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INVESTMENTS – RELATED PARTIES
 9 Months Ended
Sep. 30, 2024
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Abstract]  
INVESTMENTS – RELATED PARTIES

13. INVESTMENTS – RELATED PARTIES

 

Investments in Alzamend, Ault & Company, Inc. (“Ault & Company”) and GIGA at September 30, 2024 and December 31, 2023, were comprised of the following:

 

Investment in Promissory Notes, Related Parties – Ault & Company and GIGA (Recorded in “Investment in Promissory Notes and Other, Related Party” on the Condensed Consolidated Balance Sheets)

                
   Interest     September 30,   December 31, 
   Rate  Due Date  2024   2023 
Promissory note, related party  8%  December 31, 2024  $2,500,000   $2,500,000 
10% Senior Secured Convertible Promissory Note - GIGA  10%  December 31, 2024   4,383,000    - 
12% Senior Secured Subordinated Convertible Promissory Note - GIGA  10%  December 31, 2024   6,750,000    - 
12% Senior Secured Subordinated Convertible Promissory Note - GIGA  12%  June 30, 2025   5,194,000    - 
Debtor in possession Loan Agreement - GIGA  6%  October 28, 2024   80,000    - 
Accrued interest receivable GIGA         768,000    - 
Accrued interest receivable Ault & Company         568,000    568,000 
Other         211,000    900,000 
Allowance for credit losses         (5,668,000)   - 
Total investment in promissory notes and other, related parties        $14,786,000   $3,968,000 

 

 

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

        
   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
Interest income, related party  $557,000   $50,000   $1,144,000   $150,000 

 

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 the 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.

 

During the three months ended March 31, 2024, due to uncertainties surrounding collection, the Company recorded a loan loss reserve of $3.1 million related to the promissory note from Ault & Company recorded in provision for loan losses, related party, reversed the related accrued receivable and did not record interest income on the note.

 

Investment in Alzamend Series B Convertible Preferred Stock, Warrants and Common Stock, Related Parties – Alzamend (Recorded in “Investments in Common Stock and Equity Securities, Related Party” on the Condensed Consolidated Balance Sheets)

               
   Investments in common stock, related parties at September 30, 2024 
   Cost   Gross unrealized losses   Fair value 
Common shares  $24,697,000   $(24,566,000)  $131,000 
Alzamend series B convertible preferred stock, warrants   2,100,000    -    2,100,000 
   $26,797,000   $(24,566,000)  $2,231,000 

 

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

 

The following tables summarize the changes in the Company’s investments in Alzamend common stock during the three and nine months ended September 30, 2024 and 2023:

          
   For the Three Months Ended September 30, 
   2024   2023 
Balance at July 1  $304,000   $5,836,000 
Investment in common stock of Alzamend   -    - 
Unrealized loss in common stock of Alzamend   (173,000)   (3,124,000)
Balance at September 30  $131,000   $2,712,000 

 

   For the Nine Months Ended September 30, 
   2024   2023 
Balance at January 1  $679,000   $6,449,000 
Investment in common stock of Alzamend   9,000    15,000 
Unrealized loss in common stock of Alzamend   (557,000)   (3,752,000)
Balance at September 30  $131,000   $2,712,000 

 

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

        
   September 30,   December 31, 
   2024   2023 
Investment in Alzamend preferred stock  $2,100,000   $- 
Total investment in other investments securities, related party  $2,100,000   $- 

 

In connection with a securities purchase agreement entered into with Alzamend in January 2024, the Company purchased 2,100 shares of Alzamend Series B Convertible Preferred Stock and warrants to purchase 2.1 million shares of Alzamend common stock with a five-year term and an exercise price of $1.20 per share for a total purchase price of $2.1 million.

 

The Agreement provides that Ault Lending may purchase up to $6 million of Alzamend Series B Convertible Preferred Stock in one or more closings. There have been additional closings subsequent to January 2024.

 

 

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.