AULT ALLIANCE, INC. In this quarterly report, the "Company," "BitNile ," "we," "us" and "our" refer toBitNile Holdings, Inc. , aDelaware corporation.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, we own and operate a data center at which we mine Bitcoin, and provide mission-critical products that support a diverse range of industries, including defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. In addition, we own and operate hotels and extends credit to select entrepreneurial businesses through a licensed lending subsidiary.
Recent Events and Developments
On
On
OnFebruary 25, 2022 , we entered into an At-The-Market issuance sales agreement withAscendiant Capital Markets, LLC ("Ascendiant Capital ") to sell shares of common stock having an aggregate offering price of up to$200 million from time to time, through an "at the market offering" program (the "2022 Common ATM Offering"). As ofSeptember 30, 2022 , we had sold an aggregate of 256.7 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of$168.0 million . OnMarch 20, 2022 , we and our majority owned subsidiary Imperalis Holding Corp. ("IMHC") entered into a securities purchase agreement (the "Agreement") withTurnOnGreen, Inc. ("TurnOnGreen"), a wholly owned subsidiary of ours. According to the Agreement, which closed onSeptember 6, 2022 . we (i) delivered to IMHC all of the outstanding shares of common stock of TurnOnGreen that we own, and (ii) eliminated the intracompany accounts between us and TurnOnGreen evidencing historical equity investments made by us in TurnOnGreen, in the approximate amount of$36 million , in consideration for the issuance by IMHC to us (the "Transaction") of an aggregate of 25,000 newly designated shares of Series A Preferred Stock (the "IMHC Preferred Stock"), with each such share having a stated value of$1,000 . The IMHC Preferred Stock has an aggregate liquidation preference of$25 million , is convertible into shares of IMHC's common stock, par value$0.001 per share (the "IMHC Common Stock") at our option, is redeemable by us, and entitles us to vote with the IMHC Common Stock on an as-converted basis. OnSeptember 5, 2022 , we, IMHC and TurnOnGreen entered into an amendment to the Agreement (the "Amendment"), pursuant to which IMHC agreed to (i) use commercially reasonable efforts to effectuate a distribution by us of approximately 140 million shares of IMHC Common Stock beneficially owned by us (the "Distribution"), including the filing of a registration statement (the "Distribution Registration Statement") with theSecurities and Exchange Commission (the "SEC"), (ii) to issue our warrants to purchase an equivalent number of shares of IMHC Common Stock to be issued in the Distribution (the "Warrants"), and (iii) to register the Warrants and the shares of IMHC Common Stock issuable upon exercise of the Warrants on the Distribution Registration Statement. IMHC and us will mutually agree to the terms and conditions of the Warrants and the Distribution Registration Statement after the Closing Date.
On
OnApril 22, 2022 ,Ault Alliance entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") withEYP Group Holdings, Inc. and each of its subsidiaries and affiliates listed on the signature page to the Asset Purchase Agreement (collectively, "EYP"), pursuant to whichAult Alliance agreed to purchase substantially all of the assets of EYP (such assets, the "Assets," and such transaction, the "Asset Purchase"). OnApril 24, 2022 , EYP filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") with theUnited States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court ").The Bankruptcy Court has permitted joint administration of the Chapter 11 cases under the caption "In reEYP Group Holdings, Inc. , et al.", Case No. 22-10367 (MFW) (the "Chapter 11
Cases"). 1
Under the Asset Purchase Agreement,Ault Alliance or its designee(s), upon the closing of the transactions contemplated thereby, were to purchase the Assets and assume certain of EYP's obligations associated with the purchased Assets through a supervised sale under Section 363 of the Bankruptcy Code.Ault Alliance's stalking horse bid is based on an enterprise value of approximately$67.7 million , which includes the purchase price for the Assets under the Asset Purchase Agreement of$62.5 million , as adjusted by a closing working capital adjustment (the "Purchase Price"), plusAult Alliance's assumption of certain liabilities. The Purchase Price would be paid in cash, less the outstanding amount of the DIP Loans and the senior secured loans previously issued byAult Alliance to EYP, in an approximate aggregate amount of$11.8 million , and less the amount of certain liabilities assumed byAult Alliance . The Asset Purchase Agreement required the Asset Purchase to close byJune 30, 2022 . Consummation of the Asset Purchase was subject toBankruptcy Court approved bidding procedures, higher and better offers made in the auction by other potential bidders, approval of the highest bidder by theBankruptcy Court and customary closing conditions. OnJuly 7, 2022 , we announced thatAult Alliance did not acquire the assets of EYP as a result of a higher bidder.Ault Alliance lent$8.0 million to EYP and earned$4.7 million in interest, penalties and break-up fees fromOctober 2021 throughJune 2022 . The principal amount of the loans, interest, penalties and break-up fees, were fully repaid onJune 30, 2022 . OnApril 26, 2022 ,Ault Lending, LLC ("Ault Lending") made an additional$4 million investment in Alzamend Neuro, Inc. ("Alzamend"), a related party and early clinical-stage biopharmaceutical company focused on developing novel products for the treatment of neurodegenerative diseases and psychiatric disorders. During 2021, Ault Lending entered into a securities purchase agreement (the "SPA") with Alzamend to invest$10 million in Alzamend common stock and warrants, subject to the achievement of certain milestones. Ault Lending had previously funded$6 million pursuant to the terms of the SPA and the achievement of certain milestones related to theU.S. Food and Drug Administration approval of Alzamend's Investigational New Drug application and Phase 1a human clinical trials for AL001. OnApril 26, 2022 , Ault Lending funded the remaining amount due to achievement of the final milestone, the receipt of the full data set from Alzamend's Phase 1 clinical trial for AL001. Ault Lending retains the