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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the quarterly period ended March 31, 2024

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the transition period from ________ to ________.

 

Commission file number 1-12711

 

AULT ALLIANCE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 94-1721931
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification Number)

 

11411 Southern Highlands Parkway, Suite 240

Las Vegas, NV 89141

(Address of principal executive offices) (Zip code)

 

(949) 444-5464

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:    
         
Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, $0.001 par value   AULT   NYSE American
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share   AULT PRD   NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding year (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨ Accelerated filer  ¨
Non-accelerated filer  x Smaller reporting company  x
Emerging growth company  ¨  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨    No  x

 

At May 19, 2024, the registrant had outstanding 30,065,339 shares of Class A common stock.

 

 

  
 

 

AULT ALLIANCE, INC.

TABLE OF CONTENTS

 

      Page
PART I – FINANCIAL INFORMATION  
       
Item 1.   Financial Statements (Unaudited)  
       
    Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 F-1
       
    Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023 F-3
       
    Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023 F-4
       
    Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 F-6
       
    Notes to Condensed Consolidated Financial Statements F-8
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
       
Item 3.    Quantitative and Qualitative Disclosures about Market Risk 7
       
Item 4.   Controls and Procedures 7
       
PART II – OTHER INFORMATION  
       
Item 1.   Legal Proceedings 9
Item 1A.   Risk Factors 9
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3.   Defaults Upon Senior Securities 9
Item 4.   Mine Safety Disclosures 9
Item 5.   Other Information 9
Item 6.   Exhibits 9

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, particularly the “Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

 

  
 

 

PART I – FINANCIAL INFORMATION

 

Item 1.Financial Statements.

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

           
   March 31,   December 31, 
   2024   2023 
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $9,430,000   $8,626,000 
Restricted cash   5,463,000    4,966,000 
Marketable equity securities   

9,426,000

    

27,000

 
Accounts receivable, net   11,579,000    10,839,000 
Inventories   7,599,000    8,384,000 
Investment in promissory notes and other, related party   -    3,968,000 
Loans receivable, current   1,364,000    1,234,000 
Prepaid expenses and other current assets   8,035,000    9,450,000 
Current assets of discontinued operations   91,872,000    90,991,000 
TOTAL CURRENT ASSETS   144,768,000    138,485,000 
           
Cash and marketable securities held in trust account   794,000    2,200,000 
Intangible assets, net   5,482,000    5,754,000 
Goodwill   6,010,000    6,088,000 
Property and equipment, net   103,989,000    108,829,000 
Right-of-use assets   7,211,000    6,315,000 
Investments in common stock and equity securities, related party   2,768,000    679,000 
Investments in other equity securities   20,077,000    21,767,000 
Other assets   8,678,000    9,073,000 
TOTAL ASSETS  $299,777,000   $299,190,000 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $61,759,000   $66,443,000 
Operating lease liability, current   2,385,000    2,119,000 
Notes payable, current   12,370,000    12,866,000 
Notes payable, related party, current   293,000    2,375,000 
Convertible notes payable, current   11,131,000    11,763,000 
Guarantee liability   38,900,000    38,900,000 
Current liabilities of discontinued operations   71,405,000    70,361,000 
TOTAL CURRENT LIABILITIES   198,243,000    204,827,000 

 

 

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

 

 F-1 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Unaudited)

 

   March 31,   December 31, 
   2024   2023 
LONG TERM LIABILITIES          
Operating lease liability, non-current   5,514,000    4,402,000 
Notes payable, non-current   17,314,000    18,158,000 
Convertible notes payable, non-current   9,453,000    9,453,000 
Deferred underwriting commissions of Ault Disruptive Technologies Corporation (“Ault Disruptive”) subsidiary   3,450,000    3,450,000 
TOTAL LIABILITIES   233,974,000    240,290,000 
           
COMMITMENTS AND CONTINGENCIES          
           
Redeemable non-controlling interests in equity of subsidiaries   784,000    2,224,000 
           
STOCKHOLDERS’ EQUITY          
Series A Convertible Preferred Stock, $25 stated value per share, $0.001 par value – 1,000,000 shares authorized; 7,040 shares issued and outstanding at March 31, 2024 and December 31, 2023 (liquidation preference of $176,000 as of March 31, 2024 and December 31, 2023)   -    - 
Series C Convertible Preferred Stock, $1,000 stated value per share, share, $0.001 par value – 50,000 shares authorized; 43,500 and 41,500 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively (liquidation preference of $43,500,000 and $41,500,000 at March 31, 2024 and December 31, 2023, respectively)   -    - 
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated value per share, $0.001 par value – 2,000,000 shares authorized; 323,835 and 425,197 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively (liquidation preference of $8,096,000 as of March 31, 2024 and December 31, 2023)   -    - 
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized; 30,065,339 and 4,483,459 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively   30,000    4,000 
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023   -    - 
Additional paid-in capital   656,587,000    644,852,000 
Accumulated deficit   (565,035,000)   (567,469,000)
Accumulated other comprehensive loss   (2,061,000)   (2,097,000)
Treasury stock, at cost   (30,571,000)   (30,571,000)
TOTAL AULT ALLIANCE STOCKHOLDERS’ EQUITY   58,950,000    44,719,000 
           
Non-controlling interest   6,069,000    11,957,000 
           
TOTAL STOCKHOLDERS’ EQUITY   65,019,000    56,676,000 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $299,777,000   $299,190,000 

 

 

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

 

 F-2 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

           
   For the Three Months Ended
March 31,
 
   2024   2023 
Revenue  $11,468,000   $13,889,000 

Revenue, digital assets mining

   11,447,000    7,347,000 
Revenue, crane operations   12,918,000    12,646,000 
Revenue, lending and trading activities   9,099,000    (4,939,000)
Total revenue   44,932,000    28,943,000 
Cost of revenue, products   9,164,000    9,787,000 

Cost of revenue, digital assets mining

   8,544,000    8,103,000 
Cost of revenue, crane operations   7,715,000    7,388,000 
Cost of revenue, lending and trading activities   -    1,180,000 
Total cost of revenue   25,423,000    26,458,000 
Gross profit   19,509,000    2,485,000 
Operating expenses          
Research and development   1,072,000    1,842,000 
Selling and marketing   4,660,000    8,796,000 
General and administrative   13,380,000    21,571,000 
Impairment of mined digital assets   -    139,000 
Total operating expenses   19,112,000    32,348,000 
Income (loss) from operations   397,000   (29,863,000)
Other income (expense):          
Interest and other income   583,000    1,197,000 
Interest expense   (4,900,000)   (12,100,000)
Gain on conversion of investment in equity securities to marketable equity securities   

