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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  For the quarterly period ended September 30, 2022

 

o 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 1-12711

 

BITNILE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 94-1721931
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification Number)

 

11411 Southern Highlands Pkwy #240

Las Vegas, NV 89141

(Address of principal executive offices) (Zip code)

 

(949) 444-5464

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:    
         
Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, $0.001 par value   NILE   NYSE American
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share   NILE PRD   NYSE American

 

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. Yes  þ    No  o

 

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).  Yes  þ    No  o

 

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  ¨ Accelerated filer  ¨
Non-accelerated filer  þ 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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  þ

 

At November 18, 2022 the registrant had outstanding 356,761,203 shares of common stock.

 

 

   
 

 

BITNILE HOLDINGS, INC.

TABLE OF CONTENTS

 

      Page
PART I – FINANCIAL INFORMATION  
       
Item 1.   Financial Statements (Unaudited)  
       
    Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 F-1
       
    Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2022 and 2021 F-3
       
    Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 F-4
       
    Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 F-8
       
    Notes to Condensed Consolidated Financial Statements F-10
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
       
Item 3.    Quantitative and Qualitative Disclosures about Market Risk 17
       
Item 4.   Controls and Procedures 17
       
PART II – OTHER INFORMATION  
       
Item 1.   Legal Proceedings 19
Item 1A.   Risk Factors 21
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3.   Defaults Upon Senior Securities 22
Item 4.   Mine Safety Disclosures 22
Item 5.   Other Information 22
Item 6.   Exhibits 23

 

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)

 

    September 30,     December 31,  
    2022     2021  
ASSETS                
                 
CURRENT ASSETS                
Cash and cash equivalents   $ 10,126,000     $ 15,912,000  
Restricted cash     4,617,000       5,321,000  
Marketable equity securities     8,561,000       40,380,000  
Digital currencies     2,092,000       2,165,000  
Accounts receivable     19,234,000       6,455,000  
Accrued revenue     2,474,000       2,283,000  
Inventories     28,848,000       5,482,000  
Investment in promissory notes and other, related party     2,818,000       2,842,000  
Loans receivable, current     6,861,000       13,337,000  
Prepaid expenses and other current assets     14,441,000       15,436,000  
TOTAL CURRENT ASSETS     100,072,000       109,613,000  
                 
Cash and marketable securities held in trust account     117,421,000       116,725,000  
Intangible assets, net     14,095,000       4,035,000  
Goodwill     54,544,000       10,090,000  
Property and equipment, net     253,984,000       174,025,000  
Right-of-use assets     7,404,000       5,243,000  
Investments in common stock, related parties     12,394,000       13,230,000  
Investments in other equity securities     45,556,000       30,482,000  
Investment in unconsolidated entity     -       22,130,000  

Loans receivable, non-current

    500,000      

1,000,000

 
Other assets     4,935,000       3,713,000  
TOTAL ASSETS   $ 610,905,000     $ 490,286,000  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable and accrued expenses   $ 50,607,000     $ 22,755,000  
Investment margin accounts payable     2,377,000       18,488,000  
Operating lease liability, current     2,825,000       1,123,000  
Notes payable, net     17,132,000       39,554,000  
Convertible notes payable, current     1,469,000       -  
TOTAL CURRENT LIABILITIES     74,410,000       81,920,000  

 

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)

 

    September 30,     December 31,  
    2022     2021  
             
LONG TERM LIABILITIES                
Operating lease liability, non-current     4,980,000       4,213,000  
Notes payable     58,310,000       55,055,000  
Convertible notes payable     13,878,000       468,000  
Deferred underwriting commissions of Ault Disruptive subsidiary     3,450,000       3,450,000  
                 
TOTAL LIABILITIES     155,028,000       145,106,000  
                 
COMMITMENTS AND CONTINGENCIES                
Redeemable noncontrolling interests in equity of subsidiaries     117,114,000       116,725,000  
                 
STOCKHOLDERS’ EQUITY                
Series A Convertible Preferred Stock, $25 stated value per share,     -       -  
$0.001 par value – 1,000,000 shares authorized; 7,040 shares                
issued and outstanding at September 30, 2022 and December 31, 2021                
(redemption amount and liquidation preference of $176,000 as of                
September 30, 2022 and December 31, 2021)                
Series B Convertible Preferred Stock, $10 stated value per share,     -       -  
share, $0.001 par value – 500,000 shares authorized; 125,000 shares issued                
and outstanding at September 30, 2022 and December 31, 2021 (liquidation                
preference of $1,190,000 at September 30, 2022 and December 31, 2021)                
Series D Cumulative Redeemable Perpetual Preferred Stock, $25 stated                
value per share, $0.001 par value – 2,000,000 shares authorized;                
shares authorized, 154,928 shares and 0 shares issued and outstanding at                
September 30, 2022 and December 31, 2021, respectively (liquidation                
preference of $3,665,450 and $0 as of September 30, 2022 and
December 31, 2021, respectively)
    -       -  
Class A Common Stock, $0.001 par value – 500,000,000 shares authorized;     341,000       84,000  
341,446,982 and 84,344,607 shares issued and outstanding at September 30,                
2022 and December 31, 2021, respectively                
Class B Common Stock, $0.001 par value – 25,000,000 shares authorized;     -       -  
0 shares issued and outstanding at September 30, 2022 and December 31,
2021
               
Additional paid-in capital     557,418,000       385,644,000  
Accumulated deficit     (207,647,000 )     (145,600,000 )
Accumulated other comprehensive loss     (1,557,000 )     (106,000 )
Treasury stock, at cost     (28,788,000 )     (13,180,000 )
TOTAL BITNILE HOLDINGS STOCKHOLDERS’ EQUITY     319,767,000       226,842,000  
                 
Non-controlling interest     18,996,000       1,613,000  
                 
TOTAL STOCKHOLDERS’ EQUITY     338,763,000       228,455,000  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 610,905,000     $ 490,286,000  

 

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) INCOME

(Unaudited)

 

                                 
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2022     2021     2022     2021  
Revenue   $ 27,031,000     $ 7,803,000     $ 43,539,000     $ 24,272,000  
Revenue, cryptocurrency mining     3,874,000       272,000       11,398,000       693,000  
Revenue, hotel operations     5,513,000       -       12,809,000       -  
Revenue, lending and trading activities     13,360,000       (38,869,000 )     32,224,000       19,615,000  
Total revenue     49,778,000       (30,794,000 )     99,970,000       44,580,000  
Cost of revenue, products     20,193,000       5,011,000       30,985,000       16,011,000  
Cost of revenue, cryptocurrency mining     5,255,000       260,000       12,206,000       646,000  
Cost of revenue, hotel operations     3,230,000       -       8,350,000       -  
Total cost of revenue     28,678,000       5,271,000       51,541,000       16,657,000  
Gross profit     21,100,000       (36,065,000 )     48,429,000       27,923,000  
                                 
Operating expenses                                
Research and development     521,000       524,000       1,945,000       1,657,000  
Selling and marketing     7,428,000       1,993,000       20,888,000       4,740,000  
General and administrative     15,947,000       11,292,000       48,666,000       24,376,000  

Impairment of deposit due to vendor bankruptcy filing

   

2,000,000

     

-

     

2,000,000

     

