UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended |
||
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
| For the transition period from ________ to ________. | ||
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other
jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip code)
(
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding year (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o |
| Smaller reporting company þ | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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At May 20, 2022 the registrant had outstanding shares of common stock.
BINILE HOLDINGS, INC.
TABLE OF CONTENTS
| Page | |||
| PART I – FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements (Unaudited) | ||
| Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 | F-1 | ||
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021 |
F-3 | ||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2022 and 2021 |
F-4 | ||
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 |
F-6 | ||
| Notes to Condensed Consolidated Financial Statements | F-8 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 8 | |
| Item 4. | Controls and Procedures | 8 | |
| PART II – OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 10 | |
| Item 1A. | Risk Factors | 12 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 | |
| Item 3. | Defaults Upon Senior Securities | 12 | |
| Item 4. | Mine Safety Disclosures | 12 | |
| Item 5. | Other Information | 12 | |
| Item 6. | Exhibits | 13 | |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended December 31, 2021, particularly the “Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Marketable equity securities | ||||||||
| Digital currencies | ||||||||
| Accounts receivable | ||||||||
| Accrued revenue | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Cash and marketable securities held in Trust Account | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Investment in promissory notes and other, related parties | ||||||||
| Investments in common stock, related parties | ||||||||
| Investments in equity securities | ||||||||
| Investment in unconsolidated entity | ||||||||
| Loans receivable | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Investment margin accounts payable | - | |||||||
| Operating lease liability, current | ||||||||
| Notes payable, net | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-1 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| LONG TERM LIABILITIES | ||||||||
| Operating lease liability, non-current | ||||||||
| Notes payable | ||||||||
| Convertible notes payable | ||||||||
| Deferred underwriting commissions of Ault Disruptive subsidiary | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Redeemable noncontrolling interests in equity of subsidiaries | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Series A Convertible Preferred Stock, $ stated value per share, | ||||||||
| $ par value – shares authorized; shares | ||||||||
| issued and outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| (redemption amount and liquidation preference of $ | ||||||||
| March 31, 2022 and December 31, 2021) | ||||||||
| Series B Convertible Preferred Stock, $ stated value per share, | ||||||||
| share, $ par value – shares authorized; shares issued | ||||||||
| and outstanding at March 31, 2022 and December 31, 2021 (liquidation | ||||||||
| preference of $ | ||||||||
| Class A Common Stock, $ par value – shares authorized; | ||||||||
| and shares issued and outstanding at March 31, | ||||||||
| 2022 and December 31, 2021, respectively | ||||||||
| Class B Common Stock, $ par value – shares authorized; | ||||||||
| shares issued and outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| TOTAL BITNILE HOLDINGS STOCKHOLDERS’ EQUITY | ||||||||
| Non-controlling interest | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
BITNLE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Revenue, cryptocurrency mining, net | ||||||||
| Revenue, hotel operations | ||||||||
| Revenue, lending and trading activities | ||||||||
| Total revenue | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Research and development | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Impairment of mined cryptocurrency | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Other income (expenses) | ||||||||
| Interest and other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of marketable equity securities | ||||||||
| Realized gain on marketable securities | ||||||||
| Loss from investment in unconsolidated entity | ( | ) | ||||||
| Gain on extinguishment of debt | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Total other (expenses) income, net | ( | ) | ||||||
| (Loss) income before income taxes | ( | ) | ||||||
| Income tax (provision) benefit | ( | ) | ||||||
| Net (loss) income | ( | ) | ||||||
| Net loss (income) attributable to non-controlling interest | ( | ) | ||||||
| Net (loss) income attributable to BitNile Holdings, Inc. | ( | ) | ||||||
| Preferred dividends | ( | ) | ( | ) | ||||
| Net (loss) income available to common stockholders | $ | ( | ) | $ | ||||
| Basic net (loss) income per common share | $ | ( | ) | $ | ||||
| Diluted net (loss) income per common share | $ | ( | ) | $ | ||||
| Weighted average basic common shares outstanding | ||||||||
| Weighted average diluted common shares outstanding | ||||||||
| Comprehensive (loss) income | ||||||||
| Net (loss) income available to common stockholders | $ | ( | ) | $ | ||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Net unrealized gain on derivative securities of related party | ||||||||
| Other comprehensive (loss) income | ( | ) | ||||||
| Total comprehensive (loss) income | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended March 31, 2022
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Series A & B | Additional | Other | Non- | Total | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Controlling | Treasury | Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Stock | Equity | |||||||||||||||||||||||||||||||
| BALANCES, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock awards | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||