17,900,000

    - 
Gain (loss) on extinguishment of debt   1,405,000    (63,000)
Loss from investment in unconsolidated entity   (667,000)   - 
Impairment of equity securities   -    (9,555,000)
Provision for loan losses, related party   (3,068,000)   - 
Gain on the sale of fixed assets   68,000    4,515,000 
Total other income (expense), net   11,321,000   (16,006,000)
Income (loss) before income taxes   11,718,000   (45,869,000)
Income tax benefit   (44,000)   (263,000)
Net income (loss) from continuing operations   11,762,000   (45,606,000)
Net loss from discontinued operations   (1,801,000)   (3,223,000)
Net income (loss)   9,961,000   (48,829,000)
Net (income) loss attributable to non-controlling interest   (6,244,000)   183,000 
Net income (loss) attributable to Ault Alliance, Inc.   3,717,000   (48,646,000)
Preferred dividends   (1,260,000)   (229,000)
Net income (loss) available to common stockholders  $2,457,000  $(48,875,000)
           
Basic net income (loss) per common share:          
Continuing operations  $0.26  $(971.32)
Discontinued operations   (0.11)   (68.57)
Basic net income (loss) per common share  $0.15  $(1,039.89)
           

Diluted net income (loss) per common share:

          

Continuing operations

  $0.14   $

(971.32

)

Discontinued operations

   (0.05)   (68.57)

Diluted net income (loss) per common share

  $0.09   $

(1,039.89

)
           

Weighted average common shares outstanding:

          
Basic   16,116,000    47,000 
Diluted   36,493,000    47,000 
           
Comprehensive income (loss)          
Net income (loss) available to common stockholders  $2,457,000  $(48,875,000)
Foreign currency translation adjustment   36,000    170,000 
Other comprehensive income   36,000    170,000 
Total comprehensive income (loss)  $2,493,000  $(48,705,000)

 

 

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

 

 F-3 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended March 31, 2024

                                                                       
   Preferred Stock           Additional       Other   Non-       Total 
   Series A   Series C   Series D   Class A Common Stock   Paid-In   Accumulated   Comprehensive   Controlling   Treasury   Stockholders’ 
   Shares   Par Amount   Shares   Par Amount   Shares   Par Amount   Shares   Amount   Capital   Deficit   Loss   Interest   Stock   Equity 
BALANCES, January 1, 2024   7,040   $-    41,500 -  $-    425,197   $-    4,483,459   $4,000   $644,852,000   $(567,469,000)  $(2,097,000)  $11,957,000   $(30,571,000)  $56,676,000 

Issuance of Series C preferred stock, related party

   -    -    2,000    -    -    -    -    -    1,818,000    -    -    -    -    1,818,000 

Fair value of warrants issued in connection with Series C preferred stock, related party

   -    -    -    -    -    -    -    -    182,000    -    -    -    -    182,000 
Stock-based compensation                                           577,000    -    -    -   -    577,000 

Issuance of Class A common stock for cash

   -    -    -    -    -    -    25,609,079    26,000    14,573,000    -    -    -    -    14,599,000 

Financing cost in connection with sales of Class A common stock

   -    -    -    -    -    -    -    -    (513,000)   -    -    -    -    (513,000)

Remeasurement of Ault Disruptive subsidiary temporary equity

   -    -    -    -    -    -    -    -    -    (23,000)   -    -    -    (23,000)

Sale of subsidiary stock to non-controlling interests

   -    -    -    -    -    -    -    -    -    -    -    1,485,000    -    1,469,000 

Distribution to Circle 8 Crane

Services, LLC (“Circle 8”) non-controlling interest

   -    -    -    -    -    -    -    -    -    -    -    (170,000)   -    (170,000)

Conversion of RiskOn International, Inc. (“ROI”) convertible note

   -    -    -    -    -    -    -    -    -    -    -    863,000    -    863,000 
Net income   -    -    - -   -    -    -    -    -    -    3,717,000   -    -    -    3,717,000

Series A preferred dividends ($0.63 per share)

                                                (4,000)                  (4,000)

Series C preferred dividends ($25.53 per share)

                                                (992,000)                  (992,000)

Series D preferred dividends ($0.81 per share)

                                                (264,000)                  (264,000)

Foreign currency translation adjustments

   -    -    -    -    -    -    -    -    -    -    36,000    -    -    36,000 

Net income attributable to non-controlling interest

   -    -    -    -    -    -    -    -    -    -    -    6,244,000   -    6,244,000

Distribution of securities of TurnOnGreen, Inc. (“TurnOnGreen”) to Ault Alliance Class A common stockholders ($2.02 per share)

   -    -    -    -    -    -    -    -    (4,900,000)   -    -    4,900,000    -    - 

Distribution of ROI investment in White River Energy Corp (“White River”)

to ROI stockholders

   -    -    -    -    -    -    -    -    -   -    -    (19,210,000)   -    (19,210,000)
Other   -    -    -    -    (101,362)   -    (27,199)   -    (2,000)   -    -    -    -    (2,000)
BALANCES, March 31, 2024   7,040   $-    43,500 -  $-    323,835   $-    30,065,339   $30,000   $656,587,000   $(565,035,000)  $(2,061,000)  $6,069,000   $(30,571,000)  $65,019,000 

 

 

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

 

 F-4 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended March 31, 2023

                                                                       
                                           Accumulated             
   Preferred Stock           Additional       Other   Non-       Total 
   Series A   Series B   Series D   Class A Common Stock   Paid-In   Accumulated   Comprehensive   Controlling   Treasury   Stockholders’ 
   Shares   Par Amount   Shares   Par Amount   Shares   Par Amount   Shares   Amount   Capital   Deficit   Loss   Interest   Stock   Equity 
BALANCES, January 1, 2023   7,040   $-    125,000   $-    172,838   $-    50,966   $-   $565,905,000   $(329,078,000)  $(1,100,000)  $17,496,000   $(29,235,000)  $223,988,000 

Issuance of Class A common stock for restricted stock awards

   -    -    -    -    -    -    199    -    -    -    -    -    -    - 
Preferred stock issued for cash   -    -    -    -    90,184    -    -    -    2,255,000    -    -    -    -    2,255,000 
Preferred stock offering costs   -    -    -    -    -    -    -    -    (1,079,000)   -    -    -    -    (1,079,000)
Stock-based compensation   -    -    -    -    -    -    -    -    3,931,000    -    -    617,000    -    4,548,000 

Issuance of Class A common stock for cash

   -    -    -    -    -    -    4,268    -    4,158,000    -    -    -    -    4,157,000 

Financing cost in connection with sales of Class A common stock

   -    -    -    -    -    -    -    -    (105,000)   -    -    -    -    (105,000)

