BITNILE HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

In this quarterly report, the "Company," "BitNile," "we," "us" and "our" refer
to BitNile Holdings, Inc., a Delaware corporation. BitNile is a diversified
holding company pursuing growth by acquiring undervalued businesses and
disruptive technologies with a global impact. Through its wholly owned
subsidiaries and strategic investments, the Company owns and operates a data
center at which it mines Bitcoin, and provides mission-critical products that
support a diverse range of industries, including defense/aerospace, industrial,
automotive, telecommunications, medical/biopharma, and textiles. In addition,
the Company owns and operates hotels and extends credit to select
entrepreneurial businesses through a licensed lending subsidiary.



Recent Events and Developments

On February 4, 2022, we and our wholly owned subsidiary Ault Alliance, Inc.
(“Ault Alliance“) entered into a securities purchase agreement providing for our
purchase of BitNile, Inc. (“BNI”) from Ault Alliance. As a result of this
transaction, both BNI and Ault Alliance are each stand-alone wholly owned
subsidiaries of ours.

On February 10, 2022, consistent with our objective to have BNI operate the
entirety of our business that relates to cryptocurrencies, Ault Alliance
assigned the entirety of its interest in Alliance Cloud Services, LLC (“ACS”) to
BNI.




On February 25, 2022, we entered into an At-The-Market issuance sales agreement
with Ascendiant Capital Markets, LLC 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 ATM Offering"). As of March 31, 2022, we
had sold an aggregate of 140.0 million shares of common stock pursuant to the
2022 ATM Offering for gross proceeds of $110.1 million.



On March 20, 2022, we and our majority owned subsidiary Imperalis Holding Corp.
("IMHC") entered into a securities purchase agreement (the "Agreement") with
TurnOnGreen, Inc. ("TOGI"), a wholly owned subsidiary of ours. According to the
Agreement, we will (i) deliver to IMHC all of the outstanding shares of common
stock of TOGI that we own, and (ii) forgive and eliminate the intracompany
accounts between us and TOGI evidencing historical equity investments made by us
in TOGI, in the approximate amount of $25,000,000, in consideration for the
issuance by IMHC to us (the "Transaction") of an aggregate of 25,000 newly
designated shares of Series A Preferred Stock (the "IMHC Preferred Stock"), with
each such share having a stated value of $1,000. The closing of the Transaction
is subject to our delivery to IMHC of audited financial statements of TOGI and
other customary closing conditions. Immediately following the completion of the
Transaction, TOGI will be a wholly-owned subsidiary of IMHC. The parties to the
Agreement have agreed that, upon completion of the Transaction, IMHC will change
its name to TurnOnGreen, Inc., and, through an upstream merger whereby the
current TOGI shall cease to exist, IMHC shall have TOGI's two operating
subsidiaries, TOG Technologies Inc. and Digital Power Corporation. Promptly
following the closing of the Transaction, IMHC will dissolve its three dormant
subsidiaries.


On March 30, 2022, we fully paid our $66 million senior secured notes (the
“Senior Notes”) and accrued interest. The 10% original issuance discount
promissory notes were sold in December 2021 and were due and payable on March
31, 2022
.




On April 22, 2022, Ault Alliance entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") with EYP Group Holdings, Inc. and each of its
subsidiaries and affiliates listed on the signature page to the Asset Purchase
Agreement (collectively, "EYP"), pursuant to which Ault Alliance agreed to
purchase substantially all of the assets of EYP (such assets, the "Assets," and
such transaction, the "Asset Purchase"). On April 24, 2022, EYP filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). The Bankruptcy Court has
permitted joint administration of the Chapter 11 cases under the caption "In re
EYP Group Holdings, Inc., et al.", Case No. 22-10367 (MFW) (the "Chapter 11
Cases").



