Hyperscale Data, Inc 8-K/A, filed Mar 9, 2022
Hyperscale Data, Inc. (GPUS)
About this 8-K/A
Hyperscale Data, Inc filed this 8-K/A on March 9, 2022, reporting on events of December 23, 2021.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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EXPLANATORY NOTE
This Amendment No. 1 is solely for the purpose of providing the financial statements and information required by Item 9.01(a) of Form 8-K and the pro forma financial information required by Item 9.01(b) of Form 8-K in connection with the Company’s previously reported acquisition of four hotel properties (the “Madison Hotel Group”), as follows:
| Acquiring Entity | Property |
| 1801 Deming, LLC | 133-room Hilton Garden Inn 1801 Deming Street, Middleton, WI 53562 |
| 2226 Deming, LLC | 136-room Courtyard by Marriott 2266 Deming Street, Middleton, WI 53562 |
| 8400 Market, LLC | 122-room Residence Inn by Marriott 8400 Market Street, Middleton, WI 53562 |
| 7605 Walton, LLC | 135-room Hilton Garden Inn 7605 Walton Street, Rockford, IL 61108 |
Items included in the Original Form 8-K, including exhibits, that are not included herein are not amended and remain in effect as of the date of filing of the Original Form 8-K.
| Item 2.01 | Completion of Acquisition or Disposition of Assets |
This Amendment No. 1 on Form 8-K/A amends and supplements the Original Form 8-K to include the historical audited and unaudited financial statements of the Madison Hotel Group and the pro forma combined financial information required by Item 9.01 of Form 8-K that were not included in the Original Form 8-K in reliance on the instructions to such item. All disclosure under Item 2.01 in the Original Form 8-K is hereby incorporated by reference into this Item 2.01. Except as set forth herein, no modifications have been made to information contained in the Original Form 8-K, and the Company has not updated any information contained therein to reflect events that have occurred since the date of the Original Form 8-K.
Item 9.01 Exhibits and Financial Statements.
| (a) | Financial statements of business acquired |
The audited combined financial statements of the Madison Hotel Group for the years ended December 31, 2020 and 2019, with the accompanying notes, are attached hereto as Exhibit 99.1.
The unaudited combined financial statements of the Madison Hotel Group for the nine months ended September 30, 2021 and 2020, with the accompanying notes, are attached hereto as Exhibit 99.2.
| (b) | Pro forma financial information |
The unaudited pro forma condensed combined financial information of the Company and the Madison Hotel Group as of and for the nine months ended September 30, 2021 and for the year ended December 31, 2020, with the accompanying notes, are attached hereto as Exhibit 99.3.
| 2 |
| (d) | Exhibits: |
| Exhibit No. | Description | |
| 99.1 | Audited combined financial statements of the Madison Hotel Group for the years ended December 31, 2020 and 2019. | |
| 99.2 | Unaudited combined financial statements of the Madison Hotel Group for the nine months ended September 30, 2021 and 2020. | |
| 99.3 | Unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2020 and the nine months ended September 30, 2021. | |
| 101 | Pursuant to Rule 406 of Regulation S-T, the cover page is formatted in Inline XBRL (Inline eXtensible Business Reporting Language). | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). |
| 3 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: March 9, 2022 | BITNILE HOLDINGS, INC. | |
| /s/ Kenneth S. Cragun | ||
| Kenneth S. Cragun | ||
| Chief Financial Officer | ||
4
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
Madison Hotel Group
Combined Financial Statements
| Audited Financial Statements for the Years Ended December 31, 2020 and 2019 | ||
| Report of Independent Registered Accounting Firm | F-2 | |
| Combined Balance Sheets | F-3 | |
| Combined Statements of Operations | F-4 | |
| Combined Statements of Members’ Deficit | F-5 | |
| Combined Statements of Cash Flows | F-6 | |
| Notes to Combined Financial Statements | F-7 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
of Madison Hotel Group
Opinion on the Financial Statements
We have audited the accompanying combined balance sheets of Madison Hotel Group (the Company) as of December 31, 2020 and 2019, and the related combined statements of operations, members’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the combined financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the combined financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the combined financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
/s/ Pinnacle Accountancy Group of Utah
We have served as the Company’s auditor since 2022.