Remeasurement of Ault Disruptive subsidiary temporary equity

   -    -    -    -    -    -    -    -    -    (679,000)   -    -    -    (679,000)

Increase in ownership interest

of subsidiary

   -    -    -    -    -    -    -    -    11,000    -    -    (22,000)   -    (11,000)

Non-controlling position at ROI subsidiary acquired

   -    -    -    -    -    -    -    -    -    -    -    6,357,000    -    6,357,000 

Purchase of treasury stock - Ault Alpha, LP

   -    -    -    -    -    -    -    -    -    -    -    -    (197,000)   (197,000)
Net loss   -    -    -    -    -    -    -    -    -    (48,645,000)   -    -    -    (48,645,000)

Series A preferred dividends ($0.63 per share)

   -    -    -    -    -    -    -    -    -    (4,000)   -    -    -    (4,000)

Series D preferred dividends ($0.81 per share)

   -    -    -    -    -    -    -    -    -    (162,000)   -    -    -    (162,000)

Foreign currency translation adjustments

   -    -    -    -    -    -    -    -    -    -    170,000    -    -    170,000 

Net loss attributable to non-controlling interest

   -    -    -    -    -    -    -    -    -    -    -    (183,000)   -    (183,000)
Other   -    -    -    -    -    -    -    -    (2,000)   (65,000)   (1,000)   -    -    (68,000)
BALANCES, March 31, 2023   7,040   $-    125,000   $-    263,022   $-    55,433   $-   $575,074,000.00   $(378,633,000)  $(931,000)  $24,265,000   $(29,432,000)  $190,343,000 

 

 

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

 

 F-5 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

           
   For the Three Months Ended March 31, 
   2024   2023 
Cash flows from operating activities:          
Net income (loss)  $9,961,000  $(48,829,000)
Net loss from discontinued operations   (1,801,000)   (3,223,000)
Net income (loss) from continuing operations   11,762,000   (45,606,000)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:          
Depreciation and amortization   5,935,000    5,325,000 
Amortization of debt discount   3,653,000    10,302,000 
Amortization of right-of-use assets   583,000    877,000 
Stock-based compensation   577,000    4,548,000 
Gain on the sale of fixed assets   (68,000)   (4,515,000)
Impairment of equity securities   -    11,555,000 
Impairment of digital assets   -    139,000 
Realized gain on the sale of digital assets   (738,000)   (250,000)
Revenue, digital assets mining   (8,862,000)   (7,347,000)
Realized gains on sale of marketable securities   -    3,627,000 
Gain on conversion of investment in equity securities to marketable equity securities   

(17,900,000

)   - 
Unrealized gains on marketable securities   (8,899,000)   (1,908,000)
Unrealized (gains) losses on investments in common stock, related parties   (84,000)   1,598,000 
Income from cash held in trust   (21,000)   - 
Provision for loan losses   -    1,180,000 
Provision for loan losses, related party   3,068,000    - 
(Gain) loss on extinguishment of debt   (1,405,000)   63,000 
Other   (1,196,000)   (83,000)
Changes in operating assets and liabilities:          
Proceeds from the sale of digital assets   8,634,000    7,780,000 
Marketable equity securities   -    21,986,000 
Accounts receivable   (995,000)   5,030,000 
Inventories   775,000    1,936,000 
Prepaid expenses and other current assets   1,041,000    (687,000)
Other assets   395,000    (490,000)
Accounts payable and accrued expenses   (4,385,000)   (3,801,000)
Lease liabilities   (348,000)   (910,000)
Net cash (used in) provided by operating activities from continuing operations   (8,478,000)   10,349,000 
Net cash used in operating activities from discontinued operations   (1,738,000)   (2,646,000)
Net cash (used in) provided by operating activities   (10,216,000)   7,703,000 
Cash flows from investing activities:          
Purchase of property and equipment   (882,000)   (4,308,000)
Investments in loans receivable   (134,000)   (181,000)
Investments in non-marketable equity securities   (120,000)   (102,000)
Proceeds from the sale of fixed assets   -    4,515,000 
Other   (5,000)   22,000 
Net cash used in investing activities from continuing operations   (1,141,000)   (54,000)
Net cash used in investing activities from discontinued operations   (589,000)   (2,713,000)
Net cash used in investing activities   (1,730,000)   (2,767,000)

 

 

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

 

 F-6 
 

 

AULT ALLIANCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

   For the Three Months Ended March 31, 
   2024   2023 
Cash flows from financing activities:          
Gross proceeds from sales of Class A common stock  $14,599,000   $4,158,000 
Financing cost in connection with sales of Class A common stock   (513,000)   (105,000)
Proceeds from sales of Series D preferred stock   -    2,255,000 
Financing cost in connection with sales of Series D preferred stock   -    (1,079,000)
Proceeds from sales of Series C preferred stock and warrants to purchase Class A common stock, related party   2,000,000    - 
Proceeds from subsidiaries’ sale of stock to non-controlling interests   1,485,000    - 
Distribution to Circle 8 non-controlling interest   (170,000)   - 
Proceeds from notes payable   2,311,000    2,500,000 
Repayment of margin accounts   -    (767,000)
Payments on notes payable   (5,155,000)   (19,651,000)
Payments on convertible notes payable, related party   (188,000)   - 
Payments on notes payable, related party   (1,894,000)   - 
Payments of preferred dividends   (1,260,000)   (229,000)
Purchase of treasury stock   -    (197,000)
Proceeds from sales of convertible notes   1,800,000    2,680,000 
Payments on convertible notes   (1,030,000)   (160,000)
Net cash provided by (used in) financing activities from continuing operations   11,985,000    (10,595,000)
Net cash provided by financing activities from discontinued operations   1,056,000    2,498,000 
Net cash provided by (used in) financing activities   13,041,000    (8,097,000)
           
Effect of exchange rate changes on cash and cash equivalents   574,000    177,000 
Discontinued operations cash contributions from parent   1,639,000    81,000 
           
Net increase (decrease) in cash and cash equivalents and restricted cash - continuing operations   1,301,000    (203,000)
Net increase (decrease) in cash and cash equivalents and restricted cash - discontinued operations   368,000    (2,781,000)
Net increase (decrease) in cash and cash equivalents and restricted cash   1,669,000    (2,984,000)
           
Cash and cash equivalents and restricted cash at beginning of period - continuing operations   13,592,000    8,674,000 
Cash and cash equivalents and restricted cash at beginning of period - discontinued operations   1,776,000    5,381,000 
Cash and cash equivalents and restricted cash at beginning of period   15,368,000    14,055,000 
           