-

 
Impairment of mined cryptocurrency     515,000       -       2,930,000       -  
Total operating expenses     26,411,000       13,809,000       76,429,000       30,773,000  
Loss from operations     (5,311,000 )     (49,874,000 )     (28,000,000 )     (2,850,000 )
Other income (expenses)                                
Interest and other income     725,000       125,000       1,255,000       176,000  
Accretion of discount on note receivable, related party     -       4,210,000               4,210,000  
Interest expense     (3,972,000 )     (140,000 )     (35,827,000 )     (475,000 )
Change in fair value of marketable equity securities     114,000       (750,000 )     355,000       (705,000 )
Realized gain on digital currencies and marketable securities     595,000       30,000       661,000       428,000  
Loss from investment in unconsolidated entity     -       -       (924,000 )     -  
Gain on extinguishment of debt     -       -       -       929,000  
Change in fair value of warrant liability     (3,000 )     259,000       (27,000 )     (130,000 )
Total other (expenses) income, net     (2,541,000 )     3,734,000       (34,507,000 )     4,433,000  
(Loss) income before income taxes     (7,852,000 )     (46,140,000 )     (62,507,000 )     1,583,000  
Income tax (provision) benefit     (144,000 )     3,366,000       (361,000 )     (144,000 )
Net (loss) income     (7,996,000 )     (42,774,000 )     (62,868,000 )     1,439,000  
Net loss (income) attributable to non-controlling interest     725,000       (96,000 )     1,061,000       (93,000 )
Net (loss) income attributable to BitNile Holdings, Inc.     (7,271,000 )     (42,870,000 )     (61,807,000 )     1,346,000  
Preferred dividends     (190,000 )     (4,000 )     (239,000 )     (13,000 )
Net (loss) income available to common stockholders   $ (7,461,000 )   $ (42,874,000 )   $ (62,046,000 )   $ 1,333,000  
Basic net (loss) income per common share   $ (0.03 )   $ (0.73 )   $ (0.27 )   $ 0.03  
Diluted net (loss) income per common share   $ (0.03 )   $ (0.73 )   $ (0.27 )   $ 0.03  
Weighted average basic common shares outstanding     294,141,000       58,987,000       225,662,000       49,714,000  
Weighted average diluted common shares outstanding     294,141,000       58,987,000       225,662,000       50,145,000  
Comprehensive (loss) income                                
Net (loss) income available to common stockholders   $ (7,461,000 )   $ (42,874,000 )   $ (62,046,000 )   $ 1,333,000  
Other comprehensive income (loss)                                
Foreign currency translation adjustment     306,000       (182,000 )     (1,452,000 )     (141,000 )
Net unrealized loss on derivative securities of related party     -       (4,849,000 )     -       (7,773,000 )
Other comprehensive income (loss)     306,000       (5,031,000 )     (1,452,000 )     (7,914,000 )
Total comprehensive loss   $ (7,155,000 )   $ (47,905,000 )   $ (63,498,000 )   $ (6,581,000 )

 

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 September 30, 2022

 

                                                               
    Series A, B & D                 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, July 1, 2022     278,658     $ -       324,440,579     $ 324,000     $ 549,713,000     $ (200,184,000 )   $ (1,863,000 )   $ 18,048,000     $ (20,639,000 )   $ 345,399,000  
Preferred stock issued     8,310       -       -       -       207,000       -       -       -       -       207,000  
Preferred stock offering costs     -       -       -       -       (65,000 )     -       -       -       -       (65,000 )
Stock-based compensation     -       -       -       -       1,563,000       -       -       479,000       -       2,042,000  
Issuance of Gresham Worldwide common stock
for GIGA acquisition
    -       -       -       -       1,669,000       -       -       -       -       1,669,000  
Issuance of common stock for cash     -       -       17,006,403       17,000       4,540,000       -       -       -       -       4,557,000  
Financing cost in connection with sales of
common stock
    -       -       -       -       (79,000 )     -       -       -       -       (79,000 )
Increase in ownership interest of subsidiary     -       -       -       -       (132,000 )     -       -       (1,539,000 )     -       (1,671,000 )
Non-controlling interest from GIGA acquisition     -       -       -       -       -       -       -       2,735,000       -       2,735,000  
Purchase of treasury stock - Ault Alpha     -       -       -       -       -       -       -       -       (8,148,000 )     (8,148,000 )
Net loss     -       -       -       -       -       (7,271,000 )     -       -       -       (7,271,000 )
Preferred dividends     -       -       -       -       -       (190,000 )     -       -       -       (190,000 )
Foreign currency translation adjustments     -       -       -       -       -       -       306,000       -       -       306,000  
Net loss attributable to non-controlling interest     -       -       -       -       -       -       -       (725,000 )     -       (725,000 )
Other     -       -       -       -       2,000       (2,000 )     -       (2,000 )     (1,000 )     (3,000 )
BALANCES, September 30, 2022     286,968     $ -       341,446,982     $ 341,000     $ 557,418,000     $ (207,647,000 )   $ (1,557,000 )   $ 18,996,000     $ (28,788,000 )   $ 338,763,000  

 

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 September 30, 2021

 

                                                               
    Series A & B                 Additional           Other                 Total  
    Preferred Stock     Common Stock     Paid-In     Accumulated     Comprehensive     Non-Controlling     Treasury     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Interest     Stock     Equity  
BALANCES, July 1, 2021     132,040     $ -       56,159,963     $ 56,000     $ 311,759,000     $ (77,190,000 )   $ (4,600,000 )   $ 1,364,000     $ -     $ 231,389,000  
Issuance of common stock for restricted stock awards     -       -       449,373       -       -       -       -       -       -       -  
Stock-based compensation:                                                                                
Options     -       -       -       -       1,794,000       -       -       -       -       1,794,000  
Restricted stock awards     -       -       -       -       2,312,000       -       -       -       -       2,312,000  
Issuance of stock options at Gresham Worldwide     -       -       -       -       -       -       -       42,000       -       42,000  
Issuance of common stock for cash     -       -       6,737,585       7,000       16,432,000       -       -       -       -       16,439,000  
Financing cost in connection with sales of common
stock
    -       -       -       -       (411,000 )     -       -       -       -       (411,000 )
Adjustment to treasury stock for holdings in
investment partnerships
    -       -       -       -       -       -       -       -       (2,773,000 )     (2,773,000 )
Comprehensive loss:                                                                                
Net loss     -       -       -       -       -       (42,870,000 )     -       -       -       (42,870,000 )
Preferred dividends     -       -       -       -       -       (4,000 )     -       -       -       (4,000 )
Net unrealized gain on derivatives  in related party     -       -       -       -       -       -       (4,849,000 )     -       -       (4,849,000 )
Foreign currency translation adjustments     -       -       -       -       -       -       (182,000 )     -       -       (182,000 )
Net income attributable to non-controlling interest     -       -       -       -       -       -       -       96,000       -       96,000  
Other     -       -       -       -       -       (2,000 )     -       -       -       (2,000 )
BALANCES, September 30, 2021     132,040     $ -       63,346,921     $ 63,000     $ 331,886,000     $ (120,066,000 )   $ (9,631,000 )   $ 1,502,000     $ (2,773,000 )   $ 200,981,000  

 

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 CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Nine Months Ended September 30, 2022

 

