Hyperscale Data, Inc. 10-Q

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 $ - $ - $ - 13. CONSOLIDATED VARIABLE INTEREST ENTITY - ALPHA FUND Alpha Fund – Consolidated Variable Interest Entity As of September 30, 2022 and December 31, 2021, the Company held an investment in Ault Alpha LP (“Alpha Fund”). Alpha Fund operates as a private investment fund. The general partner of Alpha Fund, Ault Alpha GP LLC (“Alpha GP”) is owned by Ault Capital Management LLC (the “Investment Manager”), which also acts as the investment manager to Alpha Fund. The Investment Manager is owned by Ault & Company. Messrs. Ault, Horne, Nisser and Cragun, who serve as executive officers and/or directors of the Company, are executive officers of the Investment Manager, and Messrs. Ault, Horne and Nisser are executive officers and directors of Ault & Company. As of September 30, 2022, Ault Lending subscribed for $ 33 million or approximately 100 % of the limited partnership interests in Alpha Fund, the full amount of which was funded, an increase of $ 16 million from the $ 17 million subscribed and funded as of December 31, 2021. These investments are subject to a rolling five-year lock-up period, provided that after three years, Alpha GP will waive 24 months of the lock-up period upon receipt of written notice from an executive officer of the Company that a withdrawal of capital is required to prevent a going concern opinion from the Company’s auditors, under the terms of Alpha Fund’s partnership agreement and side letter entered into between the Company and Alpha Fund. The Company consolidates Alpha Fund as a variable interest entity (a “VIE”) due to its significant level of influence and control of Alpha Fund, the size of its investment, and its ability to participate in policy making decisions, the Company is considered the primary beneficiary of the VIE. Investments by Alpha Fund – Treasury Stock As of September 30, 2022, Alpha Fund owned 45,049,871 shares of the Company’s common stock and 91,033 shares of the Company’s 13.00 % Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”), accounted for as treasury stock as of September 30, 2022. 14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Other current liabilities at September 30, 2022 and December 31, 2021 consisted of: Schedule of other current liabilities September 30, December 31, 2022 2021 Accounts payable 22,467,000 $ 6,902,000 Accrued payroll and payroll taxes 9,531,000 5,027,000 Financial instrument liabilities 937,000 4,249,000 Accrued legal 1,787,000 2,637,000 Interest payable 4,140,000 187,000 Other accrued expenses 11,745,000 3,753,000 Total $ 50,607,000 $ 22,755,000 F- 23 Financial Instruments Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. In prior years, the Company granted certain warrants that resulted in these warrants accounted for as a financial instrument and being re-measured every reporting period with the change in value reported in the statement of operations. The financial instruments were valued using a variety of pricing models with the following valuation assumptions: Schedule of Financial Instrument September 30, 2022 December 31, 2021 Contractually stipulated stock price $ 2.50 $ 2.50 Exercise price $ 2.50 $ 2.50 Contractually defined remaining term 5.0 5.0 Contractually defined volatility 135 % 135 % Dividend yield 0 % 0 % Risk-free interest rate 4.1 % 1.3 % Per the terms of the warrant agreements underlying the financial instruments, the value to the warrant holders is defined within the agreement based on a stock price, contractual term, volatility factor and dividend rate as defined in the warrant agreement, and not indexed to the company’s stock, resulting in the financial instrument accounting. The risk-free interest rate was based on rates established by the Federal Reserve Bank. The following table sets forth a summary of the changes in the estimated fair value of the financial instruments during the nine months ended September 30, 2022 and 2021: Schedule of fair value of the financial instruments September 30, 2022 September 30, 2021 Beginning balance $ 4,249,000 $ 4,192,000 Change in fair value 27,000 388,000 Extinguishment ( 3,339,000 ) - Ending balance $ 937,000 $ 4,580,000 15. NOTES PAYABLE Notes payable at September 30, 2022 and December 31, 2021, were comprised of the following: Schedule of notes payable Interest rate Due date September 30, 2022 December 31, 2021 Short-term notes payable 12.0 % Nov. 2022 $ 35,000 $ 118,000 10% original issue discount senior secured notes - 65,972,000 AGREE Madison secured construction loans 7.0 % January 1, 2025 58,351,000 55,055,000 SMC line of credit 15.5 % June 11, 2023 