option to acquire an additional 6,666,667 shares of Alzamend common stock and warrants to purchase another 3,333,334 such shares for an aggregate of$10 million . OnMay 12, 2022 , BNI closed a$1.8 million membership interest purchase agreement whereby BNI acquired the 30% minority interest of ACS which BNI did not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI. ACS owns and operates ourMichigan data center, where BNI conducts our Bitcoin mining operations. OnMay 26, 2022 , we entered into an underwriting agreement (the "Underwriting Agreement") withAlexander Capital, L.P. , as representative of the several underwriters named therein (collectively, the "Underwriters"), relating to a firm commitment public offering of 123,423 newly issued shares of our 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock (the "Series D Preferred Stock") at a public offering price of$25.00 per share. OnJune 1, 2022 , we and the Underwriters mutually agreed to increase the size of the offering of our Series D Preferred Stock from 123,423 shares to 144,000 shares. Thus, we and the Underwriters agreed to terminate the Underwriting Agreement and entered into a side letter to terminate such Underwriting Agreement (the "Side Letter"). Following the execution of the Side Letter, onJune 1, 2022 , we entered into a new underwriting agreement (the "New Underwriting Agreement") with the Underwriters, relating to a firm commitment public offering of 144,000 newly issued shares of our Series D Preferred Stock at a public offering price of$25.00 per share. OnJune 3, 2022 , we closed the offering of the sale of the 144,000 shares of our Series D Preferred Stock for gross proceeds of approximately$3.6 million , before deducting offering expenses. Net proceeds to us, after payment of commissions, non-accountable fees and offering expenses, were approximately$3.1 million . OnJune 14, 2022 , we entered into an At-The-Market issuance sales agreement withAscendiant Capital to sell shares of Series D Preferred Stock having an aggregate offering price of up to$46.4 million from time to time, through an "at the market offering" program (the "2022 Preferred ATM Offering"). As ofSeptember 30, 2022 , we had sold an aggregate of 2,618 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of$57,000 .
OnJune 1, 2022 , we converted our convertible promissory notes of Avalanche International Corp. ("AVLP") and accrued interest into common stock of AVLP. We converted$20.0 million principal and$5.9 million of accrued interest receivable at a conversion price of$0.50 per share and received 51,889,168 shares of common stock increasing our common stock ownership of AVLP from less than 20% to approximately 92%. Beginning inJune 2022 , we, through Ault Lending, began making open market purchases of The Singing Machine Company, Inc. ("SMC") common stock and onJune 15, 2022 , we owned more than 50% of the issued and outstanding common stock of SMC. As ofJune 15, 2022 , the purchase price of the common stock acquired totaled$7.4 million and onJune 15, 2022 a$3.1 million gain was recognized in interest and other income for the remeasurement of our previously held ownership interest to$10.5 million , based on the trading price of SMC common stock.
2 OnAugust 10, 2022 , BNI and Ault Lending entered into a Note Purchase Agreement (the "NPA") with two accredited investors (the "Investors") providing for the issuance of secured promissory notes (the "Notes"). The Notes have a principal face amount of$11,000,000 and bear interest at 10% per annum, payable monthly in arrears, pursuant to the terms of the Notes. The maturity date of the Notes isAugust 10, 2023 . BNI is required to make an aggregate monthly payment (a "Monthly Payment") of$1,000,000 on the tenth calendar day of each month, starting inSeptember 2022 . The Monthly Payment includes principal and interest pursuant to the amortization table set forth in the Notes. After BNI makes the first six Monthly Payments, BNI may elect to pay a forbearance fee of$125,000 to an Investor, or an aggregate of$250,000 to the two Investors (each, a "Monthly Forbearance") in lieu of a Monthly Payment, which Monthly Forbearance would extend the maturity date of such Notes by one month, provided that BNI may not elect to make a Monthly Forbearance in consecutive months. BNI may prepay the full outstanding principal and accrued but unpaid interest at any time, provided that if BNI prepays the Notes, BNI is required to pay the Investors the amount of interest that would have accrued from the date of prepayment until the first anniversary of the issuance date of the Notes. The purchase price for
the Notes was$10 million . Pursuant to theNPA, BNI, Ault Lending and Helios Funds LLC , as the collateral agent on behalf of the Investors (the "Agent") entered into a security agreement (the "Security Agreement"), pursuant to which (i) Ault Lending granted to the Investors a security interest in marketable securities, investments and other property having a value of$10 million in an Ault Lending brokerage account and (ii) BNI granted to the Investors a security interest in 4,000 S19 Pro Antminers (the "Miners"), provided that the number of Miners would be reduced to 2,000 after BNI makes the third Monthly Payment (as defined below), as set forth in the Security Agreement. In addition, pursuant to a subsidiary guaranty, Ault Lending jointly and severally agreed to guarantee and act as surety for BNI's obligation to repay the Notes. The Notes are further secured by a guaranty