                                        Accumulated                    
    Series A, B & D                 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     132,040     $ -       84,344,607     $ 84,000     $ 385,644,000     $ (145,600,000 )   $ (106,000 )   $ 1,613,000     $ (13,180,000 )   $ 228,455,000  
Issuance of common stock for restricted stock
awards
    -       -       441,879       -       -       -       -       -       -       -  
Preferred stock issued     154,928       -       -       -       3,873,000       -       -       -       -       3,873,000  
Preferred stock offering costs     -       -       -       -       (602,000 )     -       -       -       -       (602,000 )
Stock-based compensation                                     5,190,000       -       -       556,000       -       5,746,000  
Issuance of Gresham Worldwide common stock
for GIGA acquisition
    -       -       -       -       1,669,000       -       -       -       -       1,669,000  
Issuance of common stock for cash     -       -       256,660,496       257,000       167,726,000       -       -       -       -       167,983,000  
Financing cost in connection with sales of
common stock
    -       -       -       -       (4,103,000 )     -       -       -       -       (4,103,000 )
Increase in ownership interest of subsidiary     -       -       -       -       (1,980,000 )     -       -       (1,921,000 )     -       (3,901,000 )
Non-controlling interest from AVLP acquisition     -       -       -       -       -       -       -       6,738,000       -       6,738,000  
Non-controlling interest from SMC acquisition     -       -       -       -       -       -       -       10,336,000       -       10,336,000  
Non-controlling interest from GIGA acquisition     -       -       -       -       -       -       -       2,735,000       -       2,735,000  
Purchase of treasury stock - Ault Alpha     -       -       -       -       -       -       -       -       (15,607,000 )     (15,607,000 )
Net loss     -       -       -       -       -       (61,807,000 )     -       -       -       (61,807,000 )
Preferred dividends             -       -       -       -       (239,000 )     -       -       -       (239,000 )
Foreign currency translation adjustments     -       -       -       -       -       -       (1,452,000 )     -       -       (1,452,000 )
Net loss attributable to non-controlling interest     -       -       -       -       -       -       -       (1,061,000 )     -       (1,061,000 )
Other     -       -       -       -       1,000       (1,000 )     1,000       -       (1,000 )     -  
BALANCES, September 30, 2022     286,968     $ -       341,446,982     $ 341,000     $ 557,418,000     $ (207,647,000 )   $ (1,557,000 )   $ 18,996,000     $ (28,788,000 )   $ 338,763,000  

 

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 CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Nine Months Ended September 30, 2021

 

                                                               
    Series A & B                 Additional           Other                 Total  
    Preferred Stock     Common Stock     Paid-In     Accumulated     Comprehensive     Non-Controlling     Treasury     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Interest     Stock     Equity  
                                                             
BALANCES, January 1, 2021     132,040     $ -       27,753,562     $ 28,000     $ 171,396,000     $ (121,396,000 )   $ (1,718,000 )   $ 822,000     $ -     $ 49,132,000  
Issuance of common stock for restricted stock awards     -       -       449,373       -       -       -       -       -       -       -  
Stock-based compensation:                                                                                
Options     -       -       -       -       1,833,000       -       -       -       -       1,833,000  
Restricted stock awards     -       -       -       -       2,312,000       -       -       -       -       2,312,000  
Issuance of stock options at Gresham Worldwide     -       -       -       -       -       -       -       587,000       -       587,000  
Issuance of common stock for cash     -       -       34,684,910       35,000       160,448,000       -       -       -       -       160,483,000  
Financing cost in connection with sales of common stock     -       -       -       -       (4,952,000 )     -       -       -       -       (4,952,000 )
Adjustment to treasury stock for holdings in investment
partnerships
    -       -       -       -       -       -       -       -       (2,773,000 )     (2,773,000 )
Issuance of common stock for conversion
of convertible notes payable
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
183,214
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
449,000
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 

-
 
 
 
 
 
 

-
 
 
 
 
 
 
 
449,000
 
 
Issuance of common stock for conversion
of convertible notes payable, related party
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
275,862
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
400,000
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
 
 
 
 

-
 
 
 
 
 
 

-
 
 
 
 
 
 
 
400,000
 
 
Comprehensive loss:                                                             -       -          
Net income     -       -       -       -       -       1,346,000       -       -       -       1,346,000  
Preferred dividends             -       -       -       -       (13,000 )     -       -       -       (13,000 )
Net unrealized loss on derivatives  in related party     -       -       -       -       -       -       (7,773,000 )     -       -       (7,773,000 )
Foreign currency translation adjustments     -       -       -       -       -       -       (141,000 )     -       -       (141,000 )
Net income attributable to non-controlling interest     -       -       -       -       -       -       -       93,000       -       93,000  
Other     -       -       -       -       -       (3,000 )     1,000       -       -       (2,000 )
BALANCES, September 30, 2021     132,040     $ -       63,346,921     $ 63,000     $ 331,886,000     $ (120,066,000 )   $ (9,631,000 )   $ 1,502,000     $ (2,773,000 )   $ 200,981,000  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  F- 7  
 

 

BITNILE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

                 
    For the Nine Months Ended September 30,  
    2022     2021  
Cash flows from operating activities:                
Net (loss) income   $ (62,868,000 )   $ 1,439,000  
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:                
Depreciation and amortization     11,977,000       1,713,000  
Interest expense – debt discount     26,958,000       61,000  
Gain on extinguishment of debt     -       (929,000 )
Change in fair value of warrant liability     (917,000 )     (259,000 )
Accretion of original issue discount on notes receivable – related party     -       (4,213,000 )
Accretion of original issue discount on notes receivable     (618,000 )     (366,000 )
Increase in accrued interest on notes receivable – related party     (148,000 )     (119,000 )
Stock-based compensation     5,746,000       4,732,000  

Impairment of deposit due to vendor bankruptcy filing

   

2,000,000

     

-

 
Impairment of cryptocurrencies     2,930,000       -  
Realized gains on sale of marketable securities     (19,194,000 )     (15,154,000 )
Unrealized losses on marketable securities     16,937,000       6,353,000  
Unrealized losses (gains) on investments in common stock, related parties     5,676,000       (6,150,000 )
Unrealized gains on equity securities     (32,949,000 )     (2,795,000 )
Loss from investment in unconsolidated entity     924,000       -  
Loss on remeasurement of investment in unconsolidated entity     2,700,000       -  
Changes in operating assets and liabilities:                
Marketable equity securities     68,532,000       (34,196,000 )
Accounts receivable     (3,022,000 )     (1,270,000 )
Accrued revenue     (109,000 )     (166,000 )
Inventories     (5,867,000 )     (492,000 )
Prepaid expenses and other current assets     1,780,000       (5,155,000 )
Digital currencies     (12,227,000 )     -  
Other assets     (2,944,000 )     (407,000 )
Accounts payable and accrued expenses     8,974,000       (1,082,000 )
Other current liabilities     -       2,210,000  
Lease liabilities     (1,334,000 )     (666,000 )
Net cash provided by (used in) operating activities     12,937,000       (56,911,000 )
Cash flows from investing activities:                
Purchase of property and equipment     (84,500,000 )     (28,145,000 )
Investment in promissory notes and other, related parties     (2,200,000 )     (4,994,000 )
Investments in common stock and warrants, related parties     (4,840,000 )     (19,590,000 )
Investment in real property, related party     -       (2,670,000 )
Proceeds from sale of investment in real property, related party     -       2,670,000  
Purchase of SMC, net of cash received     (8,239,000 )     -  
Purchase of GIGA, net of cash received     (3,687,000 )     -  
Cash received upon acquisition of AVLP     1,245,000       -  
Acquisition of non-controlling interests     (3,901,000 )     -  
Purchase of marketable equity securities     (1,981,000 )     (2,144,000 )
Sales of marketable equity securities     11,748,000       430,000  
Investments in loans receivable     (7,081,000 )     -  
Principal payments on loans receivable     10,525,000       -  
Sale of digital currencies     8,952,000       -  
Investments in equity securities     (22,449,000 )     (14,287,000 )
Net cash used in investing activities     (106,408,000 )     (68,730,000 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  F- 8  
 