Pinnacle Accountancy Group of Utah
(a dba of Heaton & Company, PLLC)
Farmington, Utah
March 9, 2022
| F-2 |
MADISON HOTEL GROUP
COMBINED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 496,915 | $ | 1,205,035 | ||||
| Restricted cash | 5,259,818 | 9,087,324 | ||||||
| Accounts receivable | 238,814 | 166,960 | ||||||
| Prepaid expenses and other assets | 2,979,745 | 2,967,947 | ||||||
| Real estate asset, net | 25,287,490 | 26,577,999 | ||||||
| Total assets | $ | 34,262,782 | $ | 40,005,265 | ||||
| Liabilities and members’ deficit | ||||||||
| Accounts payable | $ | 162,077 | $ | 316,763 | ||||
| Accrued expenses and other liabilities | 1,280,243 | 1,500,866 | ||||||
| Notes payable | 44,229,280 | 45,292,438 | ||||||
| Due to affiliates | 129,321 | 226,891 | ||||||
| Total liabilities | 45,800,921 | 47,336,958 | ||||||
| Members’ deficit | (11,538,139 | ) | (7,331,693 | ) | ||||
| Total liabilities and members’ deficit | $ | 34,262,782 | $ | 40,005,265 | ||||
Please see accompanying Notes to the Combined Financial Statements.
| F-3 |
MADISON HOTEL GROUP
COMBINED STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue: | ||||||||
| Rooms | $ | 7,224,553 | $ | 20,002,125 | ||||
| Food and beverage | 409,001 | 1,597,359 | ||||||
| Ancillary hotel | 272,705 | 266,277 | ||||||
| Total revenue | 7,906,259 | 21,865,761 | ||||||
| Operating expenses: | ||||||||
| Hotel and restaurants operating expenses | 4,494,042 | 9,138,595 | ||||||
| Other operating expenses | 3,179,245 | 5,140,382 | ||||||
| Depreciation expense | 1,370,547 | 1,551,221 | ||||||
| Total operating expenses | 9,043,834 | 15,830,198 | ||||||
| Income (loss) from operations | (1,137,575 | ) | 6,035,563 | |||||
| Other income (expense): | ||||||||
| Other expense, net | (87,305 | ) | (91,224 | ) | ||||
| Interest expense | (2,226,339 | ) | (2,271,490 | ) | ||||
| Total other expense | (2,313,644 | ) | (2,362,714 | ) | ||||
| Net income (loss) | $ | (3,451,219 | ) | $ | 3,672,849 | |||
Please see accompanying Notes to the Combined Financial Statements.
| F-4 |
MADISON HOTEL GROUP
COMBINED STATEMENTS OF MEMBERS’ DEFICIT
| Members’ Deficit | ||||
| Members’ deficit at December 31, 2018 | $ | (7,829,542 | ) | |
| Distributions to members | (3,175,000 | ) | ||
| Net income | 3,672,849 | |||
| Members’ deficit at December 31, 2019 | (7,331,693 | ) | ||
| Contributions from members | 2,389,772 | |||
| Distributions to members | (3,144,999 | ) | ||
| Net loss | (3,451,219 | ) | ||
| Members’ deficit at December 31, 2020 | $ | (11,538,139 | ) | |
Please see accompanying Notes to the Combined Financial Statements.