| Options | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Restricted stock awards | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Financing cost in connection with sales of common stock | - | - | - | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||
| Purchase of treasury stock – Ault Alpha | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||||||||
| Preferred dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||
| Other | - | - | - | - | - | ( | ) | - | - | - | ||||||||||||||||||||||||||||||
| BALANCES, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended March 31, 2021
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Series A & B | Additional | Other | Total | |||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Non-Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Interest | Equity | ||||||||||||||||||||||||||||
| BALANCES, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Stock based compensation: | ||||||||||||||||||||||||||||||||||||
| Options | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible notes payable | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Financing cost in connection with sales of common stock | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Preferred dividends | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Net unrealized gain on derivatives in related party | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||
| Net income attributable to non-controlling interest | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Other | - | - | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||
| BALANCES, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Amortization, related party | ||||||||
| Interest expense – debt discount | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Change in fair value of warrant liability | ||||||||
| Accretion of original issue discount on notes receivable – related party | ( | ) | ||||||
| Accretion of original issue discount on notes receivable | ( | ) | ( | ) | ||||
| Increase in accrued interest on notes receivable – related party | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Impairment of cryptocurrencies | ||||||||
| Realized gains on sale of marketable securities | ( | ) | ||||||
| Unrealized gains on marketable securities | ( | ) | ( | ) | ||||
| Unrealized (gains) losses on investments in common stock, related parties | ( | ) | ||||||
| Unrealized gains on equity securities | ( | ) | ( | ) | ||||
| Loss from investment in unconsolidated entity | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Marketable equity securities | ( | ) | ||||||
| Accounts receivable | ( | ) | ||||||
| Accrued revenue | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Digital currencies | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Investment in promissory notes and other, related parties | ( | ) | ( | ) | ||||
| Investments in common stock and warrants, related parties | ( | ) | ( | ) | ||||
| Investment in real property, related party | ( | ) | ||||||
| Purchase of marketable equity securities | ( | ) | ||||||
| Sales of marketable equity securities | ||||||||
| Investments in loans receivable | ( | ) | ||||||
| Principal payments on loans receivable | ||||||||
| Sale of digital currencies | ||||||||
| Investments in equity securities | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-6 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from financing activities: | ||||||||
| Gross proceeds from sales of common stock | $ | $ | ||||||
| Financing cost in connection with sales of equity securities | ( | ) | ( | ) | ||||
| Proceeds from notes payable | ||||||||
| Repayment of margin accounts | ( | ) | ||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Payments of preferred dividends | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ||||||
| Payments on revolving credit facilities, net | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| Net increase in cash and cash equivalents and restricted cash | ||||||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of convertible notes payable into shares of common stock | $ | $ | ||||||
| Payment of accounts payable with digital currency | $ | $ | ||||||
| Conversion of convertible notes payable, related party into shares of common stock | $ | $ | ||||||
| Recognition of new operating lease right-of-use assets and lease liabilities | $ | $ | ||||||
| Purchase of marketable equity securities for future payment | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-7 |
1. DESCRIPTION OF BUSINESS
BitNile Holdings, Inc., a Delaware corporation (“BitNile” or the “Company”) was incorporated in September 2017. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, telecommunications, medical/biopharma, hotel operations and textiles. In addition, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary. BitNile was founded by Milton “Todd” Ault, III, its Executive Chairman and is led by Mr. Ault, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Counsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the Company. All major investment and capital allocation decisions are made for the Company by Mr. Ault and the Executive Committee. The Company has six reportable segments:
| · | BitNile, Inc. (“BNI”) – cryptocurrency mining operations, |
| · | Ault Alliance, Inc. (“Ault Alliance”) – commercial lending, activist investing, media, and digital learning, |
| · | Gresham Worldwide, Inc. (“GWW”) – defense solutions, |
| · | TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions, |
| · | Real Estate – hotel operations and other commercial real estate holdings, and |
| · | Ault Disruptive Technologies Corporation (“Ault Disruptive”) – a special purpose acquisition company (“SPAC”). |
2. LIQUIDITY AND FINANCIAL CONDITION
As
of March 31, 2022, the Company had cash and cash equivalents of $ million and working capital of $
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2022. The condensed consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited 2021 financial statements contained in the above referenced Form 10-K. Results of the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.
| F-8 |
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2021 Annual Report.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.