Under the Asset Purchase Agreement, Ault Alliance or its designee(s), upon the
closing of the transactions contemplated thereby, will purchase the Assets and
assume certain of EYP's obligations associated with the purchased Assets through
a supervised sale under Section 363 of the Bankruptcy Code. Ault Alliance's
stalking horse bid is based on an enterprise value of approximately Sixty-Seven
Million Seven Hundred Thousand Dollars ($67,700,000), which includes the
purchase price for the Assets under the Asset Purchase Agreement of Sixty-Two
Million Five Hundred Thousand Dollars ($62,500,000), as adjusted by a closing
working capital adjustment (the "Purchase Price"), plus Ault Alliance's
assumption of certain liabilities. The Purchase Price would be paid in cash,
less the outstanding amount of the DIP Loans and the senior secured loans
previously issued by Ault Alliance to EYP, in an approximate aggregate amount of
Eleven Million Seven Hundred Fifty Thousand Dollars ($11,750,000), and less the
amount of certain liabilities assumed by Ault Alliance. The Asset Purchase
Agreement requires the Asset Purchase to close by June 30, 2022. Consummation of
the Asset Purchase is subject to Bankruptcy Court approved bidding procedures,
higher and better offers made in the auction by other potential bidders,
approval of the highest bidder by the Bankruptcy Court and customary closing
conditions.



  1







In connection with the Chapter 11 Cases, EYP filed a motion seeking Bankruptcy
Court approval of debtor-in-possession financing on the terms set forth in that
certain Senior Secured Superpriority Debtor-in-Possession Financing Term Sheet,
dated April 22, 2022 (the "DIP Financing Agreement"), by and among Ault Alliance
and EYP. The DIP Financing Agreement provides for senior secured superpriority
debtor-in-possession financing facilities (the "DIP Financing") in a $5 million
commitment, with up to $2.5 million of such commitment available upon entry of
an interim order (the "Interim DIP Order") approving the DIP Financing (the
"Initial Draw"). The DIP Financing will become available upon the satisfaction
of customary conditions precedent thereto, including the entry of the Interim
DIP Order. The remaining portion of the commitment, minus the Initial Draw,
shall become available upon entry of the final order of the Bankruptcy Court
approving the DIP Financing (collectively, any borrowings under the DIP
Financing the "DIP Loans"). On April 26, 2022, the Bankruptcy Court entered the
Interim DIP Order. On or about April 29, 2022, EYP made an Initial Draw in the
amount of $1.5 million pursuant to the Interim DIP Order. A hearing on approval
of the DIP Financing on a final basis is scheduled for May 25, 2022.



The DIP Financing matures on the earlier of (i) June 30, 2022, (ii) the closing
date following entry of one or more final orders approving the sale of the
Assets in the Chapter 11 Cases, (iii) the acceleration of any outstanding DIP
Loans following the occurrence of an uncured event of default (as defined in the
DIP Financing Agreement), or (iv) entry of an order by the Bankruptcy Court in
the Chapter 11 Cases either (a) dismissing such case or converting such Chapter
11 Case to a case under Chapter 7 of the Bankruptcy Code, or (b) appointing a
Chapter 11 trustee or an examiner with enlarged powers relating to the operation
of the business of EYP (i.e., powers beyond those set forth in sections
1106(a)(3) and (4) of the Bankruptcy Code), in each case without the consent of
Ault Alliance.



On April 26, 2022, Digital Power Lending, LLC ("DP Lending") made an additional
$4 million investment in Alzamend Neuro, Inc. ("Alzamend"), a related party and
early clinical-stage biopharmaceutical company focused on developing novel
products for the treatment of neurodegenerative diseases and psychiatric
disorders. During 2021, DP Lending entered into a securities purchase agreement
(the "SPA") with Alzamend to invest $10 million in Alzamend common stock and
warrants, subject to the achievement of certain milestones. DP Lending had
previously funded $6 million pursuant to the terms of the SPA and the
achievement of certain milestones related to the U.S. Food and Drug
Administration approval of Alzamend's Investigational New Drug application and
Phase 1a human clinical trials for AL001. On April 26, 2022, DP Lending funded
the remaining amount due to achievement of the final milestone, the receipt of
the full data set from Alzamend's Phase 1 clinical trial for AL001.



