Hyperscale Data, Inc.

DECEMBER 31, 2024

1. DESCRIPTION OF BUSINESS

Hyperscale Data, Inc. (f/k/a Ault Alliance, Inc.), a Delaware corporation (“Hyperscale Data” 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/or operates data centers at which it mines Bitcoin and offers colocation and hosting services for the emerging artificial intelligence (“AI”) ecosystems and other industries, and provides products and services that support a diverse range of industries, including crane rental services, hotel operations, defense, industrial, an AI software platform and a social gaming platform. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary.

The Company has the following reportable segments:

The Company had changes to its reportable segments due to the discontinued operations of itsmajority-owned subsidiary, Gresham Worldwide, Inc. (“GIGA”), and the deconsolidation of its previously consolidated variable interest entity, SMC. See Note 4 and Note 15 below.

On September 10, 2024, the Company changed its name from Ault Alliance, Inc. to Hyperscale Data, Inc. and its Class A common stock ticker symbol was changed to “GPUS.” The name change did not affect the rights of security holders of the Company.

Reverse Stock Splits

All share amounts in these financial statements have been updated to reflect a 1-for-25 reverse stock split and a 1-for-35 reverse stock split, effective January 16, 2024 and November 22, 2024, respectively. The reverse stock splits did not affect the number of authorized shares of Class A common stock, preferred stock or their respective par value per share.

2. LIQUIDITY, GOING CONCERN AND MANAGEMENT’S PLANS

As of December 31, 2024, the Company had cash and cash equivalents of $4.5 million (excluding restricted cash of $20.5 million), negative working capital of $157.1 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 consolidated financial statements are issued.

The 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 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 December 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 crypto 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.

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Prior Period Revision - Statement of Cash Flows

For the year ended December 31, 2024, the Company disclosed the borrowings of lines of credit and repayments of lines of credit as separate line items within notes payable activity of the financing activities section of the consolidated statement of cash flows. The Company has corrected these line items for the year ended December 31, 2023 for comparability purposes.

Principles of Consolidation

The consolidated financial statements include the accounts of Hyperscale Data and its wholly owned and majority-owned subsidiaries. The consolidated financial statements also include the accounts of all entities that the Company controls as the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated upon consolidation.

The accounting guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE; to eliminate the solely quantitative approach previously required for determining the primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide readers of financial statements with more transparent information about an enterprise’s involvement in a VIE.

Variable Interest Entities

For VIEs, the Company assesses whether it is the primary beneficiary as prescribed by the accounting guidance on the consolidation of a VIE.

The Company evaluates its business relationships with related parties to identify potential VIEs under Accounting Standards Codification (“ASC”) 810,Consolidation. The Company consolidates VIEs of which the Company is considered to be the primary beneficiary. Entities are considered to be the primary beneficiary if they have both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (ii) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Company’s judgment with respect to its level of influence or control of an entity involves the consideration of various factors including the form of its ownership interest, its representation in the entity’s governance, the size of its investment, estimates of future cash flows, its ability to participate in policy making decisions and the rights of the other investors to participate in the decision making process and to replace the Company as manager and/or liquidate the joint venture, if applicable.

Revenue Recognition

The Company recognizes revenue under ASC 606,Revenue from Contracts with Customers(“ASC 606”). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

Sales of Products

The Company generates revenues from the sale of its products through a direct and indirect sales force. The Company’s performance obligations to deliver products are satisfied at the point in time when title transfers to the customer. Generally, products are shipped FOB shipping point and title transfers to the customer at the time the products are placed on a common carrier. The Company provides standard assurance warranties, which are not separately priced, that the products function as intended. The Company primarily receives fixed consideration for sales of products. Some of the Company’s contracts with distributors include stock rotation rights after six months for slow-moving inventory, which represents variable consideration. The Company uses an expected value method to estimate variable consideration and constrains revenue for estimated stock rotations until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. To date, returns have been insignificant. The Company’s customers generally pay within 30 days from the receipt of an invoice.

Because the Company’s product sales agreements have an expected duration of one year or less, the Company has elected to adopt the practical expedient in ASC 606-10-50-14(a) of not disclosing information about its remaining performance obligations.

Lending and Trading Activities

Lending Activities

The Fintech segment, through Ault Lending, LLC (“Ault Lending”), generates revenue from lending activities primarily through interest, origination fees and late/other fees. Interest income on these products is calculated based on the contractual interest rate and recorded as interest income as earned. The origination fees or original issue discounts (“OIDs”) are recognized over the life of the loan using the effective interest method.

Trading Activities

The Fintech segment, through Ault Lending, also generates revenue from trading activities primarily through sales of securities and unrealized gains and losses from held securities. All investment transactions are recorded on a trade date basis. Financial instruments utilized in trading activities are carried at fair value. For more information on fair value, see Note 7. Fair Value of Financial Instruments. Trading-related revenue can be volatile and is largely driven by general market conditions. Also, trading-related revenue is dependent on the volume and type of transactions, the level of risk assumed, and the volatility of price and rate movements at any given time within the ever-changing market environment. Realized and unrealized gains and losses are recognized in revenue from trading activities.

Crypto Assets Mining

The Company has entered into a crypto assets mining pool by executing a contract with a mining pool operator to provide hash calculation services to the mining pool. The Company’s customer, as defined in ASC 606-10-20, is the mining pool operator with which the Company has agreed to the terms of service and user service agreement. The Company supplies hash calculation services, in exchange for consideration, to the pool operator who in turn provides transaction verification services to third parties via a mining pool that includes other participants. The Company’s performance obligation is the provision of hash calculation services to the pool operator and this performance obligation is an output of the Company’s ordinary activities for which it decides when to provide services under the contract.

The Company’s enforceable right to compensation begins only when, and lasts as long as, the Company provides hash calculation services to the mining pool operator and is created as power is provided over time. The only consideration due to the Company relates to the provision of hash calculation services. The contract with the pool operator provides both parties the unilateral enforceable right to terminate the contract at any time without penalty. The customer termination option results in a contract that continuously renews throughout the day and therefore has a duration of less than 24 hours. The implied renewal option is not a material right because there are no upfront or incremental fees in the initial contract and the terms, conditions, and compensation amount for the renewal options are at the then market rates. Providing such hash calculation services is the only performance obligation in the Company’s contracts with mining pool operators.

The transaction consideration the Company receives, if any, is non-cash consideration in the form of Bitcoin. Changes in the fair value of the non-cash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and are therefore not included in revenue. The mining pool operator charges fees to cover the costs of maintaining the pool and are deducted from amounts the Company may otherwise earn and are treated as a reduction to the consideration earned. Fees fluctuate and historically have been approximately 0.3% per reward earned, on average.

The Company participated in mining pools that used the full pay-per-share (“FPPS”) payout method for the year ended December 31, 2024. The Company is entitled to compensation once it begins to perform hash calculations for the pool operator in accordance with the operator’s specifications over a 24-hour period beginning midnight UTC and ending 23:59:59 UTC on a daily basis. The non-cash consideration that the Company is entitled to for providing hash calculations to the pool operator under the FPPS payout method is made up of block rewards and transaction fees less pool operator fees determined as follows:

The contract is in effect until terminated by either party.

All consideration pursuant to this arrangement is variable. It is not probable that a significant reversal of cumulative revenue will occur. The Company is able to calculate the payout based on the contractual formula, non-cash revenue is estimated and recognized based on the fair value of Bitcoin on the date of contract inception. Fair value of the crypto assets consideration is determined using the midnight UTC spot price of the Company’s principal market for Bitcoin. The Company recognizes non-cash consideration on the same day that control of the contracted service is transferred to the pool operator, which is the same day as the contract inception.

There is no significant financing component in these transactions.

Expenses associated with running the crypto assets mining business, such as equipment depreciation and electricity costs, are recorded as a component of cost of revenues.

Hotel Operations

The primary sources of revenue include room and food and beverage revenue from the Company’s hotels.

Rooms revenue represents revenue from the occupancy of the Company’s hotel rooms, which is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue from guest no-shows, daily use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay at the daily transaction price agreed to under the contract.

Food and beverage revenue consists of revenue from the restaurants and lounges, in room dining and mini bars, and banquet/catering revenue from group and social functions. Payment of the transaction price is due immediately when the customer purchases the goods and services. Therefore, revenue is recognized at a point in time when the physical possession has transferred to the customer.

Crane Operations - Heavy Lifting and Pump Maintenance Services

The Company generates revenue by providing heavy lifting and pump maintenance services to customers under various short-term agreements which may be hourly, daily, weekly or monthly. Each service agreement generally has one performance obligation and includes a promise to complete the service at a specified location and time and identifies the billing rate to be charged. Payment terms are identified in the terms of the contract and agreed to by both parties for each promised service within the contract prior to the commencement or performance of said services. The collectability of payment is considered probable based on management’s history with the certain type and class of customers and their ability and intention of payment. The customer simultaneously receives and consumes the benefits as the Company provides the hourly, daily, weekly or monthly service.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company’s cash is maintained in checking accounts, money market funds and certificates of deposits with reputable financial institutions. These balances exceed the United States (“U.S.”) Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses on deposits of cash and cash equivalents.

Restricted Cash

As of December 31, 2024, restricted cash included $18.4 million related to the Company’s guarantee obligations (see Note 29), $1.3 million of cash collateral for notes payable and $0.8 million of cash held in trust related to environmental contingencies related to the Michigan data center. As of December 31, 2023, restricted cash included $4.3 million of cash collateral for notes payable and $0.7 million of cash held in trust related to environmental contingencies related to the Michigan data center.

Cash, cash equivalents and restricted cash consisted of the following:

Cash and Marketable Securities Held in Trust Account

As of December 31, 2023, the Company held $2.2 million in cash and marketable securities in a trust account. Cash and marketable securities held in the trust account represented cash and money market funds that primarily invested in U.S. treasury bills that were purchased with funds raised through the initial public offering of Ault Disruptive, a consolidated special purpose acquisition company. The funds raised were held in a trust account that was restricted for use and may only be used for purposes of completing an initial business combination or redemption of the common stock of Ault Disruptive, as set forth in the trust agreement. The funds held in trust are included within Level 1 of the fair value hierarchy. During the year ended December 31, 2024, all shares of Ault Disruptive common stock were redeemed with the cash and marketable securities previously held in the trust account.