Cash and cash equivalents and restricted cash at end of period   17,037,000    11,071,000 
Less cash and cash equivalents and restricted cash of discontinued operations at end of period   (2,144,000)   (2,601,000)
Cash and cash equivalents and restricted cash of continued operations at end of period  $14,893,000   $8,470,000 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for interest - continuing operations  $1,945,000   $2,990,000 
Cash paid during the period for interest - discontinued operations  $2,023,000   $1,668,000 
           
Non-cash investing and financing activities:          
Settlement of accounts payable with digital assets  $8,000   $- 

Settlement of interest payable with digital assets

  $ 142,000   $- 
Settlement of note payable with digital assets  $506,000   $- 
Conversion of convertible notes payable, related party into shares of Class A common stock  $-   $400,000 
Conversion of debt and equity securities to marketable securities  $1,810,000   $13,340,000 
Conversion of loans receivable to marketable securities  $-   $5,430,000 
Exchange of related party advances for investment in other equity securities, related party  $2,000,000   $- 
Recognition of new operating lease right-of-use assets and lease liabilities  $1,725,000   $- 
Remeasurement of Ault Disruptive temporary equity  $23,000   $679,000 
Dividend of ROI investment in White River to ROI shareholders  $19,210,000   $- 
Redeemable non-controlling interests in equity of subsidiaries paid with cash and marketable securities held in trust account  $1,463,000   $- 
Dividend paid in TurnOnGreen common stock in additional paid-in capital  $4,900,000   $- 
Debt discount from accrued lender profit participation rights  $-   $8,500,000 

 

 

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

 

 F-7 
 

 

1. DESCRIPTION OF BUSINESS

 

Ault Alliance, Inc., a Delaware corporation (“Ault Alliance” or the “Company”) is a diversified holding company pursuing growth by acquiring and developing undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin and offers colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provides mission-critical products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary.

 

The Company has the following seven reportable segments:

 

·Energy and Infrastructure (“Energy”) – crane operations, advanced textiles processing and oil exploration;

 

·Technology and Finance (“Fintech”) – commercial lending, activist investing, and stock trading;

 

·Sentinum, Inc. (“Sentinum”) – digital assets mining operations and colocation and hosting services for the emerging artificial intelligence ecosystems and other industries;

 

·Gresham Worldwide, Inc., formerly known as Giga-tronics Incorporated (“GIGA”) – defense industry;

 

·TurnOnGreen – commercial electronics solutions;

 

·ROI – immersive metaverse platform, media, and digital learning; and

 

·Ault Disruptive – a special purpose acquisition company.

 

2. LIQUIDITY AND FINANCIAL CONDITION

 

As of March 31, 2024, the Company had cash and cash equivalents of $9.4 million, negative working capital of $53.5 million and a history of net operating losses. The Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that these condensed consolidated financial statements are issued.

 

The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

In making this assessment management performed a comprehensive analysis of the Company’s current circumstances, including its financial position, cash flow and cash usage forecasts, as well as obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources beyond the Company’s direct control that management expects to be available within the next 12 months.

 

Management expects that the Company’s existing cash and cash equivalents, accounts receivable and marketable securities as of March 31, 2024, will not be sufficient to enable the Company to fund its anticipated level of operations through one year from the date these financial statements are issued. Management anticipates raising additional capital through the private and public sales of the Company’s equity or debt securities and selling its marketable securities as well as digital assets, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurances that financing will be available to the Company when needed in order to allow the Company to continue its operations, or if available, on terms acceptable to the Company. If the Company does not raise sufficient capital in a timely manner, among other things, the Company may be forced to scale back or cease its operations altogether.

 

 F-8 
 

 

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2024. The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited 2023 financial statements contained in the above referenced 2023 Annual Report. Results of the three months ended March 31, 2024, are not necessarily indicative of the results to be expected for the full year ending December 31, 2024.

 

Significant Accounting Policies

 

Other than as noted below, there have been no material changes to the Company’s significant accounting policies previously disclosed in the 2023 Annual Report.

 

Reclassifications

 

Certain prior period amounts have been reclassified for comparative purposes to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.

 

Recently Issued Accounting Standards

 

On December 14, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires entities to disclose specific rate reconciliations, amount of income taxes separated by federal and individual jurisdiction, and the amount of income (loss) from continuing operations before income tax expense (benefit) disaggregated between federal, state, and foreign. The new standard is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard.

 

On November 27, 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is designed to improve the reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. The new standard is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard.

 

4. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

 

Presentation of Ault Global Real Estate Equities, Inc. (“AGREE”) Operations

 

In September 2023, the Company committed to a plan for its wholly owned subsidiary AGREE to list for sale its four recently renovated Midwest hotels, the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford. The decision to sell the hotels follows the decision to also list the multifamily development site in St. Petersburg, Florida and is driven by the Company’s desire to focus on its core businesses, Energy, Fintech and Sentinum.

 

In connection with the planned sale of AGREE assets, the Company concluded that the net assets of AGREE met the criteria for classification as held for sale. In addition, the proposed sale represents a strategic shift that will have a significant effect on the Company’s operations and financial results. As a result, the Company has presented the results of operations, cash flows and financial position of AGREE as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.

 

As of March 31, 2024 and December 31, 2023, the Company has classified the total assets and total liabilities associated with AGREE as current in the consolidated balance sheets.

 

 F-9 
 

 

The following table presents the assets and liabilities of AGREE operations:

          
   March 31,   December 31, 
   2024   2023 
Cash and cash equivalents  $1,285,000   $1,080,000 
Restricted cash   859,000    697,000 
Accounts receivable   204,000    247,000 
Inventories   59,000    50,000 
Property and equipment, net - current   89,114,000    88,525,000 
Prepaid expenses and other current assets   351,000    392,000 
Total current assets   91,872,000    90,991,000 
           
Property and equipment, net   -    - 
Total assets   91,872,000    90,991,000 
Accounts payable and accrued expenses   2,985,000    3,099,000 
Notes payable, current   68,420,000    67,262,000 
Total current liabilities   71,405,000    70,361,000 
           
Total liabilities   71,405,000    70,361,000 
Net assets of discontinued operations  $20,467,000   $20,630,000 

 

A disposal group classified as held for sale shall be measured at the lower of its carrying amount or fair value less costs to sell. No impairment was recognized up reclassification of the disposal group as assets and liabilities held for sale.