On May 12, 2022, BNI closed a $1.8 million membership interest purchase
agreement whereby BNI acquired the 30% minority interest of ACS which BNI did
not previously own, resulting in ACS becoming a wholly-owned subsidiary of BNI.
ACS owns and operates our Michigan data center, where BNI conducts our Bitcoin
mining operations.



General



As a holding company, our business strategy is designed to increase stockholder
value. Under this strategy, we are focused on managing and financially
supporting our existing subsidiaries and partner companies, with the goal of
pursuing monetization opportunities and maximizing the value returned to
stockholders. We have, are and will consider initiatives including, among
others: public offerings, the sale of individual partner companies, the sale of
certain or all partner company interests in secondary market transactions, or a
combination thereof, as well as other opportunities to maximize stockholder
value. We anticipate returning value to stockholders after satisfying our debt
obligations and working capital needs.



From time to time, we engage in discussions with other companies interested in
our subsidiaries or partner companies, either in response to inquiries or as
part of a process we initiate. To the extent we believe that a subsidiary
partner company's further growth and development can best be supported by a
different ownership structure or if we otherwise believe it is in our
stockholders' best interests, we will seek to sell some or all of our position
in the subsidiary or partner company. These sales may take the form of privately
negotiated sales of stock or assets, mergers and acquisitions, public offerings
of the subsidiary or partner company's securities and, in the case of publicly
traded partner companies, sales of their securities in the open market. Our
plans may include taking subsidiaries or partner companies public through rights
offerings and directed share subscription programs. We will continue to consider
these (or similar) programs and the sale of certain subsidiary or partner
company interests in secondary market transactions to maximize value for our
stockholders.



  2







Over the recent past we have provided capital and relevant expertise to fuel the
growth of businesses in defense/aerospace, industrial, telecommunications,
medical, crypto-mining, textiles and a select portfolio of commercial
hospitality properties. We have provided capital to subsidiaries as well as
partner companies in which we have an equity interest or may be actively
involved, influencing development through board representation and management
support.


We are a Delaware corporation with our corporate office located at 11411
Southern Highlands Pkwy, Suite 240, Las Vegas, NV 89141. Our phone number is
949-444-5464 and our website address is www.bitnile.com.



Results of Operations


Results of Operations for the Three Months Ended March 31, 2022 and 2021

The following table summarizes the results of our operations for the three
months ended March 31, 2022 and 2021.



                                                                  For the Three Months Ended
                                                                           March 31,
                                                                      2022              2021
Revenue                                                         $    8,659,000     $  7,905,000
Revenue, cryptocurrency mining, net                                  

3,548,000 130,000

 Revenue, hotel operations                                           2,698,000                -
Revenue, lending and trading activities                             17,921,000        5,210,000
Total revenue                                                       32,826,000       13,245,000
Cost of revenue                                                     10,494,000        5,108,000
Gross profit                                                        22,332,000        8,137,000
Operating expenses
Research and development                                               695,000          602,000
Selling and marketing                                                6,481,000        1,242,000
General and administrative                                          13,687,000        5,092,000
Impairment of mined cryptocurrency                                     439,000                -
Total operating expenses                                            

21,302,000 6,936,000


Income from operations                                               1,030,000        1,201,000
Interest and other income                                              449,000           37,000
Interest expense                                                   (29,824,000 )       (314,000 )
Change in fair value of marketable equity securities                         -        1,960,000
Realized gain on marketable securities                                 109,000          397,000
Loss from investment in unconsolidated entity                         (533,000 )              -
Gain on extinguishment of debt                                               -          482,000
Change in fair value of warrant liability                              (18,000 )       (679,000 )
(Loss) income before income taxes                                  (28,787,000 )      3,084,000
Income tax (provision) benefit                                               -           (6,000 )
Net (loss) income                                                  (28,787,000 )      3,078,000
Net loss (income) attributable to non-controlling interest              15,000       (1,081,000 )
Net (loss) income attributable to BitNile Holdings, Inc.           (28,772,000 )      1,997,000
Preferred dividends                                                     (5,000 )         (4,000 )
Net (loss) income available to common stockholders              $  