Recent Accounting Standards
In May 2021, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The guidance became effective for the Company on January 1, 2022. The Company adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its unaudited condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” (“ASU No. 2016-13”) to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Effective January 1, 2022, the Company early adopted ASU 2020-06 using the modified retrospective approach, which resulted in no impact on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832),” which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company expects that this guidance will not have a significant impact on its consolidated financial statements.
| F-9 |
4. REVENUE DISAGGREGATION
The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three months ended March 31, 2022 and 2021. Revenues from lending and trading activities included in consolidated revenues were primarily interest, dividend and other investment income, which are not considered to be revenues from contracts with customers under GAAP.
The Company’s disaggregated revenues consist of the following for the three months ended March 31, 2022:
| Three months ended March 31, 2022 | ||||||||||||||||||||||||
| GWW | TurnOnGreen | Ault Alliance | Cryptocurrency | Real Estate | Total | |||||||||||||||||||
| Primary Geographical Markets | ||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Europe | - | - | - | |||||||||||||||||||||
| Middle East | - | - | - | - | ||||||||||||||||||||
| Other | - | - | - | |||||||||||||||||||||
| Revenue from contracts with customers | ||||||||||||||||||||||||
| Revenue, lending and trading activities (North America) | - | - | - | - | ||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Major Goods or Services | ||||||||||||||||||||||||
| RF/microwave filters | - | - | - | - | ||||||||||||||||||||
| Detector logarithmic video amplifiers | - | - | - | - | - | - | ||||||||||||||||||
| Power supply units | - | - | - | |||||||||||||||||||||
| Power supply systems | - | - | - | - | ||||||||||||||||||||
| Healthcare diagnostic systems | - | - | - | - | - | - | ||||||||||||||||||
| EV Chargers | - | - | - | - | ||||||||||||||||||||
| Defense systems | - | - | - | - | ||||||||||||||||||||
| Digital currency mining, net | - | - | - | - | ||||||||||||||||||||
| Hotel operations | - | - | - | - | ||||||||||||||||||||
| Other | - | - | - | |||||||||||||||||||||
| Revenue from contracts with customers | 7,245,000 | 1,129,000 | 7,000 | 3,826,000 | 2,698,000 | 14,905,000 | ||||||||||||||||||
| Revenue, lending and trading activities | - | - | 17,921,000 | - | - | 17,921,000 | ||||||||||||||||||
| Total revenue | $ | 7,245,000 | $ | 1,129,000 | $ | 17,928,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 32,826,000 | ||||||||||||
| Timing of Revenue Recognition | ||||||||||||||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Services transferred over time | - | - | - | - | ||||||||||||||||||||
| Revenue from contracts with customers | $ | 7,245,000 | $ | 1,129,000 | $ | 7,000 | $ | 3,826,000 | $ | 2,698,000 | $ | 14,905,000 | ||||||||||||
| F-10 |
The Company’s disaggregated revenues consist of the following for the three months ended March 31, 2021:
| Three months ended March 31, 2021 | ||||||||||||||||
| GWW | TurnOnGreen | Ault Alliance | Total | |||||||||||||
| Primary Geographical Markets | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | - | |||||||||||||||
| Middle East | - | - | ||||||||||||||
| Other | - | |||||||||||||||
| Revenue from contracts with customers | ||||||||||||||||
| Revenue, lending and trading activities (North America) | - | - | ||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Major Goods | ||||||||||||||||
