregate number of shares of common stock exceeding the NYSE Limit unless we first obtain Stockholder Approval.
On August 2, 2024, we sold to Ault & Company 300 shares of Series C Preferred Stock and Warrants to purchase 0.1 million shares of Class A common stock, for a total purchase price of $0.3 million.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates previously disclosed in the 2023 Annual Report.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable for a smaller reporting company.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based upon our evaluation, each of our principal executive officer and principal financial officer has concluded that the Company’s internal control over financial reporting was not effective as of the end of the period covered by this Quarterly Report because the Company has not yet completed its remediation of the material weakness previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, the end of its most recent fiscal year.
Management has identified the following material weaknesses:
1. | We do not have sufficient resources in our accounting department, which restricts our ability to gather, analyze and properly review information related to financial reporting, including applying complex accounting principles relating to consolidation accounting, related party transactions, fair value estimates, accounting contingencies and analysis of financial instruments for proper classification in the consolidated financial statements, in a timely manner; |
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2. | Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness; |
3. | Our primary user access controls (i.e., provisioning, de-provisioning, privileged access and user access reviews) to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not designed and/or implemented effectively. We did not design and/or implement sufficient controls for program change management to certain financially relevant systems affecting our processes; and |
4. | The Company did not design and/or implement user access controls to ensure appropriate segregation of duties or program change management controls for certain financially relevant systems impacting the Company’s processes around revenue recognition and digital assets to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital assets mining equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency. In addition, the Company has not effectively designed a manual key control to detect material misstatements in revenue. |
Planned Remediation
Management continues to work to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding our IT systems and applications. Management will continue to implement measures to remediate material weaknesses, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) enhancing design and documentation related to both user access and change management processes and control activities; and (ii) developing and communicating additional policies and procedures to govern the area of IT change management. In order to achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
· | Engaging a third-party specialist to assist management with improving the Company’s overall control environment, focusing on change management and access controls; |
· | Implementing new applications and systems that are aligned with management’s focus on creating strong internal controls; and |
· | Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong Sarbanes Oxley and internal control backgrounds. |
We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Despite the existence of these material weaknesses, we believe that the condensed consolidated financial statements included in the period covered by this Quarterly Report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Controls over Financial Reporting.
Except as detailed above, during the fiscal quarter ended June 30, 2024, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Litigation Matters
The Company is involved in litigation arising from other matters in the ordinary course of business. We are regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
Arena Litigation
Arena Investors, LP (ROI Litigation)
On May 30, 2024, Arena Investors, LP (“Arena”), in its capacity as collateral agent for five noteholders, filed a filed a Complaint (the “ROI Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and ROI, in action captioned Arena Investors, LP v. Ault Alliance, Inc. and RiskOn International, Inc., Index No. 652792/2024.
The ROI Complaint asserts a cause of action for breach of contract against the Company based on a Guaranty, dated April 27, 2023, and entered into, amongst others, the Company and Arena, and seeks damages in the amount of in excess of $3.75 million, plus interest, attorneys’ fees, costs, expenses, and disbursements.
The ROI Complaint also asserts a cause of action for breach of contract against ROI based on an alleged breach of that certain Security Agreement, dated April 27, 2023, and entered into among ROI and Arena. In connection with this cause of action, Arena seeks, among other things, costs and expenses from the Company and ROI.
On July 31, 2024, the Company and ROI filed a motion to dismiss seeking to partially dismiss the ROI Complaint, as against the Company, and to dismiss the Compliant, in its entirety, as against ROI.
The deadline for Arena to file its opposition to the motion to dismiss is September 27, 2024.
Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion of the notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.
Arena Investors, LP (Gresham Litigation)
On June 6, 2024, Arena, in its capacity as collateral agent for Arena and Walleye Opportunities Master Fund Ltd. (“Walleye”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and GIGA, in action captioned Arena Investors, LP v. Gresham Worldwide, Inc. f/k/a Giga-Tronics Incorporated and Ault Alliance, Inc., Index No. 652898/2024.
On July 8, 2024, Arena filed an Amended Complaint (the “Amended Complaint”) in the above-referenced action. The Amended Complaint asserts a cause of action against the Company for declaratory and injunctive relief seeking an injunction enjoining the Company, and its agent, affiliates, servants, and employees from taking actions in breach of that certain Subordination Agreement, dated January 9, 2023, and entered into among Walleye, Arena, and the Company.
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The Amended Complaint also asserts causes of action for breach of contract against GIGA based on two discrete convertible promissory notes (the “Notes”) that GIGA entered into with each of Arena and Walleye, as well as a claim for breach duty of good faith and fair dealing, against GIGA, and seeks, among other things, monetary damages in excess of $4.2 million, with interest thereon, attorneys’ fees, costs, and disbursements. The Amended Complaint further asserts another cause of action against GIGA for breach of contract seeking declaratory and injunctive relief based on alleged inspection rights contained in a Security Agreement, dated January 9, 2023 (the “Security Agreement”), and entered into between the Walleye, Arena, and GIGA, which seeks the issuance of an injunction related to such alleged inspection rights, plus the costs and out-of-pocket expenses associated with the enforcement of same.
On July 12, 2024, the Court granted injunctive relief to Arena and ordered GIGA to comply with the inspection rights provision of the Security Agreement by July 17, 2024.
On July 19, 2024, Arena voluntarily discontinued its cause of action for breach duty of good faith and fair dealing claim against GIGA.
On July 29, 2024, the Company and GIGA filed a motion to dismiss, strike, and for sanctions (the “Motion”), in response to the Amended Complaint, on the grounds that, amongst other things, the underlying Notes are criminally usurious under New York.
The deadline for Arena to file its opposition to the Motion is September 19, 2024.
Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion of the Notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.
Other Litigation Matters
With respect to our other outstanding matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
ITEM 1A. | RISK FACTORS |
There are no updates or changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
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ITEM 6. | EXHIBITS |
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* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 16, 2024
AULT ALLIANCE, INC. | ||
By: | /s/ William B. Horne | |
William B. Horne | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Kenneth S. Cragun | |
Kenneth S. Cragun | ||
Chief Financial Officer | ||
(Principal Accounting Officer) |
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EXHIBIT 31.1
CERTIFICATION
I, William B. Horne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ault Alliance, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 16, 2024
/s/ William B. Horne | |
Name: William B. Horne | |
Title: Chief Executive Officer | |
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Kenneth S. Cragun, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ault Alliance, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 16, 2024
/s/ Kenneth S. Cragun | |
Name: Kenneth S. Cragun | |
Title: Chief Financial Officer | |
(Principal Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Ault Alliance, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 16, 2024 | ||
By: /s/ William B. Horne | ||
Name: William B. Horne | ||
Title: Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: August 16, 2024 | ||
By: /s/ Kenneth S. Cragun | ||
Name: Kenneth S. Cragun | ||
Title: Chief Financial Officer | ||
(Principal Accounting Officer) |