| F-5 |
MADISON HOTEL GROUP
COMBINED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | (3,451,219 | ) | $ | 3,672,849 | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||
| Depreciation expense | 1,370,547 | 1,551,221 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (71,854 | ) | 277,280 | |||||
| Prepaid expenses and other assets | (11,798 | ) | (1,656 | ) | ||||
| Accounts payable | (154,686 | ) | 43,520 | |||||
| Accrued expenses and other liabilities | (220,623 | ) | (46,773 | ) | ||||
| Net cash provided by (used in) operating activities | (2,539,633 | ) | 5,496,441 | |||||
| Cash flows from investing activities | ||||||||
| Additions to real estate asset | (80,038 | ) | - | |||||
| Disposal of real estate asset | - | 132,897 | ||||||
| Net cash provided by (used in) investing activities | (80,038 | ) | 132,897 | |||||
| Cash flows from financing activities | ||||||||
| Repayment of notes payable | (1,063,158 | ) | (1,033,189 | ) | ||||
| Proceeds from amounts due to affiliate | - | 17,269 | ||||||
| Repayment of amounts due to affiliate | (97,570 | ) | - | |||||
| Contributions from members | 2,389,772 | - | ||||||
| Distributions to members | (3,144,999 | ) | (3,175,000 | ) | ||||
| Net cash used in financing activities | (1,915,955 | ) | (4,190,920 | ) | ||||
| Net increase (decrease) in cash, restricted cash and cash equivalents | (4,535,626 | ) | 1,438,418 | |||||
| Cash, restricted cash and cash equivalents at beginning of year | 10,292,359 | 8,853,941 | ||||||
| Cash, restricted cash and cash equivalents at end of year | $ | 5,756,733 | $ | 10,292,359 | ||||
| Supplemental cash flow disclosure | ||||||||
| Cash paid for interest | $ | 2,230,466 | $ | 2,275,440 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
Please see accompanying Notes to the Combined Financial Statements.
| F-6 |
MADISON HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 2020 and 2019
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization
The financial statements within this report represent the combined results of:
| · | Middleton Lodging Investors, LLC, a Wisconsin limited liability company founded in August 2002 and operating a 133-room Hilton Garden Inn located at 1801 Deming Street, Middleton, Wisconsin (the “Hilton Garden Inn Middleton”); |
| · | Rockford Lodging Investors II, LLC, a Wisconsin limited liability company founded in December 2005 and operating a 135-room Hilton Garden Inn located at 7605 Walton Street, Rockford, Illinois (the “Hilton Garden Inn Rockford”); |
| · | Mid Discovery Springs SPE Hotel, LLC, a Wisconsin limited liability company founded in January 2014 and operating a 136-room Courtyard by Marriott located at 2266 Deming Street, Middleton, Wisconsin (the “Courtyard Middleton”); and |
| · | MLI III SPE Hotel, LLC, a Wisconsin limited liability company founded in January 2014 and operating a 122-room Residence Inn by Marriott located at 8400 Market Street, Middleton, Wisconsin (the “Residence Inn Middleton”). |
The companies above are together referred to as the “Company” or “Madison Hotel Group.” The Madison Hotel Group was under the common control of the North Central Group, Inc. and was subsequently sold as described in Note 10 – Subsequent Events.
Basis of preparation
The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Principles of consolidation
The combined financial statements include the accounts of the Courtyard Middleton, the Hilton Garden Inn Middleton, the Hilton Garden Inn Rockford, and the Residence Inn Middleton. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash, restricted cash, and cash equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less at date of acquisition to be cash equivalents.
Restricted cash consists of cash held in accounts specifically for future payments of interest and real estate taxes, reserves for replacement of furniture, fixtures and equipment and tenant security deposits for the residential apartment leases.
| F-7 |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the combined statements of cash flows at December 31, 2020 and 2019:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Cash and cash equivalents | $ | 496,915 | $ | 1,205,035 | ||||
| Restricted cash | 5,259,818 | 9,087,324 | ||||||
| Cash, restricted cash, and cash equivalents | $ | 5,756,733 | $ | 10,292,359 | ||||
Accounts receivable
Accounts receivable consist of primarily receivables due from corporate customers as a result of extended group room rentals. The Company also recognizes accounts receivable due from guests for extended stays where payment is not collected until check out. A provision for doubtful accounts is made when collection of receivables is considered doubtful.
Real estate assets, net
Costs associated with the acquisition, development, and construction of the hotel properties were capitalized in accordance with Accounting Standards Codification (“ASC”) 970-360-25, Real Estate Project Costs. Such costs include the acquisition of the land, old building and construction in progress costs, which include items such as land development, construction materials, construction labor and other project costs such as interest, insurance, real estate taxes, and legal fees.
Property and equipment, also included as part of the real estate asset, are recorded at cost, with depreciation being recognized over the assets’ estimated useful life on the straight-line basis as follows:
| Years | ||||
| Building and improvements | 39 | |||
| Land improvements | 10-39 | |||
| Furniture, fixtures, and equipment | 7 | |||
Expenditures for major improvements and betterments are capitalized and minor repairs and maintenance are charged to expense as incurred.