2,500,000 - SMC installment notes 7.6 % June 18, 2024 177,000 - SMC notes payable 6.0 % Sept. 2024-Feb. 2025 353,000 - XBTO note payable 12.5 % December 30, 2023 3,384,000 - 10% secured promissory notes 10.0 % August 10, 2023 10,093,000 - Short-term bank line of credit 4.7 % Renews monthly 2,325,000 960,000 Total notes payable $ 77,218,000 $ 122,105,000 Less: Unamortized debt discounts ( 1,776,000 ) ( 27,496,000 ) Total notes payable, net $ 75,442,000 $ 94,609,000 Less: current portion ( 17,132,000 ) ( 39,554,000 ) Notes payable – long-term portion $ 58,310,000 $ 55,055,000 F- 24 10% Secured Promissory Notes On August 10, 2022, the Company, through its BNI subsidiary, entered into a note purchase agreement providing for the issuance of secured promissory notes with an aggregate principal face amount of $ 11,000,000 and an interest rate of 10 %. The purchase price (proceeds to the Company) for the secured promissory notes was $ 10.0 million. The secured promissory notes have a security interest in $ 10 million of marketable securities and investments and certain Bitcoin mining equipment with a carrying amount of $ 23.1 million. The secured promissory notes are further secured by a guaranty provided by the Company, Ault Lending and by Milton C. Ault, the Executive Chairman of the Company. The maturity date of the secured promissory notes is August 10, 2023. The Company is required to make monthly payment (principal and interest) of $1,000,000 on the tenth calendar day of each month, starting in September 2022. Provided that the Company makes the first six monthly payments in full and on a timely basis, after six months, the Company may elect to pay a forbearance fee of $250,000 in lieu of a monthly payment, which would extend the maturity date of the related secured promissory notes by one month for each forbearance. The Company may not elect forbearance in consecutive months. SMC Debt Security Interest The SMC debt is secured by a perfected security interest in all SMC assets including a first-priority security interest in SMC accounts receivable and inventory. Amortization of Debt Discount of Secured Promissory Notes During the three months ended March 31, 2022, the $ 66 million Secured Promissory Notes were repaid and the Company fully amortized the related debt discount of $ 26.3 million , which is included within interest expense on the condensed consolidated statements of operations. The following table summarizes the principal maturity schedule for our notes payable outstanding as of September 30, 2022: Year Principal 2022 $ 18,049,000 2023 818,000 2024 - 2025 58,351,000 Total $ 77,218,000 16. CONVERTIBLE NOTES Convertible notes payable at September 30, 2022 and December 31, 2021, were comprised of the following: Conversion price per share Interest rate Due date September 30, 2022 December 31, 2021 Convertible promissory note $ 4.00 4 % May 10, 2024 $ 660,000 $ 660,000 AVLP convertible promissory notes $ 0.35 (AVLP stock) 15 % August 22, 2025 9,911,000 - Fair value of embedded options and derivatives 4,908,000 - Less: unamortized debt discounts ( 132,000 ) ( 192,000 ) Total convertible notes payable, net of financing cost $ 15,347,000 $ 468,000 Less: current portion ( 1,469,000 ) - Total convertible notes payable, net of financing cost, long term $ 13,878,000 $ 468,000 AVLP convertible promissory notes The AVLP convertible notes payable are due and payable on August 22, 2025, with interest at 7 % per annum. At the election of the holders, outstanding principal and accrued interest under the notes are convertible into shares of AVLP’s common stock at a conversion price equal to either (i) if the aggregate market capital of AVLP on the date of conversion (the “Market Cap”) is $35 million or less, at a 25% discount to the market price, or (ii) if the Market Cap is greater than $35 million, at a 25% discount to the market price, provided that such discount shall be increased by dividing it by the quotient that shall be obtained by dividing $35 million by the Market Cap at the time of conversion, provided, however, any increase in the discount to the market price shall not result in a discount that is greater than a 75% discount (the “Conversion Price”). Notwithstanding the foregoing, in no event shall the Conversion Price be less than $0.35. F- 25 17. COMMITMENTS AND CONTINGENCIES Blockchain Mining Supply and Services, Ltd. On November 28, 2018, Blockchain Mining Supply and Services, Ltd. (“Blockchain Mining”) a vendor who sold computers to one of the Company’s subsidiaries, filed a Complaint (the “Complaint”) in the United States District Court for the Southern District of New York against