Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include acquisition accounting, fair value of certain financial instruments, reserve for trade receivables and inventories, carrying amounts of investments, carrying amounts of digital currencies, accruals of certain liabilities including product warranties, useful lives and the recoverability of long-lived assets, impairment analysis of intangibles and goodwill, and deferred income taxes and related valuation allowance.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard 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:

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Step 1: Identify the contract with the customer,

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Step 2: Identify the performance obligations in the contract,

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Step 3: Determine the transaction price,

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Step 4: Allocate the transaction price to the performance obligations in the contract, and

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Step 5: Recognize revenue when the company satisfies a performance obligation.

The Company’s disaggregated revenues consist of the following for the nine months ended September 30, 2020 and 2019:

	Nine Months ended September 30, 2020
	GWW		Coolisys		Ault Alliance			Total

Primary Geographical Markets
North America	$	5,109,672	$	3,100,552	$	(27,140	)	$	8,183,084
Europe		694,478		288,282		-			982,760
Middle East		6,837,501		-		-			6,837,501
Other		264,226		414,407		-			678,633
	$	12,905,877	$	3,803,241	$	(27,140	)	$	16,681,978

Major Goods
RF/Microwave Filters	$	3,886,940	$	—	$	—		$	3,886,940
Detector logarithmic video amplifiers		1,318,547		—		—			1,318,547
Power Supply Units		—		3,803,241		—			3,803,241
Power Supply Systems		862,889		—		—			862,889
Healthcare diagnostic systems		784,689		—		—			784,689
Defense systems		6,052,812		—		—			6,052,812
Lending activities		—		—		(27,140	)		(27,140	)
	$	12,905,877	$	3,803,241	$	(27,140	)	$	16,681,978

Timing of Revenue Recognition
Goods transferred at a point in time	$	6,068,376	$	3,803,241	$	(27,140	)	$	9,844,477
Services transferred over time		6,837,501		—		—			6,837,501
	$	12,905,877	$	3,803,241	$	(27,140	)	$	16,681,978

	Nine Months ended September 30, 2019
	GWW		Coolisys		Ault Alliance		Total

Primary Geographical Markets
North America	$	2,703,803	$	4,590,840	$	443,927	$	7,738,570
Europe		6,341,396		16,804		—		6,358,200
Middle East		1,283,312		21,348		—		1,283,312
Other		447,786		269,440		—		717,226
	$	10,776,297	$	4,898,432	$	443,927	$	16,097,308

Major Goods
RF/Microwave filters	$	989,114	$	—	$	—	$	989,114
Detector logarithmic video amplifiers		473,150		—		—		473,150
Power supply units		3,194,843		4,306,340		—		7,501,183
Power supply systems		1,423,971		—		—		1,423,971
Healthcare diagnostic systems		1,260,700		—		—		1,260,700
Defense systems		3,413,171		—		—		3,413,171
Lending activities		—		—		443,927		443,927
Digital currency mining		—		592,092		—		592,092
	$	10,754,949	$	4,898,432	$	443,927	$	16,097,308

Timing of Revenue Recognition
Goods transferred at a point in time	$	5,944,177	$	4,898,432	$	443,927	$	11,286,536
Services transferred over time		4,810,772		—		—		4,810,772
	$	10,754,949	$	4,898,432	$	443,927	$	16,097,308

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 products are received by the customer, which is when the customer obtains control over the goods. 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 product. 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.

Manufacturing Services

The Company provides manufacturing services in exchange primarily for fixed fees; however, the initial two MLSE units are subject to variable pricing under the $50 million purchase order from MTIX. Under the terms of the MLSE purchase order, the Company is entitled to cost plus $100,000 for the manufacture of the first two MLSE units. The Company has determined that the costs of manufacturing the MLSE units will decline over time because of a learning curve which will result in a greater amount of revenue being recognized for these initial two MLSE units.

For manufacturing services, which include revenues generated by Enertec and in certain instances revenues generated by Gresham Power, the Company’s performance obligation for manufacturing services is satisfied over time as the Company creates or enhances an asset based on criteria that are unique to the customer and that the customer controls as the asset is created or enhanced. Generally, the Company recognizes revenue based upon proportional performance over time using a cost to cost method which measures progress based on the costs incurred to total expected costs in satisfying its performance obligation. This method provides a depiction of the progress in providing the manufacturing service because there is a direct relationship between the costs incurred by the Company and the transfer of the manufacturing service to the customer. Manufacturing services that are recognized based upon the proportional performance method are included in the above table as services transferred over time and to the extent the customer has not been invoiced for these revenues, as accrued revenue in the accompanying consolidated balance sheets. Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component to the extent that the period between when the Company transfers its promised good or service to the customer and when the customer pays in one year or less.

The aggregate amount of the transaction price allocated to the performance obligation that is partially unsatisfied as of September 30, 2020, for the MLSE units was approximately $48 million, representing 24 MLSE units. Based on our expectations regarding funding of the production process and our experience building the first machines, the Company expects to recognize the remaining revenue related to the partially unsatisfied performance obligation over an estimated three year period. The Company will be paid in installments for this performance obligation over the estimated period that the remaining revenue is recognized.

Lending Activities

Ault Alliance, through DP 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 are recognized over the life of the loan using the effective interest method.

Net Loss per Share

Net Loss per Share

Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of 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. The Company has included 6,500 warrants, which are exercisable for shares of the Company’s common stock on a one-for-one basis, in its earnings per share calculation for the nine months ended September 30, 2020 and 2019. Anti-dilutive securities, which are convertible into or exercisable for the Company’s common stock, consist of the following at September 30, 2020 and 2019:

	September 30,
	2020		2019
Stock options		950		2,906
Warrants ⁽¹⁾		3,582,116		72,921
Convertible notes		1,396,419		349,486
Conversion of preferred stock		2,232		2,232
Total		4,981,717		427,545

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The Company has excluded 6,500 warrants issued in April 2019, which may be exercised by means of a cashless exercise into 6,500 shares of the Company’s common stock, in its anti-dilutive securities but included the warrants in its weighted average shares outstanding.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which will modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including the removal of certain disclosure requirements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new disclosure requirements for the period ending March 31, 2020. The additional components of this release did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how entities will measure credit losses for most financial assets and other instruments that are not measured at fair value through net income. This update introduces the current expected credit loss (“CECL”) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has completed its evaluation process and the January 1, 2020 adoption did not have a material impact to the Company’s consolidated financial statements for the three and nine months ended September 30, 2020.