Income taxes
Each Company is organized as a limited liability company and has elected to be treated as a partnership for federal and state income tax purposes. Accordingly, the members of each Company are taxed on their proportional share of the Company’s taxable income (loss). Therefore, no provision for federal and state corporate income taxes has been included in these combined financial statements.
The Company recognizes the tax benefits from uncertain tax positions that the entity has taken or expects to take on a tax return. In the unlikely event an uncertain tax position existed in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by a taxing authority. Reserves for uncertain tax positions would then be recorded if the Company determined it is probable position would not be sustained upon examination.
As of December 31, 2020, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authority. It is the Company’s policy to accrue any interest and penalties associated with its tax obligations when paid. There were no income tax related interest or penalties for the years ended December 31, 2020 or 2019.
| F-8 |
Revenue recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| · | Step 1: Identify the contract with the customer, |
| · | Step 2: Identify the performance obligations in the contract, |
| · | Step 3: Determine the transaction price, |
| · | Step 4: Allocate the transaction price to the performance obligations in the contract, and |
| · | Step 5: Recognize revenue when the company satisfies a performance obligation. |
The Company generates revenues from the real estate assets. The primary sources of revenue include room and food and beverage revenue from the Company’s hotels.
Rooms revenue represents revenue from the occupancy of our hotel rooms, which is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue from guest no-shows, daily use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay at the daily transaction price agreed under the contract.
Food and beverage revenue consists of revenue from the restaurants and lounges, in room dining and mini bars revenue, and banquet/catering revenue from group and social functions. Payment of the transaction price is due immediately when the customer purchases the goods and services. Therefore, revenue is recognized at a point in time when the physical possession has transferred to the customer.
New accounting pronouncement
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”) and in January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. As a result of identified structural risks of interbank offered rates, in particular, the London Interbank Offered Rate (LIBOR), reference rate reform is underway to identify alternative reference rates that are more observable or transaction based. The update provides guidance in accounting for changes in contracts, hedging relationships, and other transactions as a result of this reference rate reform. The optional expedients and exceptions contained within these updates, in general, only apply to contract amendments and modifications entered into prior to January 1, 2023. The provisions of these updates that will most likely affect the Company’s financial reporting process related to modifications of contracts with lenders and the related hedging contracts associated with each respective modified borrowing contract. In general, the provisions of these updates would impact the Company by allowing, among other things, the following:
| ● | Modifications of debt contracts with lenders that fall under the guidance of ASC Topic 470, Debt, to be accounted for as a non-substantial modification and not be considered a debt extinguishment; |
| ● | Changes to contractual terms of a hedging instrument in conjunction with reference rate reform to not require a designation of the hedging relationship; and |
| ● | Changes to the interest rate used for margining, discounting, or contract price alignment for a derivative that is a cash flow hedge to not be considered a change to the critical terms of the hedge and will not require a designation of the hedging relationship. |
The Company has not entered into any contract modifications yet, as it directly relates to reference rate reform.
| F-9 |
| 2. | LIQUIDITY |
The Company incurred a net loss of $3.5 million and had net cash used in operating activities of $2.5 million for the year ended December 31, 2020, compared to net income of $3.7 million and net cash provided by operating activities of $5.5 million for the year ended December 31, 2019. At December 31, 2020, the Company had outstanding borrowings of approximately $44.2 million.