Bitcoin

Bitcoin awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy.

In accordance with Accounting Standards Update (“ASU”) 2023-08,Accounting for and Disclosure of Crypto Assets, the Company measures Bitcoin at fair value with changes recognized in operating expenses on the consolidated statements of operations. The Company tracks its cost basis of digital assets by wallet in accordance with the first-in, first-out method of accounting.

Sales of Bitcoin by the Company and Bitcoin awarded to the Company are included within cash flows from operating activities on the consolidated statements of cash flows. Realized gains or losses from sales of Bitcoin are included in loss from operations on the consolidated statements of operations.

Fair Value of Financial Instruments

In accordance with ASC 820,Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs include those that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, accounts receivables and accounts and other receivable – related party, investments, notes receivable, trade payables and trade payables – related party approximate their fair value due to the short-term maturities of such instruments.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Equity Investments

The Company’s marketable equity securities are publicly traded stocks or funds measured at fair value and classified within Level 1 and 2 in the fair value hierarchy because the Company uses quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets.

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.

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.

Accounts Receivable and Allowance for Credit Losses

The Company’s receivables are recorded when invoiced and represent claims against third parties that will be settled in cash. The Company records accounts receivable at the invoiced amount less an allowance for any potentially uncollectible accounts under the current expected credit loss impairment model and discloses the net amount of the financial instrument expected to be collected. The Company estimates the allowance for credit losses based on an ongoing review of existing economic conditions, the financial conditions of the customers, historical trends in credit losses, and the amount and age of past due accounts. Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables.

Cash and cash equivalents are invested in banks in the U.S. Such deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions.

Trade receivables of the Company and its subsidiaries are mainly derived from sales to customers located primarily in the U.S. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that the Company and its subsidiaries have determined to be doubtful of collection.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence.

Cost of inventories is determined as follows:

Raw materials, parts and supplies - using the first-in, first-out method; and

Finished products - on the basis of direct manufacturing costs with the addition of indirect manufacturing costs.

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Inbound shipping and handling costs are classified as a component of cost of revenues in the consolidated statements of operations. The Company reviews the components of its inventory and its inventory purchase commitments on a regular basis for excess and obsolete inventory based on estimated future usage and sales. Write-downs in inventory value or losses on inventory purchase commitments depend on various items, including factors related to customer demand, economic and competitive conditions, technological advances or new product introductions by the Company or its customers that vary from its current expectations. Whenever inventory is written down, a new cost basis is established and the inventory is not subsequently written up if market conditions improve.

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation. Gains or losses on disposals of property and equipment are recorded within income from operations. Repairs and maintenance costs are expensed as incurred. Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:

Leases

The Company accounts for its leases under ASC 842,Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases. The Company only has operating leases. Operating leases are recognized as right-of-use assets, operating lease liability, current, and operating lease liability, non-current on the Company’s consolidated balance sheets. Lease assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In certain of the Company’s lease agreements, the Company receives periods of reduced rent or free rent and other incentives. The Company recognizes lease costs on a straight-line basis over the lease term without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised. The Company does not separate lease and non-lease components for the Company’s leases.

Impairment of Long-Lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted expected future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by comparing the carrying amount of the assets to their fair value.

Impairment of Debt Securities

Debt securities are evaluated periodically to determine whether a decline in their value is other than temporary. The Company utilizes criteria such as the magnitude and duration of the decline, in addition to the reason underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent. It indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

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. The purchase price allocation process requires management to make significant estimates and assumptions at the acquisition date with respect to intangible assets. 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. Direct transaction costs associated with the business combination are expensed as incurred. 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.

Intangible Assets

The Company acquired amortizable intangibles assets as part of asset purchase agreements consisting of customer relationships, trade names and proprietary technology.

The Company reviews intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions, as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that certain freestanding derivatives, which principally consist of issuance of warrants to purchase shares of Class A common stock in connection with convertible notes and to employees of the Company, satisfy the criteria for classification as equity instruments as these warrants do not contain cash settlement features or variable settlement provisions that cause them to not be indexed to the Company’s own stock.

Fair Value Option

The Company has elected to record the senior secured convertible promissory notes, related party (“Convertible Notes”) at fair value on the date of issuance, with gains and losses arising from changes in fair value recognized in the consolidated statements of operations at each period end while those are outstanding. Issuance costs are recognized in the consolidated statement of operations in the period in which they are incurred. The Company utilized a Monte-Carlo simulation at inception to value the Convertible Notes. The Monte-Carlo simulation is calculated as the average present value over all simulated paths. The key inputs and assumptions used in the Monte-Carlo Simulation, including volatility, estimated market yield, risk-free rate, the probability of various scenarios, including held to maturity and subsequent preferred stock offering and various simulated paths.

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 instruments 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.

Convertible Instruments

The Company accounts for hybrid contracts that feature conversion options in accordance with ASC 815,Derivatives and Hedging Activities (“ASC 815”). ASC 815 requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20,Debt with Conversion and Other Options (“ASC 470-20”). Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.

Debt Discounts

The Company accounts for debt discount according to ASC 470-20,Debt with Conversion and Other Options. Debt discounts are amortized through periodic charges to interest expense over the term of the related financial instrument using the effective interest method.

Guarantee Liability

The Company maintains a guarantee liability that represents its exposure related to guarantees associated with related party debt. The guarantee liability is reported in current liabilities as a separate line item on the consolidated balance sheets, and the provision for guarantee liability is reported in other income (expense) as a separate line item on the consolidated statement of operations. The guarantee liability represents management’s estimate of the Company’s exposure to losses pursuant to the Company’s related party guarantee obligations.

Redeemable Non-Controlling Interests in Equity of Subsidiary

The Company records redeemable non-controlling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive. These interests are presented as redeemable non-controlling interests in equity of subsidiaries within the consolidated balance sheets, outside of the permanent equity section. The common stockholders in Ault Disruptive have redemption rights that are considered to be outside of the Company’s control. As of December 31, 2023, the carrying amount of the redeemable non-controlling interest in equity of subsidiaries was recorded at its redemption value of $2.2 million. During the year ended December 31, 2024, shares of Ault Disruptive common stock were redeemed for an aggregate redemption amount of $2.3 million. Remeasurements to the redemption value of the redeemable non-controlling interest in equity of subsidiaries are recorded within additional paid-in capital.

Treasury Stock

The Company records the aggregate purchase price of treasury stock at cost and includes treasury stock as a reduction to stockholders’ equity.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718,Compensation – Stock Compensation (“ASC 718”).

The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

Under ASC 718:

Income Taxes

The Company determines its income taxes under the asset and liability method in accordance with ASC 740,Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations and Comprehensive Loss in the period that includes the enactment date.

The Company accounts for uncertain tax positions in accordance with ASC 740-10-25, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of December 31, 2024 and 2023, there wereno uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.

Foreign Currency Translation

A substantial portion of the Company’s revenues are generated in U.S. dollars. In addition, a substantial portion of the Company’s costs are incurred in U.S. dollars. Company management has determined that the U.S. dollar is the functional currency of the primary economic environment in which it operates.

Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are re-measured into U.S. dollars in accordance with the Financial Accounting Standards Board (“FASB”) ASC 830,Foreign Currency Matters (“ASC 830”). All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses as appropriate.

The financial statements of certain foreign subsidiaries, whose functional currency is not the U.S. dollar, have been translated into U.S. dollars in accordance with ASC 830. Balance sheet accounts are translated using the exchange rates in effect as of the balance sheet date, while statement of operations amounts are translated at the average exchange rate for the reporting period. The resulting translation adjustments are recognized as other comprehensive loss in the consolidated statement of comprehensive loss and as accumulated comprehensive loss in the statement of changes in stockholders’ equity.

Comprehensive Loss

The Company reports comprehensive loss in accordance with ASC 220,Comprehensive Income. This statement establishes standards for the reporting and presentation of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss generally represents all changes in equity during the period except those resulting from investments by, or distributions to, stockholders. The Company determined that its items of other comprehensive loss relate to changes in foreign currency translation adjustments and impairment of debt securities.

Accounting Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities, reserves for trade receivables and inventories, intangible assets and goodwill, useful lives and the recoverability of long-lived assets, stock-based arrangements, contingent consideration, and deferred income taxes and related valuation allowance. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.

Preferred Stock Liabilities

The Company follows ASC 480-10,Distinguishing Liabilities from Equity, in its evaluation of the accounting for preferred stock liabilities. ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics:

The number of shares delivered is determined on the basis of (1) the fixed monetary amount determined as the stated value and (2) the current stock price at settlement, so that the aggregate fair value of the shares delivered equals the monetary value of the obligation, which is fixed or predominantly fixed. Accordingly, the holder is not significantly exposed to gains and losses attributable to changes in the fair value of the Company’s equity shares. Instead, the Company is using its own equity shares as currency to settle a monetary obligation.

Discontinued Operations

The Company records discontinued operations when the disposal of a separately identified business unit constitutes a strategic shift in the Company’s operations, as defined in ASC Topic 205-20, Discontinued Operations (“ASC Topic 205-20”).

Reclassifications

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

Recent Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement may affect the Company’s financial reporting, the Company undertakes an analysis to determine any required changes to its consolidated financial statements.

On December 14, 2023, the FASB issued 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 Company adopted ASU 2023-07 as required for the year ended December 31, 2024. The adoption required the Company to provide additional disclosures, but otherwise it does not materially impact the accompanying financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 requires additional disclosures of certain expenses in the notes of the financial statements, to provide enhanced transparency into the expense captions presented on the Consolidated Statements of Operations. Additionally, in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), to clarify the effective date of ASU 2024-03. The new standard is effective for the Company for its annual periods beginning January 1, 2027 and for interim periods beginning January 1, 2028, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard.

