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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1 to 

FORM 10-Q/A

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  For the quarterly period ended June 30, 2022 

 

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 Pkwy #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 18, 2022 the registrant had outstanding 330,961,668 shares of common stock.

 

 

 

  
 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q of Ault Alliance, Inc., which was then known as BitNile Holdings, Inc. (the “Company”) for the six months ended June 30, 2022 (the “Original Filing”), that was originally filed with the U.S. Securities and Exchange Commission on August 22, 2022. This Report only amends and restates Item 1, Item 2 and Item 4 of Part I of the Original Report to reflect the restatement. The foregoing items have not been updated to reflect other events occurring after the date of the Original Report (other than the Name Change, as defined below), or to modify or update those disclosures affected by subsequent events. Subsequent to the date of filing of the Original Filing, the Company merged its wholly owned subsidiary, Ault Alliance, Inc., with and into the Company, and in connection therewith, changed its name from BitNile Holdings, Inc. to Ault Alliance, Inc. (the “Name Change”).  As such, other than on the cover page of this Amendment, the signature page to this Amendment, and the revised disclosures contained in Item 1 and Item 2, which reflects the Name Change, all other references in this Amendment to Ault Alliance, Inc. refers to the former wholly owned subsidiary of the same name, and not to the Company.  In addition, the exhibit list in Item 6 of Part II has been updated only to include currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, are filed with this Amendment as Exhibit 31.1, 31.2 and 32.1.

 

The Amendment is being filed to correct an error in classification with respect to changes in fair value of financial instruments issued by a related party. The changes in fair value were erroneously recorded in other comprehensive income (loss) and have been reclassified to correct for the error within the statement of operations.

 

Further, this Amendment also includes certain limited modifications to reflect the correct classification in disclosures in the Company’s Note 20 Net (Loss) Income per Share footnote in the Company’s Notes to Condensed Consolidated Financial Statements.

 

   
 

 

AULT ALLIANCE, INC.

TABLE OF CONTENTS

 

      Page
PART I – FINANCIAL INFORMATION  
       
Item 1.   Financial Statements (Unaudited) F-1
       
    Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 F-1
       
    Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2022 and 2021 F-3
       
    Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 F-4
       
    Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 F-8
       
    Notes to Condensed Consolidated Financial Statements F-10
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
       
Item 3.    Quantitative and Qualitative Disclosures about Market Risk 13
       
Item 4.   Controls and Procedures 13
       
PART II – OTHER INFORMATION  
       
Item 1.   Legal Proceedings 15
Item 1A.   Risk Factors 17
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3.   Defaults Upon Senior Securities 18
Item 4.   Mine Safety Disclosures 18
Item 5.   Other Information 18
Item 6.   Exhibits 19

 

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 report and our Annual Report on Form 10-K/A for the year ended December 31, 2021, 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. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly 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, 
   2022   2021 
ASSETS        
         
CURRENT ASSETS        
Cash and cash equivalents  $24,133,000   $15,912,000 
Restricted cash   4,672,000    5,321,000 
Marketable equity securities   17,467,000    40,380,000 
Digital currencies   2,745,000    2,165,000 
Accounts receivable   18,076,000    6,455,000 
Accrued revenue   2,177,000    2,283,000 
Inventories   20,833,000    5,482,000 
Investment in promissory notes and other, related parties   2,770,000    2,842,000 
Prepaid expenses and other current assets   13,734,000    15,436,000 
TOTAL CURRENT ASSETS   106,607,000    96,276,000 
           
Cash and marketable securities held in Trust Account   116,895,000    116,725,000 
Intangible assets, net   8,084,000    4,035,000 
Goodwill   55,322,000    10,090,000 
Property and equipment, net   245,987,000    174,025,000 
Right-of-use assets   7,735,000    5,243,000 
Investments in common stock, related parties   8,845,000    13,230,000 
Investments in other equity securities   38,495,000    30,482,000 
Investment in unconsolidated entity   -    22,130,000 
Loans receivable   4,352,000    14,337,000 
Other assets   3,949,000    3,713,000 
TOTAL ASSETS  $596,271,000   $490,286,000 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $43,525,000   $22,755,000 
Investment margin accounts payable   -    18,488,000 
Operating lease liability, current   2,484,000    1,123,000 
Notes payable, net   7,340,000    39,554,000 

Convertible notes payable, current

   

1,884,000

    

-

 
TOTAL CURRENT LIABILITIES   55,233,000    81,920,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-1 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Unaudited)

 

   June 30,   December 31, 
   2022   2021 
LONG TERM LIABILITIES        
Operating lease liability, non-current   5,538,000    4,213,000 
Notes payable   55,547,000    55,055,000 
Convertible notes payable   14,209,000    468,000 
Deferred underwriting commissions of Ault Disruptive subsidiary   3,450,000    3,450,000 
           
TOTAL LIABILITIES   133,977,000    145,106,000 
           
COMMITMENTS AND CONTINGENCIES          
Redeemable noncontrolling interests in equity of subsidiaries   116,895,000    116,725,000 
           
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, 2022 and December 31, 2021          
   (redemption amount and liquidation preference of $176,000 as of          
   June 30, 2022 and December 31, 2021)          
Series B Convertible Preferred Stock, $10 stated value per share,   -    - 
   share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued          
   and outstanding at June 30, 2022 and December 31, 2021 (liquidation          
   preference of $1,250,000 at June 30, 2022 and December 31, 2021)          
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated          
   value per share, $0.001 par value – 2,000,000 shares authorized;          
   shares authorized, 146,618 shares and 0 shares issued and outstanding at          
   June 30, 2022 and December 31, 2021, respectively (liquidation preference of          
  $3,665,450 and $0 as of June 30, 2022 and December 31, 2021, respectively)          
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized;   324,000    84,000 
  324,440,579 and 84,344,607 shares issued and outstanding at June 30,          
   2022 and December 31, 2021, respectively          
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized;   -    - 
   0 shares issued and outstanding at June 30, 2022 and December 31, 2021          
Additional paid-in capital   549,713,000    385,644,000 
Accumulated deficit   (200,184,000)   (145,600,000)
Accumulated other comprehensive loss   (1,863,000)   (106,000)
Treasury stock, at cost   (20,639,000)   (13,180,000)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY   327,351,000    226,842,000 
           
Non-controlling interest   18,048,000    1,613,000 
           
TOTAL STOCKHOLDERS’ EQUITY   345,399,000    228,455,000 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $596,271,000   $490,286,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-2 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