| 3. | PREPAID EXPENSES AND OTHER ASSETS |
Prepaid expenses and other assets as of December 31, 2020 and 2019 were:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Goodwill | $ | 1,150,042 | $ | 1,150,042 | ||||
| Prepaid franchise and syndication costs | 788,497 | 788,497 | ||||||
| Prepaid loan fees | 609,167 | 609,167 | ||||||
| Organizational development costs | 289,542 | 289,542 | ||||||
| Deposits | 29,040 | 32,817 | ||||||
| Inventories | 46,764 | 53,821 | ||||||
| Other prepaid expenses | 66,693 | 44,061 | ||||||
| Prepaid expenses and other assets | $ | 2,979,745 | $ | 2,967,947 | ||||
| 4. | REAL ESTATE ASSET, NET |
Real estate asset, net as of December 31, 2020 and 2019 was:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Land | $ | 8,085,860 | $ | 8,085,860 | ||||
| Building and improvements | 30,556,682 | 30,556,682 | ||||||
| Furniture, fixtures and equipment | 16,161,638 | 16,081,600 | ||||||
| 54,804,180 | 54,724,142 | |||||||
| Less: accumulated depreciation | (29,516,690 | ) | (28,146,143 | ) | ||||
| Real estate asset, net | $ | 25,287,490 | $ | 26,577,999 | ||||
Depreciation expense for the years ended December 31, 2020 and 2019 was $1,370,547 and $1,551,221, respectively.
| 5. | ACCRUED EXPENSES AND OTHER LIABILITIES |
Accrued expenses and other liabilities as of December 31, 2020 and 2019 were:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Accrued real estate taxes | $ | 842,614 | $ | 1,010,168 | ||||
| Accrued payroll and payroll taxes | 242,966 | 225,531 | ||||||
| Accrued interest payable | 169,756 | 173,883 | ||||||
| Other accrued liabilities | 24,907 | 91,284 | ||||||
| Accrued expenses and other liabilities | $ | 1,280,243 | $ | 1,500,866 | ||||
| F-10 |
| 6. | NOTES PAYABLE |
Debt balances and associated interest rates as of December 31, 2020 and 2019 were:
| Principal balance as of | ||||||||||||
| Interest Rate | December 31, | December 31, | ||||||||||
| at December 31, 2020 | Maturity Date | 2020 | 2019 | |||||||||
| Promissory Notes Payable: | ||||||||||||
| Courtyard Middleton | 5.01% | March 1, 2024 | $ | 9,938,308 | $ | 10,146,047 | ||||||
| Hilton Garden Inn Middleton | 4.46% | August 11, 2024 | 10,459,219 | 10,678,486 | ||||||||
| Hilton Garden Inn Rockford | 5.12% | January 1, 2024 | 12,215,044 | 12,486,564 | ||||||||
| Residence Inn Middleton | 5.04% | February 1, 2024 | 11,616,709 | 11,981,341 | ||||||||
| Total notes payable | $ | 44,229,280 | $ | 45,292,438 | ||||||||
Principal maturities of notes payable are as follows:
| Year Ending | ||||
| 2021 | $ | 1,172,431 | ||
| 2022 | 1,231,368 | |||
| 2023 | 1,293,277 | |||
| 2024 | 40,532,204 | |||
| Total | $ | 44,229,280 | ||
Accrued interest payable was $169,756 and $173,883 as of December 31, 2020 and 2019, respectively.
Principal payments on the notes payable were $1,063,158 and $1,033,189 for the years ended December 31, 2020 and 2019, respectively.
| 7. | CONCENTRATION OF RISK |
Cash and cash equivalents
The Company, in the normal course of business, maintains checking and savings account balances that may exceed the Federal Deposit Insurance Corporation insurance coverage limit of $250,000 per depositor.
| 8. | COMMITMENTS AND CONTINGENCIES |
Legal Matters
The Company is subject to certain claims and complaints that arise during the ordinary course of business. The Company is not aware of any claims or complaints that would have a significant effect on the financial position or results of operations of the Company if disposed of unfavorably.
| 9. | COVID-19 |
COVID-19 has had and continues to have a significant effect on the hospitality industry and the Company’s business. The effects of COVID-19, including government restrictions such as mandated closings of non-essential businesses and travel restrictions, have severely reduced overall lodging demand. Beginning in March 2020, the Company experienced a significant decline in occupancy and revenue per available room associated with COVID-19 throughout the Company’s hotel properties, which resulted in a decline in operating cash flow. The increase in vaccination rates across the country and the easing or removal of government restrictions, quarantining and “social distancing” mandates have resulted in increased travel and hospitality spending beginning in the second quarter of 2021. However, the seasonal decline in leisure travel following the holiday season and the delay in return of business travel, coupled with concerns over the spread of the Omicron variant, have reduced near-term demand.