the Company and the Company’s subsidiary, Digital Farms, Inc. (f/k/a Super Crypto Mining, Inc.), in an action captioned Blockchain Mining Supply and Services, Ltd. v. Super Crypto Mining, Inc. and DPW Holdings, Inc. , Case No. 18-cv-11099. The Complaint asserts claims for breach of contract and promissory estoppel against the Company and its subsidiary arising from the subsidiary’s alleged failure to honor its obligations under the purchase agreement. The Complaint seeks monetary damages in excess of $ 1,388,495 , plus attorneys’ fees and costs. The Company intends to vigorously defend against the claims asserted against it in this action. On April 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Complaint in its entirety as against the Company, and the promissory estoppel claim as against its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Complaint in connection with the breach of contract claim. On April 29, 2020, Blockchain Mining filed an amended complaint (the “Amended Complaint”). The Amended Complaint asserts the same causes of action and seeks the same damages as the initial Complaint. On May 13, 2020, the Company and its subsidiary, jointly filed a motion to dismiss the Amended Complaint in its entirety as against the Company, and the promissory estoppel claim as against of its subsidiary. On the same day, the Company’s subsidiary also filed a partial Answer to the Amended Complaint in connection with the breach of contract claim. In its partial Answer, the Company’s subsidiary admitted to the validity of the contract at issue and also asserted numerous affirmative defenses concerning the proper calculation of damages. On December 4, 2020, the Court issued an Order directing the parties to engage in limited discovery to be completed by March 4, 2021. In connection therewith, the Court also denied the defendants’ motion to dismiss without prejudice. On June 2, 2021, the Company and its subsidiary filed a motion to dismiss the Amended Complaint in its entirety as against the Company, and the promissory estoppel claim as against the subsidiary. On August 8, 2022, the Court issued an Order denying the motion to dismiss, in its entirety. On September 2, 2022, the Company and its subsidiary filed an answer to the Amended Complaint and asserted numerous affirmative defenses. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has established a reserve in the amount of the unpaid portion of the purchase agreement, which is included in accounts payable and accrued expenses. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results of operations. Ding Gu (a/k/a Frank Gu) and Xiaodan Wang Litigation On January 17, 2020, Ding Gu (a/k/a Frank Gu) (“Gu”) and Xiaodan Wang (“Wang” and with “Gu” collectively, “Plaintiffs”), filed a Complaint (the “Complaint”) in the Supreme Court of the State of New York, County of New York against the Company and the Company’s Chief Executive Officer, Milton C. Ault, III, in an action captioned Ding Gu (a/k/a Frank Gu) and Xiaodan Wang v. DPW Holdings, Inc. and Milton C. Ault III (a/k/a Milton Todd Ault III a/k/a Todd Ault) , Index No. 650438/2020. F- 26 The Complaint asserts causes of action for declaratory judgment, specific performance, breach of contract, conversion, attorneys’ fees, permanent injunction, enforcement of Guaranty, unjust enrichment, money had and received, and fraud arising from: (i) a series of transactions entered into between Gu and the Company, as well as Gu and Ault, in or about May 2019; and (ii) a term sheet entered into between Plaintiffs and the Company, in or about July 2019. The Complaint seeks, among other things, monetary damages in excess of $ 1.1 million , plus a decree of specific performance directing the Company to deliver unrestricted shares of common stock to Gu, plus attorneys’ fees and costs. The Company intends to vigorously defend against the claims asserted against it in this action. On May 4, 2020, the Company and Ault jointly filed a motion to dismiss the Complaint in its entirety, with prejudice. On July 28, 2021, the Court conducted oral argument in connection with the motion to dismiss. During the oral argument, the Court informed the parties that the Court was dismissing the fraud claim, in its entirety, and provided Plaintiffs an opportunity to amend their fraud claim within sixty days of the date of the oral argument. The Court reserved decision on the other causes of action. On December 14, 2021, the Court entered a decision and order in connection with the motion to dismiss whereby the Court dismissed Plaintiff’s causes of action for specific performance, conversion, permanent injunction, and reiterated