(28,777,000 ) $ 1,993,000


Comprehensive (loss) income
Net (loss) income available to common stockholders              $  (28,777,000 )   $  1,993,000
Other comprehensive income (loss)
Foreign currency translation adjustment                               (287,000 )        (93,000 )
Net unrealized gain on derivative securities of related party                -        2,969,000
Other comprehensive (loss) income                                     (287,000 )      2,876,000
Total comprehensive (loss) income                               $  (29,064,000 )   $  4,869,000




  3







Revenues



Revenues by segment for the three months ended March 31, 2022 and 2021 are as
follows:



                                             For the Three Months Ended March 31,           Increase
                                                 2022                     2021             (Decrease)         %
Gresham Worldwide, Inc. ("GWW")           $        7,245,000       $        6,350,000     $    895,000          14 %
TOGI                                               1,129,000                1,383,000         (254,000 )       -18 %
Cryptocurrency
Revenue, cryptocurrency mining, net                3,548,000                  130,000        3,418,000       2,629 %
Revenue, commercial real estate leases               278,000                  172,000          106,000          62 %
Real estate                                        2,698,000                        -        2,698,000           -
Ault Alliance:
Revenue, lending and trading activities           17,921,000               
5,210,000       12,711,000         244 %
Other                                                  7,000                        -            7,000           -
Total revenue                             $       32,826,000       $       13,245,000     $ 19,581,000         148 %



Our revenues increased by $19.6 million, or 148%, to $32.8 million for the three
months ended March 31, 2022, from $13.2 million for the three months ended
March
31, 2021.



GWW



GWW revenues increased by $0.9 million, or 14%, to $7.2 million for the three
months ended March 31, 2022, from $6.4 million for the three months ended March
31, 2021. The increase in revenue from our GWW segment for customized solutions
for the military markets reflects higher revenue from Enertec, which largely
consists of revenue recognized over time, grew to $3.3 million for the three
months ended March 31, 2022, an increase of $0.8 million, or 33.4%, from $2.4
million in the prior-year period.



TOGI



TOGI revenues for the three months ended March 31, 2022 of $1.1 million declined
$0.3 million, or 18%, from $1.4 million for the three months ended March 31,
2021, due to supply chain challenges.



Cryptocurrency



Revenues from our cryptocurrency mining operations were $3.5 million for the
three months ended March 31, 2022, compared to $0.1 million for three months
ended March 31, 2021. During 2021, we purchased Bitcoin mining equipment and
increased our cryptocurrency mining activities. Our decision to increase our
cryptocurrency mining operations in 2021 was based on several factors, which
positively affected the number of active miners we operated, including the
market prices of digital currencies, and favorable power costs available at
our
Michigan data center.



Real Estate



Real estate segment revenues were $2.7 million for the three months ended March
31, 2022 compared to nil for the three months ended March 31, 2021. On December
22, 2021, the real estate segment acquired four hotel properties for $71.3
million, consisting of a 136-room Courtyard by Marriott, a 133-room Hilton
Garden Inn and a 122-room Residence Inn by Marriott in Middleton, WI, as well as
a 135-room Hilton Garden Inn in Rockford, IL. Other than the cryptocurrency
segment Michigan data center, we did not have any income-producing real estate
prior to the hotel acquisitions.