| F-11 |
| 10. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through March 9, 2022 which is the date the financial statements were available to be issued, and noted the following event that requires disclosure:
Sale of Company assets
On December 22, 2021, the Company sold its four hotel properties to wholly owned subsidiaries of AGREE Madison, LLC, which is a wholly owned subsidiary of Ault Global Real Estate Equities, Inc., which is a wholly owned subsidiary of Ault Alliance, Inc., which is a wholly owned subsidiary of BitNile Holdings, Inc., for an aggregate purchase price of $69,200,000.
| F-12 |
INDEX TO FINANCIAL STATEMENTS
Madison Hotel Group
Combined Financial Statements
| Unaudited Financial Statements for the Nine Months Ended September 30, 2021 and 2020 | ||
| Combined Balance Sheets (Unaudited) | F-14 | |
| Combined Statements of Operations (Unaudited) | F-15 | |
| Combined Statements of Members’ Deficit (Unaudited) | F-16 | |
| Combined Statements of Cash Flows (Unaudited) | F-17 | |
| Notes to Combined Financial Statements (Unaudited) | F-18 |
| F-13 |
MADISON HOTEL GROUP
COMBINED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 2,176,292 | $ | 496,915 | ||||
| Restricted cash | 4,756,136 | 5,259,818 | ||||||
| Accounts receivable | 421,928 | 238,814 | ||||||
| Prepaid expenses and other assets | 2,984,816 | 2,979,745 | ||||||
| Real estate asset, net | 24,708,224 | 25,287,490 | ||||||
| Total assets | $ | 35,047,396 | $ | 34,262,782 | ||||
| Liabilities and members’ deficit | ||||||||
| Accounts payable | $ | 360,318 | $ | 162,077 | ||||
| Accrued expenses and other liabilities | 1,391,810 | 1,280,243 | ||||||
| Notes payable | 43,393,186 | 44,229,280 | ||||||
| Due to affiliates | 102,500 | 129,321 | ||||||
| Total liabilities | 45,247,814 | 45,800,921 | ||||||
| Members’ deficit | (10,200,418 | ) | (11,538,139 | ) | ||||
| Total liabilities and members’ deficit | $ | 35,047,396 | $ | 34,262,782 | ||||
Please see accompanying Notes to the Unaudited Combined Financial Statements.
| F-14 |
MADISON HOTEL GROUP
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenue: | ||||||||
| Rooms | $ | 8,336,001 | $ | 5,953,447 | ||||
| Food and beverage | 399,226 | 368,339 | ||||||
| Ancillary hotel | 150,262 | 109,708 | ||||||
| Total revenue | 8,885,489 | 6,431,494 | ||||||
| Operating expenses: | ||||||||
| Hotel and restaurants operating expenses | 4,369,440 | 3,581,355 | ||||||
| Other operating expenses | 2,678,953 | 2,497,500 | ||||||
| Depreciation expense | 794,060 | 1,037,779 | ||||||
| Total operating expenses | 7,842,453 | 7,116,634 | ||||||
| Income (loss) from operations | 1,043,036 | (685,140 | ) | |||||
| Other income (expense): | ||||||||
| Other income – government grant | 959,542 | - | ||||||
| Other expense, net | (70,440 | ) | (69,497 | ) | ||||
| Interest expense | (1,624,417 | ) | (1,671,871 | ) | ||||
| Total other expense) | (1,694,857 | ) | (1,741,368 | ) | ||||
| Net income (loss) | $ | 307,721 | $ | (2,426,508 | ) | |||
Please see accompanying Notes to the Unaudited Combined Financial Statements.
| F-15 |
MADISON HOTEL GROUP
COMBINED STATEMENTS OF MEMBERS’ DEFICIT
(Unaudited)
| Members’ Deficit | ||||
| Members’ deficit at January 1, 2020 | $ | (7,331,693 | ) | |
| Contributions from members | 1,779,772 | |||
| Distributions to members | (3,144,999 | ) | ||
| Net loss | (2,426,508 | ) | ||
| Members’ deficit at September 30, 2020 | $ | (11,123,428 | ) | |
| Members’ Deficit | ||||
| Members’ deficit at January 1, 2021 | $ | (11,538,139 | ) | |
| Contributions from members | 1,180,000 | |||
| Distributions to members | (150,000 | ) | ||
| Net income | 307,721 | |||
| Members’ deficit at September 30, 2021 | $ | (10,200,418 | ) | |
Please see accompanying Notes to the Unaudited Combined Financial Statements.