 

The following table presents the results of AGREE operations:

          
   For the Three Months Ended 
   March 31, 
   2024   2023 
 Revenue, hotel and real estate operations  $3,006,000   $2,243,000 
 Cost of revenue, hotel operations   2,817,000    2,688,000 
 Gross profit   189,000    (445,000)
 General and administrative   407,000    1,110,000 
 Total operating expenses   407,000    1,110,000 
 Loss from operations   (218,000)   (1,555,000)
 Interest expense   (1,583,000)   (1,668,000)
 Net loss from discontinued operations  $(1,801,000)  $(3,223,000)

 

 F-10 
 

 

The cash flow activity related to discontinued operations is presented separately on the statement of cash flows as summarized below:

          
   For the Three Months Ended March 31, 
   2024   2023 
Cash flows from operating activities:          
Net loss  $(1,801,000)  $(3,223,000)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   -    838,000 
Amortization of debt discount   101,000    98,000 
Changes in operating assets and liabilities:          
Accounts receivable   43,000    114,000 
Inventories   (9,000)   (12,000)
Prepaid expenses and other current assets   41,000    (32,000)
Accounts payable and accrued expenses   (113,000)   (429,000)
Net cash used in operating activities   (1,738,000)   (2,646,000)
Cash flows from investing activities:          
Purchase of property and equipment   (589,000)   (2,713,000)
Net cash used in investing activities   (589,000)   (2,713,000)
Cash flows from financing activities:          
Proceeds from notes payable   1,056,000    2,498,000 
Cash contributions from parent   1,639,000    81,000 
Net cash provided by financing activities   2,695,000    2,579,000 
Net increase (decrease) in cash and cash equivalents and restricted cash   368,000    (2,780,000)
           
Cash and cash equivalents and restricted cash at beginning of period   1,776,000    5,381,000 
           
Cash and cash equivalents and restricted cash at end of period  $2,144,000   $2,601,000 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for interest  $1,583,000   $1,668,000 

 

Change in Plan of Sale of AGREE Hotel Properties

 

On April 30, 2024, the Company had a change in plan of sale for its four hotels owned and operated by AGREE. As a result, as of April 30, 2024, the assets will no longer meet the held for sale criteria and will be required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the subsequent decision not to sell.

 

 F-11 
 

 

5. REVENUE DISAGGREGATION

 

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three months ended March 31, 2024 and 2023. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are not considered to be revenues from contracts with customers under GAAP.

 

The Company’s disaggregated revenues consisted of the following for the three months ended March 31, 2024 (excludes Ault Disruptive, as that segment has no revenue):

                                        
   GIGA   TurnOnGreen   Fintech   Sentinum   Energy   ROI  

Holding

Company

   Total 
Primary Geographical Markets                                        
North America  $2,065,000   $1,157,000   $-   $11,749,000   $12,918,000   $28,000   $301,000   $28,218,000 
Europe   2,511,000    4,000    -    -    39,000    -    -    2,554,000 
Middle East and other   4,997,000    64,000    -    -    -    -    -    5,061,000 
Revenue from contracts with customers   9,573,000    1,225,000    -    11,749,000    12,957,000    28,000    301,000    35,833,000 
Revenue, lending and trading activities (North America)   -    -    9,099,000    -    -    -    -    9,099,000 
Total revenue  $9,573,000   $1,225,000   $9,099,000   $11,749,000   $12,957,000   $28,000   $301,000   $44,932,000 
                                         
Major Goods or Services                                        
Radio frequency/microwave filters  $2,091,000   $-   $-   $-   $-   $-   $-   $2,091,000 
Power supply units and systems   2,260,000    1,225,000    -    -    -    -    -    3,485,000 
Healthcare diagnostic systems   531,000    -    -    -    -    -    -    531,000 
Defense systems   4,691,000    -    -    -    -    -    -    4,691,000 
Digital assets mining   -    -    -    11,447,000    -    -    -    11,447,000 
Crane rental   -    -    -    -    12,918,000    -    -    12,918,000 
Other   -    -    -    302,000    39,000    28,000    301,000    670,000 
Revenue from contracts with customers   9,573,000    1,225,000    -    11,749,000    12,957,000    28,000    301,000    35,833,000 
Revenue, lending and trading activities   -    -    9,099,000    -    -    -    -    9,099,000 
Total revenue  $9,573,000   $1,225,000   $9,099,000   $11,749,000   $12,957,000   $28,000   $301,000   $44,932,000 
                                         
Timing of Revenue Recognition                                        
Goods and services transferred at a point in time  $4,762,000   $10,000   $-   $11,749,000   $39,000   $28,000   $301,000   $16,889,000 
Services transferred over time   4,811,000    1,215,000    -    -    12,918,000    -    -    18,944,000 
Revenue from contracts with customers  $9,573,000   $1,225,000   $-   $11,749,000   $12,957,000   $28,000   $301,000   $35,833,000 

 

 F-12 
 

 

The Company’s disaggregated revenues consisted of the following for the three months ended March 31, 2023 (excludes Ault Disruptive, as that segment has no revenue):

 

   GIGA   TurnOnGreen   Fintech   Sentinum  

The Singing

Machine

Company, Inc.

(“SMC”)

   Energy   Total 
Primary Geographical Markets             

 

 

                     
North America  $2,334,000   $785,000   $-   $7,805,000   $3,383,000   $13,085,000   $27,392,000 
Europe   2,441,000    4,000    -    -    -    25,000    2,470,000 
Middle East and other   3,933,000    87,000    -    -    -    -    4,020,000 
Revenue from contracts with customers   8,708,000    876,000    -    7,805,000    3,383,000    13,110,000    33,882,000 
Revenue, lending and trading activities (North America)   -    -    (4,939,000)   -    -    -    (4,939,000)
Total revenue  $8,708,000   $876,000   $(4,939,000)  $7,805,000   $3,383,000   $13,110,000   $28,943,000 
                                    
Major Goods or Services                                   
Radio frequency/microwave filters  $1,792,000   $-   $-   $-   $-   $-   $1,792,000 
Power supply units and systems   3,114,000    876,000    -    -    -    -    3,990,000 
Healthcare diagnostic systems   1,137,000    -    -    -    -    -    1,137,000 
Defense systems   2,665,000    -    -    -    -    -    2,665,000 
Digital assets mining   -    -    -    7,347,000    -    -    7,347,000 
Karaoke machines and related consumer goods   -    -    -    -    3,383,000    -    3,383,000 
Crane rental   -    -    -    -    -    12,646,000    12,646,000 
Other   -    -    -    458,000    -    464,000    922,000 
Revenue from contracts with customers   8,708,000    876,000    -    7,805,000    3,383,000    13,110,000    33,882,000 
Revenue, lending and trading activities   -    -    (4,939,000)   -    -    -    (4,939,000)
Total revenue  $8,708,000   $876,000   $(4,939,000)  $7,805,000   $3,383,000   $13,110,000   $28,943,000 
                                    
Timing of Revenue Recognition                                   
Goods and services transferred at a point in time  $5,406,000   $873,000   $-   $7,805,000   $3,383,000   $464,000   $17,931,000 
Services transferred over time   3,302,000    3,000    -    -    -    12,646,000    15,951,000 
Revenue from contracts with customers  $8,708,000   $876,000   $-   $7,805,000   $3,383,000   $13,110,000   $33,882,000 