 

BITNILE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

               
    For the Nine Months Ended September 30,  
    2022     2021  
Cash flows from financing activities:                
Gross proceeds from sales of common stock   $ 167,983,000     $ 160,483,000  
Financing cost in connection with sales of common stock     (4,103,000 )     (4,952,000 )
Proceeds from sales of preferred stock     3,873,000       -  
Financing cost in connection with sales of preferred stock     (602,000 )     -  
Proceeds from notes payable     18,565,000       724,000  
Repayment of margin accounts     (16,111,000 )     -  
Payments on notes payable     (67,698,000 )     (2,263,000 )
Payments of preferred dividends     (239,000 )     (13,000 )
Purchase of treasury stock     (15,607,000 )     (2,773,000 )
Payments on revolving credit facilities, net     -       (125,000 )
Net cash provided by financing activities     86,061,000       151,081,000  
                 
Effect of exchange rate changes on cash and cash equivalents     920,000       (73,000 )
                 
Net (decrease) increase in cash and cash equivalents and restricted cash     (6,490,000 )     25,367,000  
                 
Cash and cash equivalents and restricted cash at beginning of period     21,233,000       18,680,000  
                 
Cash and cash equivalents and restricted cash at end of period   $ 14,743,000     $ 44,047,000  
                 
Supplemental disclosures of cash flow information:                
Cash paid during the period for interest   $ 5,202,000     $ 712,000  
                 
Non-cash investing and financing activities:                
Conversion of convertible notes payable into shares of common stock   $ -     $ 449,000  
Settlement of accounts payable with digital currency   $ 417,000     $ 119,000  
Conversion of investment in unconsolidated entity for acquisition of AVLP   $ 20,706,000     $ -  
Conversion of convertible notes payable, related party into shares of common stock   $ 400,000     $ 400,000  
Conversion of debt and equity securities to marketable securities   $ 40,324,000     $ 2,656,000  
Conversion of loans receivable to marketable securities   $ 3,650,000     $ -  
Conversion of interest receivable to marketable securities   $ 250,000     $ -  
Conversion of loans receivable to debt and equity securities   $ -     $ 150,000  
Recognition of new operating lease right-of-use assets and lease liabilities   $ 2,188,000     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  F- 9  
 

 

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 oil exploration, defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, 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 other members of the Executive Committee. The Company has seven reportable segments:

 

· BitNile, Inc. (“BNI”) – cryptocurrency mining operations;

 

· Ault Alliance, Inc. (“Ault Alliance”) – commercial lending, activist investing, advanced textiles processing technology, media, and digital learning;

 

· Gresham Worldwide, Inc. (“GWW”) – defense solutions;

 

· Imperalis Holding Corp., to be renamed TurnOnGreen, Inc. (“TurnOnGreen”) – commercial electronics solutions;

 

· The Singing Machine Company, Inc. (“SMC”) – karaoke audio equipment;

 

· Ault Global Real Estate Equities, Inc. (“AGREE”) – 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 September 30, 2022, the Company had cash and cash equivalents of $10.1 million and working capital of $25.7 million. The Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. The Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.

 

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 and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

 

  F- 10  
 

 

Significant Accounting Policies

 

Other than as noted below, there have been no material changes to the Company’s significant accounting policies previously disclosed in the 2021 Annual Report.

 

Business Combination

 

The Company allocates 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. The purchase price allocation process requires management to make significant estimates and assumptions at the acquisition date with respect to intangible assets. 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. Direct transaction costs associated with the business combination are expensed as incurred. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition.

 

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquirer 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.

 

Oil and Gas Properties

 

The Company uses the successful efforts method of accounting for oil and natural gas producing properties, as further defined under Accounting Standards Codification (“ASC”) 932, Extractive Activities - Oil and Natural Gas. Under this method, costs to acquire mineral interests in oil and natural gas properties are capitalized. The costs of non-producing mineral interests and associated acquisition costs are capitalized as unproved properties pending the results of leasing efforts and drilling activities of exploration and production (“E&P”) operators on our interests. As unproved properties are determined to have proved reserves, the related costs are transferred to proved oil and gas properties. Capitalized costs for proved oil and natural gas mineral interests are depleted on a unit-of-production basis over total proved reserves. For depletion of proved oil and gas properties, interests are grouped in a reasonable aggregation of properties with common geological structural features or stratigraphic conditions.

 

Impairment of Oil and Gas Properties

 

The Company evaluates its producing properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When assessing proved properties for impairment, the Company compares the expected undiscounted future cash flows of the proved properties to the carrying amount of the proved properties to determine recoverability. If the carrying amount of proved properties exceeds the expected undiscounted future cash flows, the carrying amount is written down to the properties’ estimated fair value, which is measured as the present value of the expected future cash flows of such properties. The factors used to determine fair value include estimates of proved reserves, future commodity prices, timing of future production, and a risk-adjusted discount rate. The proved property impairment test is primarily impacted by future commodity prices, changes in estimated reserve quantities, estimates of future production, overall proved property balances, and depletion expense. If pricing conditions decline or are depressed, or if there is a negative impact on one or more of the other components of the calculation, we may incur proved property impairments in future periods.

 

Unproved oil and gas properties are assessed periodically for impairment of value, and a loss is recognized at the time of impairment by charging capitalized costs to expense. Impairment is assessed when facts and circumstances indicate that the carrying value may not be recoverable, at which point an impairment loss is recognized to the extent the carrying value exceeds the estimated recoverable value. Factors used in the assessment include but are not limited to commodity price outlooks and current and future operator activity in the respective basins. The Company recognized no impairment of unproved properties for the three and nine months ended September 30, 2022 and 2021.

 

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.

 

  F- 11  
 

 

Recently Adopted 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.

 

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 condensed 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 condensed consolidated financial statements.

