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 | ||
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 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
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)
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, $ stated value per share, | ||||||||
| $ par value – shares authorized; 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, $ stated value per share, | ||||||||
| share, $ par value – shares authorized; 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, $ stated | ||||||||
| value per share, $ par value – shares authorized; | ||||||||
| shares authorized, shares and 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, $ par value – shares authorized; | 324,000 | 84,000 | ||||||
| and shares issued and outstanding at June 30, | ||||||||
| 2022 and December 31, 2021, respectively | ||||||||
| Class B Common Stock, $ par value – shares authorized; | ||||||||
| 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:
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 | |||
| Property and equipment, net | 529,000 | |||
| Right-of-use assets | 1,073,000 | |||
| Other assets | 83,000 | |||
| Intangible assets: | ||||
| Trade names-estimated useful life of 19 years | 2,470,000 | |||
| Customer relationships-estimated useful life of 16 years | 1,380,000 | |||
| Proprietary technology-estimated useful life of 3 years | 600,000 | |||
| Accounts payable and accrued expenses | (10,052,000 | ) | ||
| Notes payable | (2,972,000 | ) | ||
| Lease liabilities | (1,124,000 | ) | ||
| Net assets acquired | 17,669,000 | |||
| Goodwill | $ | 3,184,000 | ||
Unaudited Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2022 have been prepared as if the SMC acquisition had occurred on January 1, 2022.
| Three Months Ended | ||||||||