 

 F-13 
 

 

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

                    
   Fair Value Measurement at March 31, 2024 
   Total   Level 1   Level 2   Level 3 
Assets:                

Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party

  $768,000   $768,000   $-   $- 
Investments in marketable equity securities   9,426,000    9,426,000    -    - 
Cash and marketable securities held in trust account   794,000    794,000    -    - 
Total assets measured at fair value  $10,988,000   $10,988,000   $-   $- 
                     
Liabilities:                    
Warrant and embedded conversion feature liabilities  $715,000   $-   $-   $715,000 
Convertible promissory notes   21,180,000    -    -    21,180,000 
Total liabilities measured at fair value  $21,895,000   $-   $-   $21,895,000 

 

   Fair Value Measurement at December 31, 2023 
   Total   Level 1   Level 2   Level 3 
Assets:                
Investment in common stock of Alzamend  $679,000   $679,000   $-   $- 
Investments in marketable equity securities   27,000    27,000    -    - 
Cash and marketable securities held in trust account   2,200,000    2,200,000    -    - 
Total assets measured at fair value  $2,906,000   $2,906,000   $-   $- 
                     
Liabilities:                    
Warrant and embedded conversion feature liabilities  $1,742,000   $-   $-   $1,742,000 
Convertible promissory notes   22,485,000    -    -    22,485,000 
Total liabilities measured at fair value  $24,227,000   $-   $-   $24,227,000 

 

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

 

Equity Investments for Which Measurement Alternative Has Been Selected

 

As of March 31, 2024 and December 31, 2023, the Company held equity investments in other securities valued at $20.6 million and $21.8 million, respectively, that were valued using a measurement alternative. These investments are included in other equity securities in the accompanying consolidated balance sheets.

 

The Company has made cumulative downward adjustments for impairments for equity securities that do not have readily determinable fair values for the three months ended March 31, 2024 and 2023, totaling $0 and $11.6 million, respectively. Approximately $9.6 million of the prior year adjustments are reflected in other income (expense) and $2.0 million of these adjustments related to Fintech lending operations and have been recorded against revenue from lending and trading activities on the condensed consolidated statement of operations and comprehensive loss.

 

 F-14 
 

 

The changes in Level 3 fair value hierarchy during the three months ended March 31, 2024 and 2023 were as follows:

 

                         
  

Level 3 Balance

at Beginning of

Period

  

Fair Value

Adjustments

  

Purchases,

Sales and

Settlements

  

Transfer in

and/or out of

Level 3

  

Level 3 Balance

at End of

Period

 
Three months ended March 31, 2024                         
Warrant and embedded conversion feature liabilities  $1,742,000   $(1,027,000)  $-   $-   $715,000 
Convertible promissory notes   22,485,000    -    770,000    (2,075,000)   21,180,000 
                          
Three months ended March 31, 2023                         
Warrant and embedded conversion feature liabilities  $2,967,000   $(1,311,000)  $1,530,000   $-   $3,186,000 
Series E, F and G preferred stock liabilities        -    8,500,000    -    8,500,000 
Convertible promissory notes   10,571,000    -    2,205,000    -    12,776,000 

 

7. Marketable EQUITY Securities

 

Marketable equity securities with readily determinable market prices consisted of the following as of March 31, 2024 and December 31, 2023:

                     
    Marketable equity securities at March 31, 2024 
         Gross unrealized   Gross unrealized      
    Cost   gains   losses   Fair value 
Common shares    $5,581,000   $8,910,000   $(5,065,000)  $9,426,000 

 

     Marketable equity securities at December 31, 2023 
         Gross unrealized   Gross unrealized      
    Cost   gains   losses   Fair value 
Common shares    $5,119,000   $12,000   $(5,104,000)  $27,000 

 

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

 

8. DIGITAL ASSETS

 

The following table presents revenue from mined digital assets for the three months ended March 31, 2024 and 2023:

          
   For the Three Months Ended 
   March 31, 
   2024   2023 
Revenue from mined digital assets at Sentinum owned and operated facilities  $8,862,000   $7,347,000 
Revenue from Sentinum mining equipment hosted at third-party facilities   2,585,000    - 
Revenue, digital assets mining  $11,447,000   $7,347,000 

 

The following table presents the activities of the digital assets (included in prepaid expenses and other current assets) for the three months ended March 31, 2024 and 2023:

 

     
  

Digital

Assets

 
Balance at January 1, 2024  $546,000 
Additions of mined digital assets   8,862,000 
Payments to vendors   (8,000)
Sale of digital assets   (8,634,000)
Payment of notes payable with digital assets   (506,000)
Payment of interest payable with digital assets   (142,000)
Realized gain on sale of digital assets   738,000 
Unrealized gain on digital assets   43,000 
Balance at March 31, 2024  $899,000 

 

 F-15 
 

 

  

Digital

Assets

 
Balance at January 1, 2023  $554,000 
Additions of mined digital assets   7,347,000 
Payments to vendors   (139,000)
Sale of digital assets   (7,780,000)
Realized gain on sale of digital assets   250,000 
Balance at March 31, 2023  $232,000 

 

9. PROPERTY AND EQUIPMENT, NET

 

At March 31, 2024 and December 31, 2023, property and equipment consisted of:

          
   March 31, 2024   December 31, 2023 
Building, land and improvements  $16,161,000   $15,752,000 
Digital assets mining equipment   50,640,000    50,640,000 
Crane rental equipment   34,228,000    34,469,000 
Computer, software and related equipment   14,885,000    14,335,000 
Aircraft   15,983,000    15,983,000 
Other property and equipment   8,751,000    8,603,000 
    140,648,000    139,782,000 
Accumulated depreciation and amortization   (36,659,000)   (30,953,000)
Property and equipment, net  $103,989,000   $108,829,000 

 

Summary of depreciation expense:

    
   For the Three Months Ended 
   March 31, 
   2024   2023 
Depreciation expense  $5,778,000   $5,072,000 

 

10. INTANGIBLE ASSETS, NET

 

At March 31, 2024 and December 31, 2023, intangible assets consisted of:

             
   Useful Life  March 31, 2024   December 31, 2023 
Definite lived intangible assets:             
Developed technology  3-8 years  $1,807,000   $1,949,000 
Customer list  8-10 years   3,567,000    3,596,000 
Trade names  5-10 years   1,030,000    1,030,000 
Domain name and other intangible assets  5 years   603,000    612,000 
       7,007,000    7,187,000 
Accumulated amortization      (1,998,000)   (1,910,000)
Total definite-lived intangible assets     $5,009,000   $5,277,000 
              
Indefinite lived intangible assets:             
Trade name and trademark  Indefinite life   473,000    477,000 
Total intangible assets, net     $5,482,000   $5,754,000 

 

Certain of the Company’s trade names and trademarks were determined to have an indefinite life. The remaining definite-lived intangible assets are primarily being amortized on a straight-line basis over their estimated useful lives.