| F-16 |
MADISON HOTEL GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 307,721 | $ | (2,426,508 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||
| Depreciation expense | 794,060 | 1,037,779 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (183,114 | ) | (108,622 | ) | ||||
| Prepaid expenses and other assets | (5,071 | ) | (33,973 | ) | ||||
| Accounts payable | 198,241 | (79,407 | ) | |||||
| Accrued expenses and other liabilities | 111,567 | (368,581 | ) | |||||
| Net cash provided by (used in) operating activities | 1,223,404 | (1,979,312 | ) | |||||
| Cash flows from investing activities | ||||||||
| Additions to real estate asset | (214,794 | ) | (78,998 | ) | ||||
| Net cash used in investing activities | (214,794 | ) | (78,998 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of notes payable | (836,094 | ) | (788,671 | ) | ||||
| Proceeds from amounts due to affiliate | - | 8,127 | ||||||
| Repayment of amounts due to affiliate | (26,821 | ) | - | |||||
| Contributions from members | 1,180,000 | 1,779,772 | ||||||
| Distributions to members | (150,000 | ) | (3,144,999 | ) | ||||
| Net cash provided by (used in) financing activities | 167,085 | (2,145,771 | ) | |||||
| Net increase (decrease) in cash, restricted cash and cash equivalents | 1,175,695 | (4,204,081 | ) | |||||
| Cash, restricted cash and cash equivalents at beginning of period | 5,756,733 | 10,292,359 | ||||||
| Cash, restricted cash and cash equivalents at end of period | $ | 6,932,428 | $ | 6,088,278 | ||||
| Supplemental cash flow disclosure | ||||||||
| Cash paid for interest | $ | 1,628,577 | $ | 1,684,940 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
Please see accompanying Notes to the Unaudited Combined Financial Statements.
| F-17 |
MADISON HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
(Unaudited)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization
The financial statements within this report represent the combined results of:
| · | Middleton Lodging Investors, LLC, a Wisconsin limited liability company founded in August 2002 and operating a 133-room Hilton Garden Inn located at 1801 Deming Street, Middleton, Wisconsin (the “Hilton Garden Inn Middleton”); |
| · | Rockford Lodging Investors II, LLC, a Wisconsin limited liability company founded in December 2005 and operating a 135-room Hilton Garden Inn located at 7605 Walton Street, Rockford, Illinois (the “Hilton Garden Inn Rockford”); |
| · | Mid Discovery Springs SPE Hotel, LLC, a Wisconsin limited liability company founded in January 2014 and operating a 136-room Courtyard by Marriott located at 2266 Deming Street, Middleton, Wisconsin (the “Courtyard Middleton”); and |
| · | MLI III SPE Hotel, LLC, a Wisconsin limited liability company founded in January 2014 and operating a 122-room Residence Inn by Marriott located at 8400 Market Street, Middleton, Wisconsin (the “Residence Inn Middleton”). |
The companies above are together referred to as the “Company” or “Madison Hotel Group”. The Madison Hotel Group was under the common control of the North Central Group, Inc. and was subsequently sold as described in Note 8 – Subsequent Events.
Basis of preparation
The accompanying unaudited combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading have been included. Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future period. Accordingly, readers of these combined interim financial statements should refer to the Company’s audited financial statements prepared in accordance with US GAAP, and the related notes thereto, for the year ended December 31, 2020, as certain footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission.
Principles of consolidation
The combined financial statements include the accounts of the Courtyard Middleton, the Hilton Garden Inn Middleton, the Hilton Garden Inn Rockford, and the Residence Inn Middleton. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| F-18 |
Cash, restricted cash, and cash equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less at date of acquisition to be cash equivalents.
