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DECONSOLIDATION OF SUBSIDIARY AND DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2024

Deconsolidation Of Subsidiary And Discontinued Operations

DECONSOLIDATION OF SUBSIDIARY AND DISCONTINUED OPERATIONS

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:


	September 30,		December 31,
	2024		2023
Cash and cash equivalents	$	-	$	3,601,000
Restricted cash		-		700,000
Accounts receivable		-		4,350,000
Inventories		-		6,643,000
Prepaid expenses and other current assets		-		4,859,000
Intangible assets, net		-		1,707,000
Goodwill		-		5,794,000
Property and equipment, net - current		-		1,690,000
Right-of-use assets		-		3,023,000
Total assets discontinued operations		-		32,367,000
Accounts payable and accrued expenses		-		14,005,000
Operating lease liability		-		3,098,000
Notes payable		-		1,174,000
Convertible notes payable		-		4,388,000
Liabilities discontinued operations		-		22,664,000
Net assets of discontinued operations	$	-	$	9,703,000

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:

Schedule of operations
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Revenue, products	$	10,678,000		$	10,277,000		$	30,862,000		$	27,724,000
Cost of revenue, products		7,824,000			7,216,000			23,339,000			20,035,000
Gross profit		2,854,000			3,061,000			7,523,000			7,689,000
Operating expenses
Research and development		906,000			672,000			2,617,000			2,111,000
Selling and marketing		286,000			396,000			1,166,000			1,415,000
General and administrative		2,923,000			2,496,000			8,033,000			9,783,000
Total operating expenses		4,115,000			3,564,000			11,816,000			13,309,000
Loss from operations		(1,261,000	)		(503,000	)		(4,293,000	)		(5,620,000	)
Other income (expense):
Interest and other income		1,554,000			105,000			1,594,000			105,000
Interest expense		(415,000	)		(257,000	)		(1,662,000	)		(870,000	)
Change in fair value of warrant liability		-			(1,061,000	)		-			-
Total other income (expense), net		1,139,000			(1,213,000	)		(68,000	)		(765,000	)
Loss before income taxes		(122,000	)		(1,716,000	)		(4,361,000	)		(6,385,000	)
Income tax benefit		-			-			(15,000	)		(11,000	)
Net loss		(122,000	)		(1,716,000	)		(4,346,000	)		(6,374,000	)
Net loss attributable to non-controlling interest		325,000			357,000			1,554,000			1,716,000
Net income (loss) available to common stockholders	$	203,000		$	(1,359,000	)	$	(2,792,000	)	$	(4,658,000	)

The net gain (loss) from discontinued operations for the three and nine months ended September 30, 2024 on the condensed consolidated statement of operations and comprehensive loss includes the gain on deconsolidation as follows:

Schedule of gain on deconsolidation
	For the Three Months Ended September 30, 2024		For the Nine Months Ended September 30, 2024
GIGA net income (loss)	$	203,000	$	(2,792,000	)
Gain on deconsolidation		2,013,000		2,013,000
Net gain (loss) from discontinued operations	$	2,216,000	$	(779,000	)

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

Schedule of statement of cash flows
	For the Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(4,346,000	)	$	(6,374,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		618,000			618,000
Amortization of right-of-use assets		684,000			807,000
Amortization of intangibles		157,000			220,000
Stock-based compensation		(858,000	)		1,594,000
Changes in operating assets and liabilities:
Accounts receivable		(1,638,000	)		(783,000	)
Inventories		1,514,000			1,091,000
Prepaid expenses and other current assets		(1,516,000	)		(706,000	)
Lease liabilities		(667,000	)		(916,000	)
Accounts payable and accrued expenses		(314,000	)		(285,000	)
Net cash used in operating activities		(6,366,000	)		(4,734,000	)
Cash flows from investing activities:
Purchase of property and equipment		(249,000	)		(177,000	)
Cash decrease upon deconsolidation		(3,550,000	)		-
Net cash used in investing activities		(3,799,000	)		(177,000	)
Cash flows from financing activities:
Proceeds from notes payable		2,552,000			2,316,000
Cash contributions from parent		3,383,000			2,361,000
Net cash provided by financing activities		5,935,000			4,677,000

Effect of exchange rate changes on cash and cash equivalents		(71,000	)		153,000

Net increase in cash and cash equivalents and restricted cash		(4,301,000	)		(81,000	)

Cash and cash equivalents and restricted cash at beginning of period		4,301,000			2,195,000

Cash and cash equivalents and restricted cash at end of period	$	-		$	2,114,000

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	946,000		$	862,000