we provided. OnAugust 15, 2022 , BNI entered into a Master Agreement (the "Master Agreement") and Order Form (the "Order Form" and together with the Master Agreement, the "Hosting Documents") withCompute North LLC ("Compute North") providing for the hosting by Compute North of Bitcoin miners owned by BNI. Pursuant to the Hosting Documents, Compute North will host approximately 6,500 S19j Pro Antminers (the "Hosted Miners") owned by BNI for a period of five (5) years (the "Term"). BNI agreed to pay a fee for the Hosted Miners (the "Monthly Service Fee"), together with a monthly package fee per Hosted Miner. The Monthly Service Fee is payable based on the actual hashrate performance of the Hosted Miners, of which 70% of the anticipated Monthly Service Fee is payable in advance, and the remaining Monthly Service Fee, if any, will be invoiced in arrears. We paid Compute North a deposit of approximately$2.0 million (the "Deposit") to be used towards the Monthly Service Fee. As of the date of this filing, none of the Hosted Miners are in operation as we are awaiting the energization of the Hosted Miners at the facility. Under the Master Agreement, BNI granted Compute North a continuing first-position security interest in the Hosted Miners, as collateral for BNI's obligations under the Hosting Documents. Upon an event of default (as defined in the Master Agreement) by BNI, Compute North has the right to terminate the Hosting Documents and BNI is obligated to pay to Compute North all amounts then due under the Hosting Documents, together with a fee as liquidated damages, equal to the amount of fees that BNI would have been required to pay through the end of the Term. OnSeptember 22, 2022 , Compute North (along with its affiliated debtors), filed for chapter 11 bankruptcy protection in theU.S. Bankruptcy Court for the Southern District of Texas under Chapter 11 of theU.S. Bankruptcy Code (11U.S. Code section101 et seq.). The ultimate outcome of the bankruptcy process, and its impact on the Deposit, remains to be determined. We assessed this financial exposure and recorded an impairment of the Deposit totaling$2 million during the three months endedSeptember 30, 2022 . We have retained counsel to assist in this matter. OnNovember 7, 2022 , we and certain of our subsidiaries borrowed$18.9 million of principal amount of term loans (the "Loans") from a group of institutional investors (the "Financing"). The Loans mature in 18 months, which may be extended to 24 months, accrue interest at the rate of 8.5% per annum and are secured by certain of our assets and our various subsidiaries. Starting inJanuary 2023 , the lenders have the right to require us to make monthly payments of$0.6 million , which will increase to$1.1 million inNovember 2023 . The Loans were issued with an original issue discount of$1.89 million . The lenders received warrants to purchase approximately 4.5 million shares of our common stock, exercisable for four years at$0.45 per share and warrants to purchase another approximately 4.5 million shares of our common stock, exercisable for four years at$0.75 per share, subject to adjustment. 3
OnNovember 7, 2022 ,Ault Aviation used proceeds from the Loans to purchase a private aircraft for a total purchase price of$15.8 million . In addition, we and certain of our subsidiaries entered into various agreements as collateral for the repayment of the Loans, including (i) a security interest in certain Bitcoin mining equipment, (ii) a pledge of the membership interests ofThird Avenue Apartments, LLC , our wholly owned subsidiary ("Third Apartments "), (iii) a pledge of the membership interests ofAlliance Cloud Services, LLC , our wholly owned subsidiary ("Alliance Cloud"), (iv) a pledge of the membership interests ofAult Aviation, LLC , our wholly owned subsidiary ("Ault Aviation "), (v) a pledge in a segregated deposit account of$1.5 million of cash, (vi) a mortgage and security agreement by Third Avenue on the real estate property owned by Third Avenue inSt. Petersburg, Florida , (vii) a future advance mortgage by Alliance Cloud on the real estate property owned by Alliance Cloud inDowagiac, Michigan , and (viii) an aircraft mortgage and security agreement byAult Aviation on the private aircraft purchased byAult Aviation onNovember 7, 2022 . The Loans are further secured by a guaranty provided by Ault Lending andMilton C. Ault , our Executive Chairman. OnNovember 18, 2022 , BNI entered into another Note Purchase Agreement (the "November NPA") with the Investors providing for the issuance of secured promissory notes (the "November Notes"). The November Notes have a principal face amount of$8,181,819 and bear interest at 3% per annum pursuant to the terms of the November Notes. The maturity date of the November Notes isMay 18, 2023 . When BNI sells the Collateral (as defined below), BNI is required to make a payment towards the November Notes equal to 45% of the realized gains. After the November Notes have been repaid in full and until all of the Collateral is sold, when BNI sells any remaining Collateral, BNI is required to give the investors a profits participation interest equal to 45% of the realized gains. Pursuant to the November NPA, BNI, Ault Lending and the Agent entered into a security agreement (the "November Security Agreement"), pursuant to which BNI and Ault Lending granted to the Investors a security interest in marketable securities to be acquired by BNI (the "Collateral"). OnNovember 18, 2022 , BNI and the Investors also entered into an amendment to the Notes issued inAugust 2022 , whereby the Investors permitted BNI to (i) elect to utilize one of the six monthly forbearances under the Notes for theNovember 2022 monthly payment and (ii) make the forbearance payment with theDecember 2022 monthly payment. General As a holding company, our business objective is designed to increase stockholder value. Under the strategy we have adopted, we are focused on managing and financially supporting our existing subsidiaries and partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to stockholders. We have, are and will consider initiatives including, among others: public offerings, the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations and working capital needs. From time to time, we engage in discussions with other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a subsidiary or partner company's further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our stockholders' best interests, we will seek to sell some or all of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company's securities and, in the case of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner companies public through rights offerings and directed share subscription programs. We will continue to consider these (or similar) programs and the sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our stockholders. In recent years, we have provided capital and relevant expertise to fuel the growth of businesses in oil exploration, defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. We have provided capital to subsidiaries as well as partner companies in which we have an equity interest or may be actively involved, influencing development through board representation and management support.