4. DECONSOLIDATION OF SUBSIDIARY AND DISCONTINUED OPERATIONS

Presentation of GIGA as Discontinued Operations

On August 14, 2024, GIGA filed a petition for reorganization under Chapter 11 of the bankruptcy laws. The filing placed GIGA under the control of the bankruptcy court, which oversees its reorganization and restructuring process. The Company assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate GIGA and its subsidiaries effective on the petition date. The Company recognized a gain on deconsolidation of GIGA of $2.0 million included in net gain (loss) from discontinued operations.

In connection with the Chapter 11 reorganization process, the Company concluded that the operations of GIGA met the criteria for discontinued operations as this 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 GIGA as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.

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

Net assets of discontinued operations excludes $14.0 million of intercompany notes payable to Hyperscale Data and Ault Lending as of December 31, 2024.

The following table presents the results of GIGA operations:

The net loss from discontinued operations for the year ended December 31, 2024 on the consolidated statement of operations and comprehensive loss includes the gain on deconsolidation as follows:

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

5. CHANGE IN PLAN OF SALE OF AGREE HOTEL PROPERTIES

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

For presentation purposes, the assets and liabilities previously held for sale as of December 31, 2023, were reclassified in the December 31, 2023 balance sheet in the accompanying financial statements back to their original asset and liability groups at their previous carrying values. In connection with this change in plan of sale, the Company recorded a loss on impairment of property and equipment related to the real estate assets of AGREE of $8.0 million during the year ended December 31, 2024. The fair values of property and equipment related to the real estate assets of AGREE were based on a discounted cash flow income approach for the hotel properties and a comparable sales market approach for the vacant land assets.

In connection with the original plan of sale of AGREE assets, the assets held for sale were measured at the lower of their carrying amount or fair value less cost to sell. The Company performed a fair value analysis for the disposal group utilizing an income approach for the hotels and a market approach for the land, resulting in an $6.6 million impairment of property and equipment during the year ended December 31, 2023.

6. REVENUE DISAGGREGATION

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the years ended December 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. Revenue is presented by reportable segment. The “Holding Co.” column includes revenue that is not allocated to a specific reportable segment but is generated within the holding company entity. While not a separate reportable segment, Holding Co. is included in the table below to reconcile to total consolidated revenue.

The Company’s disaggregated revenues consisted of the following for the year ended December 31, 2024:

The Company’s disaggregated revenues consisted of the following for the year ended December 31, 2023:

7. 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 at December 31, 2023 (no material financial instruments that were measured at fair value on a recurring basis at December 31, 2024):

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 changes in Level 3 fair value hierarchy during the years ended December 31, 2024 and 2023 were as follows:

8. Equity Investments for Which Measurement Alternative Has Been Selected

As of December 31, 2024 and 2023, the Company held equity investments in other securities valued at $2.8 million and $21.8 million, respectively, that were valued using a measurement alternative. These investments are included in other equity securities in the accompanying consolidated balance sheets.

The Company has made cumulative downward adjustments for impairments for equity securities that do not have readily determinable fair values for the years ended December 31, 2024 and 2023, totaling $8.6 million and $15.8 million, respectively. Approximately $6.3 million of the impairment charge for the years ended December 31, 2024 was reflected in other income (expense) and $2.3 million of the impairment charge related to Fintech lending operations and was recorded against revenue from lending and trading activities on the consolidated statement of operations and comprehensive loss. Approximately $9.6 million of the impairment charge for the year ended December 31, 2023 was reflected in other income (expense) and $6.2 million of the impairment charge related to Fintech lending operations and was recorded against revenue from lending and trading activities on the consolidated statement of operations and comprehensive loss.

9. CRYPTO ASSETS

The following table presents revenue from mined crypto assets for the years ended December 31, 2024 and 2023:

The following table presents the activities of the crypto assets (classified within prepaid expenses and other current assets) for the years ended December 31, 2024 and 2023:

10. INVENTORIES

At December 31, 2024 and 2023, inventories consisted of:

11. PROPERTY AND EQUIPMENT, NET

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

Summary of depreciation expense:

Impairment of Property and Equipment

During the year ended December 31, 2024, due to increases in the Bitcoin mining difficulty level, which compounded the continued impact of the Bitcoin halving event, we concluded that indicated that an impairment triggering event had occurred. Testing performed indicated the estimated fair value of the Company’s miners to be less than their net carrying value during the year ended December 31, 2024, and an impairment charge of $10.5 million was recognized, decreasing the net carrying value of the Company’s crypto assets mining equipment to their estimated fair value. The Company valued the miners using an income approach utilizing a discounted cash flow and a discount rate of 20%. The Company estimated the cash flow from the miners over a two-year period assuming a utilization rate of 98%, a mining difficulty level of 101.6 trillion, a Bitcoin price of $76,000 and a power cost of $0.055 per kilowatt-hour. The estimated fair value of the Company’s miners is classified in Level 3 of the fair value hierarchy with no observable inputs using a discounted cash flow methodology.

In addition, the Company recorded impairment charges of $8.9 million related to AGREE’s real estate assets in each of the years ended December 31, 2024 and 2023. The fair values of property and equipment related to the real estate assets of AGREE were based on a discounted cash flow income approach for the hotel properties and a comparable sales market approach for the vacant land assets. Assumptions used in the discounted cash flow analysis included discount rates between 10.5% and 10.75%, terminal capitalization rates between 8.5% and 8.75% and occupancy rates between 59.2% and 78.8%.

During the year ended December 31, 2023, certain unforeseen business developments and changes in financial projections at Avalanche International Corp. (“AVLP”) indicated that an impairment triggering event had occurred. Testing performed indicated the estimated fair value of AVLP property and equipment as of December 31, 2023 was $0, and an impairment charge of $14.0 million was recognized, which was based primarily on estimated liquidation value or expected proceeds from the sale or disposal of the assets.

During the year ended December 31, 2023, the Company recognized an impairment charge of $4.1 million related to property and equipment at ROI, which was based primarily on estimated liquidation value or expected proceeds from the sale or disposal of the assets.

Sale of St. Petersburg Property

On December 13, 2024, AGREE completed the sale of its real property located in St. Petersburg, Florida (the “Florida Property”) for $13.0 million and recorded a gain on the sale of $0.2 million included in gain on the sale of fixed assets in the consolidated statement of operations.

12. INTANGIBLE ASSETS, NET

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

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

Summary of amortization expense:

As of December 31, 2024, intangible assets subject to amortization had an average remaining useful life of 6.9 years. The following table presents estimated amortization expense for each of the succeeding five calendar years and thereafter.

During the year ended December 31, 2024, the Company recognized $1.5 million impairment of intangible assets related to Eco Pack. Based on internally developed forecasts of undiscounted expected future cash flows, it was determined that the carrying amount of the assets was not recoverable.

During the year ended December 31, 2023, the Company recognized $24.3 million impairment of intangible assets related to AVLP. Due to indicators of impairment, AVLP intangible assets were tested for impairment during the year ended December 31, 2023. Based on internally developed forecasts of undiscounted expected future cash flows, it was determined that the carrying amount of the assets were not recoverable.

The tradenames and patents/developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach whereby estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the Company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates of 18% for patents and developed technology and 0.25% for trademarks. The resulting net annual royalty payments are then discounted to present value using a discount factor of 25.7%.

13. GOODWILL IMPAIRMENT

The Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. The Company performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators of impairment related to certain unforeseen business developments and changes in financial projections.

The valuation of AVLP was determined using an income approach methodology of valuation. The income approach is based on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of capital analysis. The market approach was also considered; however, the income approach was chosen as the Company determined it was a better representation of AVLP’s projected long-term performance.

The results of the quantitative test indicated that the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment charge during the year ended December 31, 2023.

14. INVESTMENTS – RELATED PARTIES

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

Investment in Promissory Notes, Related Parties – Ault & Company and GIGA

Amounts above are recorded in “Investment in promissory notes and other, related party” on the consolidated balance sheets.

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

At each reporting date, the Company applies its judgment to evaluate the collectability of the note receivable and makes a provision based on the assessed amount of expected credit loss. This judgment is based on parameters such as interest rates, market conditions and creditworthiness of the creditor.

The Company determined that the collectability of certain notes receivables is doubtful based on information available.

Upon the deconsolidation of GIGA, the Company established an allowance for credit losses of $2.6 million related to notes receivable from GIGA included in net gain (loss) from discontinued operations. As of December 31, 2024, the Company performed an analysis of the allowance for credit losses of the GIGA notes receivable resulting in a $2.1 million reduction in the allowance, which was recorded within cost of revenue from lending and trading activities.

Investment in Alzamend Series B Convertible Preferred Stock, Warrants and Common Stock, Related Parties – Alzamend

Amounts above are recorded in “Investments in common stock and equity securities, related party” on the consolidated balance sheets.

The following tables summarize the changes in the Company’s investments in Alzamend common stock during the years ended December 31, 2024 and 2023:

Ault Lending Investment in Alzamend Series B Convertible Preferred Stock and Warrants

In connection with a securities purchase agreement entered into with Alzamend in January 2024, Ault Lending purchased 2,100 shares of Alzamend Series B Convertible Preferred Stock and warrants to purchase 0.2 million shares of Alzamend common stock with a five-year term and an exercise price of $12.00 per share for a total purchase price of $2.1 million.

The agreement provided that Ault Lending may purchase up to $6 million of Alzamend Series B Convertible Preferred Stock in one or more closings. There have been not been additional closings subsequent to January 2024 and the agreement terminated by its own terms on March 31, 2025.

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.

VIE Considerations for Ault Lending’s Investments in Alzamend

Alzamend is considered a VIE based on the Ault Lending’s investment in Alzamend common stock, Series B convertible preferred stock and warrants. However, Ault Lending is not deemed to be the primary beneficiary of Alzamend and therefore does not consolidate Alzamend in its financial statements. Ault Lending’s maximum exposure to loss as a result of its involvement with Alzamend is limited to the $2.2 million carrying value of its investments.