| RF/microwave filters | $ | $ | - | $ | - | $ | ||||||||||
| Detector logarithmic video amplifiers | - | - | ||||||||||||||
| Power supply units | - | |||||||||||||||
| Power supply systems | - | - | ||||||||||||||
| Healthcare diagnostic systems | - | - | ||||||||||||||
| Defense systems | - | - | ||||||||||||||
| Digital currency mining | - | - | ||||||||||||||
| Other | - | - | ||||||||||||||
| Revenue from contracts with customers | 6,350,000 | 1,383,000 | 302,000 | 8,035,000 | ||||||||||||
| Revenue, lending and trading activities | - | - | 5,210,000 | 5,210,000 | ||||||||||||
| Total revenue | $ | 6,350,000 | $ | 1,383,000 | $ | 5,512,000 | $ | 13,245,000 | ||||||||
| Timing of Revenue Recognition | ||||||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Services transferred over time | - | - | ||||||||||||||
| Revenue from contracts with customers | $ | 6,350,000 | $ | 1,383,000 | $ | 302,000 | $ | 8,035,000 | ||||||||
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
| Fair Value Measurement at March 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Investment in term promissory note of Ault & Company, Inc. (“Ault & Company”) and other – a related party | $ | $ | $ | - | $ | |||||||||||
| Investment in common stock of Alzamend Neuro, Inc. (“Alzamend”) – a related party | ||||||||||||||||
| Investments in marketable equity securities | - | |||||||||||||||
| Cash and marketable securities held in trust account | ||||||||||||||||
| Investments in equity securities | - | |||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| F-11 |
| Fair Value Measurement at December 31, 2021 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Investment in term promissory note of Ault & Company and other – a related party | $ | $ | - | $ | - | $ | ||||||||||
| Investment in common stock of Alzamend – a related party | - | |||||||||||||||
| Investments in marketable equity securities | - | |||||||||||||||
| Cash and marketable securities held in trust account | ||||||||||||||||
| Investments in equity securities | - | |||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
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.
The following table summarizes the changes in investments in equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three months ended March 31, 2022:
| Investments in equity securities | ||||
| Balance at January 1, 2022 | $ | |||
| Investment in equity securities | ||||
| Change in fair value of warrants | ||||
| Unrealized gains on equity securities | ||||
| Conversion to marketable securities | ( | ) | ||
| Balance at March 31, 2022 | $ | |||
See Note 8 for the changes in investments in Ault & Company measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) during the three months ended March 31, 2022.
6. Marketable Securities
Marketable securities in equity securities with readily determinable market prices consisted of the following as of March 31, 2022 and December 31, 2021:
| Marketable equity securities at March 31, 2022 | ||||||||||||||||
| Gross unrealized | Gross unrealized | |||||||||||||||
| Cost | gains | losses | Fair value | |||||||||||||
| Common shares | $ | $ | $ | ( | ) | $ | ||||||||||
| Marketable equity securities at December 31, 2021 | ||||||||||||||||
| Gross unrealized | Gross unrealized | |||||||||||||||
| Cost | gains | losses | Fair value | |||||||||||||
| Common shares | $ | $ | $ | ( | ) | $ | ||||||||||
At March 31, 2022 and December 31, 2021, the Company invested in the marketable equity securities of publicly traded companies. The Company’s investment in marketable equity securities are revalued on each balance sheet date.