 

                             
   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30, 
       2021       2021 
   2022   Restated   2022   Restated 
 Revenue  $7,849,000   $8,564,000   $16,508,000   $16,469,000 
 Revenue, cryptocurrency mining   3,976,000    291,000    7,524,000    421,000 
 Revenue, hotel operations   4,598,000    -    7,296,000    - 
 Revenue, lending and trading activities   943,000    53,274,000    18,864,000    58,485,000 
 Total revenue   17,366,000    62,129,000    50,192,000    75,375,000 
 Cost of revenue   12,369,000    6,278,000    22,863,000    11,386,000 
 Gross profit   4,997,000    55,851,000    27,329,000    63,989,000 
                     
 Operating expenses                    
 Research and development   729,000    531,000    1,424,000    1,133,000 
 Selling and marketing   6,979,000    1,505,000    13,460,000    2,747,000 
 General and administrative   19,032,000    7,992,000    32,719,000    13,084,000 
 Impairment of mined cryptocurrency   1,976,000    -    2,415,000    - 
 Total operating expenses   28,716,000    10,028,000    50,018,000    16,964,000 
                     
 (Loss) income from operations   (23,719,000)   45,823,000    (22,689,000)   47,025,000 
 Other income (expenses)                    
 Interest and other income   81,000    14,000    530,000    51,000 
 Change in fair value of equity securities, related party   -    

(5,893,000

)   

-

    

(2,924,000

)
 Interest expense   (2,031,000)   (22,000)   (31,855,000)   (337,000)
 Change in fair value of marketable equity securities   241,000    (1,915,000)   241,000    45,000 
 Realized gain (loss) on marketable securities   (43,000)   -    66,000    397,000 
 Loss from investment in unconsolidated entity   (391,000)   -    (924,000)   - 
 Gain on extinguishment of debt   -    447,000    -    929,000 
 Change in fair value of warrant liability   (6,000)   290,000    (24,000)   (388,000)
 Total other expenses, net   (2,149,000   (7,079,000)   (31,966,000)   (2,227,000) 
                     
 (Loss) income before income taxes   (25,868,000)   38,744,000    (54,655,000)   44,798,000 
 Income tax (provision) benefit   (217,000)   (3,504,000)   (217,000)   (3,510,000)
 Net (loss) income   (26,085,000)   35,240,000    (54,872,000)   41,288,000 
 Net loss attributable to non-controlling interest   321,000    1,083,000    336,000    3,000 
 Net (loss) income attributable to Ault Alliance, Inc.   (25,764,000)   36,323,000    (54,536,000)   41,291,000 
 Preferred dividends   (44,000)   (4,000)   (49,000)   (9,000)
 Net (loss) income available to common stockholders  $(25,808,000)  $36,319,000   $(54,585,000)  $41,282,000 
                     
 Basic net (loss) income per common share  $(0.09)  $0.72   $(0.29)  $0.92 
 Diluted net (loss) income per common share  $(0.09)  $0.69   $(0.29)  $0.86 
                     
 Weighted average basic common shares outstanding   289,672,000    50,783,000    190,870,000    45,052,000 
 Weighted average diluted common shares outstanding   289,672,000    52,780,000    190,870,000    47,574,000 
                     
 Comprehensive (loss) income                    
 Net (loss) income available to common stockholders  $(25,808,000)  $36,319,000   $(54,585,000)  $41,282,000 
 Other comprehensive income (loss)                    
 Foreign currency translation adjustment   (1,471,000)   134,000    (1,758,000)   41,000 
 Other comprehensive (loss) income   (1,471,000)   134,000   (1,758,000)   41,000
 Total comprehensive (loss) income  $(27,279,000)  $36,453,000   $(56,343,000)  $41,323,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-3 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended June 30, 2022

 

                               Accumulated             
   Series A, B & D           Additional       Other   Non-       Total 
   Preferred Stock   Common Stock   Paid-In   Accumulated   Comprehensive   Controlling   Treasury   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Interest   Stock   Equity 
BALANCES, April 1, 2022   132,040   $-    225,015,203   $225,000   $495,536,000   $(174,378,000)  $(393,000)  $1,640,000   $(14,172,000)  $308,458,000 
Issuance of common stock for restricted stock awards   -    -    429,379    -    -    -    -    -    -    - 
Preferred stock issued   146,618    -    -    -    3,666,000    -    -    -    -    3,666,000 
Preferred stock offering costs   -    -    -    -    (537,000)   -    -    -    -    (537,000)
Stock-based compensation                       983,000              36,000         1,019,000 
Sale of common stock   -    -    98,995,997    99,000    53,180,000    -    -    -    -    53,279,000 
Financing cost in connection with sales of common stock   -    -    -    -    (1,266,000)   -    -    -    -    (1,266,000)
Acquisition of non-controlling interests   -    -    -    -    (1,848,000)   -    -    (382,000)   -    (2,230,000)
Non-controlling interest from AVLP acquisition   -    -    -    -    -    -    -    6,738,000    -    6,738,000 
Non-controlling interest from SMC acquisition   -    -    -    -    -    -    -    10,336,000    -    10,336,000 
Purchase of treasury stock - Ault Alpha   -    -    -    -    -    -    -    -    (6,467,000)   (6,467,000)
Net loss   -    -    -    -    -    (25,764,000)   -    -    -    (25,764,000)
Preferred dividends        -    -    -    -    (44,000)   -    -    -    (44,000)
Foreign currency translation adjustments   -    -    -    -    -    -    (1,471,000)   -    -    (1,471,000)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    -    (321,000)   -    (321,000)
Other   -    -    -    -    (1,000)   2,000    1,000    1,000    -    3,000 
BALANCES, June 30, 2022   278,658   $-    324,440,579   $324,000   $549,713,000   $(200,184,000)  $(1,863,000)  $18,048,000   $(20,639,000)  $345,399,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-4 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (RESTATED)

(Unaudited)

Three Months Ended June 30, 2021

 

                           Accumulated         
   Series A & B           Additional       Other       Total 
   Preferred Stock   Common Stock   Paid-In   Accumulated   Comprehensive   Non-Controlling   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Income (Loss)   Interest   Equity 
                                     
BALANCES, April 1, 2021   132,040   $-    49,498,676   $49,000   $292,763,000   $(117,366,000)  $(878,000  $1,902,000   $176,470,000 
Stock-based compensation                       20,000              545,000    565,000 
Sale of common stock   -    -    6,385,425    7,000    19,054,000    -    -    -    19,061,000 
Financing cost in connection with sales of common stock   -    -    -    -    (477,000)   -    -    -    (477,000)
Issuance of common stock for conversion
  of convertible notes payable, related party
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
275,862
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
400,000
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
400,000
 