15. EQUITY METHOD INVESTMENT

Equity Investments in Unconsolidated Entity – SMC

On November 20, 2023, SMC, a consolidated VIE of the Company, completed a transaction pursuant to which the Company’s share ownership of SMC was diluted to approximately 28%. Due to the significant change in Ault Alliance’s ownership and voting rights, the Company determined that it no longer met the criteria of the primary beneficiary and, accordingly, the Company deconsolidated SMC as of November 20, 2023. The Company recorded a $3.0 million loss on deconsolidation for the year ended December 31, 2023.

Upon deconsolidation, the Company recorded its retained investment in SMC based upon the fair value of the common shares held by the Company at November 20, 2023. Due to the Company’s significant influence over SMC, the Company began accounting for its retained interest under the equity method of accounting.

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

On September 5, 2024, three of the Company’s employees resigned from the board of directors of SMC. As a result of the resignations, and as the Company owned less than 20% of SMC at the time, the Company no longer had the ability to exert significant influence over the operating and financial policies of SMC. The Company discontinued the equity method of accounting for the investment in SMC on September 5, 2024. As a result, the Company changed its accounting for SMC to an investment in marketable equity securities and recognized the investment at fair value, with a gain of $1.3 million recognized as revenue from lending and trading activities in the consolidated statement of operations and comprehensive loss.

The following table provides summarized financial information for the Company’s ownership interest in SMC accounted for under the equity method for the December 31, 2023 period presented 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

Summarized Balance Sheet Information

16. CONSOLIDATED VARIABLE INTEREST ENTITY - ALPHA FUND

Alpha Fund – Consolidated Variable Interest Entity

As of December 31, 2022, the Company held an investment in the Alpha Fund. The Alpha Fund was liquidated during the year ended December 31, 2023. Alpha Fund operated as a private investment fund. The general partner of Alpha Fund, Ault Alpha GP LLC (“Alpha GP”) was owned by Ault Capital Management LLC (the “Investment Manager”), which also acted as the investment manager to Alpha Fund. The Investment Manager was owned by Ault & Company. Messrs. Ault, Horne, Nisser and Cragun, who serve as executive officers and/or directors of the Company, were executive officers of the Investment Manager, and Messrs. Ault, Horne and Nisser are executive officers and directors of Ault & Company.

Prior to the liquidation of the Alpha Fund, the Company consolidated Alpha Fund as a VIE due to its significant level of influence and control of Alpha Fund, the size of its investment, and its ability to participate in policy making decisions. The Company was considered the primary beneficiary of the VIE.

17. BUSINESS COMBINATIONS

ROI Acquisition

On March 6, 2023, the Company closed a share exchange agreement with ROI and sold to ROI all the outstanding shares of capital stock of the Company’s subsidiary, BitNile.com, Inc. as well as RiskOn360, Inc. (formerly known as Ault Iconic, Inc.) and the securities of Earnity, Inc. beneficially owned by BitNile.com, Inc. as of the date of the Agreement. As consideration for the acquisition, ROI issued shares of preferred stock that could have been convertible into common stock, subject to shareholder approval, of ROI representing approximately 73.2% of ROI’s outstanding common stock at the time of the transaction. Total consideration included $0.3 million purchase consideration, representing the fair value of ROI common stock acquired by the Company, and $6.4 million allocated for the fair value of the non-controlling interest.

18. WARRANTS

A summary of warrant activity for the years ended December 31, 2024 and 2023 is presented below.

The following table summarizes information about common stock warrants outstanding at December 31, 2024:

Warrant Issuances During 2024

During the year ended December 31, 2024, the Company issued warrants to purchase 0.1 million shares of Class A common stock at a weighted average exercise price of $118.39 per share, subject to adjustment, in connection with the issuance of Series C convertible preferred stock (the “Series C Preferred Stock”) to a related party (see Note 29).

Warrant Issuances During 2023

During the year ended December 31, 2023, the Company issued warrants to purchase 0.4 million shares of Class A common stock at a weighted average exercise price of $124.08 per share, subject to adjustment, in connection with the issuance of a senior secured convertible promissory note, related party (see Note 26) and Series C Preferred Stock to a related party (see Note 29).

The Company has valued the warrants issued at their date of grant utilizing the Black-Scholes option pricing model. This model is dependent upon several variables such as the warrants’ remaining contractual term, exercise price, current stock price, risk-free interest rate and estimated volatility of the Company’s stock over the contractual term of the warrants. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the contractual life of the warrants.

The Company utilized a variety of pricing models and the weighted average assumptions used during the years ended December 31, 2024 and 2023 were as follows:

19. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

During the year ended December 31, 2024, Ault Lending reversed a previously accrued $5.7 million performance bonus related to realized gains on trading activities. Management determined that the bonus would not be paid, and accordingly, the reversal was recorded as a reduction to general and administrative expenses.

20. LEASES

The Company has operating leases for office space. The Company’s leases have remaining lease terms of 1.1 years to 9.0 years, some of which may include options to extend the leases perpetually, and some of which may include options to terminate the leases within one year.

The following table provides a summary of leases by balance sheet category as of December 31, 2024 and 2023:

The components of lease expenses for the years ended December 31, 2024 and 2023, were as follows:

The following tables provides a summary of other information related to leases for the years ended December 31, 2024 and 2023:

Maturity of lease liabilities under the Company’s non-cancellable operating leases as of December 31, 2024, were as follows:

21. 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 of 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.

22. 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. During the year ended December 31, 2024, ROI transferred 12.0 million shares of White River common stock with a fair value of $19.2 million at the date of transfer to certain of its accredited investors to resolve the matters discussed above.

In conjunction with the transfers to non-controlling interests, shares of ROI’s investment in White River’s Series A Convertible Preferred Stock were converted into shares of White River common stock, resulting in a non-cash $17.9 million gain on conversion.

23. REDEEMABLE NON-CONTROLLING INTERESTS IN EQUITY OF SUBSIDIARY LIABILITY

The Company records redeemable non-controlling interests in equity of subsidiaries to reflect the economic interests of the common stockholders in Ault Disruptive.

Redemption of Shares

On September 27, 2024, Ault Disruptive announced that it would redeem all of its outstanding shares of common stock which occurred as of the close of business on October 11, 2024, because Ault Disruptive would not consummate an initial business combination within the time period required by its Amended and Restated Certificate of Incorporation, as amended. During the year ended December 31, 2024, shares of Ault Disruptive common stock were redeemed for an aggregate redemption amount of $2.3 million.

The following table summarizes the changes in the Company’s redeemable non-controlling interests in equity of subsidiaries during the year December 31, 2024 and 2023:

24. NOTES PAYABLE

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

During the year ended December 31, 2023, the holders of $8.4 million 10% secured promissory notes exchanged their notes and accrued interest for preferred stock liabilities. The Company recorded a loss on extinguishment of debt of $0.1 million related to the transaction. When the preferred stock liabilities converted to Series A Common stock, the Company recorded a loss on extinguishment of $1.5 million.

During the year ended December 31, 2023, the holders of $10.5 million 10% demand promissory notes and $1.1 million 12% demand promissory notes exchanged their notes for notes from Ault & Company (see Note 22), resulting in a loss on extinguishment of debt of $0.4 million.

In connection with the December 2023 Series C Preferred Stock offering (see Note 29), the Company paid $20.4 million to pay the $20.2 million outstanding balance of the 8% senior secured promissory notes, plus $0.2 million accrued interest payable. The 8% senior secured promissory notes had an unamortized debt discount of $3.2 million outstanding, which was recorded as a loss on extinguishment of debt.

The Company recorded a $2.0 million loss on extinguishment of debt related to the April 2023 restructuring related to one of the 16% promissory notes payable.

OID Only Term Note

On July 2, 2024, the Company entered into a term note agreement with institutional investors for the sale of up to $2.6 million in term notes, of which the principal amount of $1.8 million was immediately funded. A term note was issued at a discount, with net proceeds to the Company of $1.5 million. The term note does not accrue any interest. The term note was scheduled to mature on August 2, 2024. The term note is guaranteed by Mr. Ault. The term note maturity was extended to September 30, 2024, and an extension fee of $0.2 million accrues monthly until the term note is paid in full. The term note is currently in default and is included in “Other” in the table above.

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 $2.4 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.

In February 2025, term note was amended to increase the principal amount due to $2.6 million, increase the interest rate to 18% and extend the maturity date to May 15, 2025.

15% Term Notes

Between April 29, 2024 and August 29, 2024, the Company entered into note agreements totaling $6.0 million with an institutional investor bearing interest of 15%. The term notes were issued at a discount, with net proceeds to the Company of $5.1 million. The term notes were amended to extend the maturity dates to October 31, 2024. The notes are in default as of November 1, 2024.

In December 2024, Ault Lending had a fees receivable from the institutional investor in the amount of $2.2 million related to Ault Lending’s profit participation rights in an investment made by the institutional investor to Alzamend. On December 31, 2024, the Company and the institutional investor agreed to offset $2.2 million of the term notes payable against the fees receivable. This transaction was accounted for as a non-cash settlement of financial instruments and had no impact on the Company’s consolidated statement of operations.

In February 2025, the Company entered into an exchange agreement with the institutional investor, pursuant to which the Company issued to the investor a convertible promissory note in the principal face amount of $1.9 million in exchange for the cancellation of one of the outstanding 15% term notes issued by the Company to the institutional investor that had outstanding principal and accrued but unpaid interest of $1.9 million.

In March 2025, the Company entered into an exchange agreement with the institutional investor, pursuant to which the Company issued to the investor a convertible promissory note in the principal face amount of $4.2 million in exchange for the cancellation of the outstanding 15% term notes issued by the Company to the institutional investor that had outstanding principal and accrued but unpaid interest of $4.2 million.