| F-12 |
7. PROPERTY AND EQUIPMENT, NET
At March 31, 2022 and December 31, 2021, property and equipment consisted of:
| March 31, 2022 | December 31, 2021 | |||||||
| Cryptocurrency machines and related equipment | $ | $ | ||||||
| Computer, software and related equipment | ||||||||
| Office furniture and equipment | ||||||||
| Land | ||||||||
| Building and improvements | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment placed in service, net | ||||||||
| Deposits on cryptocurrency machines | ||||||||
| Property and equipment, net | $ | $ | ||||||
For the three months ended
March 31, 2022 and 2021, depreciation expense amounted to $
8. INVESTMENTS – RELATED PARTIES
Investments in Alzamend and Ault & Company at March 31, 2022 and December 31, 2021, were comprised of the following:
Investment in Promissory Notes, Related Parties
| Interest | Due | March 31, | December 31, | |||||||||||||
| Rate | Date | 2022 | 2021 | |||||||||||||
| Investment in promissory note of Ault & Company | % | $ | $ | |||||||||||||
| Accrued interest receivable, Ault & Company | ||||||||||||||||
| Other | ||||||||||||||||
| Total investment in promissory note, related party | $ | $ | ||||||||||||||
Investment in Common Stock and Options, Related Parties
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Investment in common stock and options of Alzamend | $ | $ | ||||||
The following table summarizes the changes in the Company’s investments in Alzamend and Ault & Company during the three months ended March 31, 2022:
| Investment in warrants and common stock of Alzamend | Investment in promissory notes and advances of Alzamend and Ault & Company and Other | |||||||
| Balance at January 1, 2022 | $ | $ | ||||||
| Investment in common stock and options of Alzamend | - | |||||||
| Unrealized loss in common stock of Alzamend | ( | ) | - | |||||
| Amortization of related party investment | ( | ) | ||||||
| Accrued interest | ( | ) | ||||||
| Balance at March 31, 2022 | $ | $ | ||||||
| F-13 |
Investments in Alzamend Common Stock
The following table summarizes the changes in the Company’s investments in Alzamend common stock during the three months ended March 31, 2022:
| Shares of | Per Share | Investment in | ||||||||||
| Common Stock | Price | Common Stock | ||||||||||
| Balance at January 1, 2022 | $ | $ | ||||||||||
| Open market purchases after initial public offering | $ | |||||||||||
| Unrealized loss in common stock of Alzamend | ( | ) | ||||||||||
| Investment in Alzamend common stock | $ | |||||||||||
| Investment in Alzamend options | ( | ) | ||||||||||
| Balance at March 31, 2022 | $ | |||||||||||
9. INVESTMENT IN UNCONSOLIDATED ENTITY – Avalanche International Corp. (“AVLP”)
Equity Investments in Unconsolidated Entity – AVLP
Equity investments in an unconsolidated entity, AVLP, at March 31, 2022 and December 31, 2021, were comprised of the following:
Investment in Promissory Notes
| Interest | Due | March 31, | December 31, | |||||||||||||
| Rate | Date | 2022 | 2021 | |||||||||||||
| Investment in convertible promissory note | % | $ | $ | |||||||||||||
| Investment in promissory note – Alpha Fund | % | |||||||||||||||
| Accrued interest receivable | ||||||||||||||||
| Other | ||||||||||||||||
| Total investment in promissory notes, gross | ||||||||||||||||
| Less: provision for loan losses | ( | ) | ( | ) | ||||||||||||
| Total investment in promissory note | $ | $ | ||||||||||||||
* During the three months ended March 31, 2022 and 2021, no interest income was recognized from the Company’s investment in AVLP.
AVLP Convertible Promissory Note Maturities
The contractual maturities of AVLP’s convertible promissory notes as of March 31, 2022 were:
| Year | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ | |||
| F-14 |
The following table summarizes the changes in the Company’s equity investments in an unconsolidated entity, AVLP, during the year ended December 31, 2021 and the three months ended March 31, 2022:
| Investment in | Investment in | |||||||||||
| warrants and | promissory notes | Total | ||||||||||
| common stock | and advances | investment | ||||||||||
| Balance at January 1, 2021 | $ | $ | $ | |||||||||
| Investment in convertible promissory notes | - | |||||||||||
| Fair value of warrants | - | |||||||||||
| Unrealized loss in warrants | ( | ) | - | ( | ) | |||||||
| Unrealized gain in common stock | ( | ) | - | ( | ) | |||||||
| Loss from equity investment | ( | ) | - | ( | ) | |||||||
| Accretion of discount | - | |||||||||||
| Accrued interest | - | |||||||||||
| Balance at January 1, 2022 | ||||||||||||
| Investment in convertible promissory notes | - | |||||||||||
| Loss from equity investment | ( | ) | ( | ) | ( | ) | ||||||
| Balance at March 31, 2022 | $ | $ | $ | |||||||||
10. CONSOLIDATED VARIABLE INTEREST ENTITY - ALPHA FUND
Alpha Fund – Consolidated Variable Interest Entity
During the three months ended March 31, 2022 and the year ended December 31, 2021, the Company invested in Ault Alpha LP (the “Alpha Fund”). The Alpha Fund operates as a private investment fund. The general partner of the Alpha Fund, Ault Alpha GP LLC (“Alpha GP”) is owned by Ault Capital Management LLC (the “Investment Manager”), which also acts as the investment manager to the Alpha Fund. The Investment Manager is owned by Ault & Company. Messrs. Ault, Horne, Nisser and Cragun, who serve as executive officers and/or directors of the Company, are executive officers of the Investment Manager, and Messrs. Ault, Horne and Nisser are executive officers and directors of Ault & Company.