        
   For the Three Months Ended 
   March 31, 
   2024   2023 
Amortization expense  $157,000   $253,000 

 

 F-16 
 

 

As of March 31, 2024, intangible assets subject to amortization have an average remaining useful life of 9.5 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.

      
2024 (remainder)    $628,000 
2025    704,000 
2026    704,000 
2027    704,000 
2028    693,000 
2029    473,000 
Thereafter     1,103,000 
    $5,009,000 

 

11. GOODWILL

 

The following table summarizes the changes in the Company’s goodwill for the three months ended March 31, 2024:

     
   Goodwill 
 Balance as of January 1, 2024  $6,088,000 
 Effect of exchange rate changes   (78,000)
 Balance as of March 31, 2024  $6,010,000 

 

12. INVESTMENTS – RELATED PARTIES

 

Investments in Alzamend and Ault & Company, Inc. (“Ault & Company”) at March 31, 2024 and December 31, 2023, were comprised of the following:

 

Investment in Promissory Notes, Related Parties – Ault & Company

                  
   Interest   Due   March 31,   December 31, 
   Rate   Date   2024   2023 
Promissory note, related party  8%  Dec. 31, 2024   $-   $2,500,000 
Accrued interest receivable Ault & Company           -    568,000 
Other - Alzamend           -    900,000 
Total investment in promissory notes and other, related parties          $-   $3,968,000 

 

Summary of interest income, related party, recorded within interest and other income on the condensed consolidated statement of operations:

 

    
  For the Three Months Ended 
   March 31, 
   2024   2023 
 Interest income, related party  $-   $50,000 

 

During the quarter ended March 31, 2023, due to uncertainties surrounding collection, the Company recorded a loan loss reserve of $3.1 million related to the promissory note from Ault & Company, reversed the related accrued receivable and did not record interest income on the note.

 

Investment in Common Stock, Related Parties – Alzamend

             
    Investments in common stock, related parties at March 31, 2024 
    Cost   Gross unrealized losses   Fair value 
Common shares   $24,694,000   $(23,926,000)  $768,000 

 

    Investments in common stock, related parties at December 31, 2023 
    Cost   Gross unrealized losses   Fair value 
Common shares   $24,688,000   $(24,009,000)  $679,000 

 

 F-17 
 

 

The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended March 31, 2024 and 2023:

          
   For the Three Months Ended March 31, 
   2024   2023 
Balance at January 1  $679,000   $6,449,000 
Investment in common stock of Alzamend   5,000    5,000 
Unrealized gain (loss) in common stock of Alzamend   84,000    (1,598,000)
Balance at March 31  $768,000   $4,856,000 

 

Ault Lending, LLC (“Ault Lending”) Investment in Alzamend Series B Convertible Preferred Stock and Warrants

        
   March 31,   December 31, 
   2024   2023 
Investment in Alzamend preferred stock  $2,000,000   $- 
Total investment in other investments securities, related party  $2,000,000   $- 

 

In connection with a securities purchase agreement entered into with Alzamend in January 2024, the Company purchased 2,000 shares of Alzamend Series B Convertible Preferred Stock and warrants to purchase 2.0 million shares of Alzamend common stock with a five-year term and an exercise price of $1.20 per share for a total purchase price of $2.0 million.

 

The Agreement provides that Ault Lending may purchase up to $6 million of Alzamend Series B Convertible Preferred Stock in one or more closings.

 

The Company has elected to account for investment in other investments securities, related party, using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments.

 

Messrs. Ault, Horne and Nisser are each paid $50,000 annually by Alzamend.

 

13. EQUITY METHOD INVESTMENT

 

Equity Investments in Unconsolidated Entity – SMC

 

The following table summarizes the changes in the Company’s equity investments in an unconsolidated entity, SMC, included in other assets on the condensed consolidated balance sheet, during the three months ended March 31, 2024:

 

     
Rollforward investment in unconsolidated entity  Amount 
Beginning balance - January 1, 2024  $1,957,000 
Loss from investment in unconsolidated entity   (667,000)
Ending balance - March 31, 2024  $1,290,000 

 

The following table provides summarized financial information for the Company’s ownership interest in SMC accounted for under the equity method and has been compiled from SMC’s financial statements. Amounts presented represent totals at the investee level and not the Company’s proportionate share:

 

Summarized Statements of Operations

 

    
   For the Three
Months Ended
 
   March 31, 
   2024 
Revenue  $2,426,000 
Gross profit  $502,000 
Loss from operations  $(2,287,000)
Net loss  $(2,368,000)

 

 F-18 
 

 

Summarized Balance Sheet Information

 

        
   March 31,   December 31, 
   2024   2023 
Current assets  $15,532,000   $23,206,000 
Non-current assets  $4,372,000   $4,509,000 
Current liabilities  $10,645,000   $16,209,000 
Non-current liabilities  $4,029,000   $3,928,000 

  

14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Other current liabilities at March 31, 2024 and December 31, 2023 consisted of:

          
   March 31,   December 31, 
   2024   2023 
Accounts payable  $25,517,000   $32,592,000 
Accrued payroll and payroll taxes   10,520,000    9,779,000 
Financial instrument liabilities   560,000    832,000 
Interest payable   4,534,000    4,197,000 
Accrued legal   2,399,000    2,340,000 
Contract liabilities   1,820,000    1,621,000 
Other accrued expenses   16,409,000    15,082,000 
   $61,759,000   $66,443,000 

 

15. DIVIDEND PAYABLE IN TURNONGREEN COMMON STOCK

 

In March 2024, the Company, in connection with a planned distribution of its common stock holdings of TurnOnGreen, announced the distribution to its stockholders 25.0 million shares of TurnOnGreen common stock and warrants to purchase 25.0 million shares of TurnOnGreen common stock, which resulted in an adjustment to additional paid in capital and increase to non-controlling interest of $4.9 million based on the recorded value of the Company’s holdings in TurnOnGreen at the record date of the distribution.

 

16. ROI TRANSFERS OF WHITE RIVER COMMON STOCK

 

In January 2024, ROI announced that it had concluded that, for regulatory reasons, ROI would be unable to effect the distribution of its shares of common stock of White River as contemplated by a registration statement previously filed by White River. In an effort to attempt to fulfill its original intent to transfer the shares to ROI shareholders of record as of September 30, 2022, ROI would send such shareholders an agreement whereby qualified shareholders can demonstrate to ROI’s satisfaction that they in fact were beneficial shareholders of ROI’s common or preferred stock as of September 30, 2022 and affirm that they are “accredited investors” by July 26, 2024.