 
Comprehensive loss:                                             
Net income   -    -    -    -    -    36,323,000    -    -    36,323,000 
Preferred dividends   -    -    -    -    -    (4,000)   -    -    (4,000)
Foreign currency translation adjustments   -    -    -    -    -    -    134,000    -    134,000 
Net income attributable to non-controlling interest   -    -    -    -    -    -    -    (1,083,000)   (1,083,000)
BALANCES, June 30, 2021   132,040   $-    56,159,963   $56,000   $311,760,000   $(81,047,000)  $(744,000)  $1,364,000   $231,389,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-5 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Six Months Ended June 30, 2022

 

                           Accumulated             
   Series A, B & D           Additional       Other   Non-       Total 
   Preferred Stock   Common Stock   Paid-In   Accumulated   Comprehensive   Controlling   Treasury   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Interest   Stock   Equity 
BALANCES, January 1, 2022   132,040   $-    84,344,607   $84,000   $385,644,000   $(145,600,000)  $(106,000)  $1,613,000   $(13,180,000)  $228,455,000 
Issuance of common stock for restricted stock awards   -    -    441,879    -    -    -    -    -    -    - 
Preferred stock issued   146,618    -    -    -    3,666,000    -    -    -    -    3,666,000 
Preferred stock offering costs   -    -    -    -    (537,000)   -    -    -    -    (537,000)
Stock-based compensation                       3,627,000              77,000         3,704,000 
Sale of common stock   -    -    239,654,093    240,000    163,186,000    -    -    -    -    163,426,000 
Financing cost in connection with sales of common stock   -    -    -    -    (4,024,000)   -    -    -    -    (4,024,000)
Acquisition of non-controlling interests   -    -    -    -    (1,848,000)   -    -    (382,000)   -    (2,230,000)
Non-controlling interest from AVLP acquisition   -    -    -    -    -    -    -    6,738,000    -    6,738,000 
Non-controlling interest from SMC acquisition   -    -    -    -    -    -    -    10,336,000    -    10,336,000 
Purchase of treasury stock - Ault Alpha   -    -    -    -    -    -    -    -    (7,459,000)   (7,459,000)
Net loss   -    -    -    -    -    (54,536,000)   -    -    -    (54,536,000)
Preferred dividends        -    -    -    -    (49,000)   -    -    -    (49,000)
Foreign currency translation adjustments   -    -    -    -    -    -    (1,758,000)   -    -    (1,758,000)
Net loss attributable to non-controlling interest   -    -    -    -    -    -    -    (336,000)   -    (336,000)
Other   -    -    -    -    (1,000)   1,000    1,000    2,000    -    3,000 
BALANCES, June 30, 2022   278,658   $-    324,440,579   $324,000   $549,713,000   $(200,184,000)  $(1,863,000)  $18,048,000   $(20,639,000)  $345,399,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-6 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (RESTATED)

(Unaudited)

Six Months Ended June 30, 2021

 

                                         
   Series A & B           Additional       Other   Non-   Total 
   Preferred Stock   Common Stock   Paid-In   Accumulated   Comprehensive   Controlling   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Income (Loss)   Interest   Equity 
                                     
BALANCES, January 1, 2021   132,040   $    27,753,562   $28,000   $171,396,000   $(122,329,000)  $(785,000)  $822,000   $49,132,000 
Stock-based compensation                       39,000              545,000    584,000 
Sale of common stock           27,947,325    28,000    144,016,000                144,044,000 
Financing cost in connection with sales of
common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4,541,000
 
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4,541,000
 
)
Issuance of common stock for conversion
  of convertible notes payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
183,214
 
 
 
 
 
 
 
 
 
 
 
 
 
 
450,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
450,000
 
 
Issuance of common stock for conversion
  of convertible notes payable, related party
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
275,862
 
 
 
 
 
 
 
 
 
 
 
 
 
 
400,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
400,000
 
 
Comprehensive loss:                                             
Net income                       41,291,000            41,291,000 
Preferred dividends                        (9,000)           (9,000)
Foreign currency translation adjustments                           41,000        41,000 
Net income attributable to non—controlling interest                               (3,000)   (3,000)
BALANCES, June 30, 2021   132,040   $    56,159,963   $56,000   $311,760,000   $(81,047,000)  $(744,000)  $1,364,000   $231,389,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-7 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

               
   For the Six Months Ended June 30, 
       2021 
   2022   Restated 
Cash flows from operating activities:        
Net (loss) income  $(54,872,000)  $41,288,000 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:          
Depreciation and amortization   7,129,000    1,093,000 
Interest expense – debt discount   26,493,000    40,000 
Gain on extinguishment of debt   -    (929,000)
Change in fair value of warrant liability   24,000    (290,000)
Accretion of original issue discount on notes receivable – related party   -    (4,000)
Accretion of original issue discount on notes receivable   (612,000)   (955,000)
Increase in accrued interest on notes receivable – related party   (100,000)   (1,000)
Stock-based compensation   3,704,000    584,000 
Impairment of cryptocurrencies   2,415,000    - 
Realized gains on sale of marketable securities   (18,585,000)   (12,283,000)
Unrealized losses (gains) on marketable securities   9,669,000    (3,483,000)
Unrealized losses (gains) on investments in equity securities, related parties   9,048,000    (36,928,000)
Unrealized gains on equity securities   (17,021,000)   (1,224,000)
Loss from investment in unconsolidated entity   924,000    - 

Loss on remeasurement of investment in unconsolidated entity

   2,700,000    - 
Changes in operating assets and liabilities:          
Marketable equity securities   50,734,000    (9,616,000)
Accounts receivable   (2,311,000)   (887,000)
Accrued revenue   (7,000)   78,000 
Inventories   (2,646,000)   485,000 
Prepaid expenses and other current assets   2,406,000    (2,537,000)
Digital currencies   (7,785,000)   - 
Other assets   (384,000)   (246,000)
Accounts payable and accrued expenses   4,706,000    83,000 
Other current liabilities   -    4,472,000 
Lease liabilities   (626,000)   (439,000)
Net cash provided by (used in) operating activities   15,003,000    (21,699,000)
           