As of March 31, 2022, the
Company subscribed for $
The Company consolidates Alpha Fund as a variable interest entity (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 is considered the primary beneficiary of the VIE.
Investments by Alpha Fund – Treasury Stock
As of March 31, 2022, the
Alpha Fund owned
| F-15 |
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other current liabilities at March 31, 2022 and December 31, 2021 consisted of:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll and payroll taxes | ||||||||
| Financial instrument liabilities | ||||||||
| Accrued legal | ||||||||
| Other accrued expenses | ||||||||
| $ | $ | |||||||
Financial Instruments
Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. In prior years, the Company granted certain warrants that resulted in these warrants accounted for as a financial instrument and being re-measured every reporting period with the change in value reported in the statement of operations.
The financial instruments were valued using a variety of pricing models with the following valuation assumptions:
| March 31, 2022 | December 31, 2021 | |||||||
| Contractually stipulated stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Contractually defined remaining term | ||||||||
| Contractually defined volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
Per the terms of the warrant agreements underlying the financial instruments, the value to the warrant holders is defined within the agreement based on a stock price, contractual term, volatility factor and dividend rate as defined in the warrant agreement, and not indexed to the company’s stock, resulting in the financial instrument accounting. The risk-free interest rate was based on rates established by the Federal Reserve Bank.
The following table sets forth a summary of the changes in the estimated fair value of the financial instruments during the three months ended March 31, 2022 and 2021:
| March 31, 2022 | March 31, 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Change in fair value | ||||||||
| Ending balance | $ | $ | ||||||
12. AMORTIZATION OF DEBT DISCOUNT OF SECURED PROMISSORY NOTES
On December 30, 2021, the Company entered into a securities purchase agreement with certain sophisticated investors providing for the issuance of:
| · | secured promissory notes (the “Secured Promissory Notes”) that bear interest at |
| · | five-year warrants to purchase an aggregate of shares of the Company’s common stock at an exercise price of $, subject to adjustment; and |
| · | five-year warrants to purchase an aggregate of shares of Common Stock (the “Class B Warrant Shares”) at an exercise price of $ per share, subject to adjustment. The Class B Warrant Shares are deemed to be a derivative instrument. |
| F-16 |
As of December 31, 2021, unamortized
debt discount on the Secured Promissory Notes related to the original issue discount and estimated fair value of the warrants totaled
$
During the three months ended
March 31, 2022, the Secured Promissory Notes were repaid and the Company fully amortized the related debt discount of $
13. COMMITMENTS AND CONTINGENCIES
Blockchain Mining Supply and Services, Ltd.
On November 28, 2018, Blockchain Mining Supply and Services, Ltd. (“Blockchain Mining”) a vendor who sold computers to one of the Company’s subsidiaries, filed a Complaint (the “Complaint”) in the United States District Court for the Southern District of New York against the Company and the Company’s subsidiary, Digital Farms, Inc. (f/k/a Super Crypto Mining, Inc.), in an action captioned Blockchain Mining Supply and Services, Ltd. v. Super Crypto Mining, Inc. and DPW Holdings, Inc., Case No. 18-cv-11099.
The Complaint asserts claims
for breach of contract and promissory estoppel against the Company and its subsidiary arising from the subsidiary’s alleged failure
to honor its obligations under the purchase agreement. The Complaint seeks monetary damages in excess of $
The Company intends to vigorously defend against the claims asserted against it in this action.
On April 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against the Company, and the promissory estoppel claim as against its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Complaint in connection with the breach of contract claim.
On April 29, 2020, Blockchain Mining filed an amended complaint (the “Amended Complaint”). The Amended Complaint asserts the same causes of action and seeks the same damages as the initial Complaint.
On May 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Amended Complaint in its entirety as against the Company, and the promissory estoppel claim as against of its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Amended Complaint in connection with the breach of contract claim.