 

During the quarter ended March 31, 2024, ROI transferred 6.7 million shares of White River common stock with a fair value of $19.2 million at the date of transfer to certain of its accredited investors to resolve the matters discussed above.

 

In conjunction with the transfers to non-controlling interests, ROI converted a portion of their White River’s Series A Convertible Preferred Stock into common stock and recorded a non-cash $17.9 million gain on conversion.

 

Ault Lending Transfer

 

On February 14, 2024, ROI transferred 2.5 million shares of White River common stock with a carryover basis of $0.5 million at the date of transfer to Ault Lending. As of March 31, 2024, the 2.5 million shares of White River common stock held by Ault Lending had a fair value of $9.4 million and Ault Lending recorded an unrealized gain of $8.9 million during the quarter ended March 31, 2024 included in revenue from lending and trading activities.

 

 F-19 
 

 

17. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY LIABILITY

 

The Company records redeemable noncontrolling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. As of March 31, 2024, the carrying amount of the redeemable noncontrolling interest in equity of subsidiaries was recorded at its redemption value of $0.8 million. During the three months ended March 31, 2024, shares of Ault Disruptive common stock were redeemed for an aggregate redemption amount of $1.4 million.

 

The following table summarizes the changes in the Company’s redeemable noncontrolling interests in equity of subsidiaries during the three months ended March 31, 2024:

     
Redeemable noncontrolling interests in equity of subsidiaries as of January 1, 2024  $2,224,000 
Redemption of ADRT common stock   (1,463,000)
Remeasurement of carrying value to redemption value   23,000 
Redeemable noncontrolling interests in equity of subsidiaries as of March 31, 2024  $784,000 

 

 F-20 
 

 

18. NOTES PAYABLE

 

Notes payable at March 31, 2024 and December 31, 2023, were comprised of the following:

                    
   Collateral  Guarantors  Interest
rate
  Due date 

March 31,

2024

   December 31,
2023
 
Circle 8 revolving credit facility  Circle 8 cranes with a book value of $30.7 million  -  8.4%  December 16, 2025  $15,467,000   $15,907,000 
16% promissory note (in default at December 31, 2023)  -  Ault & Company and Milton C. Ault, III  16.0%  June 15, 2024   4,072,000    2,572,000 
Circle 8 equipment financing notes  Circle 8 equipment with a book value of $3.8 million  -  6.6%  April 15, 2024 through November 15, 2026   4,739,000    5,629,000 
8% demand loans  -  -  8.0%  Upon demand   -    950,000 
Short-term bank credit facilities  -  -  6.8%   Renews monthly   942,000    1,464,000 
Sentinum note payable  -  -  12.5%  -   -    1,067,000 
ROI promissory note (in default as of May 1, 2024)  -  -  18.0%  April 30, 2024   2,094,000    - 
Other ($0.9 million in default at March 31, 2024)  -  -  -  -   2,698,000    3,518,000 
Total notes payable              $30,012,000   $31,107,000 
Less:                      
Unamortized debt discounts               (328,000)   (83,000)
Total notes payable, net              $29,684,000   $31,024,000 
Less: current portion               (12,370,000)   (12,866,000)
Notes payable – long-term portion              $17,314,000   $18,158,000 

 

 F-21 
 

 

ROI 15% Term Note

 

On February 9, 2024, ROI entered into a $1.77 million term note agreement with an institutional investor bearing interest of 15%. The term note was issued at a discount, with net proceeds to ROI of $1.75 million. The term note was scheduled to mature February 14, 2024. This note has been guaranteed by Ault & Company and Mr. Ault. The term note was subsequently amended to increase the principal amount due to $2.1 million, increase the interest rate to 18% and extend the maturity date to April 30, 2024. The term note is in default as of May 1, 2024.

 

Subsequent Events – 15% Term Notes

 

On April 29, 2024, the Company entered into a $1.7 million term note agreement with an institutional investor bearing interest of 15%. The term note was issued at a discount, with net proceeds to the Company of $1.6 million. The term note was scheduled to mature May 17, 2024. On May 16, 2024, the due date was extended to June 15, 2024.

 

On May 16, 2024, the Company entered into a $0.5 million term note agreement with an institutional investor bearing interest of 15%. The term note is scheduled to mature June 15, 2024.

 

Notes Payable Maturities

 

The contractual maturities of the Company’s notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of March 31, 2024 were:

     
Year    
2024 (remainder)  $12,370,000 
2025   17,241,000 
2026   379,000 
2027   11,000 
2028   11,000 
   $30,012,000 

 

Interest Expense

          
   For the Three Months Ended 
   March 31, 
   2024   2023 
Contractual interest expense  $1,263,000   $1,097,000 
Forbearance fees   1,500,000    603,000 
Amortization of debt discount   2,137,000    10,400,000 
Total interest expense  $4,900,000   $12,100,000 

 

19. NOTES PAYABLE, RELATED PARTY

 

Notes payable, related party at March 31, 2024 and December 31, 2023, were comprised of the following:

Schedule of notes payable, related party                 
   Interest rate   Due date  March 31, 2024  

December 31,

2023

 
Notes from officers – Ault Alliance  18%  -  $-   $98,000 
Notes from officers - TurnOnGreen  14%  Past due   51,000    51,000 
Notes from board member - ROI  18%  -   -    90,000 
Ault & Company advances  No interest   Upon demand   65,000    1,909,000 
Advances from officers - GIGA  8%  Upon demand   53,000    52,000 
Other related party advances  No interest   Upon demand   124,000    175,000 
Total notes payable         $293,000   $2,375,000 

 

 F-22 
 

 

Summary of interest expense, related party, recorded within interest expense on the condensed consolidated statement of operations:

    
   For the Three Months Ended 
   March 31, 
   2024   2023 
 Interest expense, related party  $16,000   $- 

 

20. CONVERTIBLE NOTES

 

Convertible notes payable at March 31, 2024 and December 31, 2023, were comprised of the following:

                     
   Conversion price per
share
  Interest rate   Due date  March 31, 2024   December 31, 2023 
Convertible promissory notes  $0.35   6%  June 12, 2024  $2,000,000   $- 

Convertible promissory note – original issue discount (“OID”) only

  90% of 5-day VWAP   OID Only   September 28, 2024   643,000    1,673,000 

Avalanche International Corp. (“AVLP”) convertible promissory notes, principal

  $0.35 (AVLP stock)   7%  August 22, 2025   9,911,000    9,911,000 
GIGA senior secured convertible notes - in default  $0.25 (GIGA stock)