Cash flows from investing activities:          
Purchase of property and equipment   (72,779,000)   (5,590,000)
Investment in promissory notes and other, related parties   (2,200,000)   (4,040,000)
Investments in common stock and warrants, related parties   (4,663,000)   (16,483,000)
Investment in real property, related party   -    (2,670,000)
Proceeds from sale of investment in real property, related party   -    2,670,000 
Purchase of SMC, net of cash received   (8,239,000)   - 
Cash received upon acquisition of AVLP   1,245,000    - 
Acquisition of non-controlling interests   (2,230,000)   - 
Purchase of marketable equity securities   (1,981,000)   - 
Sales of marketable equity securities   11,733,000    430,000 
Investments in loans receivable   (2,728,000)   - 
Principal payments on loans receivable   10,525,000    - 
Sale of digital currencies   4,377,000    - 
Investments in equity securities   (15,820,000)   (4,054,000)
Net cash used in investing activities   (82,760,000)   (29,737,000)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-8 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

   For the Six Months Ended June 30, 
       2021 
   2022  

Restated

 
Cash flows from financing activities:        
Gross proceeds from sales of common stock  $163,426,000   $144,044,000 
Financing cost in connection with sales of common stock   (4,024,000)   (4,541,000)
Proceeds from sales of preferred stock   3,666,000    - 
Financing cost in connection with sales of preferred stock   (537,000)   - 
Proceeds from notes payable   4,945,000    500,000 
Repayment of margin accounts   (18,488,000)   - 
Payments on notes payable   (65,999,000)   (1,917,000)
Payments of preferred dividends   (49,000)   (9,000)
Purchase of treasury stock   (7,459,000)   - 
Payments on revolving credit facilities, net   -    (23,000)
Net cash provided by financing activities   75,481,000    138,054,000 
           
Effect of exchange rate changes on cash and cash equivalents   (152,000)   93,000 
           
Net increase in cash and cash equivalents and restricted cash   7,572,000    86,711,000 
           
Cash and cash equivalents and restricted cash at beginning of period   21,233,000    18,680,000 
           
Cash and cash equivalents and restricted cash at end of period  $28,805,000   $105,391,000 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for interest  $4,104,000   $658,000 
           
Non-cash investing and financing activities:          
Conversion of convertible notes payable into shares of common stock  $-   $450,000 
Settlement of accounts payable with digital currency  $413,000   $119,000 
Conversion of investment in unconsolidated entity for acquisition of AVLP  $23,406,000   $- 
Conversion of convertible notes payable, related party into shares of common stock  $400,000   $400,000 
Conversion of debt and equity securities to marketable securities  $24,828,000   $2,656,000 
Conversion of loans receivable to marketable securities  $3,600,000   $- 
Conversion of interest receivable to marketable securities  $231,000   $- 
Conversion of loans receivable to debt and equity securities  $-   $150,000 
Recognition of new operating lease right-of-use assets and lease liabilities  $2,188,000   $- 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-9 
 

 

1. DESCRIPTION OF BUSINESS

 

Ault Alliance, Inc., a Delaware corporation which was then known as BitNile Holdings, Inc. (“BitNile” or the “Company”) was incorporated in September 2017. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary. BitNile was founded by Milton “Todd” Ault, III, its Executive Chairman and is led by Mr. Ault, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Counsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the Company. All major investment and capital allocation decisions are made for the Company by Mr. Ault and the other members of the Executive Committee. The Company has eight reportable segments:

 

·BitNile, Inc. (“BNI”) – cryptocurrency mining operations;

 

·Ault Alliance, Inc. (“Ault Alliance”) – commercial lending, activist investing, media, and digital learning;

 

·Gresham Worldwide, Inc. (“GWW”) – defense solutions;

 

·TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions;

 

·The Singing Machine Company, Inc. (“SMC”) – karaoke audio equipment;

 

·Avalanche International Corp. (“Avalanche” or “AVLP”) – advanced textiles processing technology;

 

·Ault Global Real Estate Equities, Inc. (“AGREE”) – hotel operations and other commercial real estate holdings; and

 

·Ault Disruptive Technologies Corporation (“Ault Disruptive”) – a special purpose acquisition company (“SPAC”).

 

1 A. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

This Amendment amends the Quarterly Report on Form 10-Q of the Company for the six months ended June 30, 2022, that was originally filed with the U.S. Securities and Exchange Commission on August 22, 2022. This Amendment only corrects an error in classification with respect to changes in fair value of financial instruments issued by a related party. The changes in fair value were erroneously recorded in other comprehensive income (loss) and have been reclassified to correct for the error within the statement of operations. The Company has restated its Condensed Consolidated Statements of Operations and Comprehensive Loss, Condensed Consolidated Statements of Changes in Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows to correct this misclassification. Further, this Amendment also includes certain limited modifications to reflect the correct classification in disclosures in the Company’s Note 20 Net (Loss) Income per Share footnote in the Company’s Notes to Condensed Consolidated Financial Statements. Finally, the Company has modified its disclosures in Item 4 of Part I to reflect the identification of an additional material weakness.

 

 F-10 
 

 

As a result, the Condensed Consolidated Statements of Operations and Comprehensive Loss amounts of “Change in fair value of equity securities, related party” and “Net unrealized gain on derivative securities of related party” were adjusted pursuant to the schedules below:

               
   For the Three Months Ended 
   June 30, 2021 
   As Reported   Adjustment   As Restated 
 Revenue  $8,564,000   $-   $8,564,000 
 Revenue, cryptocurrency mining, net   291,000         291,000 
 Revenue, lending and trading activities   53,274,000         53,274,000 
 Total revenue   62,129,000    -    62,129,000 
 Cost of revenue   6,278,000         6,278,000 
 Gross profit   55,851,000    -    55,851,000 
                
 Operating expenses               
 Research and development   531,000         531,000 
 Selling and marketing   1,505,000         1,505,000 
 General and administrative   7,992,000         7,992,000 
 Total operating expenses   10,028,000    -    10,028,000 
                
 Income from operations   45,823,000         45,823,000 
 Other income (expenses)               
 Interest and other income   14,000         14,000 
Change in fair value of equity securities, related party   -    (5,893,000)   (5,893,000)
 Interest expense   (22,000)        (22,000)
 Change in fair value of marketable equity securities   (1,915,000)        (1,915,000)
 Gain on extinguishment of debt   447,000         447,000 
 Change in fair value of warrant liability   290,000         290,000 
 Total other expenses, net   (1,186,000)   (5,893,000)   (7,079,000)
                