Ault Alliance


Revenues from our lending and trading activities increased to $17.9 million for
the three months ended March 31, 2022, from $5.2 million for the three months
ended March 31, 2021, which is attributable to a significant allocation of
capital from our equity financing transactions to our loan and investment
portfolio. During the three months ended March 31, 2022, DP Lending generated
significant income from appreciation of investments in marketable securities as
well as shares of common stock underlying convertible notes and warrants issued
to DP Lending in certain financing transactions. Under its business model, DP
Lending also generates revenue through origination fees charged to borrowers and
interest generated from each loan.



  4







Revenues from our trading activities during the three months ended March 31,
2022 included significant net gains on equity securities, including unrealized
gains and losses from market price changes. These gains and losses have caused,
and will continue to cause, significant volatility in our periodic earnings.



Gross Margins


Gross margins increased to 68.0% for the three months ended March 31, 2022,
compared to 61.4% for the three months ended March 31, 2021. Our gross margins
have typically ranged between 33% and 37%, with slight variations depending on
the overall composition of our revenue.



Our gross margins of 68.0% recognized during the three months ended March 31,
2022 were impacted by the favorable margins from our lending and trading
activities. Excluding the effects of margin from our lending and trading
activities, our adjusted gross margins for the three months ended March 31,
2022, would have been 30%, slightly lower than our historical range, due in part
to lower margins at TOGI related to higher freight costs for the three months
ended March 31, 2022.



Research and Development



Research and development expenses increased by $0.1 million for the three months
ended March 31, 2022, from $0.6 million for the three months ended March 31,
2021. The increase in research and development expenses is due to product
development efforts at GWW.



Selling and Marketing


Selling and marketing expenses were $6.5 million for the three months ended
March 31, 2022, compared to $1.2 million for the three months ended March 31,
2021, an increase of $5.2 million, or 422%. The increase was the result of $5.0
million higher marketing costs at Ault Alliance, including $3.5 million related
to an advertising sponsorship agreement as well as increases in sales and
marketing personnel and consultants. The increase is also attributable to a $0.2
million increase in costs incurred at TOGI to grow our selling and marketing
infrastructure related to our EV charger products.



General and Administrative


General and administrative expenses were $13.7 million for the three months
ended March 31, 2022, compared to $5.1 million for the three months ended March
31, 2021
, an increase of $8.6 million, or 169%. General and administrative
expenses increased from the comparative prior period, mainly due to:

· non-cash stock compensation costs of $2.6 million;

· general and administrative costs of $1.8 million from our hotel operations,

which were acquired in December 2021;

· increased costs of $0.9 million related to the Michigan data center, operated

by ACS; and

· higher legal expense of $1.3 million, salaries of $0.5 million and audit fees

   of $0.3 million.




Income From Operations



We recorded income from operations of $1.0 million for the three months ended
March 31, 2022, compared to $1.2 million for the three months ended March 31,
2021. The decrease in operating income is attributable to the increase in
operating expenses partially offset by the increase in revenue and gross
margins.



Interest and Other Income


Interest and other income was $0.4 million for the three months ended March 31,
2022 compared to $37,000 for the three months ended March 31, 2021. Other income
for the three months ended March 31, 2022 included $0.3 million other income
from Alpha Fund, which was formed in July 2021.



  5







Interest Expense



Interest expense was $29.8 million for the three months ended March 31, 2022,
compared to $0.3 million for the three months ended March 31, 2021. The increase
in interest expense relates to the $66.0 million of Senior Notes issued in
December 2021, which were fully paid in March 2022. Interest expense from these
Senior Notes included the amortization of debt discount of $26.3 million from
the issuance of warrants, a non-cash charge, and original issue discount, in
connection with these Senior Notes.



Change in Fair Value of Warrant Liability




During the three months ended March 31, 2022, the fair value of the warrants
that were issued during 2021 in a series of debt financings increased by
$18,000. The fair value of these warrants is re-measured at each financial
reporting period and immediately before exercise, with any changes in fair value
recorded as change in fair value of warrant liability in the condensed
consolidated statements of operations and comprehensive loss.