its prior determination that the fraud claim was also dismissed. The Court denied the motion to dismiss in connection with the other causes of action asserted in the complaint. On January 26, 2022, the Company and Mr. Ault filed an answer to the complaint and asserted numerous affirmative defenses. On November 1, 2022, the parties informed the Court that they reached a settlement in principle and requested an extension of time, until November 22, 2022, to file motions for summary judgment to allow the parties time to draft formal settlement documents. The Court granted the parties’ request and the deadline for the Company and Mr. Ault to file their summary judgment is November 22, 2022. Based on the terms of the settlement in principle, the Company believes its current legal accrual is adequate to cover the cost of settlement. Subpoena The Company and certain affiliates and related parties have received several subpoenas from the SEC for the production of documents and testimony. The Company is fully cooperating with this non-public, fact-finding inquiry and management believes that the Company has operated its business in compliance with all applicable laws. The subpoenas expressly provide that the inquiry is not to be construed as an indication by the SEC or its staff that any violations of the federal securities laws have occurred, nor should they be considered a reflection upon any person, entity or security. However, there can be no assurance as to the outcome of this matter. Other Litigation Matters The Company is involved in litigation arising from other matters in the ordinary course of business. The Company is regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences. Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. With respect to the Company’s other outstanding matters, based on the Company’s current knowledge, the Company believes that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties. F- 27 18. STOCKHOLDERS’ EQUITY 2022 Issuances 2022 ATM Offering – Common Stock On February 25, 2022, the Company entered into an At-The-Market issuance sales agreement with Ascendiant 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 of September 30, 2022, the Company 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 . Public Offering of Series D Preferred Stock The Company has designated 2,000,000 shares of preferred stock, par value $0.001 per share, of the Company as the Series D Preferred Stock. On June 3, 2022, the Company announced the closing of its public offering of 144,000 shares of its Series D Preferred Stock at a price to the public of $ 25.00 per share. Gross proceeds from the offering were approximately $ 3.6 million, before deducting offering expenses. Net proceeds to the Company, after payment of commissions, non-accountable fees and offering expenses were $ 3.1 million. 2022 ATM Offering – Preferred Stock On June 14, 2022, the Company entered into an At-The-Market equity offering program with Ascendiant Capital under which it may sell, from time to time, shares of its Series D Preferred Stock for aggregate gross proceeds of up to $ 46,400,000 (the “2022 Preferred ATM Offering”). As of September 30, 2022, the Company had sold an aggregate of 10,928 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of $ 207,000 . 19. INCOME TAXES The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes. The Company’s effective tax rate (“ETR”) from continuing operations was 0.6 % and ( 9.1 %) for the nine months ended September 30, 2022 and 2021, respectively. The Company an income tax provision of $ 0.4 million and $ 0.1 million for the nine months ended September 30, 2022 and 2021, respectively. The difference between the ETR and federal statutory rate of 21 % is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes and changes in valuation allowance. 20. NET (LOSS) INCOME PER SHARE Basic and diluted net income per common share for the nine months ended September 30, 2021 are calculated as follows: For the Nine Months Ended September 30, 2021 Income Shares Per-Share (Numerator) (Denominator) Amount Net income attributable to BitNile Holdings $ 1,346,000 Less: Preferred stock dividends ( 13,000 ) Basic earnings per share Net income available to common stockholders 1,333,000 49,714,000 $ 0.03 Effect of dilutive securities Restricted stock grants — 431,000 Diluted earnings per share Income available to common stockholders plus assumed conversions $ 1,333,000 50,145,000 $ 0.03 F- 28 Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented, excluding the nine months ended September 30, 2021, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. Anti-dilutive securities, which