 Income (loss) before income taxes   44,637,000    (5,893,000)   38,744,000 
 Income tax provision   (3,504,000)        (3,504,000)
 Net income (loss)   41,133,000    (5,893,000)   35,240,000 
 Net income attributable to non-controlling interest   1,083,000         1,083,000 
 Net income (loss) attributable to Ault Alliance, Inc.   42,216,000    (5,893,000)   36,323,000 
 Preferred dividends   (4,000)        (4,000)
 Net income (loss) available to common stockholders  $42,212,000   $(5,893,000)  $36,319,000 
                
 Basic net income (loss) per common share  $0.83        $0.72 
 Diluted net income (loss) per common share  $0.81        $0.69 
                
 Weighted average basic common shares outstanding   50,783,000         50,783,000 
 Weighted average diluted common shares outstanding   52,780,000         52,780,000 
                
 Comprehensive income               
 Net income (loss) available to common stockholders  $42,212,000   $(5,893,000)  $36,319,000 
 Other comprehensive income (loss)               
 Foreign currency translation adjustment   134,000         134,000 
 Net unrealized gain on derivative securities of related party   (5,893,000)   5,893,000    - 
 Other comprehensive (loss) income   (5,759,000)   5,893,000    134,000 
 Total comprehensive income  $36,453,000   $-   $36,453,000 

 

 F-11 
 

  

                
   For the Six Months Ended 
   June 30, 2021 
   As Reported   Adjustment   As Restated 
 Revenue  $16,469,000   $-   $16,469,000 
 Revenue, cryptocurrency mining, net   421,000         421,000 
 Revenue, lending and trading activities   58,485,000         58,485,000 
 Total revenue   75,375,000    -    75,375,000 
 Cost of revenue   11,386,000         11,386,000 
 Gross profit   63,989,000    -    63,989,000 
                
 Operating expenses               
 Research and development   1,133,000         1,133,000 
 Selling and marketing   2,747,000         2,747,000 
 General and administrative   13,084,000         13,084,000 
 Total operating expenses   16,964,000    -    16,964,000 
                
 Income from operations   47,025,000         47,025,000 
 Other income (expenses)               
 Interest and other income   51,000         51,000 
Change in fair value of equity securities, related party   -    (2,924,000)   (2,924,000)
 Interest expense   (337,000)        (337,000)
 Change in fair value of marketable equity securities   45,000         45,000 
 Realized gain on marketable securities   397,000         397,000 
 Gain on extinguishment of debt   929,000         929,000 
 Change in fair value of warrant liability   (388,000)        (388,000)
 Total other (expenses) income, net   697,000    (2,924,000)   (2,227,000)
                
 Income (loss) before income taxes   47,722,000    (2,924,000)   44,798,000 
 Income tax provision   (3,510,000)        (3,510,000)
 Net income (loss)   44,212,000    (2,924,000)   41,288,000 
 Net income attributable to non-controlling interest   3,000         3,000 
 Net income (loss) attributable to Ault Alliance, Inc.   44,215,000    (2,924,000)   41,291,000 
 Preferred dividends   (9,000)        (9,000)
 Net income (loss) available to common stockholders  $44,206,000   $(2,924,000)  $41,282,000 
                
 Basic net income (loss) per common share  $0.98        $0.92 
 Diluted net income (loss) per common share  $0.92        $0.86 
                
 Weighted average basic common shares outstanding   45,052,000         45,052,000 
 Weighted average diluted common shares outstanding   47,574,000         47,574,000 
                
 Comprehensive income               
 Net income (loss) available to common stockholders  $44,206,000   $(2,924,000)  $41,282,000 
 Other comprehensive income (loss)               
 Foreign currency translation adjustment   41,000         41,000 
 Net unrealized gain on derivative securities of related party   (2,924,000)   2,924,000    - 
 Other comprehensive (loss) income   (2,883,000)   2,924,000    41,000 
 Total comprehensive income  $41,323,000   $-   $41,323,000 

 

 F-12 
 

 

The Condensed Consolidated Statements of Changes in Stockholders’ Equity amounts of “Accumulated deficit” and “Accumulated other comprehensive loss” were adjusted pursuant to the schedules below:

               
   January 1, 2021 
   As Reported   Adjustment   As Restated 
STOCKHOLDERS’ EQUITY               
Common stock  $28,000   $-   $28,000 
Additional paid-in capital   171,396,000         171,396,000 
Accumulated deficit   (121,396,000)   (933,000)   (122,329,000)
Accumulated other comprehensive loss   (1,718,000)   933,000    (785,000)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY   48,310,000    -    48,310,000 
                
Non-controlling interest   822,000         822,000 
                
TOTAL STOCKHOLDERS’ EQUITY  $49,132,000   $-   $49,132,000 

 

                
   April 1, 2021 
    As Reported    Adjustment    As Restated 
STOCKHOLDERS’ EQUITY               
Common stock  $49,000   $-   $49,000 
Additional paid-in capital   292,763,000         292,763,000 
Accumulated deficit   (119,402,000)   2,036,000    (117,366,000)
Accumulated other comprehensive loss   1,158,000    (2,036,000)   (878,000)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY   174,568,000    -    174,568,000 
                
Non-controlling interest   1,902,000         1,902,000 
                
TOTAL STOCKHOLDERS’ EQUITY  $176,470,000   $-   $176,470,000 

 

                
   June 30, 2021 
    As Reported    Adjustment    As Restated 
STOCKHOLDERS’ EQUITY               
Common stock  $56,000   $-   $56,000 
Additional paid-in capital   311,760,000         311,760,000 
Accumulated deficit   (77,190,000)   (3,857,000)   (81,047,000)
Accumulated other comprehensive loss   (4,601,000)   3,857,000    (744,000)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY   230,025,000    -    230,025,000 
                
Non-controlling interest   1,364,000         1,364,000 
                
TOTAL STOCKHOLDERS’ EQUITY  $231,389,000   $-   $231,389,000 

 

 F-13 
 

 

Further, the reclassification also resulted in a corresponding decrease in net income and a decrease in unrealized gains on equity securities, related party within net cash used in operating activities, as reflected in the Company’s Condensed Consolidated Statements of Cash Flows, as follows:

               
   For the Six Months Ended 
   June 30, 2021 
   As Reported   Adjustment   As Restated 
Cash flows from operating activities:               
Net income  $44,212,000   $(2,924,000)  $41,288,000 
Adjustments to reconcile net income to net cash used in operating activities:               
Depreciation and amortization   1,093,000         1,093,000 
Interest expense – debt discount   40,000         40,000 
Gain on extinguishment of debt   (929,000)        (929,000)
Change in fair value of warrant liability   (290,000)        (290,000)
Accretion of original issue discount on notes receivable – related party   (4,000)        (4,000)
Accretion of original issue discount on notes receivable   (955,000)        (955,000)
Increase in accrued interest on notes receivable – related party   (1,000)        (1,000)
Stock-based compensation   584,000         584,000 
Realized gains on sale of marketable securities   (12,283,000)        (12,283,000)
Unrealized losses (gains) on marketable securities   (3,483,000)        (3,483,000)
Unrealized losses (gains) on equity securities, related parties   (39,852,000)   2,924,000    (36,928,000)
Unrealized gains on equity securities   (1,224,000)        (1,224,000)
Changes in operating assets and liabilities:               
Marketable equity securities   (9,616,000)        (9,616,000)
Accounts receivable   (887,000)        (887,000)
Accrued revenue   78,000         78,000 
Inventories   485,000         485,000 
Prepaid expenses and other current assets   (2,537,000)        (2,537,000)
Other assets   (246,000)        (246,000)
Accounts payable and accrued expenses   83,000         83,000 
Other current liabilities   4,472,000         4,472,000 
Lease liabilities   (439,000)        (439,000)
Net cash used in operating activities  $(21,699,000)  $-   $(21,699,000)

 

2. LIQUIDITY AND FINANCIAL CONDITION

 

As of June 30, 2022, the Company had cash and cash equivalents of $24.1 million and working capital of $51.4 million. The Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. The Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.

 

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, 2021, filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2022. The condensed consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited 2021 financial statements contained in the above referenced Form 10-K. Results of the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

 

 F-14 
 

 

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 2021 Annual Report.

 

Business Combination

 

The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired customer relations, technology, tradenames and know how are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition.

 

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquirer is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.

 

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.

 

Recent Accounting Standards

 

In May 2021, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The guidance became effective for the Company on January 1, 2022. The Company adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its unaudited condensed consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” (“ASU No. 2016-13”) to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its condensed consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Effective January 1, 2022, the Company early adopted ASU 2020-06 using the modified retrospective approach, which resulted in no impact on its condensed consolidated financial statements.

 

 F-15 
 

 

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements.

 

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832),” which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an issuer’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company expects that this guidance will not have a significant impact on its condensed consolidated financial statements.

 

4. REVENUE DISAGGREGATION

 

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three and six months ended June 30, 2022 and 2021. 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, 2022:

                              
   Three months ended June 30, 2022 
   GWW   TurnOnGreen   Ault
Alliance
   BNI   AGREE   Total 
Primary Geographical Markets                        
 North America  $1,111,000   $822,000   $12,000   $4,248,000   $4,598,000   $10,791,000 
 Europe   2,540,000    28,000    -    -    -    2,568,000 
 Middle East and other   2,852,000    212,000    -    -    -    3,064,000 
 Revenue from contracts with customers   6,503,000    1,062,000    12,000    4,248,000    4,598,000    16,423,000 
 Revenue, lending and trading activities (North America)   -    -    943,000    -    -    943,000 
 Total revenue  $6,503,000   $1,062,000   $955,000   $4,248,000   $4,598,000   $17,366,000 
                               
 Major Goods or Services                              
 RF/microwave filters   559,000    -    -    -    -    559,000 
 Detector logarithmic video amplifiers   692,000    -    -    -    -    692,000 
 Power supply units   1,698,000    1,016,000    -    -    -    2,714,000 
 Power supply systems   609,000    -    -    -    -    609,000 
 Healthcare diagnostic systems   1,992,000    -    -    -    -    1,992,000 
 Electric vehicle chargers   -    46,000    -    -    -    46,000 
 Defense systems   953,000    -    -    -    -    953,000 
 Digital currency mining   -    -    -    3,976,000    -    3,976,000 
 Hotel operations   -    -    -    -    4,598,000    4,598,000 
 Other   -    -    12,000    272,000    -    284,000 
 Revenue from contracts with customers   6,503,000    1,062,000    12,000    4,248,000    4,598,000    16,423,000 
 Revenue, lending and trading activities   -    -    943,000    -    -    943,000 
 Total revenue  $6,503,000   $1,062,000   $955,000   $4,248,000   $4,598,000   $17,366,000 
                               
 Timing of Revenue Recognition                              
 Goods transferred at a point in time  $3,601,000   $1,062,000   $12,000   $4,248,000   $4,598,000   $13,521,000 
 Services transferred over time   2,902,000    -    -    -    -    2,902,000 
 Revenue from contracts with customers  $6,503,000   $1,062,000   $12,000   $4,248,000   $4,598,000   $16,423,000 

 

 F-16 
 

 

The Company’s disaggregated revenues consisted of the following for the six months ended June 30, 2022:

 

   Six months ended June 30, 2022 
   GWW   TurnOnGreen   Ault
Alliance
   BNI   AGREE   Total 
Primary Geographical Markets                        
 North America  $2,622,000   $1,834,000   $19,000   $8,074,000   $7,296,000   $19,845,000 
 Europe   4,719,000    47,000    -    -    -    4,766,000 
 Middle East and other   6,407,000    310,000    -    -    -    6,717,000 
 Revenue from contracts with customers   13,748,000    2,191,000    19,000    8,074,000    7,296,000    31,328,000 
 Revenue, lending and trading activities (North America)   -    -    18,864,000    -    -    18,864,000 
 Total revenue  $13,748,000   $2,191,000   $18,883,000   $8,074,000   $7,296,000   $50,192,000 
                               
 Major Goods or Services                              
 RF/microwave filters   2,070,000    -    -    -    -    2,070,000 
 Detector logarithmic video amplifiers   692,000    -    -    -    -    692,000 
 Power supply units   4,129,000    2,112,000    -    -    -    6,241,000 
 Power supply systems   657,000    -    -    -    -    657,000 
 Healthcare diagnostic systems   1,992,000    -    -    -    -    1,992,000 
 Electric vehicle chargers   -    79,000    -    -    -    79,000 
 Defense systems   4,208,000    -    -    -    -    4,208,000 
 Digital currency mining   -    -    -    7,524,000    -    7,524,000 
 Hotel operations   -    -    -    -    7,296,000    7,296,000 
 Other   -    -    19,000    550,000    -    569,000 
 Revenue from contracts with customers   13,748,000    2,191,000    19,000    8,074,000    7,296,000    31,328,000 
 Revenue, lending and trading activities   -    -    18,864,000    -    -    18,864,000 
 Total revenue  $13,748,000   $2,191,000   $18,883,000   $8,074,000   $7,296,000   $50,192,000 
                               