We are a
4 Results of Operations
Results of Operations for the Three Months Ended
The following table summarizes the results of our operations for the three
months ended
For the
Three Months Ended
2022 2021
Revenue $ 27,031,000 $ 7,803,000
Revenue, cryptocurrency mining 3,874,000 272,000
Revenue, hotel operations 5,513,000 -
Revenue, lending and trading activities 13,360,000 (38,869,000 )
Total revenue 49,778,000 (30,794,000 )
Cost of revenue, products 20,193,000 5,011,000
Cost of revenue, cryptocurrency mining 5,255,000 260,000
Cost of revenue, hotel operations 3,230,000 -
Total cost of revenue 28,678,000 5,271,000
Gross profit (loss) 21,100,000 (36,065,000 )
Total operating expenses 26,411,000 13,809,000
Loss from operations (5,311,000 ) (49,874,000 )
Interest and other income 725,000 125,000Accretion of discount on note receivable, related party - 4,210,000 Interest expense (3,972,000 ) (140,000 ) Change in fair value of marketable equity securities 114,000 (750,000 ) Gain on extinguishment of debt - - Realized gain on digital currencies and marketable securities 595,000 30,000 Loss from investment in unconsolidated entity - - Change in fair value of warrant liability (3,000 ) 259,000 Loss income before income taxes (7,852,000 ) (46,140,000 ) Income tax (provision) benefit (144,000 ) 3,366,000 Net loss (7,996,000 ) (42,774,000 ) Net loss (income) attributable to non-controlling interest 725,000 (96,000 ) Net loss attributable to BitNile Holdings, Inc. (7,271,000 ) (42,870,000 ) Preferred dividends (190,000 ) (4,000 ) Net loss available to common stockholders$ (7,461,000 ) $ (42,874,000 ) Comprehensive loss Net loss available to common stockholders$ (7,461,000 ) $ (42,874,000 ) Other comprehensive income (loss) Foreign currency translation adjustment 306,000 (182,000 ) Net unrealized loss on derivative securities of related party - (4,849,000 ) Other comprehensive income (loss) 306,000 (5,031,000 ) Total comprehensive loss$ (7,155,000 ) $ (47,905,000 ) 5 Revenues Revenues by segment for the three months endedSeptember 30, 2022 and 2021 are as follows: For the Three Months Ended Sept 30, 2022 2021 Increase % GWW$ 7,782,000 $ 6,373,000$ 1,409,000 22 % TurnOnGreen 1,662,000 1,094,000 568,000 52 % SMC 17,114,000 - 17,114,000 - BNI
Revenue, cryptocurrency mining 3,874,000 272,000 3,602,000 1324 %
Revenue, commercial real estate leases 272,000 249,000 23,000 9 %
Ault Global Real Estate Equities, Inc. ("AGREE") 5,513,000 - 5,513,000 -
Ault Alliance :
Revenue, lending and trading activities 13,360,000 (38,869,000 ) 52,229,000 -134 %
Other 201,000 87,000 114,000 131 %
Total revenue $ 49,778,000 $ (30,794,000 ) $ 80,572,000 -262 % Our revenues increased by$80.6 million to$49.8 million for the three months endedSeptember 30, 2022 , from negative$30.8 million for the three months
endedSeptember 30, 2021 . GWW GWW revenues increased by$1.4 million , or 22%, to$7.8 million for the three months endedSeptember 30, 2022 , from$6.4 million for the three months endedSeptember 30, 2021 . The increase in revenue from our GWW segment for customized solutions for the military markets reflects$0.9 million from GIGA, which was acquired onSeptember 8, 2022 and$0.5 million higher revenues from GreshamUK , a GWW subsidiary, related to naval power projects that had previously been
delayed. TurnOnGreen
TurnOnGreen revenues for the three months ended
SMC SMC revenues increased by$17.1 million for the three months endedSeptember 30, 2022 , compared to$0 for the three months endedSeptember 30, 2021 , due to the acquisition of SMC inJune 2022 . BNI
Revenues from BNI's cryptocurrency mining operations were$3.9 million for the three months endedSeptember 30, 2022 , compared to$0.3 million for three months endedSeptember 30, 2021 . During 2021, we began to purchase Bitcoin mining equipment, which were primarily delivered in 2022, and increased our cryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations was based on several factors, which positively affected the number of active miners we operated, including the market prices of digital currencies, and favorable power costs available at ourMichigan data center. AGREE AGREE revenues were$5.5 million for the three months endedSeptember 30, 2022 compared to$0 for the three months endedSeptember 30, 2021 . OnDecember 22, 2021 , AGREE acquired four hotel properties for$71.3 million , consisting of a 136-room Courtyard by Marriott, a 133-roomHilton Garden Inn and a 122-roomResidence Inn by Marriott inMiddleton, WI , as well as a 135-roomHilton Garden Inn inRockford, IL. 6Ault Alliance
Revenues from our lending and trading activities increased to$13.4 million for the three months endedSeptember 30, 2022 , from negative revenues of$38.9 million for the three months endedSeptember 30, 2021 , which is attributable to significant realized and unrealized gains in the current year period and unrealized losses in the prior year period from our investment portfolio. During the three months endedSeptember 30, 2022 , Ault Lending generated significant income from appreciation of investments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to Ault Lending in certain financing transactions. Revenue from lending and trading activities during the three months endedSeptember 30, 2022 included an approximate$2.5 million unrealized gain from our investment in Alzamend. Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan. Revenues from our trading activities during the three months endedSeptember 30, 2021 included significant unrealized losses from market price changes related to Alzamend. During the three months endedSeptember 30, 2021 , we recorded an unrealized loss of$27.4 million related to our investment in Alzamend common stock. During the three months endedSeptember 30, 2021 , we recorded an unrealized loss on our investment in warrants of Alzamend of$6.0 million . Our investment in Alzamend will be revalued on each balance sheet date. Revenues from our trading activities during the three months endedSeptember 30, 2022 included net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings. Gross Margins Gross margins were 42.4% for the three months endedSeptember 30, 2022 , compared to 117.1% for the three months endedSeptember 30, 2021 . Our gross margins have typically ranged between 30% and 35%, with slight variations depending on the overall composition of our revenue. Our gross margins of 42.4% recognized during the three months endedSeptember 30, 2022 were impacted by the favorable margins from our lending and trading activities and modest margins on cryptocurrency mining operations due to the decline in the price of Bitcoin. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross margins for the three months endedSeptember 30, 2022 and 2021, would have been 27.6% and 35.8%, respectively, with gross margins for the three months endedSeptember 30, 2022 slightly lower than our historical averages due to gross margins from SMC, which were 23.8%. Research and Development
Research and development expenses were flat at
Selling and Marketing
Selling and marketing expenses were$7.4 million for the three months endedSeptember 30, 2022 , compared to$2.0 million for the three months endedSeptember 30, 2021 , an increase of$5.4 million , or 273%. The increase was the result of$4.2 million higher marketing costs atAult Alliance , including$3.2 million related to an advertising sponsorship agreement as well as a$0.9 million increases in sales and marketing costs from SMC, which was acquired
inJune 2022 . General and Administrative
General and administrative expenses were$15.9 million for the three months endedSeptember 30, 2022 , compared to$11.3 million for the three months endedSeptember 30, 2021 , an increase of$4.7 million , or 41%. General and administrative expenses increased from the comparative prior period, mainly
due to:
· general and administrative costs of
in
· general and administrative costs of
in
· general and administrative costs of
which were acquired in
·
gains on trading activities during the period;
· increased costs of
TurnOnGreen and GWW; and
· partially offset by lower non-cash stock compensation costs of
7 Interest and Other Income Interest and other income was$0.7 million for the three months endedSeptember 30, 2022 compared to$0.1 million for the three months endedSeptember 30, 2021 . The increase in interest and other income is primarily due to income from Ault Disruptive from cash and marketable securities held in the trust account.