are convertible into or exercisable for the Company’s common stock, consist of the following at September 30, 2022 and 2021: Net Loss Per Share September 30, 2022 2021 Stock options 6,396,000 4,761,000 Restricted stock grants 2,085,000 - Warrants 18,493,000 5,936,000 Convertible notes 165,000 165,000 Convertible preferred stock 2,000 2,000 Total 27,141,000 10,864,000 21. SEGMENT AND CUSTOMERS INFORMATION The Company had seven reportable segments as of September 30, 2022 and five as of September 30, 2021; see Note 1 for a brief description of the Company’s business. The following data presents the revenues, expenditures and other operating data of the Company’s operating segments for the three and nine months ended September 30, 2022: Nine Months Ended September 30, 2022 GWW TurnOn Green Ault Alliance BNI AGREE Ault Disruptive SMC Holding Company Total Revenue $ 21,530,000 $ 3,853,000 $ 220,000 $ - $ - $ - $ 17,114,000 $ - $ 42,717,000 Revenue, cryptocurrency mining - - - 11,398,000 - - - - 11,398,000 Revenue, commercial real estate leases - - - 822,000 - - - - 822,000 Revenue, lending and trading activities - - 32,224,000 - - - - - 32,224,000 Revenue, hotel operations - - - - 12,809,000 - - - 12,809,000 Total revenues $ 21,530,000 $ 3,853,000 $ 32,444,000 $ 12,220,000 $ 12,809,000 $ - $ 17,114,000 $ - $ 99,970,000 Depreciation and amortization expense $ 1,259,000 $ 403,000 $ 240,000 $ 6,949,000 $ 2,487,000 $ - $ 166,000 $ 473,000 $ 11,977,000 Income (loss) from operations $ ( 1,881,000 ) $ ( 2,577,000 ) $ 4,212,000 $ ( 6,138,000 ) $ 149,000 $ ( 1,100,000 ) $ 597,000 $ ( 19,262,000 ) $ ( 26,000,000 ) Capital expenditures for the nine months ended September 30, 2022 $ 612,000 $ 176,000 $ 1,739,000 $ 77,299,000 $ 4,444,000 $ - $ 66,000 $ 164,000 $ 84,500,000 Three Months Ended September 30, 2022 GWW TurnOn Green Ault Alliance BNI AGREE Ault Disruptive SMC Holding Company Total Revenue $ 7,781,000 $ 1,662,000 $ 201,000 $ - $ - $ - $ 17,114,000 $ - $ 26,758,000 Revenue, cryptocurrency mining - - - 3,874,000 - - - - 3,874,000 Revenue, commercial real estate leases - - - 273,000 - - - - 273,000 Revenue, lending and trading activities - - 13,360,000 - - - - - 13,360,000 Revenue, hotel operations - - - - 5,513,000 - - - 5,513,000 Total revenues $ 7,781,000 $ 1,662,000 $ 13,561,000 $ 4,147,000 $ 5,513,000 $ - $ 17,114,000 $ - $ 49,778,000 Depreciation and amortization expense $ 740,000 $ 393,000 $ 172,000 $ 2,809,000 $ 832,000 $ - $ 166,000 $ ( 264,000 ) $ 4,848,000 Income (loss) from operations $ ( 661,000 ) $ ( 957,000 ) $ 3,786,000 $ ( 2,321,000 ) $ 1,697,000 $ ( 314,000 ) $ 597,000 $ ( 5,138,000 ) $ ( 3,311,000 ) Capital expenditures for the three months ended September 30, 2022 $ 327,000 $ 51,000 $ 890,000 $ 5,915,000 $ 4,425,000 $ - $ 66,000 $ 47,000 $ 11,721,000 AVLP, SMC and GIGA Segment Information The AVLP and SMC acquisitions were completed in June 2022 and the GIGA acquisition was completed in September 2022. As of September 30, 2022, identifiable assets for AVLP, SMC and GIGA were $ 47.5 million , $ 40.0 million and $ 19.2 million , respectively. F- 29 Segment information for the three and nine months ended September 30, 2021: Nine Months Ended September 30, 2021 GWW TurnOnGreen Ault Alliance BNI Ault Disruptive Holding Company Total Revenue $ 19,198,000 $ 4,308,000 $ 236,000 $ 23,742,000 Revenue, cryptocurrency mining - - 693,000 693,000 Revenue, commercial real estate leases - - 530,000 530,000 Revenue, lending and trading activities - - 19,615,000 19,615,000 Revenue, hotel operations - - - Total revenues $ 19,198,000 $ 4,308,000 $ 19,851,000 $ 1,223,000 $ - $ - $ 44,580,000 Depreciation and amortization expense $ 951,000 $ 69,000 $ 146,000 $ 250,000 $ - $ 297,000 $ 1,713,000 Income (loss) from operations $ ( 766,000 ) $ ( 490,000 ) $ 12,390,000 $ ( 839,000 ) $ ( 331,000 ) $ ( 12,814,000 ) $ ( 2,850,000 ) Capital expenditures for the nine months ended September 30, 2021 $ 686,000 $ - $ - $ 27,459,000 $ - $ - $ 28,145,000 Three Months Ended September 30, 2021 GWW TurnOn Green Ault Alliance BNI Ault Disruptive Holding Company Total Revenue $ 6,373,000 $ 1,094,000 $ 110,000 $ - $ - $ - $ 7,577,000 Revenue, cryptocurrency mining - - - 272,000 - - 272,000 Revenue, commercial real estate leases - - - 226,000 - - 226,000 Revenue, lending and trading activities - - ( 38,869,000 ) - - - ( 38,869,000 ) Revenue, hotel operations - - - - - - - Total revenues $ 6,373,000 $ 1,094,000 $ ( 38,759,000 ) $ 498,000 $ - $ - $ ( 30,794,000 ) Depreciation and amortization expense $ 523,000 $ 56,000 $ 118,000 $ 98,000 $ - $ 281,000 $ 1,076,000 Income (loss) from operations $ 19,000 $ ( 408,000 ) $ ( 41,390,000 ) $ ( 339,000 ) $ ( 143,000 ) $ ( 7,613,000 ) $ ( 49,874,000 ) Capital expenditures for the three months ended September 30, 2021 $ 120,000 $ - $ 22,435,000 $ - $ - $ 22,555,000 22. CONCENTRATIONS OF CREDIT AND REVENUE RISK Accounts receivable are concentrated with certain large customers. At September 30, 2022, approximately 36 % of accounts receivable were due from two customers in North America, each of which individually accounted for over 10 % of consolidated accounts receivable. For the three months ended September 30, 2022, one customer represented 15 % and one customer represented 10% of consolidated revenues. 