 

 

  F- 12  
 

 

4. REVENUE DISAGGREGATION

 

The following tables summarize disaggregated customer contract revenues and the source of the revenue for the three and nine months ended September 30, 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 consisted of the following for the three months ended September 30, 2022:

 

    Three months ended September 30, 2022  
    GWW    

TurnOn

Green

    Ault
Alliance
    SMC     BNI     AGREE     Total  
Primary Geographical Markets                                                        
North America   $ 2,472,000     $ 1,428,000     $ -     $ 16,138,000     $ 4,146,000     $ 5,513,000     $ 29,697,000  
Europe     2,288,000       32,000       201,000       306,000       -       -       2,827,000  
Middle East and other     3,022,000       202,000       -       670,000       -       -       3,894,000  
Revenue from contracts with customers     7,782,000       1,662,000       201,000       17,114,000       4,146,000       5,513,000       36,418,000  
Revenue, lending and trading activities
(North America)
    -       -       13,360,000       -       -       -       13,360,000  
Total revenue   $ 7,782,000     $ 1,662,000     $ 13,561,000     $ 17,114,000     $ 4,146,000     $ 5,513,000     $ 49,778,000  
                                                         
Major Goods or Services                                                        
Power supply units   $ 2,799,000     $ 1,480,000     $ -     $ -     $ -     $ -     $ 4,279,000  
Digital currency mining, net     -       -       -       -       3,874,000       -       3,874,000  
Hotel operations     -       -       -       -       -       5,513,000       5,513,000  
Karaoke machines and related     -       -       -       17,114,000       -       -       17,114,000  
Other     4,983,000       182,000       201,000       -       272,000       -       5,638,000  
Revenue from contracts with customers     7,782,000       1,662,000       201,000       17,114,000       4,146,000       5,513,000       36,418,000  
Revenue, lending and trading activities     -       -       13,360,000       -       -       -       13,360,000  
Total revenue   $ 7,782,000     $ 1,662,000     $ 13,561,000     $ 17,114,000     $ 4,146,000     $ 5,513,000     $ 49,778,000  
                                                         
Timing of Revenue Recognition                                                        
Goods transferred at a point in time   $ 5,821,000     $ 1,662,000     $ 201,000     $ 17,114,000     $ 4,146,000     $ 5,513,000     $ 34,457,000  
Services transferred over time     1,961,000       -       -       -       -       -       1,961,000  
 Revenue from contracts with customers   $ 7,782,000     $ 1,662,000     $ 201,000     $ 17,114,000     $ 4,146,000     $ 5,513,000     $ 36,418,000  

 

The Company’s disaggregated revenues consisted of the following for the nine months ended September 30, 2022:

 

    Nine months ended September 30, 2022  
    GWW    

TurnOn

Green

    Ault
Alliance
    SMC     BNI     AGREE     Total  
Primary Geographical Markets                                                        
North America   $ 5,094,000     $ 3,262,000     $ 19,000     $ 16,138,000     $ 12,220,000     $ 12,809,000     $ 49,542,000  
Europe     7,007,000       79,000       201,000       306,000       -       -       7,593,000  
Middle East and other     9,429,000       512,000       -       670,000       -       -       10,611,000  
Revenue from contracts with customers     21,530,000       3,853,000       220,000       17,114,000       12,220,000       12,809,000       67,746,000  
Revenue, lending and trading activities
(North America)
    -       -       32,224,000       -       -       -       32,224,000  
Total revenue   $ 21,530,000     $ 3,853,000     $ 32,444,000     $ 17,114,000     $ 12,220,000     $ 12,809,000     $ 99,970,000  
                                                         
Major Goods or Services                                                        
Power supply units   $ 6,928,000     $ 3,592,000     $ -     $ -     $ -     $ -     $ 10,520,000  
Healthcare diagnostic systems     2,285,000       -       -       -       -       -       2,285,000  
Defense systems     6,842,000       -       -       -       -       -       6,842,000  
Digital currency mining     -       -       -       -       11,398,000       -       11,398,000  
Hotel operations     -       -       -       -       -       12,809,000       12,809,000  
Karaoke machines and related     -       -       -       17,114,000       -       -       17,114,000  
Other     5,475,000       261,000       220,000       -       822,000       -       6,778,000  
Revenue from contracts with customers     21,530,000       3,853,000       220,000       17,114,000       12,220,000       12,809,000       67,746,000  
Revenue, lending and trading activities     -       -       32,224,000       -       -       -       32,224,000  
Total revenue   $ 21,530,000     $ 3,853,000     $ 32,444,000     $ 17,114,000     $ 12,220,000     $ 12,809,000     $ 99,970,000  
                                                         
Timing of Revenue Recognition                                                        
Goods transferred at a point in time   $ 12,934,000     $ 3,853,000     $ 220,000     $ 17,114,000     $ 12,220,000     $ 12,809,000     $ 59,150,000  
Services transferred over time     8,596,000       -       -       -       -       -       8,596,000  
Revenue from contracts with customers   $ 21,530,000     $ 3,853,000     $ 220,000     $ 17,114,000     $ 12,220,000     $ 12,809,000     $ 67,746,000  

 

  F- 13  
 

 

The Company’s disaggregated revenues consisted of the following for the three months ended September 30, 2021:

 

    Three Months ended September 30, 2021  
    GWW     TurnOnGreen     Ault Alliance     Total  
Primary Geographical Markets                                
North America   $ 1,415,000     $ 1,103,000     $ 608,000     $ 3,126,000  
Europe     1,848,000       (97,000 )     -       1,751,000  
Middle East     2,949,000       -       -       2,949,000  
Other     161,000       88,000       -       249,000  
Revenue from contracts with customers     6,373,000       1,094,000       608,000       8,075,000  
Revenue, lending and trading activities
(North America)
    -       -       (38,869,000 )     (38,869,000 )
Total revenue   $ 6,373,000     $ 1,094,000     $ (38,261,000 )   $ (30,794,000 )
Major Goods                                
Power supply units   $ 1,256,000     $ 1,094,000     $ -     $ 2,350,000  
Defense systems     2,940,000       -       -       2,940,000  
Digital currency mining     -       -       272,000       272,000  
Other     2,177,000       -       336,000       2,513,000  
Revenue from contracts with customers     6,373,000       1,094,000       608,000       8,075,000  
Revenue, lending and trading activities     -       -       (38,869,000 )     (38,869,000 )
Total revenue   $ 6,373,000     $ 1,094,000     $ (38,261,000 )   $ (30,794,000 )
                                 
Timing of Revenue Recognition                                
Goods transferred at a point in time   $ 3,336,000     $ 1,094,000     $ 607,000     $ 5,037,000  
Services transferred over time     3,037,000       -       -       3,037,000  
Revenue from contracts with customers   $ 6,373,000     $ 1,094,000     $ 607,000     $ 8,074,000  

 

The Company’s disaggregated revenues consisted of the following for the nine months ended September 30, 2021:

 

    Nine Months Ended September 30, 2021  
    GWW     TurnOnGreen     Ault Alliance     Total  
Primary Geographical Markets                                
North America   $ 5,444,000     $ 3,600,000     $ 1,459,000     $ 10,503,000  
Europe     5,600,000       318,000             5,918,000  
Middle East     7,845,000                   7,845,000  
Other     309,000       390,000             699,000  
Revenue from contracts with customers     19,198,000       4,308,000       1,459,000       24,965,000  
Revenue, lending and trading activities
(North America)
                    19,615,000       19,615,000  
Total revenue   $ 19,198,000     $ 4,308,000     $ 21,074,000     $ 44,580,000  
Major Goods                                
Power supply units   $ 1,734,000     $ 4,308,000     $     $ 6,042,000  
Power supply systems     5,253,000                   5,253,000  
Defense systems     7,731,000                   7,731,000  
Digital currency mining                     693,000       693,000  
Other     4,480,000             766,000       5,246,000  
Revenue from contracts with customers     19,198,000       4,308,000       1,459,000       24,965,000  
Revenue, lending and trading activities                     19,615,000       19,615,000  
Total revenue   $ 19,198,000     $ 4,308,000     $ 21,074,000     $ 44,580,000  
                                 
Timing of Revenue Recognition                                
Goods transferred at a point in time   $ 10,957,000     $ 4,308,000     $ 1,459,000     $ 16,724,000  
Services transferred over time     8,241,000                   8,241,000  
Revenue from contracts with customers   $ 19,198,000     $ 4,308,000     $ 1,459,000     $ 24,965,000  