In its partial Answer, the Company’s subsidiary admitted to the validity of the contract at issue and also asserted numerous affirmative defenses concerning the proper calculation of damages.
On December 4, 2020, the Court issued an Order directing the parties to engage in limited discovery (the “Limited Discovery”) to be completed by March 4, 2021. In connection therewith, the Court also denied the defendants’ motion to dismiss without prejudice.
On June 2, 2021, the Company and its subsidiary filed a motion to dismiss the amended complaint in its entirety as against the Company, and the promissory estoppel claim as against the subsidiary.
The motion to dismiss has been fully briefed and is currently pending before the Court.
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 established a reserve in the amount of the unpaid portion of the purchase agreement, which is included in accounts payable and accrued expenses. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.
Ding Gu (a/k/a Frank Gu) and Xiaodan Wang Litigation
On January 17, 2020, Ding Gu (a/k/a Frank Gu) (“Gu”) and Xiaodan Wang (“Wang” and with “Gu” collectively, “Plaintiffs”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and the Company’s Chief Executive Officer, Milton C. Ault, III, in an action captioned Ding Gu (a/k/a Frank Gu) and Xiaodan Wang v. DPW Holdings, Inc. and Milton C. Ault III (a/k/a Milton Todd Ault III a/k/a Todd Ault), Index No. 650438/2020.
| F-17 |
The Complaint asserts causes of action for declaratory judgment, specific performance, breach of contract, conversion, attorneys’ fees, permanent injunction, enforcement of Guaranty, unjust enrichment, money had and received, and fraud arising from: (i) a series of transactions entered into between Gu and the Company, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and the Company, in or about July 2019. The Complaint seeks, among other things, monetary damages in excess of $1.1 million, plus a decree of specific performance directing the Company to deliver unrestricted shares of common stock to Gu, plus attorneys’ fees and costs.
The Company intends to vigorously defend against the claims asserted against it in this action.
On May 4, 2020, the Company and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice.
On July 28, 2021, the Court conducted oral argument in connection with the motion to dismiss. During the oral argument, the Court informed the parties that the Court was dismissing the fraud claim, in its entirety, and provided Plaintiffs an opportunity to amend their fraud claim within sixty days of the date of the oral argument. The Court reserved decision on the other causes of action.
On December 14, 2021, the Court entered a decision and order in connection with the motion to dismiss whereby the Court dismissed Plaintiff’s causes of action for specific performance, conversion, permanent injunction, and reiterated its prior determination that the fraud claim was also dismissed. The Court denied the motion to dismiss in connection with the other causes of action asserted in the complaint.
On January 26, 2022, the Company and Mr. Ault filed an answer to the complaint and asserted numerous affirmative defenses.
Based on the Company’s assessment of the facts underlying the above 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. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations.
Subpoena
The Company and certain affiliates and related parties have received several subpoenas from the SEC for the production of documents and testimony. The Company is fully cooperating with this non-public, fact-finding inquiry and management believes that the Company has operated its business in compliance with all applicable laws. The subpoenas expressly provide that the inquiry is not to be construed as an indication by the SEC or its staff that any violations of the federal securities laws have occurred, nor should they be considered a reflection upon any person, entity or security. However, there can be no assurance as to the outcome of this matter.
Other 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.
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.
| F-18 |
14. STOCKHOLDERS’ EQUITY
2022 Issuances
2022 ATM Offering
On February 25, 2022, the
Company entered into an At-The-Market issuance sales agreement with Ascendiant Capital Markets to sell shares of common stock having an
aggregate offering price of up to $
15. INCOME TAXES
The
Company calculates its interim income tax provision in accordance with ASC 270 and ASC 740. The Company’s effective tax rate (“ETR”)
from continuing operations was % and % for the three months ended March 31, 2022 and 2021, respectively. The Company had no provision for income taxes for the three months
ended March 31, 2022 and recorded an income tax provision of $
For the three months ended March 31, 2022, 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 the three months ended March 31, 2022, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for the period. Anti-dilutive securities, which are convertible into or exercisable for the Company’s common stock, consist of the following at March 31, 2022:
| March 31, 2022 | ||||
| Stock options | ||||
| Restricted stock grants | ||||
| Warrants | ||||
| Convertible notes | ||||
| Convertible preferred stock | ||||
| Total | ||||
| F-19 |
| For the Three Months Ended March 31, 2021 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Net income attributable to BitNile Holdings | $ | |||||||||||
| Less: Preferred stock dividends | ( | ) | ||||||||||
| Basic earnings per share | ||||||||||||
| Net income available to common stockholders | $ | |||||||||||
| Effect of dilutive securities | ||||||||||||
| Stock options | ||||||||||||
| 8% convertible notes, related party | ||||||||||||
| 4% convertible notes | ||||||||||||
| Diluted earnings per share | ||||||||||||
| Income available to common stockholders plus assumed conversions | $ | $ | ||||||||||
17. SEGMENT AND CUSTOMERS INFORMATION
The Company had six reportable segments as of March 31, 2022 and three as of March 31, 2021; see Note 1 for a brief description of the Company’s business.