23. SUBSEQUENT EVENTS 2022 Common ATM Offering During the period between October 1, 2022 through November 18, 2022, the Company 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 October 1, 2022 through November 18, 2022, the Company sold an aggregate of 8,933 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for gross proceeds of $ 124,000 . Investments in Alpha Fund During the period between October 1, 2022 through November 18, 2022, Ault Lending purchased an additional $0.2 million of limited partnership interests in Alpha Fund. F- 30 SMC Credit and Security Agreement with Fifth Third Bank On October 14, 2022, SMC entered into a credit agreement with Fifth 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 of January 1 through July 31 of each year. The credit agreement matures on October 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 · SMC must maintain a minimum fixed charge coverage of 1.05 to 1. Availability under the credit agreement was approximately $ 4.0 million as of November 18, 2022. Secured Debt Financing On November 7, 2022, the Company and certain of its 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 assets of the Company and various subsidiaries. Starting in January 2023, the lenders have the right to require the Company to make monthly payments of $0.6 million, which will increase to $1.1 million in November 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 the Company’s common stock, exercisable for four years at $ 0.45 per share and warrants to purchase another approximately 4.5 million shares of the Company’s common stock, exercisable for four years at $ 0.75 per share, subject to adjustment. On November 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, the Company and certain of its 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 of Third Avenue Apartments, LLC, a wholly owned subsidiary of the Company (“Third Apartments”), (iii) a pledge of the membership interests of Alliance Cloud Services, LLC, a wholly owned subsidiary of the Company (“Alliance Cloud”), (iv) a pledge of the membership interests of Ault Aviation, LLC, a wholly owned subsidiary of the Company (“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 in St. Petersburg, Florida, (vii) a future advance mortgage by Alliance Cloud on the real estate property owned by Alliance Cloud in Dowagiac, Michigan, and (viii) an aircraft mortgage and security agreement by Ault Aviation on the private aircraft purchased by Ault Aviation on November 7, 2022. The Loans are further secured by a guaranty provided by Ault Lending and Milton C. Ault, the Executive Chairman of the Company. 3% Secured Promissory Notes On November 18, 2022, the Company, through its BNI subsidiary, entered into a note purchase agreement providing for the issuance of secured promissory notes with an aggregate principal face amount of $ 8,181,819 and an interest rate of 3 %. The purchase price (proceeds to the Company) for the secured promissory notes was $ 8.2 million. The secured promissory notes have a security interest in certain marketable securities to be acquired by BNI (the “Collateral”). The maturity date of the secured promissory notes is May 18, 2023. When the Company sells the Collateral, the Company is required to make a payment towards the secured promissory notes equal to 45% of the realized gains. After the secured promissory notes have been repaid in full and until all of the Collateral is sold, when the Company sells any remaining Collateral, the Company is required to give the investors a profits participation interest equal to 45% of the realized gains. F- 31 Amendment to 10% Secured Promissory Notes On November 18, 2022, the Company’s BNI subsidiary entered into an amendment to the 10% secured promissory notes issued on August 10, 2022, whereby the investors permitted the Company to (i) elect to utilize one of the six monthly forbearances under the notes for the November 2022 monthly payment and (ii) make the forbearance payment with the December 2022 monthly payment. F- 32