 

 

  F- 14  
 

 

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 September 30, 2022  
    Total     Level 1     Level 2     Level 3  
Investment in common stock of Alzamend Neuro, Inc.
(“Alzamend”) – a related party
  12,394,000     12,394,000     -     -  
Investments in marketable equity securities     8,561,000       8,561,000       -       -  
Cash and marketable securities held in trust account     117,421,000       117,421,000       -       -  
Investments in other equity securities     3,916,000       -       -       3,916,000  
Total assets measured at fair value   $ 142,292,000     $ 138,376,000     $ -     $ 3,916,000  

 

 

    Fair Value Measurement at December 31, 2021  
    Total     Level 1     Level 2     Level 3  
Investment in common stock of Alzamend – a related party     13,230,000       13,230,000       -       -  
Investments in marketable equity securities     40,380,000       40,380,000       -       -  
Cash and marketable securities held in trust account     116,725,000       116,725,000       -       -  
Investments in other equity securities     9,215,000       -       -       9,215,000  
Total assets measured at fair value   $ 179,550,000     $ 170,335,000     $ -     $ 9,215,000  

 

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. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks.

 

 The following table summarizes the changes in investments in other equity securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the nine months ended September 30, 2022:

 

    Investments in
other equity
securities
 
 Balance at January 1, 2022   $ 9,215,000  
 Investment in preferred stock     6,495,000  
 Change in fair value of financial instruments     25,850,000  
 Conversion to marketable securities     (37,644,000 )
 Balance at September 30, 2022   $ 3,916,000  

 

Other equity securities also include investments in entities that do not have a readily determinable fair value and do not report net asset value per share. These investments are accounted for using a measurement alternative under which they are measured at cost and adjusted for observable price changes and impairments. Observable price changes result from, among other things, equity transactions for the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions related to the same issuer. For these transactions to be considered observable price changes of the same issuer, the Company evaluates whether these transactions have similar rights and obligations, including voting rights, distribution preferences, conversion rights, and other factors, to the investments the Company holds. Any investments adjusted to their fair value by applying the measurement alternative are disclosed as nonrecurring fair value measurements, including the level in the fair value hierarchy that was used.

 

  F- 15  
 

 

As of September 30, 2022 and December 31, 2021, investments in other equity securities valued using a measurement alternative of $41.6 million and $21.4 million, respectively, are included in other equity securities in the accompanying condensed consolidated balance sheets.

 

The following table presents information on certain assets measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2022 and December 31, 2021. There were no observable price changes or indicators of impairment for these investments during the nine months ended September 30, 2022.

 

     Fair Value Measurement Using  
    Total      Quoted prices
in active
markets for
identical assets  
(Level 1)
     Other
observable
inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 
As of September 30, 2022                                
Investments in other equity securities that do not report net asset
value
  $ 41,641,000     $ -     $ -     $ 41,641,000  

 

     Fair Value Measurement Using  
    Total      Quoted prices
in active
markets for
identical assets
 (Level 1)
     Other
observable
inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 
 As of December 31, 2021                                
 Investments in other equity securities that do not report net asset
value
  $ 21,241,000     $ -     $ -     $ 21,241,000  

 

 

6. MARKETABLE EQUITY SECURITIES

 

Marketable equity securities with readily determinable market prices consisted of the following as of September 30, 2022 and December 31, 2021:

 

    Marketable equity securities at September 30, 2022  
            Gross unrealized     Gross unrealized          
    Cost     gains     losses     Fair value  
 Common shares   $ 16,182,000     $ 281,000     $ (7,902,000 )   $ 8,561,000  

 

 

    Marketable equity securities at December 31, 2021  
            Gross unrealized     Gross unrealized          
    Cost     gains     losses     Fair value  
 Common shares   $ 53,475,000     $ 32,000     $ (13,127,000 )   $ 40,380,000  

 

The Company’s investment in marketable equity securities are revalued on each balance sheet date.

 

  F- 16  
 

 

7. PROPERTY AND EQUIPMENT, NET

 

At September 30, 2022 and December 31, 2021, property and equipment consisted of:

 

    September 30, 2022     December 31, 2021  
Cryptocurrency machines and related equipment   $ 131,141,000     $ 10,763,000  
Computer, software and related equipment     20,315,000       8,884,000  
Office furniture and equipment     2,750,000       702,000  
Oil and natural gas properties, unproved properties     972,000       -  
Land     25,646,000       25,696,000  
Building and improvements     76,012,000       68,959,000  
      256,836,000       115,004,000  
Accumulated depreciation and amortization     (14,180,000 )     (5,096,000 )
Property and equipment placed in service, net     242,656,000       109,908,000  
Deposits on cryptocurrency machines     11,328,000       64,117,000  
Property and equipment, net   $ 253,984,000     $ 174,025,000  

 

Summary of depreciation expense:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2022     2021     2022     2021  
 Depreciation expense   $ 3,942,000     $ 265,000     $ 10,229,000     $ 711,000  

 

Ault Energy Oil and Gas Properties

 

On July 11, 2022, the Company announced the formation of Ault Energy, LLC (“Ault Energy”), as an indirect wholly-owned subsidiary of the Company through Ault Alliance. Ault Energy is partnering with White River Holdings Corp. (“White River”), a wholly owned subsidiary of Ecoark Holdings, Inc. (“Ecoark”), on drilling projects across 30,000 acres in Texas, Louisiana and Mississippi. Ault Energy, as the designee of Ault Lending, LLC (“Ault Lending”), has the right to purchase up to 25%, or such higher percentages at the discretion of White River, in various drilling projects of White River. In August 2022, Ault Energy purchased a 40% working interest of the Harry O’Neal 20-9 No.1 drilling project in Mississippi for $972,000 included in property and equipment. The Company has not recorded any depletion as the Harry O’Neal 20-9 No.1 drilling project was considered an unproved property as of September 30, 2022.

 

Compute North Bankruptcy 

 

On September 22, 2022, Compute North Holdings, Inc. (along with its affiliated debtors, collectively, “Compute North”), filed for chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas under Chapter 11 of the U.S. Bankruptcy Code (11 U.S. Code section 101 et seq.). At the time of Compute North’s bankruptcy filing, BitNile had 6,572 Bitcoin miners with a carrying amount of $38.0 million, classified within property and equipment on the consolidated balance sheet, with Compute North at the Wolf Hollow hosting facility in Texas. Additionally, the Company has a deposit of approximately $2.0 million with Compute North for services yet to be performed by Compute North. The ultimate outcome of the bankruptcy process, and its impact on the deposit held by the Company, remains to be determined. The Company assessed this financial exposure and recorded an impairment of the deposit totaling $2 million during the three months ended September 30, 2022. The Company has inspected the Bitcoin miners that are installed at the hosting facility in Texas. No impairment on the mining equipment was recorded as of September 30, 2022. The Company has retained counsel to assist in this matter. 

 

8. BUSINESS COMBINATIONS

 

Avalanche International Corp. (“AVLP”) Acquisition

 

On June 1, 2022, the Company converted the principal amount under the convertible promissory notes issued to it by AVLP and accrued unpaid interest into common stock of AVLP. The Company converted $20.0 million in 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 its common stock ownership of AVLP from less than 20% to approximately 92%.