The note will mature on June 30, 2025. The note is convertible into shares of the Company’s Class A common stock at a conversion price equal to the greater of (i) $0.40 per share (the “Floor Price”), which Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions and (ii) the lesser of 75% of the VWAP (as defined in the note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the note or (B) the date of conversion into shares of Class A common stock. The Company may not issue shares to the extent such issuances would result in an aggregate number of shares of Class A common stock exceeding 19.99% of the total shares of Class A common stock issued and outstanding as of the date of issuance of the note, in accordance with the rules and regulations of the NYSE unless the Company first obtains stockholder approval.

$20 Million Credit Agreement

On June 4, 2024 the Company entered into a Loan Agreement (the “Credit Agreement”) with two institutional investors (collectively, the “Lender”). The Credit Agreement provides for an unsecured, non-revolving credit facility with an aggregate draw limit of $20.0 million. However, the Company is restricted to having no more than $2.0 million in principal amount of outstanding advances at any given time under the Credit Agreement. As of December 31, 2024, $2.0 million has been advanced, exclusive of a $0.4 million OID.

All loans under the Credit Agreement will be evidenced by a promissory note. The Lender made an advance to the Company of $1.5 million on the execution date. The advances were due December 4, 2024, however, per the terms of the Credit Agreement as the Company had executed an equity line of credit agreement relating to the sale of shares of the Company’s 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”), has an effective registration statement relating thereto, the maturity date was automatically extended until June 4, 2025. The Lender is not obligated to make any further advances under the Credit Agreement after the maturity date. Advances under the Credit Agreement will include the addition of an OID of 20% to the amount of each advance and all advances will bear interest at the rate of 15.0% per annum and may be repaid at any time without penalty or premium. Amounts outstanding under the Credit Agreement are included in “Other” in the table above.

The obligations of the Company under the Credit Agreement are secured by a guaranty provided by Milton C. Ault, the Executive Chairman of the Company.

Circle 8 Revolving Credit Facility

On October 16, 2024, Circle 8 was in default related to reporting requirements under the terms of their revolving credit facility. Circle 8 was able to obtain waivers to cure the event of default and defer the requirements until May 31, 2025.

Amendment to AGREE Secured Construction Loans

The AGREE secured construction loans with an original due date of January 1, 2025, were amended on February 2, 2025, whereby AGREE agreed to pay monthly installments of interest only based on an annualized interest rate of Term SOFR plus 4.75%. In addition, AGREE agreed to make principal payments of $1.0 million in June 2025 and $2.0 million in September 2025 and December 2025 with the balance due March 1, 2026. AGREE has defaulted by failure to make timely payments per the amended payment terms.

Notes Payable Maturities

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

Interest Expense

Interest expense includes amounts incurred on notes payable, convertible notes payable, and notes payable to related parties. The components of interest expense for the years ended December 31, 2024 and 2023 were as follows:

25. NOTES PAYABLE, RELATED PARTY

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

Ault & Company Loan Agreement

On June 8, 2023, the Company entered into a loan agreement with Ault & Company as lender. The loan agreement provides for an unsecured, non-revolving credit facility in an aggregate principal amount of up to $10 million. All loans under the loan agreement are due within five business days after request by Ault & Company. Ault & Company is not obligated to make any further advances under the loan agreement after December 8, 2023. Advances under the loan agreement bear interest at the rate of 9.5% per annum and may be repaid at any time without penalty or premium. A total of $4.6 million was advanced under the loan agreement and was exchanged for a senior secured convertible promissory note with Ault & Company (see Note 27).

In August 2023, Ault &Company assumed $11.6 million of secured promissory notes previously issued by the Company for which the Company has issued term notes to Ault & Company in the same amount. One term note has a principal amount of $1.1 million and bears interest at 12% and the second term note has a principal amount of $10.5 million and bears interest at 10%. These assumed loans were exchanged for a senior secured convertible promissory note with Ault & Company (see Note 27).

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

26. CONVERTIBLE NOTES PAYABLE

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

10% OID Convertible Promissory Note

On July 18, 2024, the Company entered into a note purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”) pursuant to which the Investor purchased from the Company, on July 19, 2024, in a registered direct offering, a $5.4 million 10% OID Convertible Promissory Note (the “Note”). The Note was sold to the Investor for a purchase price of $4.9 million, which included an OID of $0.5 million. The Note accrues interest at the rate of 15%. The Note matured on October 19, 2024 and is in default as of October 20, 2024. The Note is convertible into shares of Class A common stock at a conversion price of $5.80 per share.

During the year ended December 31, 2024, the Investor converted $1.2 million of the Note into 0.2 million shares of Class A common stock that had a fair value of $1.5 million at the time of conversion and the Company recognized a $0.3 million loss on extinguishment of debt.

In December 2024, the Company and the Investor entered into a forbearance agreement pursuant to which the Investor agreed to forebear through the close of business on December 31, 2024, from exercising the rights and remedies it is entitled in consideration for the Company’s agreement to issue a convertible promissory note in the amount of $0.9 million (the “Forbearance Note”).

In February 2025, the Company and the Investor entered into an amended and restated forbearance agreement pursuant to which the Investor agreed to forebear through the close of business on May 15, 2025, from exercising the rights and remedies it is entitled in consideration for the Company’s agreement to issue to the Investor an amended and restated convertible promissory note in the amount of $3.5 million (the “A&R Forbearance Note”), consisting of (i) the amount then due under the Forbearance Note of $0.9 million, (ii) a forbearance extension fee of $0.3 million and (iii) a true-up amount of $2.3 million. Subject to the approval by the NYSE and the Company’s stockholders, the A&R Forbearance Note is convertible into shares of Class A common stock at a conversion price equal to $2.00, subject to adjustment. The A&R Forbearance Note accrues interest at the rate of 18% per annum and matures on May 15, 2025.

6% Convertible Promissory Notes

On March 11, 2024, the Company entered into a note purchase agreement with two institutional investors pursuant to which the investors agreed to acquire, and the Company agreed to issue and sell in a registered direct offering to the investors an aggregate of $2.0 million convertible promissory notes, bearing interest of 6%. The convertible promissory notes were converted into shares of Class A common stock in May 2024 at a conversion price of $12.25 per share and the Company recognized a $0.7 million loss on extinguishment of debt.

ROI Gain on Extinguishment of Senior Secured Convertible Notes

During the year ended December 31, 2024, ROI converted $2.3 million of ROI senior secured convertible notes that had a fair value of $0.9 million at the time of conversion and recognized a $1.4 million gain on extinguishment of debt.

Contractual Maturities

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

27. SENIOR SECURED CONVERTIBLE NOTE, RELATED PARTY

On October 13, 2023 (the “A&C Closing Date”), the Company entered into a note purchase agreement with Ault & Company, pursuant to which the Company sold to Ault & Company (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “2023 Note”) and warrants (the “Warrants”) to purchase shares of the Company’s common stock for a total purchase price of up to $17.5 million.

The purchase price was comprised of the following: (i)cancellation of $4.6 million of cash loaned by Ault & Company to the Company since June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by the Company to Ault & Company in exchange for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25 million stated value of 125,000 shares of the Company’s Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to the Company.

The 2023 Note had a principal face amount of $17.5 million and had a maturity date of October 12, 2028 (the “Maturity Date”). The 2023 Note bore interest at the rate of 10% per annum. The 2023 Note was repaid in full in December 2023 and the Company recorded a $4.2 million loss on extinguishment for the year ended December 31, 2023.

The Warrants grant Ault & Company the right to purchase 0.1 million shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the A&C Closing Date, and become exercisable on the first business day after the six-month anniversary of the A&C Closing Date. The exercise price of the Warrants is $160.74, which is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.

The Company elected the fair value option and utilized a Monte-Carlo simulation at inception to value the 2023 Note. The Monte-Carlo simulation is calculated as the average present value over all simulated paths. The key inputs and assumptions used in the Monte-Carlo Simulation, including volatility, estimated market yield, risk-free rate, the probability of various scenarios, including held to maturity and subsequent preferred stock offering and various simulated paths, were utilized to estimate the fair value at $17.8 million or approximately the principal amount outstanding as of inception. The value of the 2023 Note was calculated as the average present value over 25,000 simulated paths. Given the 2023 Note was fully satisfied in connection with issuance of the Series C Preferred Stock, the Company calculated the fair value on the date of extinguishment as the total principal plus accrued interest outstanding.

The following table summarizes some of the significant inputs and assumptions used in the Monte-Carlo simulation:

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $4.2 million based on the estimated fair value of the Warrants.

In addition to a 21% discount for lack of marketability, significant inputs associated with the calculation of the fair value of the Warrants included the following:

The rollforward of the 2023 Note is as follows:

28. COMMITMENTS AND CONTINGENCIES

Contingencies

Litigation Matters

The Company is involved in litigation arising from other matters in the ordinary course of business. The Company is regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.

Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.

Arena Litigation

Arena Investors, LP (ROI Litigation)

On May 30, 2024, Arena Investors, LP (“Arena”), in its capacity as collateral agent for five noteholders, filed a Complaint (the “ROI Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and ROI, in action captionedArena Investors, LP v. Ault Alliance, Inc. and RiskOn International, Inc., Index No. 652792/2024.

This litigation relates to the $4.2 million ROI senior secured convertible note disclosed in Note 26.

The ROI Complaint asserts a cause of action for breach of contract against the Company based on a Guaranty, dated April 27, 2023, and entered into, amongst others, the Company and Arena, and seeks damages in the amount of in excess of $3.75 million, plus interest, attorneys’ fees, costs, expenses, and disbursements.

The ROI Complaint also asserts a cause of action for breach of contract against ROI based on an alleged breach of that certain Security Agreement, dated April 27, 2023, and entered into among ROI and Arena. In connection with this cause of action, Arena seeks, among other things, costs and expenses from the Company and ROI.

On July 31, 2024, the Company and ROI filed a motion to dismiss seeking to partially dismiss the ROI Complaint, as against the Company, and to dismiss the ROI Compliant, in its entirety, as against ROI.

On or about January 21, 2025, the Court entered an order denying the part of the motion which sought partial dismissal of the ROI Complaint, as against Company, and granting the part of the motion which sought dismissal of the ROI Complaint, in its entirety, as against ROI.