 Timing of Revenue Recognition                              
 Goods transferred at a point in time  $7,113,000   $2,191,000   $19,000   $8,074,000   $7,296,000   $24,693,000 
 Services transferred over time   6,635,000    -    -    -    -    6,635,000 
 Revenue from contracts with customers  $13,748,000   $2,191,000   $19,000   $8,074,000   $7,296,000   $31,328,000 

 

 F-17 
 

 

The Company’s disaggregated revenues consisted of the following for the three months ended June 30, 2021:

 

   Three months ended June 30, 2021 
   GWW   TurnOnGreen   Ault Alliance   Total 
Primary Geographical Markets                
 North America  $2,140,000   $1,289,000   $550,000   $3,979,000 
 Europe   1,842,000    453,000    -    2,295,000 
 Middle East and other   2,493,000    88,000    -    2,581,000 
 Revenue from contracts with customers   6,475,000    1,830,000    550,000    8,855,000 
 Revenue, lending and trading activities (North America)   -    -    53,274,000    53,274,000 
 Total revenue  $6,475,000   $1,830,000   $53,824,000   $62,129,000 
                     
 Major Goods                    
 RF/microwave filters  $1,076,000   $-   $-   $1,076,000 
 Detector logarithmic video amplifiers   73,000    -    -    73,000 
 Power supply units   240,000    1,830,000    -    2,070,000 
 Power supply systems   2,475,000    -    -    2,475,000 
 Healthcare diagnostic systems   228,000    -    -    228,000 
 Defense systems   2,383,000    -    -    2,383,000 
 Digital currency mining   -    -    291,000    291,000 
 Other   -    -    259,000    259,000 
 Revenue from contracts with customers   6,475,000    1,830,000    550,000    8,855,000 
 Revenue, lending and trading activities   -    -    53,274,000    53,274,000 
 Total revenue  $6,475,000   $1,830,000   $53,824,000   $62,129,000 
                     
 Timing of Revenue Recognition                    
 Goods transferred at a point in time  $3,863,000   $1,830,000   $550,000   $6,243,000 
 Services transferred over time   2,612,000    -    -    2,612,000 
 Revenue from contracts with customers  $6,475,000   $1,830,000   $550,000   $8,855,000 

 

The Company’s disaggregated revenues consisted of the following for the six months ended June 30, 2021:

 

   Six months ended June 30, 2021 
   GWW   TurnOnGreen   Ault Alliance   Total 
Primary Geographical Markets                
 North America  $4,029,000   $2,497,000   $852,000   $7,378,000 
 Europe   3,752,000    562,000    -    4,314,000 
 Middle East and other   5,044,000    154,000    -    5,198,000 
 Revenue from contracts with customers   12,825,000    3,213,000    852,000    16,890,000 
 Revenue, lending and trading activities (North America)   -    -    58,485,000    58,485,000 
 Total revenue  $12,825,000   $3,213,000   $59,337,000   $75,375,000 
                     
 Major Goods                    
 RF/microwave filters  $2,291,000   $-   $-   $2,291,000 
 Detector logarithmic video amplifiers   144,000    -    -    144,000 
 Power supply units   478,000    3,213,000    -    3,691,000 
 Power supply systems   4,708,000    -    -    4,708,000 
 Healthcare diagnostic systems   413,000    -    -    413,000 
 Defense systems   4,791,000    -    -    4,791,000 
 Digital currency mining   -    -    421,000    421,000 
 Other   -    -    431,000    431,000 
 Revenue from contracts with customers   2,825,000    3,213,000    852,000    16,890,000 
 Revenue, lending and trading activities   -    -    58,485,000    58,485,000 
 Total revenue  $12,825,000   $3,213,000   $59,337,000   $75,375,000 
                     
 Timing of Revenue Recognition                    
 Goods transferred at a point in time  $7,621,000   $3,213,000   $852,000   $11,686,000 
 Services transferred over time   5,204,000    -    -    5,204,000 
 Revenue from contracts with customers  $12,825,000   $3,213,000   $852,000   $16,890,000 

 

 

 F-18 
 

 

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:

                    
   Fair Value Measurement at June 30, 2022 
   Total   Level 1   Level 2   Level 3 
Investment in term promissory note of Ault & Company, Inc. (“Ault & Company”) and other – a related party  $2,770,000   $-   $-   $2,770,000 
Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party   8,845,000    8,845,000    -    - 
Investments in marketable equity securities   17,467,000    17,467,000    -    - 
Cash and marketable securities held in trust account   116,895,000    116,895,000    -    - 
Investments in other equity securities   804,000    -    -    804,000 
Total assets measured at fair value  $146,781,000   $143,207,000   $-   $3,574,000 

 

   Fair Value Measurement at December 31, 2021 
   Total   Level 1   Level 2   Level 3 
Investment in term promissory note of Ault & Company and other – a related party  $2,842,000   $-   $-   $2,842,000 
Investment in common stock of Alzamend – a related party   13,230,000    13,230,000    -    - 
Investments in marketable equity securities   40,380,000    40,380,000    -    - 
Cash and marketable securities held in trust account   116,725,000    116,725,000    -    - 
Investments in other equity securities   9,215,000    -    -    9,215,000 
Total assets measured at fair value  $182,392,000   $170,335,000   $-   $12,057,000 

 

The Company assesses the inputs used to measure fair value using the three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks.

 

 The following table summarizes the changes in investments in other equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the six months ended June 30, 2022:

     
   Investments in
other equity
securities
 
 Balance at January 1, 2022  $9,215,000 
 Investment in preferred stock   2,550,000 
 Change in fair value of warrants   13,867,000 
 Conversion to marketable securities   (24,828,000)
 Balance at June 30, 2022  $804,000 

 

See Note 11 for the changes in investments in Ault & Company measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) during the three and six months ended June 30, 2022.

 

Other equity securities also include investments in entities that do not have a readily determinable fair value and do not report net asset value per share. These investments are accounted for using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments. Observable price changes result from, among other things, equity transactions for the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. For these transactions to be considered observable price changes of the same issuer, the Company evaluates whether these transactions have similar rights and obligations, including voting rights, distribution preferences, conversion rights, and other factors, to the investments the Company holds. Any investments adjusted to their fair value by applying the measurement alternative are disclosed as nonrecurring fair value measurements, including the level in the fair value hierarchy that was used. As of June 30, 2022 and December 31, 2021, investments in other equity securities valued using a measurement alternative of $37.7 million and $21.3 million, respectively, are included in other equity securities in the accompanying condensed consolidated balance sheets.