 

Prior to the conversion of the convertible promissory notes, the Company accounted for its investment in AVLP as an investment in an unconsolidated entity under the equity method of accounting. In connection with the conversion of the convertible promissory notes, the Company’s consolidated financial statements now include all of the accounts of AVLP, and any significant intercompany balances and transactions have been eliminated in consolidation.

 

  F- 17  
 

 

The consideration transferred for the Company’s approximate 92% ownership interest in connection with this acquisition aggregated $20.7 million, which represented the fair value of the Company’s holdings in AVLP immediately prior to conversion. The carrying amount of the Company’s holdings in AVLP immediately prior to conversion was $23.4 million, resulting in a $2.7 million loss for the related remeasurement, which was recognized in interest and other income.

 

The Company estimated the fair values of assets acquired and liabilities assumed using valuation techniques, such as the income, cost and market approaches. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. The income method to measure the fair value of intangible assets, is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflected a consideration of other marketplace participants and included the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, economic barriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions.

 

The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the acquisition date. Goodwill represents the excess of the purchase price over the preliminary fair value of identifiable assets acquired and liabilities assumed at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. The goodwill resulting from this acquisition is not tax deductible.

 

The following table presents the final allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

 

    Preliminary
allocation
 
Total purchase consideration   $ 20,706,000  
Fair value of non-controlling interest     6,738,000  
Total consideration   $ 27,444,000  
         
Identifiable net liabilities assumed:        
Cash   $ 1,245,000  
Prepaid expenses and other current assets     55,000  
Property and equipment     5,057,000  
Note receivable     800,000  
Accounts payable and accrued expenses     (5,018,000 )
Convertible notes payable, principal     (9,734,000 )
Fair value of embedded derivative     (1,226,000 )
Fair value of bifurcated conversion option     (4,425,000 )
Fair value of bifurcated put option     (200,000 )
Net liabilities assumed     (13,446,000 )
Goodwill   $ 40,890,000  

 

The Company consolidates the results of AVLP on a one-month lag, therefore the statements of operations include results for AVLP for the three months ended August 31, 2022.

 

Overview of SMC Acquisition

 

Beginning in June 2022, the Company, through its subsidiary Ault Lending, began making open market purchases of SMC common stock. These purchases granted the Company a greater than 20% effective ownership on June 9, 2022, and subsequently, on June 15, 2022, the Company owned more than 50% of the issued and outstanding common stock of SMC. The Company’s ownership of SMC stood at approximately 57% as of September 30, 2022.

 

As of June 15, 2022 (“Acquisition Date”), the purchase price of the common stock acquired totaled $7.4 million and on June 15, 2022 a $3.1 million gain was recognized in interest and other income for the remeasurement of the Company’s previously held ownership interest to $10.5 million, based on the trading price of SMC common stock. The Company also recognized non-controlling interest at fair value as of the Acquisition Date in the amount of $10.3 million.

 

The tradenames and developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates between of 0.5% and 1.0% to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value.

 

The Company determined an estimated fair value of customer relationships using an income approach utilizing a discounted cash flow methodology. The analysis included assumptions regarding the development of new businesses and organic growth rates, a discount rate of 12% using a weighted average cost of capital analysis, and capital expenditure requirements associated with any new initiatives developed by SMC. Significant assumptions utilized in the income approach were based on company specific information and projections which are not observable in the market and are therefore considered Level 3 fair value measurements.

 

The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed, is preliminary and could be revised as a result of additional information obtained due to the finalization of a third-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables. Amounts will be finalized within the measurement period, which will not exceed one year from the Acquisition Date. The goodwill resulting from this acquisition is not tax deductible.

 

  F- 18  
 

 

The following table presents the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

 

    Preliminary
Allocation
 
Total purchase consideration   $ 10,517,000  
Fair value of non-controlling interest     10,336,000  
Total consideration   $ 20,853,000  
         
Identifiable net assets acquired:        
Cash   $ 2,278,000  
Accounts receivable     9,891,000  
Prepaid expenses and other current assets     673,000  
Inventories     12,840,000  
Property and equipment, net     529,000  
Right-of-use assets     1,073,000  
Other assets     83,000  
Intangible assets:        
Tradenames (19 year estimated useful life)     2,470,000  
Customer relationships (16 year estimated useful life)     1,380,000  
Proprietary technology (3 year estimated useful life)     600,000  
Accounts payable and accrued expenses     (10,052,000 )
Notes payable     (2,972,000 )
Lease liabilities     (1,124,000 )
Net assets acquired     17,669,000  
 Goodwill   $ 3,184,000  

 

Unaudited Pro Forma Financial Information

 

The following unaudited pro forma consolidated results of operations for the nine months ended September 30, 2022 have been prepared as if the SMC acquisition had occurred on January 1, 2022.

 

    Nine Months Ended  
    September 30, 2022  
Total revenues   $ 131,609,000  
Net loss attributable to BitNile Holdings, Inc.   $ (62,202,000 )

 

The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

 

Overview of GIGA acquisition

 

On September 8, 2022, Giga-tronics Incorporated (“GIGA”) acquired 100% of the capital stock of GWW from the Company in exchange for 2.92 million shares of GIGA’s common stock and 514.8 shares of GIGA’s Series F Convertible Preferred Stock (“Series F”) that are convertible into an aggregate of 3.96 million shares of GIGA’s common stock. GIGA also assumed GWW’s outstanding equity awards representing the right to receive up to 749,626 shares of GIGA’s common stock, on an as-converted basis. The transaction described above resulted in a change of control of GIGA. Assuming the Company was to convert all of the Series F, the common stock owned by the Company after such conversion would result in the Company owning approximately 71.2% of GIGA’s outstanding shares.

 

  F- 19  
 

 

On September 8, 2022, the Company loaned GIGA $4.25 million by purchasing a convertible note that carries an interest rate of 10% per annum and matures on February 14, 2023. The convertible note between the Company and GIGA is eliminated in consolidation beginning on September 8, 2022. The Company received the right to appoint four members of a seven member GIGA board of directors. These factors contributed to the Company’s determination that GWW be treated as the accounting acquirer.

 

The Company believes there are synergies between GIGA and GWW. GIGA manufactures specialized electronics equipment for use in both military test and airborne operational applications. GIGA focuses on the design and manufacture of custom microwave products for military airborne, sea, and ground applications as well as the design and manufacture of high-fidelity signal simulation and recording solutions for RADAR and electronic warfare test applications. GIGA’s results of operations subsequent to the acquisition are included in the Company’s GWW defense business segment.

 

In respect of the above transactions, the acquired assets and assumed liabilities, together with acquired processes and employees, represent a business as defined in ASC 805, Business Combinations. The transactions were accounted for as a reverse acquisition using the acquisition method of accounting with GIGA treated as the legal acquirer and GWW treated as the accounting acquirer. In identifying GWW as the acquiring entity for accounting purposes, GIGA and GWW took into account a number of factors, including the relative voting rights, executive management and the corporate governance structure of the Company. GWW is considered the accounting acquirer since the Company controls the board of directors of GIGA following the transactions and received a 71.2% beneficial ownership interest in GIGA. However, no single factor was the sole determinant in the overall conclusion that GWW is the acquirer for accounting purposes; rather all factors were considered in arriving at such conclusion.

 

The fair value of the purchase consideration was $9.5 million, consisting of $4.0 million for GIGA’s common stock and prefunded warrants, $0.4 million fair value of vested stock incentives, $3.7 million cash and $1.3 million related to an existing loan agreement between Ault Lending and GIGA, which was deemed settled.