Accretion of discount on note receivable, related party
Accretion of discount on note receivable, related party was$0 for the three months endedSeptember 30, 2022 and$4.2 million for the three months endedSeptember 30, 2021 . The prior year amount was due to the significant decline in the value of warrants in AVLP, accretion of the warrant discount was accelerated, resulting in a discount of$0 related to warrants issued in conjunction with the convertible promissory note of AVLP as ofSeptember 30, 2021 . Interest Expense
Interest expense was$4.0 million for the three months endedSeptember 30, 2022 , compared to$0.1 million for the three months endedSeptember 30, 2021 . The increase in interest expense is due primarily to interest on the$58.4 million construction loans related to the hotel properties purchased inDecember 2021 and interest on the$11 million secured promissory notes issued inAugust 2022 .
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability was a loss of$3,000 for the three months endedSeptember 30, 2022 , compared to a gain of$0.3 million for the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2021 , the fair value of the warrants that were issued during 2021 in a series of debt financings decreased by$0.3 million . The fair value of warrant liabilities is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value recorded as change in fair value of warrant liability in the condensed consolidated statements of operations
and comprehensive (loss) income.
Change in Fair Value of
Change in fair value of marketable equity securities was a gain of$0.1 million for the three months endedSeptember 30, 2022 , compared to a loss of$0.8 million for the three months endedSeptember 30, 2021 . The loss generated in the prior year period relates to an investment in marketable securities held byMicrophase that was fully sold in the fourth quarter of 2021 as well as the loss on an investment in AVLP common stock.
Realized Gain on
Realized gain on digital currencies and marketable securities was$0.6 million for the three months endedSeptember 30, 2022 , compared to$30,000 for the three months endedSeptember 30, 2021 . Realized gain for the three months endedSeptember 30, 2022 related primarily to gains on the sale of Bitcoin by BNI. Other Comprehensive Loss Other comprehensive loss was$0.3 million for the three months endedSeptember 30, 2022 , compared to other comprehensive loss of$5.0 million for the three months endedSeptember 30, 2021 . Other comprehensive loss of$0.3 million for the three months endedSeptember 30, 2022 was attributable to changes in currency exchange rates. Other comprehensive loss for the three months endedSeptember 30, 2021 , was primarily due to unrealized losses in the warrant derivative securities that we received as a result of our investment in AVLP, a related party. 8
Results of Operations for the Nine Months EndedSeptember 30, 2022 and 2021
The following table summarizes the results of our operations for the nine months
ended
For the
Nine Months Ended
2022 2021
Revenue $ 43,539,000 $ 24,272,000 Revenue, cryptocurrency mining 11,398,000 693,000 Revenue, hotel operations 12,809,000 - Revenue, lending and trading activities 32,224,000 19,615,000 Total revenue 99,970,000 44,580,000 Cost of revenue, products 30,985,000 16,011,000 Cost of revenue, cryptocurrency mining 12,206,000 646,000 Cost of revenue, hotel operations
8,350,000 - Total cost of revenue 51,541,000 16,657,000 Gross profit 48,429,000 27,923,000 Total operating expenses 76,429,000 30,773,000 (Loss) income from operations (28,000,000 ) (2,850,000 ) Interest and other income 1,255,000 176,000 Accretion of discount on note receivable, related party - 4,210,000 Interest expense (35,827,000 ) (475,000 ) Change in fair value of marketable equity securities 355,000 (705,000 ) Gain on extinguishment of debt - 929,000 Realized gain on digital currencies and marketable securities 661,000 428,000 Loss from investment in unconsolidated entity (924,000 ) - Change in fair value of warrant liability (27,000 ) (130,000 ) (Loss) income before income taxes (62,507,000 ) 1,583,000 Income tax (provision) benefit (361,000 ) (144,000 ) Net (loss) income (62,868,000 ) 1,439,000 Net loss (gain) attributable to non-controlling interest 1,061,000 (93,000 ) Net (loss) income attributable to BitNile Holdings, Inc. (61,807,000 ) 1,346,000 Preferred dividends (239,000 ) (13,000 ) Net (loss) income available to common stockholders $ (62,046,000 ) $ 1,333,000 Comprehensive (loss) income Net (loss) income available to common stockholders $ (62,046,000 ) $ 1,333,000 Other comprehensive income (loss) Foreign currency translation adjustment (1,452,000 ) (141,000 ) Net unrealized loss on derivative securities of related party - (7,773,000 ) Other comprehensive loss (1,452,000 ) (7,914,000 ) Total comprehensive loss $ (63,498,000 )$ (6,581,000 ) 9 Revenues Revenues by segment for the nine months endedSeptember 30, 2022 and 2021 are as follows: For the Nine Months Ended September 30, Increase 2022 2021 (Decrease) % GWW $ 21,530,000 $ 19,198,000$ 2,332,000 12 % TurnOnGreen 3,853,000 4,308,000 (455,000 ) -11 % SMC 17,114,000 - 17,114,000 - BNI
Revenue, cryptocurrency mining 11,398,000 693,000 10,705,000 1545 % Revenue, commercial real estate leases 822,000 530,000 292,000 55 % AGREE 12,809,000 - 12,809,000 -Ault Alliance : Revenue, lending and trading activities 32,224,000
19,615,000 12,609,000 64 % Other 220,000 236,000 (16,000 ) -7 % Total revenue $ 99,970,000 $ 44,580,000$ 55,390,000 124 %
Our revenues increased by$55.4 million , or 124%, to$100.0 million for the nine months endedSeptember 30, 2022 , from$44.6 million for the nine months endedSeptember 30, 2021 . GWW GWW revenues increased by$2.3 million , or 12%, to$21.5 million for the nine months endedSeptember 30, 2022 , from$19.2 million for the nine months endedSeptember 30, 2021 . The increase in revenue from our GWW segment for customized solutions for the military markets reflects$0.9 million from GIGA, which was acquired onSeptember 8, 2022 and$0.7 million higher revenues from GreshamUK , a GWW subsidiary, related to naval power projects that had previously been delayed, and$0.5 million higher revenues from Relec. TurnOnGreen TurnOnGreen revenues for the nine months endedSeptember 30, 2022 of$3.9 million declined$0.5 million , or 11%, from$4.2 million for the nine months endedSeptember 30, 2021 , due to supply chain challenges in the first half of the year partially offset by increased sales to defense customers in the third fiscal quarter of 2022. SMC