 

 F-19 
 

 

The following table presents information on the assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021. These investments were not measured due to an observable price change or impairment during the six months ended June 30, 2022.

                
   Fair Value Measurement Using 
   Total   Quoted prices
in active
markets for
identical assets  
(Level 1)
   Other
observable
inputs
(Level 2)
   Significant
unobservable
inputs
(Level 3)
 
As of June 30, 2022                
Investments in other equity securities that do not report net asset value  $37,691,000   $-   $-   $37,691,000 

 

   Fair Value Measurement Using  
   Total    Quoted prices
in active
markets for
identical assets
(Level 1)
   Other
observable
inputs
(Level 2)
   Significant
unobservable
inputs
(Level 3)
 
As of December 31, 2021                    
Investments in other equity securities that do not report net asset value  $21,241,000   $-   $-   $21,241,000 

 

6. MARKETABLE EQUITY SECURITIES

 

Marketable equity securities with readily determinable market prices consisted of the following as of June 30, 2022 and December 31, 2021:

                    
   Marketable equity securities at June 30, 2022 
       Gross unrealized   Gross unrealized     
   Cost   gains   losses   Fair value 
 Common shares  $26,063,000   $481,000   $(9,077,000)  $17,467,000 

 

   Marketable equity securities at December 31, 2021 
       Gross unrealized   Gross unrealized     
   Cost   gains   losses   Fair value 
 Common shares  $53,475,000   $32,000   $(13,127,000)  $40,380,000 

 

The Company’s investment in marketable equity securities are revalued on each balance sheet date.

 

 F-20 
 

 

7. PROPERTY AND EQUIPMENT, NET

 

At June 30, 2022 and December 31, 2021, property and equipment consisted of:

          
   June 30, 2022   December 31, 2021 
Cryptocurrency machines and related equipment  $76,963,000   $10,763,000 
Computer, software and related equipment   18,697,000    8,884,000 
Office furniture and equipment   2,585,000    702,000 
Land   25,696,000    25,696,000 
Building and improvements   70,926,000    68,959,000 
    194,867,000    115,004,000 
Accumulated depreciation and amortization   (10,403,000)   (5,096,000)
Property and equipment placed in service, net   184,464,000    109,908,000 
Deposits on cryptocurrency machines   61,523,000    64,117,000 
Property and equipment, net  $245,987,000   $174,025,000 

 

For the six months ended June 30, 2022 and 2021, depreciation expense amounted to $6.3 million and $0.4 million, respectively.

 

8. BUSINESS COMBINATIONS

 

Overview of AVLP Acquisition

 

On June 1, 2022, the Company converted the principal amount under the convertible promissory notes issued to it by AVLP and accrued but unpaid interest into common stock of AVLP. The Company converted $20.0 million in principal and $5.9 million of accrued interest receivable at a conversion price of $0.50 per share and received 51,889,168 shares of common stock increasing its common stock ownership of AVLP from less than 20% to approximately 92%.

 

Prior to the conversion of the convertible promissory notes, the Company accounted for its investment in AVLP as an investment in an unconsolidated entity under the equity method of accounting. In connection with the conversion of the convertible promissory notes, the Company’s consolidated financial statements now include all of the accounts of AVLP, and any significant intercompany balances and transactions have been eliminated in consolidation.

 

The consideration transferred for the Company’s approximate 92% ownership interest in connection with this acquisition aggregated $20.7 million, which represented the fair value of the Company’s holdings in AVLP immediately prior to conversion. The carrying amount of the Company’s holdings in AVLP immediately prior to conversion was $23.4 million, resulting in a $2.7 million loss for the related remeasurement, which was recognized in interest and other income. The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the acquisition date. The goodwill resulting from this acquisition is not tax deductible.

 

 F-21 
 

 

The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

     
   Preliminary
allocation
 
 Total purchase consideration  $20,706,000 
 Fair value of non-controlling interest   6,706,000 
 Total consideration   $27,412,000 
      
 Identifiable net liabilities assumed:     
 Cash  $1,245,000 
 Prepaid expenses and other current assets   55,000 
 Property and equipment   5,057,000 
 Note receivable   800,000 
 Accounts payable and accrued expenses   (6,935,000)
 Convertible notes payable, principal   (9,734,000)
 Fair value of embedded derivative   (1,226,000)

Fair value of bifurcated conversion option

   

(4,425,000

)

Fair value of bifurcated put option

   

(200,000

)
 Net liabilities assumed   (15,363,000)
 Goodwill  $42,775,000 

 

The Company consolidates the results of AVLP on a one-month lag, therefore the statements of operations do not include results for AVLP for the three and six months ended June 30, 2022.

 

Overview of SMC Acquisition

 

Beginning in June 2022, the Company, through its subsidiary Digital Power Lending, LLC (“DP Lending”), began making open market purchases of SMC common stock. These purchases granted the Company a greater than 20% effective ownership on June 9, 2022, and subsequently, on June 15, 2022, the Company owned more than 50% of the issued and outstanding common stock of SMC. The Company’s ownership of SMC stands at 51.6% as of June 30, 2022.

 

As of June 15, 2022 (“Acquisition Date”), the purchase price of the common stock acquired totaled $7.4 million and on June 15, 2022 a $3.1 million gain was recognized in interest and other income for the remeasurement of the Company’s previously held ownership interest to $10.5 million, based on the trading price of SMC common stock. The Company also recognized non-controlling interest at fair value as of the Acquisition Date in the amount of $10.3 million.

 

The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed, is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the Acquisition Date. The goodwill resulting from this acquisition is not tax deductible.

 

The Company consolidates the results of SMC on a one-quarter lag as it enables the Company to report its quarterly results independent from the timing of when SMC reports its results, therefore the statements of operations do not include results for SMC for the three and six months ended June 30, 2022.

 

 F-22 
 

 

The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

<
     
   Preliminary
Allocation
 
 Total purchase consideration  $10,517,000 
 Fair value of non-controlling interest   10,336,000 
 Total consideration  $20,853,000 
      
 Identifiable net assets acquired:     
 Cash  $2,278,000 
 Accounts receivable   9,891,000 
 Prepaid expenses and other current assets   673,000 
 Inventories   12,840,000