 

The tradenames and developed technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates between 1.0% and 7.0% to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value.

 

The Company determined an estimated fair value of customer relationships using an income approach utilizing a discounted cash flow methodology. The analysis included assumptions regarding the development of new businesses and organic growth rates, a discount rate of 22% using a weighted average cost of capital analysis, and capital expenditure requirements associated with any new initiatives developed by GIGA. Significant assumptions utilized in the income approach were based on company specific information and projections which are not observable in the market and are therefore considered Level 3 fair value measurements.

 

The total purchase price to acquire GIGA has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The goodwill resulting from this acquisition is not tax deductible. The fair value of the acquired assets and assumed liabilities as of the date of acquisition are based on preliminary estimates assisted, in part, by a third-party valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences would alter the understanding of the impact of this transaction on the consolidated financial position and results of operations of the Company.

 

The preliminary purchase price allocation is as follows:

    Preliminary allocation  
Total purchase consideration   $ 6,763,000  
Fair value of non-controlling interest     2,735,000  
Total consideration   $ 9,498,000  
         
Identifiable net assets acquired (liabilities assumed):        
Cash   $ 107,000  
Trade accounts receivable     536,000  
Inventories     5,180,000  
Prepaid expenses     116,000  
Accrued revenue     363,000  
Property and equipment     331,000  
Right-of-use asset     370,000  
Other long-term assets     446,000  
Intangible assets:        
Tradename (12 year estimated useful life)     1,040,000  
Developed Technology (8 year estimated useful life)     1,410,000  
Existing customer relationships (10-15 year estimated useful life)     3,910,000  
Accounts payable     (2,831,000 )
Loans payable, net of discounts and issuance costs     (387,000 )
Accrued payroll and benefits     (1,488,000 )
Lease obligations     (491,000 )
Other current liabilities     (368,000 )
Other non-current liabilities     (17,000 )
Net assets acquired     8,227,000  
Goodwill   $ 1,271,000  

 

 

  F- 20  
 

 

9. GOODWILL

 

The following table summarizes the changes in the Company’s goodwill for the nine months ended September 30, 2022:

 

    Goodwill  
 Balance as of January 1, 2022   $ 10,090,000  
 Acquisition of AVLP     40,890,000  
 Acquisition of SMC     3,184,000  
 Acquisition of GIGA     1,271,000  
 Effect of exchange rate changes     (891,000 )
 Balance as of September 30, 2022   $ 54,544,000  

 

 

10. INCREASE IN OWNERSHIP INTEREST OF SUBSIDIARIES

 

On May 12, 2022, BNI closed a $1.8 million membership interest purchase agreement whereby BNI acquired the 30% minority interest of Alliance Cloud Services, LLC (“ACS”) which BNI did not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI. ACS owns and operates the Company’s Michigan data center, where BNI conducts the Company’s Bitcoin mining operations.

 

Between June 15, 2022 and September 30, 2022, Ault Lending increased the Company’s ownership interest in SMC through the open market purchase of approximately 274,000 shares for $2.1 million.

 

11. INVESTMENTS – RELATED PARTIES

 

Investments in Alzamend and Ault & Company at September 30, 2022 and December 31, 2021, were comprised of the following:

 

Investment in Promissory Notes, Related Parties

 

    Interest   Due   September 30,     December 31,  
    rate   date   2022     2021  
Investment in promissory note of Ault & Company   8%   December 31, 2022   $ 2,500,000     $ 2,500,000  
Accrued interest receivable, Ault & Company             318,000       170,000  
Other             -       172,000  
Total investment in promissory note, related party           $ 2,818,000     $ 2,842,000  

 

Investment in Common Stock and Options, Related Parties

 

    September 30,     December 31,  
    2022     2021  
Investment in common stock and options of Alzamend   $ 12,394,000     $ 13,230,000  

 

  F- 21  
 

 

The following table summarizes the changes in the Company’s investments in Alzamend and Ault & Company during the nine months ended September 30, 2022:

 

    Investment in
warrants and
common stock of
Alzamend
    Investment in
promissory notes of
Ault & Company
 
Balance at January 1, 2022   $ 13,230,000     $ 2,842,000  
Investment in common stock and options of Alzamend     4,840,000       -  
Unrealized loss in common stock of Alzamend     (5,676,000 )     -  
Amortization of related party investment     -       (173,000 )
Accrued interest     -       149,000  
Balance at September 30, 2022   $ 12,394,000     $ 2,818,000  

 

Investments in Alzamend Common Stock

 

The following table summarizes the changes in the Company’s investments in Alzamend common stock during the nine months ended September 30, 2022:

    Shares of     Per Share     Investment in  
    Common Stock     Price     Common Stock  
Balance at January 1, 2022     6,947,000     $ 1.90     $ 13,230,000  
March 9, 2021 securities purchase agreement*     2,667,000     $ 1.50       4,000,000  
Open market purchases after initial public offering     801,000     $ 1.05       840,000  
Unrealized loss in common stock of Alzamend                     (5,676,000 )
Balance at September 30, 2022     10,415,000     $ 1.19     $ 12,394,000  

 

* Pursuant to the March 9, 2021 securities purchase agreement, in aggregate, Alzamend agreed to sell up to 6,666,667 shares of its common stock to Ault Lending for $10.0 million, or $1.50 per share, and issue to Ault Lending warrants to acquire 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. As of December 31, 2021, Ault Lending funded $6.0 million, including the conversion of notes and advances of $0.8 million, and the remaining $4.0 million was funded upon Alzamend achieving certain milestones during the nine months ended September 30, 2022.

 

 

12. INVESTMENT IN UNCONSOLIDATED ENTITY – AVLP

 

Equity Investments in Unconsolidated Entity – AVLP

 

The Company converted its AVLP convertible promissory note on June 1, 2022 as part of the acquisition of AVLP (see Note 8). Equity investments in the then unconsolidated entity, AVLP, at December 31, 2021, were comprised of the following:

 

Investment in Promissory Notes

 

    Interest rate   Due date   December 31, 2021  
Investment in convertible promissory note   12%   2022-2026   $ 17,799,000  
Investment in promissory note – Alpha Fund   8%   June 30, 2022     3,600,000  
Accrued interest receivable             2,092,000  
Other             600,000  
Total investment in promissory notes, gross             24,091,000  
Less: provision for loan losses             (2,000,000 )
Total investment in promissory note           $ 22,091,000  

 

  F- 22  
 

 

The following table summarizes the changes in the Company’s equity investments in the then unconsolidated entity, AVLP, during the nine months ended September 30, 2022:

 

    Investment in     Investment in        
    warrants and     promissory notes     Total  
    common stock     and advances     investment  
Balance at January 1, 2022   $ 39,000     $ 22,091,000     $ 22,130,000  
Investment in convertible promissory notes     -       2,200,000       2,200,000  
Loss from equity investment     (39,000 )     (885,000 )     (924,000 )
Accrued interest     -       143,000       143,000  
Loss on remeasurement upon conversion     -       (2,700,000 )     (2,700,000 )
Conversion of AVLP convertible promissory notes     -       (17,040,000 )     (17,040,000 )
Elimination of intercompany debt after conversion     -       (3,809,000 )     (3,809,000 )
Balance at September 30, 2022   $ -     $ -     $