The following data presents the revenues, expenditures and other operating data of the Company’s operating segments for the three months ended March 31, 2022:
| GWW | TurnOnGreen | Ault Alliance | Cryptocurrency | Real Estate | Ault Disruptive | Holding Company | Total | |||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenue, cryptocurrency mining, net | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Revenue, commercial real estate leases | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Revenue, lending and trading activities | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Revenue, hotel operations | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Capital expenditures for the three months ended March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| F-20 |
Segment information for the three months ended March 31, 2021:
| GWW | TurnOnGreen | Ault Alliance | Holding Company | Total | ||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Revenue, cryptocurrency mining, net | ||||||||||||||||||||
| Revenue, lending and trading activities | - | - | - | |||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | $ | |||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
| Capital expenditures for the three months ended March 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
18. SUBSEQUENT EVENTS
2022 ATM Offering
During the period between
April 1, 2022 through May 20, 2022, the Company sold an aggregate of shares of common stock pursuant to the 2022 ATM Offering
for gross proceeds of $
Investments in Alpha Fund
During the period between April 1, 2022 through May 16, 2022, the Company purchased an additional $ of limited partnership interests in the Alpha Fund. As of May 16, 2022, the Company had subscribed for $ of limited partnership interests.
Investments in Alzamend
On April 26, 2022, DP Lending
funded the remaining $
EYP Acquisition
On April 25, 2022, the Company
announced that its subsidiary, Ault Alliance has agreed to lend approximately
The asset purchase agreement constitutes a “stalking horse” bid in a sale process being conducted under Section 363 of the U.S. Bankruptcy Code. As such, Ault Alliance’s acquisition of EYP’s assets remains subject to approval by the United States Bankruptcy Court for the District of Delaware, following court-approved bidding procedures, including the potential receipt of competing offers for EYP’s assets at auction. It is expected that the sale process will be completed by June 2022, and that throughout the sale process, the business will continue to operate in the ordinary course providing services to its customers. As part of the purchase, Ault Alliance will be able to include the value of its DIP loan as part of its bid at closing. Consummation of the Asset Purchase is subject to Bankruptcy Court approved bidding procedures, higher and better offers made in the auction by other potential bidders, approval of the highest bidder by the Bankruptcy Court and customary closing conditions.
Increase in Ownership of Alliance Cloud Services, LLC
On May 12, 2022, BNI closed
a $
| F-21 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this quarterly report, the “Company,” “BitNile,” “we,” “us” and “our” refer to BitNile Holdings, Inc., a Delaware corporation. BitNile is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin, and provides mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, telecommunications, medical/biopharma, and textiles. In addition, the Company owns and operates hotels and extends credit to select entrepreneurial businesses through a licensed lending subsidiary.
Recent Events and Developments
On February 4, 2022, we and our wholly owned subsidiary Ault Alliance, Inc. (“Ault Alliance”) entered into a securities purchase agreement providing for our purchase of BitNile, Inc. (“BNI”) from Ault Alliance. As a result of this transaction, both BNI and Ault Alliance are each stand-alone wholly owned subsidiaries of ours.
On February 10, 2022, consistent with our objective to have BNI operate the entirety of our business that relates to cryptocurrencies, Ault Alliance assigned the entirety of its interest in Alliance Cloud Services, LLC (“ACS”) to BNI.