SMC revenues increased by$17.1 million for the nine months endedSeptember 30, 2022 , compared to$0 for the nine months endedSeptember 30, 2021 , due to the acquisition of SMC inJune 2022 . BNI
Revenues from BNI's cryptocurrency mining operations were$11.4 million for the nine months endedSeptember 30, 2022 , compared to$0.7 million for nine months endedSeptember 30, 2021 . During 2021, we began to purchase Bitcoin mining equipment, which were primarily delivered in 2022, and increased our cryptocurrency mining activities. Our decision to increase our cryptocurrency mining operations in 2022 was based on several factors, which positively affected the number of active miners we operated, including the market prices of digital currencies, and favorable power costs available at ourMichigan data center. AGREE AGREE revenues were$12.8 million for the nine months endedSeptember 30, 2022 compared to$0 for the nine months endedSeptember 30, 2021 . OnDecember 22, 2021 , AGREE acquired four hotel properties for$71.3 million , consisting of a 136-room Courtyard by Marriott, a 133-roomHilton Garden Inn and a 122-roomResidence Inn by Marriott inMiddleton, WI , as well as a 135-roomHilton Garden Inn inRockford, IL. 10Ault Alliance
Revenues from our lending and trading activities increased to$32.2 million for the nine months endedSeptember 30, 2022 , from$19.6 million for the nine months endedSeptember 30, 2021 , which is primarily attributable to significant realized and unrealized gains in the current year period and unrealized gains in the prior year period from our investment portfolio. During the nine months endedSeptember 30, 2022 , Ault Lending generated significant income from appreciation of investments in marketable securities as well as shares of common stock underlying convertible notes and warrants issued to Ault Lending in certain financing transactions. Revenue from lending and trading activities during the nine months endedSeptember 30, 2022 included a$4.8 million unrealized loss from our investment in Alzamend. Revenue from lending and trading activities during the nine months endedSeptember 30, 2021 included a$3.8 million unrealized gain from our investment in Alzamend. Under its business model, Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan. Revenues from our trading activities during the nine months endedSeptember 30, 2022 included significant net gains on equity securities, including unrealized gains and losses from market price changes. These gains and losses have caused, and will continue to cause, significant volatility in our periodic earnings. Gross Margins
Gross margins decreased to 48.4% for the nine months ended
Our gross margins of 48.4% recognized during the nine months endedSeptember 30, 2022 were impacted by the favorable margins from our lending and trading activities and modest margins on cryptocurrency mining operations due to the decline in the price of Bitcoin. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross margins for the nine months endedSeptember 30, 2022 and 2021 would have been 29.2% and 34.0%, respectively, with gross margins for the three months endedSeptember 30, 2022 , slightly lower than our historical averages due to gross margins from SMC, which were 23.8%. Research and Development
Research and development expenses increased by$0.3 million to 1.9 million for the nine months endedSeptember 30, 2022 , from$1.7 million for the nine months endedSeptember 30, 2021 . The increase in research and development expenses was due to product development efforts at TurnOnGreen and GWW. Selling and Marketing
Selling and marketing expenses were$20.9 million for the nine months endedSeptember 30, 2022 , compared to$4.7 million for the nine months endedSeptember 30, 2021 , an increase of$16.1 million , or 341%. The increase was the result of$14.7 million higher advertising and promotion costs atAult Alliance , including$9.4 million related to an advertising sponsorship agreement as well as a$1.8 million increase in sales and marketing personnel and a$0.9 million increase in travel expense. The increase is also attributable to a$0.7 million increase in costs incurred at TurnOnGreen to grow our selling and marketing infrastructure related to our electric vehicle charger products as well as a$0.9 million increases in sales and marketing costs from SMC, which was acquired in June
2022. General and Administrative
General and administrative expenses were$48.7 million for the nine months endedSeptember 30, 2022 , compared to$24.4 million for the nine months endedSeptember 30, 2021 , an increase of$24.3 million , or 100%. General and administrative expenses increased from the comparative prior period, mainly
due to:
· general and administrative costs of
which were acquired in
· general and administrative costs of
in
· general and administrative costs of
inJune 2022 ; 11
· increased general and administrative costs of
Disruptive, a SPAC which completed its IPO in
· non-cash stock compensation costs of
·
gains on trading activities during the period;
· higher salaries of
· higher audit fees of
· increased costs of
mining operations; and
· increased legal fees of
efforts to acquireEYP, Inc. Interest and Other Income Interest and other income was$1.3 million for the nine months endedSeptember 30, 2022 , compared to$0.2 million for the nine months endedSeptember 30, 2021 . The increase in interest and other income is primarily due to income from Ault Disruptive from cash and marketable securities held in the trust account. Other income for the nine months endedSeptember 30, 2022 included a$2.8 million gain related to remeasurement of our previously held ownership interest of SMC prior to theJune 15, 2022 acquisition, based on the trading price of SMC common stock. In addition, other income for the nine months endedSeptember 30, 2022 included a$2.7 million loss related to remeasurement of our previously held ownership interest of AVLP prior to theJune 1, 2022 acquisition.