On February 18, 2025, the Company filed an Answer to the ROI Complaint and asserted numerous affirmative defenses.

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion of the notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.

Other Litigation Matters

With respect to the Company’s other outstanding matters, based on the Company’s current knowledge, the Company believes that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.

The Company had accrued loss contingencies related to litigation matters of $2.3 million as of December 31, 2024 and 2023.

29. STOCKHOLDERS’ EQUITY

Class A Common Stock

Class A common stock confers upon the holders the rights to receive notice to participate and vote at any meeting of stockholders of the Company, to receive dividends, if and when declared, and to participate in a distribution of surplus of assets upon liquidation of the Company.

Class B Common Stock

The Class B common stock is identical to the Class A common stock, with the exception that each share thereof carries 10 times the voting power of a share of Class A common stock. The Class B common stock is convertible at any time into Class A common stock on a one-for-one basis.

Distribution of Class B Common Stock to Class A Common and Series C Preferred Stockholders

On November 15, 2024, the Company announced the distribution of 5.0 million shares of its Class B common stock to all holders of its Class A common stock and Series C Convertible Preferred Stock on an as-converted basis. The record date for this dividend was November 29, 2024, and the payment date was December 16, 2024.

Preferred Stock

Preferred stock as of December 31, 2024 consisted of the following:

Preferred stock as of December 31, 2023 consisted of the following:

The Company is authorized to issue 25.0 million shares of preferred stock, $0.001 par value. As of December 31, 2024, the rights, preferences, privileges and restrictions on the remaining authorized 18.4 million shares of preferred stock have not been determined. The Board is authorized to designate a new series of preferred shares and determine the number of shares, as well as the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred shares.

10.00% Series E Cumulative Redeemable Perpetual Preferred Stock (the “Series E Preferred Stock”)

On November 11, 2024 the Company filed a Certificate of Designation, Rights and Preferences (the “Certificate of Designation”) with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Company’s Series E Preferred Stock. The following is a summary description of those terms and the general effect of the issuance of the shares of Series E Preferred Stock on the Company’s other classes of registered securities.

The Series E Preferred Stock will, as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, rank: (1) senior to all classes or series of Common Stock and to all other equity securities issued by the Company other than equity securities referred to in clauses (2) and (3); (2) on parity with any future class or series of the Company’s equity securities expressly designated as ranking on parity with the Series E Preferred Stock, (3) junior to the Company’s Series A Cumulative Redeemable Perpetual Preferred Stock and its Series C Convertible Preferred Stock; and all equity securities issued by the Company expressly designated as ranking senior to the Series E Preferred Stock; and (4) junior to all the Company’s existing and future indebtedness.

To the extent the shares of Series E Preferred Stock are issued, the Company will pay cumulative cash dividends on the Series E Preferred Stock when, as and if declared by its board of directors (or a duly authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series E Preferred Stock will accrue on the stated amount of $25.00 per share of the Series E Preferred Stock at a rate per annum equal to 10.00% (equivalent to $3.00 per year), payable monthly in arrears.

The Series E Preferred Stock is redeemable by the Company. Holders of shares of the Series E Preferred Stock generally will have no voting rights, except as required by law and as provided in the Certificate of Designation. Voting rights for holders of the Series E Preferred Stock exist primarily with respect to material and adverse changes in the terms of the Series E Preferred Stock and the creation of additional classes or series of preferred stock that rank senior to the Series E Preferred Stock.

Distribution of Series E Preferred Stock to Class A Common and Series C Preferred Stockholders

On November 13, 2024, the Company announced the distribution of 0.7 million shares of its Series E Preferred Stock, a $16.3 million stated value, to holders of Class A common stock and Series C preferred stock on an as-converted basis. The record date for this dividend was November 26, 2024, and the payment date was December 9, 2024.

Series F Preferred Stock

On November 22, 2024, the Company filed a Certificate of Designation, Rights and Preferences with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Company’s Series F Exchangeable Preferred Stock (the “Series F Preferred Stock”). The following is a summary description of those terms and the general effect of the issuance of the shares of Series F Preferred Stock on the Company’s other classes of registered securities.

There are 1.0 million shares of the Series F Preferred Stock designated.

Each share of Series F Preferred Stock is exchangeable, at the option of its holder, into (i) 10 shares of Class A Common Stock of Ault Capital Group, Inc., a Nevada corporation and currently a wholly owned subsidiary of the Company (“ACG”) and (ii) five shares of Class B Common Stock of ACG at any time beginning on the later of (i) one year after issuance of the Series F Preferred Stock and (ii) the date of the registration under the Securities Act of all of the shares of Ault Class A Common Stock and Ault Class B Common Stock issuable upon the Exchange of the Series F Preferred Stock.

The Series F Preferred Stock will, as to rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, rank: (1) senior to all classes or series of Common Stock and to all other equity securities issued by the Company other than equity securities referred to in clauses (2) and (3); (2) on parity with any future class or series of the Company’s equity securities expressly designated as ranking on parity with the Series F Preferred Stock, (3) junior to the Company’s Series A Cumulative Redeemable Perpetual Preferred Stock, Series C Convertible Preferred Stock, Series D Preferred Stock and Series E Cumulative Redeemable Perpetual Preferred Stock; and all equity securities issued by the Company expressly designated as ranking senior to the Series F Preferred Stock; and (4) junior to all the Company’s existing and future indebtedness.

Distribution of Series F Preferred Stock to Class A Common and Series C Preferred Stockholders

On November 26, 2024, the Company announced the distribution of 1.0 million shares of its Series F Exchangeable Preferred Stock to holders of its Class A Common Stock and Series C Convertible Preferred Stock. The record date for this dividend was December 13, 2024, and the payment date was December 23, 2024.

Series G Convertible Preferred Stock

On December 21, 2024, the Company filed a Certificate of Designation (the “Series G Certificate of Designation”), which was amended on February 5, 2025, with the Secretary of State of Delaware to establish the rights and preferences of the Series G Convertible Preferred Stock (the “Series G Preferred Stock”). Each share has a stated value of $1,000.00 and is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) $0.10 per share or (ii) the lesser of (A) $6.74 or (B) 105% of the volume weighted average price for the ten trading days prior to conversion. The conversion price is subject to adjustments for certain dilutive events.

Holders of Series G Preferred Stock vote with common stockholders on an as-converted basis, subject to a voting floor price of $6.244 (as amended from $5.38). The stock ranks senior to Series A, D, E, and F Preferred Stock in liquidation but is on parity with Series C Preferred Stock.

Series G Preferred Stock stockholders receive cumulative cash dividends at an annual rate of 9.5% ($95.00 per share), payable monthly. For the first two years, the Company may elect to pay dividends in Class A common stock at the conversion price. If dividends are in arrears, the rate increases to 12% per annum, payable in cash, additional Series G Preferred Stock, or, if applicable, freely tradeable Class A common stock.

In the event of liquidation, holders receive the stated value before distributions to junior classes. A change of control is treated as a liquidation event.

Series G Preferred Stock Sales Agreement with Ault & Company

On December 21, 2024, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Ault & Company pursuant to which the Company agreed to sell to Ault & Company up to 25,000 shares of Series G Preferred Stock and warrants (the “Series G Warrants”) to purchase shares of Class A common stock for a total purchase price of up to $25.0 million. There were no sales under the Agreement during the year ended December 31, 2024.

At closing, the Company will issue the Purchaser the Series G Warrants, which grant Ault & Company the right to purchase a specified number of shares of Class A common stock (the “Warrant Shares”). The exercise price of the Series G Warrants is $5.92 (the “Exercise Price”) and the number of Warrant Shares is 4.2 million, which is the figure derived by dividing the actual investment amount by the Exercise Price. The Exercise Price is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.

The Series G Warrants have a five-year term, expiring on the fifth anniversary of issuance, and become exercisable on the first business day after the six-month anniversary of issuance.

Between January and April 2025, the Company sold to Ault & Company an aggregate of 960 shares of Series G Convertible Preferred Stock and Series G Warrants to purchase 0.2 million shares of Class A common stock, for a purchase price of $1.0 million.

Series C Convertible Preferred Stock

On December 14, 2023, pursuant to the securities purchase agreement the Company entered into with Ault & Company, dated as of November 6, 2023, the Company sold to Ault & Company, in three separate closings that occurred on the closing date, an aggregate of 41,500 shares of Series C Preferred Stock and warrants (the “Series C Warrants”) to purchase 0.4 million shares of Class A common stock, for a total purchase price of $41.5 million.

The proceeds from the sale of Series C Preferred Stock were used in part to pay $17.5 million to satisfy the outstanding balance on the outstanding senior secured convertible promissory note with Ault & Company. The senior secured convertible promissory note with Ault & Company had an unamortized debt discount of $4.2 million outstanding, which was recorded as a loss on extinguishment of debt.

In addition, the Company paid $20.4 million to pay the $20.2 million outstanding balance of the 8% senior secured promissory notes, plus $0.2 million accrued interest payable. The 8% senior secured promissory notes had an unamortized debt discount of $3.2 million outstanding, which was recorded as a loss on extinguishment of debt.

On December 14, 2023, the Company, along with its wholly owned subsidiaries Sentinum, Third Avenue, ACS, BNI Montana, Ault Lending, Ault Aviation, LLC (“Ault Aviation”) and AGREE (collectively with the Company, Sentinum, Third Avenue, ACS, BNI Montana, Ault Lending and Ault Aviation, the “Guarantors”) entered into a Loan and Guaranty Agreement (the “Loan Agreement”) with institutional lenders, pursuant to which Ault & Company borrowed $36 million and issued secured promissory notes to the lenders in the aggregate amount of $38.9 million (collectively, the “Secured Notes”; and the transaction, the “Loan”).