Change in Fair Value of Marketable Equity Securities

Change in fair value of marketable equity securities was nil for the three
months ended March 31, 2022, compared to a gain of $2.0 million for the three
months ended March 31, 2021. The change relates to an investment in marketable
securities held by Microphase Corporation ("Microphase"), a majority owned
subsidiary of GWW, that was fully sold in the fourth quarter of 2021.



Realized Gain on Marketable Securities




Realized gain on marketable securities was $0.1 million for the three months
ended March 31, 2022, compared to $0.4 million for the three months ended March
31, 2021. The change relates to realized gains from an investment in marketable
securities held by Microphase, a portion of which was sold during the three
months ended March 31, 2021.



Loss From Investment in Unconsolidated Entity




Loss from investment in unconsolidated entity was $0.5 million for the three
months ended March 31, 2022, compared to nil for the three months ended March
31, 2021, representing our share of losses from our equity method investment in
Avalanche International Corp. ("AVLP").



Gain on Extinguishment of Debt

Gain on extinguishment of debt was nil for the three months ended March 31,
2022, compared to a gain of $0.4 million for the three months ended March 31,
2021. During the three months ended March 31, 2021, principal and accrued
interest of $200,000 and $16,000, respectively, on our debt was satisfied
through the issuance of 183,214 shares of our common stock. We recognized a loss
on extinguishment of $0.2 million as a result of this issuance of common stock
based on the fair value of our common stock at the date of the exchange. The
loss on extinguishment from the issuance of the 183,214 shares of our common
stock was offset by the forgiveness of our Paycheck Protection Program loan in
the principal amount of $0.7 million.



Net (Loss) Income



For the foregoing reasons, our net loss for the three months ended March 31,
2022 was $28.8 million, compared to net income of $2.0 million for the three
months ended March 31, 2021.


Other Comprehensive (Loss) Income

Other comprehensive loss was $0.3 million for the three months ended March 31,
2022 compared to other comprehensive income of $2.9 million for the three months
ended March 31, 2021. Other comprehensive income for the three months ended
March 31, 2021 was primarily due to unrealized gains in the warrant derivative
securities that we received as a result of our investment in AVLP.



  6






Liquidity and Capital Resources




On March 31, 2022, we had cash and cash equivalents of $39.4 million (excluding
restricted cash of $4.7 million). This compares with cash and cash equivalents
of $15.9 million (excluding restricted cash of $5.3 million) at December 31,
2021. The increase in cash and cash equivalents cash was primarily due to cash
provided by financing activities related to our 2022 ATM Offering and cash
provided by operating activities, partially offset by the payment of debt and
purchases of property and equipment.



Net cash provided by operating activities totaled $25.0 million for the three
months ended March 31, 2022 compared to net cash used in operating activities of
$14.2 million for the three months ended March 31, 2021. Cash provided by
operating activities for the three months ended March 31, 2022 included
$32.6 million net cash provided by marketable securities from trading activities
related to the operations of DP Lending.



Net cash used in investing activities was $24.4 million for the three months
ended March 31, 2022, compared to $16.7 million for the three months ended March
31, 2021. Net cash used in investing activities for the three months ended March
31, 2022 included $35.4 million of capital expenditures related to Bitcoin
mining equipment, partially offset by $10.2 million proceeds from the sale of
marketable equity securities.



Net cash provided by financing activities was $22.2 million for the three months
ended March 31, 2022, compared to $119.9 million for the three months ended
March 31, 2021, and reflects the following transactions:

· 2022 ATM Offering – On February 25, 2022, we entered into an At-The-Market

issuance sales agreement with Ascendiant Capital Markets, LLC to sell shares of

common stock having an aggregate offering price of up to $200 million from time

to time, through the 2022 ATM Offering. As of March 31, 2022, we had sold an

aggregate of 140.0 million shares of common stock pursuant to the 2022 ATM

   Offering for gross proceeds of $110.1 million.