Accretion of discount on note receivable, related party
Accretion of discount on note receivable, related party was$0 for the nine months endedSeptember 30, 2022 , compared to$4.2 million for the nine months endedSeptember 30, 2021 . The prior year amount was due to the significant decline in the value of warrants in AVLP, accretion of the warrant discount was accelerated, resulting in a discount of$0 related to warrants issued in conjunction with the convertible promissory note of AVLP as ofSeptember 30, 2021 . Interest Expense
Interest expense was$35.8 million for the nine months endedSeptember 30, 2022 compared to$0.5 million for the nine months endedSeptember 30, 2021 . The increase in interest expense relates primarily to the$66.0 million of Senior Notes issued inDecember 2021 , which were fully paid inMarch 2022 . Interest expense from these Senior Notes included the amortization of debt discount of$26.3 million from the issuance of warrants, a non-cash charge, and original issue discount, in connection with these Senior Notes. In addition, the increase in interest expense includes interest on the$58.4 million construction loans related to the hotel properties purchased inDecember 2021 and interest on the$11 million secured promissory notes issued inAugust 2022 .
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability was a loss of$27,000 for the nine months endedSeptember 30, 2022 , compared to a loss of$0.1 million for the nine months endedSeptember 30, 2021 . The fair value of warrant liabilities is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value recorded as change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive (loss) income.
Change in Fair Value of
Change in fair value of marketable equity securities was a gain of$0.4 million for the nine months endedSeptember 30, 2022 , compared to a loss of$0.7 million for the nine months endedSeptember 30, 2021 . The loss generated in the prior year period relates to an investment in marketable securities held byMicrophase that was fully sold in the fourth quarter of 2021 as well as the loss on an investment in AVLP common stock.
Realized Gain on
Realized gain on marketable securities was$0.7 million for the nine months endedSeptember 30, 2022 , compared to$0.4 million for the nine months endedSeptember 30, 2021 . Realized gain for the nine months endedSeptember 30, 2022 related primarily to gains on the sale of Bitcoin by BNI. Realized gains in the prior year period related to realized gains from an investment in marketable securities held byMicrophase , a portion of which was sold during the nine months endedSeptember 30, 2021 . 12
Loss From Investment in Unconsolidated Entity
Loss from investment in unconsolidated entity was
Gain on Extinguishment of Debt
Gain on extinguishment of debt was$0 for the nine months endedSeptember 30, 2022 , compared to a gain of$0.9 million for the nine months endedSeptember 30, 2021 . The prior year gain on extinguishment of debt represents forgiveness of Paycheck Protection Program loans. Other Comprehensive Loss Other comprehensive loss was$1.5 million for the nine months endedSeptember 30, 2022 , compared to other comprehensive loss of$7.9 million for the nine months endedSeptember 30, 2021 . Other comprehensive loss of$1.5 million for the nine months endedSeptember 30, 2022 was attributable to changes in currency exchange rates. Other comprehensive loss for the nine months endedSeptember 30, 2021 was primarily due to unrealized losses in the warrant derivative securities that we received as a result of our investment in AVLP.
Liquidity and Capital Resources
OnSeptember 30, 2022 , we had cash and cash equivalents of$10.1 million (excluding restricted cash of$4.6 million ). This compares to cash and cash equivalents of$15.9 million (excluding restricted cash of$5.3 million ) atDecember 31, 2021 . The decrease in cash and cash equivalents was primarily due the payment of debt and purchases of property and equipment partially offset by cash provided by financing activities related to the sale of common and preferred stock, as well as proceeds from notes payable and cash provided by operating activities. Net cash provided by operating activities totaled$12.9 million for the nine months endedSeptember 30, 2022 , compared to net cash used in operating activities of$56.9 million for the nine months endedSeptember 30, 2021 . Cash provided by operating activities for the nine months endedSeptember 30, 2022 included$68.5 million net cash provided by marketable securities from trading activities related to the operations of Ault Lending, partially offset by operating losses and changes in working capital. Net cash used in investing activities was$106.4 million for the nine months endedSeptember 30, 2022 , compared to$68.7 million for the nine months endedSeptember 30, 2021 . Net cash used in investing activities for the nine months endedSeptember 30, 2022 included$84.5 million of capital expenditures primarily related to Bitcoin mining equipment,$22.4 million for investments in equity securities,$8.2 million for the purchase of SMC and$3.7 million for the purchase of GIGA, net of cash received, partially offset by$11.7 million proceeds from the sale of marketable equity securities,$10.5 million principal payments received on loans receivable and$9.0 million proceeds from the sale of digital currencies. 13 Net cash provided by financing activities was$86.1 million for the nine months endedSeptember 30, 2022 , compared to$151.1 million for the nine months endedSeptember 30, 2021 , and reflects the following transactions:
· 2022 Common ATM Offering - On
At-The-Market issuance sales agreement with
of common stock having an aggregate offering price of up to
time to time, through the 2022 Common ATM Offering. As of
we had sold an aggregate of 256.7 million shares of common stock pursuant to
the 2022 Common ATM Offering for gross proceeds of
to us, after payment of commissions, were$164 million .