Pursuant to the Loan Agreement, the Guarantors, as well as Milton C. Ault, III, the Company’s Executive Chairman and the Chief Executive Officer of Ault & Company, agreed to act as guarantors for repayment of the Secured Notes. In addition, certain Guarantors entered into various agreements as collateral in support of the guarantee of the Secured Notes, including (i) a security agreement by Sentinum, pursuant to which Sentinum granted to the Lenders a security interest in (a) 19,226 Antminers (the “Miners”), (b) all of the digital currency mined or otherwise generated from the Miners and (c) the membership interests of ACS, (ii) a security agreement by the Company, Ault Lending, BNI Montana and AGREE, pursuant to which those entities granted to the lenders a security interest in substantially all of their assets, as well as a pledge of equity interests in Ault Aviation, AGREE, Sentinum, Third Avenue, Ault Energy, LLC, the Company’s wholly owned subsidiary, Ault Disruptive, Eco Pack Technologies, Inc., the Company’s wholly owned subsidiary, and Circle 8 Holdco, (iii) a mortgage and security agreement by Third Avenue on the Florida Property, (iv) a future advance mortgage by ACS on the real estate property owned by ACS in Dowagiac, Michigan (the “Michigan Property”), (v) an aircraft mortgage and security agreement by Ault Aviation on a private aircraft owned by Ault Aviation (the “Aircraft”), and (vi) deposit account control agreements over certain bank accounts held by certain of the Company’s subsidiaries.

In addition, pursuant to the Loan Agreement, the Company agreed to establish a segregated deposit account (the “Segregated Account”), which would be used as a further guarantee of repayment of the Secured Notes. $3.5 million of cash was paid into the Segregated Account on the closing date. The Company was required to have the minimum balance in the Segregated Account be not less than $7 million, $15 million, $20 million and $27.5 million on the four-month, nine-month, one-year and two-year anniversaries of the closing date, respectively. In addition, starting on March 31, 2024, the Company was required to deposit $0.3 million monthly into the Segregated Account, which increased to $0.4 million monthly starting March 31, 2025. Further, the Company agreed to deposit into the Segregated Account, (i) up to the first $7 million of net proceeds, if any, from the sale of the Hilton Garden Inn in Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford; (ii) 50% of cash dividends (on a per dividend basis) received from Circle 8 on or after June 30, 2024; (iii) 30% of the net proceeds from any bond offerings the Company conducts, which shall not exceed $9 million in the aggregate; and (iv) 25% of the net proceeds from cash flows, collections and revenues from loans or other investments made by Ault Lending (including but not limited to sales of loans or investments, dividends, interest payments and amortization payments), which shall not exceed $5 million in the aggregate. In addition, if the Company decides to sell certain assets, the Company further agreed to deposit funds into the Segregated Account from the sale of those assets, including, (i) $15 million from the sale of the Florida Property, (ii) $11 million from the sale of the Aircraft, (iii) $17 million from the sale of the Michigan Property, (iv) $350 per Miner, subject to a de minimis threshold of $1 million, and (v) $10 million from the sale of Circle 8.

Pursuant to the Company’s financial guarantee obligations noted above, the Company recorded a guarantee liability of $38.9 million using the practical expedient to fair value as set forth in ASC 460-10-30-2(a) and recorded an expense of $35.4 million (the amount of the guarantee liability, less the $3.5 million restricted cash in the Segregated Account) within other income (expense) on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2023.

The guarantee written by the Company represents a variable interest in Ault & Company. Ault & Company, founded in 2015, is a private holding company focused on acquiring undervalued assets and disruptive technologies within the commercial, defense, aerospace, industrial, hospitality, technology and real estate sectors. Mr. Ault is the Founder and Executive Chairman of its Board of Directors. Ault & Company has demonstrated its ability to raise capital independently, on a limited basis, however given the nature of its strategic investment policy, there is no requirement for it to raise additional capital until and unless a strategic opportunity presents itself that requires additional capital. The nature and amount of the financing that the Company guaranteed indicates that Ault & Company’s lender required the Company’s collateral and support to close the December 2023 financing.

The accounting guidance requires the Company to perform an analysis to determine whether its variable interest gives it a controlling financial interest in Ault & Company. The Company performed a VIE analysis and determined that given the control structure and ownership of Ault & Company that the Company would not be able to remove the key operating decision maker, Mr. Ault, from his leadership role at Ault & Company and therefore the Company does not meet the power criterion to be considered the primary beneficiary of Ault & Company.

During the year ended December 31, 2024, the Company sold to Ault & Company an aggregate of 8,500 shares of Series C Preferred Stock and Warrants to purchase 0.1 million shares of Class A common stock, for a total purchase price of $8.5 million, respectively.

Amendments to Loan and Guarantee Agreement

On September 17, 2024, the loan and guarantee agreement, dated as of December 14, 2023, as amended, pursuant to which the Company has guaranteed financial obligations of Ault & Company borrowings, was amended regarding the Company’s obligations to fund the restricted cash Segregated Account.

The Company agreed to deposit in the Segregated Account:(i) $0.4 million monthly commencing on September 30, 2024 and ending on February 28, 2025; and (ii) $0.5 million monthly commencing on March 31, 2025 and ending on the earlier of the term loan maturity date, prepayment of the term loan in full or the date on which the balance of the Segregated Account exceeds 110% of the outstanding balance of the term loan. As of December 31, 2024, the Company had deposited $18.4 million in the Segregated Account.

On March 7, 2025 the loan and guarantee agreement, dated as of December 14, 2023, as amended, pursuant to which the Company has guaranteed financial obligations of Ault & Company borrowings, was further amended regarding the Company’s obligations to fund the restricted cash Segregated Account.

Pursuant to the March 7, 2025 amendment, the Company agreed to deposit in the Segregated Account:(i) $0.2 million monthly commencing on April 11, 2025 and ending on June 11, 2025; and (ii) $0.4 million monthly commencing on July 11, 2025 and ending on the earlier of the term loan maturity date, prepayment of the term loan in full or the date on which the balance of the Segregated Account exceeds 110% of the outstanding balance of the term loan.

Common ATM Offering

During the year ended December 31, 2024, the Company sold an aggregate of 0.7 million shares of Class A common stock pursuant to the At-The-Market issuance sales agreement, as amended, entered into with Ascendiant Capital Markets, LLC in 2023 (the “2023 Common ATM Offering”) for gross proceeds of $14.6 million.

ELOC Purchase Agreement

On June 20, 2024, the Company entered into a purchase agreement, as amended on November 1, 2024 (the “ELOC Purchase Agreement”) with Orion Equity Partners, LLC (“Orion”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right to direct Orion to purchase up to an aggregate of $37.5 million of shares of Series D Preferred Stock over the 36-month term of the ELOC Purchase Agreement at a purchase price equal to 94.5% of the average closing stock price during the seven consecutive trading days immediately preceding a given purchase date.

The ELOC Purchase Agreement may be terminated by the Company at any time after commencement, at its discretion, provided that at the time of termination, the Company does not have any outstanding amounts owed to the Lenders, who are affiliates of Orion, pursuant to the Credit Agreement.

During the year ended December 31, 2024, there were no purchases under the ELOC Purchase Agreement.

30. INCOME TAXES

The following is a geographical breakdown of income/loss from continuing operations before the provision for income tax, for the years ended December 31, 2024 and 2023:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

At December 31, 2024, the Company had federal net operating loss carryforwards (“NOLs”) for income tax purposes of approximately $191.9 million related to the years after December 31, 2017 that do not have an expiration under current tax law and $8.2 million related to the years before January 1, 2018 subject to expiration after application of limitation set forth in Section 382 of the Internal Revenue Code (“§382”). The Company had state NOLs for income tax purposes of approximately $238.2 million as of December 31, 2024. The state NOLs may be used to offset future taxable income and will begin to expire in 2029, unless previously utilized. In accordance with§382, future utilization of the Company’s NOLs is subject to an annual limitation as a result of ownership changes that occurred previously. The Company also maintains NOLs in various foreign jurisdictions.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all positive and negative evidence, including the Company’s generation of NOLs in current and prior periods, there is substantial doubt regarding the Company’s ability to utilize its deferred tax assets, therefore, the Company recorded a full valuation allowance. For the year ended December 31, 2024, the valuation allowance decreased by $41.5 million.

The net income tax provision (benefit) on continuing operations consisted of the following:

The Company’s effective tax rates were(0.1)% and(0.1)% for the years ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in valuation allowance. The reconciliation of income tax attributable to operations computed at U.S. Federal statutory income tax rates of 21% to income tax expense is as follows:

The Company accounts for uncertain tax positions in accordance with ASC 740-10-25. ASC 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of December 31, 2024 and 2023, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.

In general, the Company’s statute of limitations remains open for various taxable years, in various U.S. federal, U.S. state and foreign jurisdictions. However, if and when the Company claims net operating loss carryforwards against future taxable income, those losses may be examined by taxing authorities. The Company will perform an analysis to determine the effect, if any, of these loss limitations rules on the NOL carryforward balances. Earnings in all foreign jurisdictions are permanently reinvested.

31. NET LOSS PER SHARE

Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of Class A common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. Anti-dilutive securities, which are convertible into or exercisable for Class A common stock, consisted of the following at December 31, 2024 and 2023:

32. SEGMENT AND CUSTOMERS INFORMATION

The Company had the following reportable segments as of December 31, 2024 and 2023; see Note 1 for a brief description of the Company’s business. The Company’s Chief Operating Decision Maker (“CODM”) is its Executive Chairman, Mr. Ault. The performance measure of the Company’s reportable segments is primarily income or (loss) from operations. Income or (loss) from operations for each segment includes all revenues, cost of revenues, gross profit and other operating expenses directly attributable to the segment. The CODM is also provided with key non-cash expenses by segment, including depreciation and amortization, impairment of property and equipment and impairment of goodwill and intangible assets. These financial metrics are used for evaluating the performance of each segment and making decisions about allocating capital and other resources to each segment.

The “Holding Co.” column includes financial results that are not allocated to a specific reportable segment but are primarily generated within the holding company entity.