· December 2021 Secured Promissory Notes – On December 30, 2021, we entered into

a securities purchase agreement with certain sophisticated investors providing

for the issuance of Senior Notes that bore interest at 8% per annum with an

aggregate principal face amount of $66.0 million. The Senior Notes were repaid

   in March 2022.



· Margin Accounts Payable – During the year ended December 31, 2021, we entered

into leverage agreements on certain brokerage accounts, whereby we borrowed

$18.5 million. The margin accounts payable were repaid during the three months

   ended March 31, 2022.




We believe our current cash on hand combined with the proceeds from the 2022 ATM
Offering are sufficient to meet our operating and capital requirements for at
least the next twelve months from the date the financial statements for the
three months ended March 31, 2022 are issued.



Critical Accounting Policies



Variable Interest Entities



For a variable interest entity ("VIE"), we assess whether we are the primary
beneficiary as prescribed by the accounting guidance on the consolidation of a
VIE. The primary beneficiary of a VIE is the party that has the power to direct
the activities that most significantly impact the performance of the entity and
the obligation to absorb the losses or the right to receive the benefits that
could potentially be significant to the entity.



We evaluate our business relationships with related parties to identify
potential VIEs under Accounting Standards Codification ("ASC") 810,
Consolidation. We consolidate VIEs in which we are considered to be the primary
beneficiary. Entities are considered to be the primary beneficiary if they have
both of the following characteristics: (i) the power to direct the activities
that, when taken together, most significantly impact the VIE's performance; and
(ii) the obligation to absorb losses and right to receive the returns from the
VIE that would be significant to the VIE. Our judgment with respect to our level
of influence or control of an entity involves the consideration of various
factors including the form of our ownership interest, our representation in the
entity's governance, the size of our investment, estimates of future cash flows,
our ability to participate in policy making decisions and the rights of the
other investors to participate in the decision making process and to replace us
as manager and/or liquidate the joint venture, if applicable.



  7






Variable Interest Entity Considerations – AVLP

We have determined that AVLP is a VIE as it does not have sufficient equity at
risk. We do not consolidate AVLP because we are not the primary beneficiary and
do not have a controlling financial interest. To be a primary beneficiary, an
entity must have the power to direct the activities of a VIE that most
significantly impact the VIE's economic performance, among other factors.
Although we have made a significant investment in AVLP, we have determined that
Philou, which controls AVLP through the voting power conferred by its equity
investment and which is deemed to be more closely associated with AVLP, is the
primary beneficiary. As a result, AVLP's financial position and results of
operations are not consolidated in our financial position and results of
operations.



Equity Investment in Unconsolidated Entity




As of March 31, 2022, our ownership percentage of AVLP was less than 20%. During
the fourth quarter of 2021, we made additional advances to AVLP under the
existing loan agreement and our consolidated VIE, Ault Alpha, entered into a
loan agreement with AVLP totaling $3.6 million. Due to our cumulative lending
position to AVLP and the facts and circumstances surrounding the terms of loan
agreements, we reevaluated our level of influence over AVLP and determined that
the equity ownership in AVLP should be accounted for under the equity method of
accounting.



The basis of our previously held interest in AVLP was remeasured to fair value
immediately before adopting the equity method of accounting. Our interest in
AVLP as of March 31, 2022 and December 31, 2021 has been presented as an equity
investment in an unconsolidated entity.



We have invested in AVLP based on the potential global impact of the novel
technology of AVLP. AVLP has developed a novel cost effective and
environmentally friendly material synthesis technology for textile applications.
AVLP's Multiplex Laser Surface Enhancement is a unique technology that has the
ability to treat both natural and synthetic textiles for a wide variety of
functionalities, including dyeability and printing enhancements, hydrophilicity,
hydrophobicity, fire retardancy and anti-microbial properties. The use of water,
harmful chemicals and energy is significantly reduced in comparison to
conventional textile treatment methods.

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