· Public Offering of Series D Preferred Stock - On
closing of our public offering of 144,000 shares of our Series D Preferred
Stock at a price to the public of
offering were approximately
Net proceeds to us, after payment of commissions, non-accountable fees and
offering expenses were
14
· 2022 Preferred ATM Offering - On
At-The-Market equity offering program with
may sell, from time to time, shares of our Series D Preferred Stock for
aggregate gross proceeds of up to
sold an aggregate of 10,928 shares of Series D Preferred Stock pursuant to the
2022 Preferred ATM Offering for gross proceeds of
·
a securities purchase agreement with certain accredited investors providing for
the issuance of Senior Notes that bore interest at 8% per annum with an
aggregate principal face amount of
inMarch 2022 .
· Margin Accounts Payable - During the year ended
into leverage agreements on certain brokerage accounts, whereby we borrowed
ended
$2.4 million on our margin account.
· 10% Secured Promissory Notes - On
subsidiary, entered into a note purchase agreement providing for the issuance
of secured promissory notes with an aggregate principal face amount of
for the secured promissory notes was
notes have a security interest in marketable securities, investments and
certain Bitcoin mining equipment. The secured promissory notes are further
secured by a guaranty provided by us, Ault Lending and
Executive Chairman. The maturity date of the secured promissory notes is August
10, 2023. We are required to make monthly payment (principal and interest) of
Provided that we make the first six monthly payments in full and on a timely
basis, after six months, we may elect to pay a forbearance fee of
lieu of a monthly payment, which would extend the maturity date of the related
secured promissory notes by one month for each forbearance. We may not elect
forbearance in consecutive months.
· Purchase of Treasury Stock - During the nine months ended
and 91,033 shares of our Series D Preferred Stock for
for as treasury stock as ofSeptember 30, 2022 .
Financing Transactions Subsequent to
Financing transactions subsequent to
2022 Common ATM Offering During the period betweenOctober 1, 2022 throughNovember 18, 2022 , we sold an aggregate of 14.8 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of$2.6 million . 2022 Preferred ATM Offering
During the period between
SMC Credit and Security Agreement with
OnOctober 14, 2022 , SMC entered into a credit agreement withFifth Third Bank . The credit agreement provides for a three-year secured revolving credit facility in an aggregate principal amount of up to$15 million decreased to$7.5 million during the non-peak period ofJanuary 1 through July 31 of each year. The credit agreement matures onOctober 14, 2025 .
The revolving credit facility bears interest of the Prime Rate plus 0.50% or the 30-day term secured overnight financing rate plus 3.00%.
Under the credit agreement:
· Accounts receivable advance rate up to an 85% against SMC's eligible accounts
receivable;
· Inventory advance of up to 85% of SMC's eligible inventory; and
15
· SMC must maintain a minimum fixed charge coverage of 1.05 to 1.
Availability under the credit agreement was approximately
Secured Debt Financing OnNovember 7, 2022 , we and certain of our subsidiaries borrowed$18.9 million of principal amount of term loans (the "Loans") from a group of institutional investors (the "Financing"). The Loans mature in 18 months, which may be extended to 24 months, accrue interest at the rate of 8.5% per annum and are secured by certain of our assets and the assets of our various subsidiaries. Starting inJanuary 2023 , the lenders have the right to require us to make monthly payments of$0.6 million , which will increase to$1.1 million inNovember 2023 . The Loans were issued with an original issue discount of$1.89 million .
The lenders received warrants to purchase approximately 4.5 million shares of our common stock, exercisable for four years at$0.45 per share and warrants to purchase another approximately 4.5 million shares of our common stock, exercisable for four years at$0.75 per share, subject to adjustment. OnNovember 7, 2022 ,Ault Aviation used proceeds from the Loans to purchase a private aircraft for a total purchase price of$15.8 million . In addition, we and certain of our subsidiaries entered into various agreements as collateral for the repayment of the Loans, including (i) a security interest in certain Bitcoin mining equipment, (ii) a pledge of the membership interests ofThird Avenue Apartments, LLC , our wholly owned subsidiary ("Third Apartments "), (iii) a pledge of the membership interests ofAlliance Cloud Services, LLC , our wholly owned subsidiary ("Alliance Cloud"), (iv) a pledge of the membership interests ofAult Aviation, LLC , our wholly owned subsidiary ("Ault Aviation "), (v) a pledge in a segregated deposit account of$1.5 million of cash, (vi) a mortgage and security agreement by Third Avenue on the real estate property owned by Third Avenue inSt. Petersburg, Florida , (vii) a future advance mortgage by Alliance Cloud on the real estate property owned by Alliance Cloud inDowagiac, Michigan , and (viii) an aircraft mortgage and security agreement byAult Aviation on the private aircraft purchased byAult Aviation onNovember 7, 2022 . The Loans are further secured by a guaranty provided by Ault Lending andMilton C. Ault , our Executive Chairman. 3% Secured Promissory Notes
OnNovember 18, 2022 , BNI entered into the November NPA with the Investors providing for the issuance of the November Notes. The November Notes have a principal face amount of$8,181,819 and bear interest at 3% per annum pursuant to the terms of the November Notes. The maturity date of the November Notes isMay 18, 2023 . When BNI sells the Collateral, BNI is required to make a payment towards the November Notes equal to 45% of the realized gains. After the November Notes have been repaid in full and until all of the Collateral is sold, when BNI sells any remaining Collateral, BNI is required to give the investors a profits participation interest equal to 45% of the realized gains. Pursuant to the November NPA, BNI, Ault Lending and the Agent entered into the November Security Agreement pursuant to which BNI and Ault Lending granted to the Investors a security interest in the Collateral. We believe our current cash on hand combined with the proceeds from the 2022 ATM Offering are sufficient to meet our operating and capital requirements for at least the next twelve months from the date the financial statements for the nine months endedSeptember 30, 2022 are issued. Critical Accounting Policies Business Combination
We allocate 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. Acquired customer relations, technology, tradenames and know how are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. 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. We include the results of operations of the business that we have acquired in our consolidated results prospectively from the date of acquisition. 16 If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquire 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.
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