The following data presents the revenues, expenditures and other operating data of the Company and its operating segments for the year ended December 31, 2024:

Segment information for the year ended December 31, 2023:

33. CONCENTRATIONS OF CREDIT AND REVENUE RISK

Significant customers are those that represent more than 10% of the Company’s total revenue or accounts receivable balances for the periods and as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenue and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:

34. SUBSEQUENT EVENTS

Issuances of Series D Preferred Stock

From January 1, 2025 through April 14, 2025, the Company issued a total of 135,957 shares of its Series D preferred stock for the settlement of ELOC advances totaling $2.0 million.

OID Only Term Note

On January 14, 2025, the Company entered into a term note agreement with institutional investors for $2.5 million. The term note was issued at a discount, with net proceeds to the Company of $2.2 million. The term note does not accrue any interest. The term note was scheduled to mature on March 1, 2025. The term note is guaranteed by Mr. Ault.

15% Promissory Note

On March 7, 2025, the Company entered into a promissory note agreement with an institutional investor with a principal amount of $0.5 million and an interest rate of 15%. The maturity date of the promissory note is December 7, 2025. Mr. Ault entered into a personal guaranty agreement for the benefit of the investor.

March 2025 Convertible Promissory Note

On March 21, 2025 the Company entered into an exchange agreement with SJC Lending, LLC, a Delaware limited liability company (“SJC”), pursuant to which the Company issued to SJC a convertible promissory note in the principal face amount of $4.9 million (the “Note”) in exchange for the cancellation of the following notes the Company issued to Steve J. Caspi, the sole member of SJC, who transferred such notes to SJC, (i) a term note issued on January 14, 2025 in the principal face amount of $2.5 million, (ii) a promissory note issued on March 7, 2025 in the principal face amount of $0.5 million, (iii) a promissory note issued on March 12, 2025 in the principal face amount of $1.5 million and (iv) a promissory note issued on March 13, 2025 in the principal face amount of $0.3 million.

The Note accrues interest at the rate of 15% per annum, unless an event of default (as defined in the Note) occurs, at which time the Note would accrue interest at 18% per annum. The Note will mature on December 31, 2025. The Note is convertible into shares of Class A common stock at any time after NYSE American (“NYSE”) approval of the Supplemental Listing Application (the “SLAP”) at a conversion price equal to the greater of (i) $0.40 per share (the “Floor Price”), which Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions and (ii) the lesser of 75% of the VWAP (as defined in the Note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the Note or (B) the date of conversion into shares of Class A common stock, but not greater than $10.00 per share (the “Maximum Price”), which Maximum Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.

Amendment to Securities Purchase Agreement

On March 30, 2025, the Company entered into an amendment to the (i) November 2023 Securities Purchase Agreement (the “SPA”) with Ault & Company and (ii) the related Certificate of Designation of Preferences, Rights and Limitations of the Series C Convertible Preferred Stock, to (A) eliminate the ability of the purchaser to satisfy the purchase price for the securities through the surrender of a portion of the outstanding note, thereby requiring that all future closings under the SPA be funded solely in cash, and (B) extend the outside date by which the final closing may occur to March 31, 2025, subject to the purchaser’s right to further extend such date for an additional ninety (90) days.

April 2025 Convertible Promissory Note

On April 1, 2025, the Company issued to an institutional investor, a convertible promissory note in the principal face amount of $1.7 million (the “April 2025 Note”) in consideration for an advance of $1.5 million previously made by the investor to the Company (the “Transaction”). The April 2025 Note has a principal face amount of $1.7 million and was issued with an OID of 10%. The April 2025 Note accrues interest at the rate of 15% per annum, unless an event of default (as defined in the April 2025 Note) occurs, at which time the April 2025 Note would accrue interest at 18% per annum. The April 2025 Note will mature on September 30, 2025. The April 2025 Note is convertible into shares of the Company’s class A common stock at any time after NYSE approval of the SLAP at a conversion price equal to the greater of (i) $0.40 per share, which shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions and (ii) the lesser of 75% of the VWAP (as defined in the April 2025 Note) of the Class A common stock during the five trading days immediately prior to the closing date or the date of conversion.

Series B Convertible Preferred Stock Securities Purchase Agreement

On March 31, 2025 (the “Execution Date”), the Company entered into a Securities Purchase Agreement (the “Series B Agreement”) with SJC, pursuant to which the Company agreed to sell to SJC up to 50,000 shares of Series B convertible preferred stock (the “Series B Convertible Preferred Stock”), which are convertible into the Company’s Class A common stock for a total purchase price of up to $50.0 million (the “Preferred Transaction”).

The consummation of the transactions contemplated by the Series B Agreement, specifically the conversion of the Series G Convertible Preferred Stock in an aggregate number in excess of 19.99% on the execution date of the Series B Agreement, are subject to various customary closing conditions as well as regulatory and stockholder approval.

The Series B Agreement contains customary termination provisions for the Purchaser under certain circumstances, and the Series B Agreement shall automatically terminate if the closing has not occurred prior to June 30, 2025, though such date may be extended by SJC as set forth in the Series B Agreement. The Series B Agreement provides that the Financing may be conducted through up to 49 closings.

The material terms of the Series B Agreement and the Series B Convertible Preferred Stock are summarized below.

Description of the Series B Agreement

Holders of the Series B Preferred Stock are entitled to written notice of stockholder meetings or written consents, along with related materials and information, in accordance with the Company’s Bylaws and the Delaware General Corporation Law.

The Series B Agreement provides that the Preferred Transaction shall be conducted through 49 separate Tranche Closings, provided, however, that the Investor has the ability, exercisable in its sole discretion, to purchase any number of shares of Series B Preferred Stock prior to the dates of the Tranche Closings provided for in the Series B Agreement. Pursuant to the Series B Agreement, the initial Tranche Closing, which will close promptly after SJC has converted out of certain convertible notes that it holds, will consist of the sale and issuance to SJC of 2,000 shares of Series B Preferred Stock for an aggregate of $2.0 million (the “Initial Tranche Closing”).

Pursuant to the Series B Agreement, SJC, provided certain closing conditions have been met, including that all underlying shares of Class A Comon Stock shall have been registered for resale under the Securities Act of 1933, as amended (the “Securities Act”), shall purchase up to 4,800 shares of Series B Preferred Stock on a monthly basis, with SJC being required to purchase 1,000 shares per month (each, a “Subsequent Tranche Closing”) until all shares of Series B Preferred Stock have been issued and sold to SJC.

Commencing on the Execution Date and continuing for a period of 90 days thereafter, neither the Company nor any subsidiary thereof shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or instruments convertible into, exercisable or exchangeable for such shares of Class A common stock, with certain exceptions.

Additionally, commencing on the Execution Date and continuing for a period of one year thereafter, the Company shall be prohibited from entering into a variable rate transaction.

From the Execution Date and continuing until the date that is two years therefrom, SJC shall have a right of first refusal with respect to any investment proposed to be made by any individual or entity for each and every future public or private equity offering, including a debt instrument convertible into equity of the Company during such period.

Description of the Series B Preferred Stock

Conversion Rights

Each share of Series B Preferred Stock has a stated value of $1,000 and is convertible into shares of Class A common stock (the “Conversion Shares”) at a at a conversion price equal the lesser of a 25% discount to the Company’s Volume Weighted Average Price during the five trading days immediately prior to (A) the Execution Date or (B) the date of conversion into shares of Class A common stock, but not greater than $10 per share (the “Maximum Price”), which Maximum Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions (the “Conversion Price”). Notwithstanding the foregoing, in no event shall the Series B Preferred Stock be convertible at less than $0.40 (the “Floor Price”). The Conversion Price is subject to adjustment in the event of an issuance of Class A common stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price will under no circumstances be adjusted for stock dividends, stock splits, stock combinations or similar transactions.

Voting Rights

The holders of the Series B Preferred Stock are entitled to vote with the Class A common stock as a single class on an as-converted basis, subject to applicable law provisions of the Delaware General Corporation Law and the NYSE American (at times referred to as the “Exchange”), provided however, that for purposes of complying with Exchange regulations, the conversion price, for purposes of determining the number of votes the holder of Series B Convertible Preferred Stock is entitled to cast, shall not be lower than $2.44 (the “Voting Floor Price”), which represents the closing sale price of the Class A common stock on the trading day immediately prior to the Execution Date. The Voting Floor Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.

Dividend Rights

The holders of Series B Convertible Preferred Stock are entitled to cumulative cash dividends at an annual rate of 15%, or $150 per share, based on the stated value per share. Dividends shall accrue from the date of the Initial Tranche Closing, for as long as any shares of Series B Preferred Stock remain issued and outstanding and are payable monthly in arrears. For the first two years, the Company may elect to pay the dividend amount in Class A common stock (the “PIK Shares”) rather than cash, with the number of shares of Class A common stock issued at the Conversion Price at the date that the dividend payment is due. Dividends will accrue regardless of the Company’s earnings or funds availability and will not exceed the full cumulative dividends.

Liquidation Rights

In the event of liquidation, dissolution, or winding up of the Company, the holders of Series B Preferred Stock have a preferential right to receive an amount equal to the stated value per share of Series B Preferred Stock before any distribution to other classes of capital stock, provided, however, that it ranks on a pari passu basis with the Series C Preferred Stock and the Series G Preferred Stock. If the assets are insufficient, the distribution will be prorated among the holders of Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock. The remaining assets will be distributed pro rata to the holders of outstanding Capital Stock and all holders of Series B Preferred Stock as if they had converted their Series B Preferred Stock into Class A common stock. The Series B Preferred Stock rank senior over other classes of preferred stock, including the Series A, D, E and F Preferred Stock. Additionally, any transaction that constitutes a change of control transaction shall be deemed to be a liquidation under the Certificate of Designation of the Preferences, Rights and Limitations of Series B Convertible Preferred Stock (the “Series B Certificate of Designation”).

The Company may not issue Conversion Shares to the extent such issuances would result in an aggregate number of shares of Class A common stock exceeding 19.99% of the total shares of Class A common stock issued and outstanding as of the Execution Date, in accordance with the rules and regulations of the Exchange unless the Company first obtains stockholder approval (the “Stockholder Approval”). Pursuant to the Series B Agreement and as required by the Exchange, the Company agreed to file a proxy statement to obtain the Stockholder Approval.