Restricted cash consists of cash held in accounts specifically for future payments of interest and real estate taxes, reserves for replacement of furniture, fixtures and equipment and tenant security deposits for the residential apartment leases.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the combined statements of cash flows for the nine months ended September 30, 2021 and 2020:
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Cash and cash equivalents | $ | 2,176,292 | $ | 1,221,682 | ||||
| Restricted cash | 4,756,136 | 4,866,596 | ||||||
| Cash, restricted cash, and cash equivalents | $ | 6,932,428 | $ | 6,088,278 | ||||
Accounts receivable
Accounts receivable consist of primarily receivables due from corporate customers as a result of extended group room rentals. The Company also recognizes accounts receivable due from guests for extended stays where payment is not collected until check out. A provision for doubtful accounts is made when collection of receivables is considered doubtful.
Real estate asset, net
Costs associated with the acquisition, development, and construction of the hotel properties were capitalized in accordance with Accounting Standards Codification (“ASC”) 970-360-25, Real Estate Project Costs. Such costs include the acquisition of the land, old building and construction in progress costs, which include items such as land development, construction materials, construction labor and other project costs such as interest, insurance, real estate taxes, and legal fees.
Property and equipment, also included as part of the real estate asset, are recorded at cost, with depreciation being recognized over the assets’ estimated useful life on the straight-line basis as follows:
| Years | ||||
| Building and improvements | 39 | |||
| Land improvements | 10-39 | |||
| Furniture, fixtures, and equipment | 7 | |||
Expenditures for major improvements and betterments are capitalized and minor repairs and maintenance are charged to expense as incurred.
Income taxes
Each Company is organized as a limited liability company and has elected to be treated as a partnership for federal and state income tax purposes. Accordingly, the members of each Company are taxed on their proportional share of such Company’s taxable income (loss). Therefore, no provision for federal and state corporate income taxes has been included in these combined financial statements.
The Company recognizes the tax benefits from uncertain tax positions that the entity has taken or expects to take on a tax return. In the unlikely event an uncertain tax position existed in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by a taxing authority. Reserves for uncertain tax positions would then be recorded if the Company determined it is probable position would not be sustained upon examination.
| F-19 |
As of September 30, 2021, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authority. It is the Company’s policy to accrue any interest and penalties associated with its tax obligations when paid. There were no income tax related interest or penalties for the nine months ended September 30, 2021 or 2020.
Revenue recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| · | Step 1: Identify the contract with the customer, |
| · | Step 2: Identify the performance obligations in the contract, |
| · | Step 3: Determine the transaction price, |
| · | Step 4: Allocate the transaction price to the performance obligations in the contract, and |
| · | Step 5: Recognize revenue when the company satisfies a performance obligation. |
The Company generates revenues from the real estate assets. The primary sources of revenue include room and food and beverage revenue from the Company’s hotels.
Rooms revenue represents revenue from the occupancy of our hotel rooms, which is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue from guest no-shows, daily use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay at the daily transaction price agreed under the contract.
Food and beverage revenue consists of revenue from the restaurants and lounges, in room dining and mini bars revenue, and banquet/catering revenue from group and social functions. Payment of the transaction price is due immediately when the customer purchases the goods and services. Therefore, revenue is recognized at a point in time when the physical possession has transferred to the customer.
The Company has not entered into any contract modifications yet, as it directly relates to reference rate reform.
| 2. | LIQUIDITY |
The Company reported net income of $307,721 and a net loss of $2.4 million for the nine months ended September 30, 2021 and 2020, respectively. Net cash provided by operating activities for the nine months ended September 30, 2021 was $1.2 million, compared to net cash used by operating activities of $2.0 million for the nine months ended September 30, 2020. At September 30, 2021, the Company had outstanding borrowings of approximately $43.4 million.
| 3. | REAL ESTATE ASSET, NET |
Real estate asset, net was:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Land | $ | 8,085,860 | $ | 8,085,860 | ||||
| Building and improvements | 30,686,811 | 30,556,682 | ||||||
| Furniture, fixtures and equipment | 16,246,303 | 16,161,638 | ||||||
| 55,018,974 | 54,804,180 | |||||||
| Less: accumulated depreciation | (30,310,750 | ) | (29,516,690 | ) | ||||
| Real estate asset, net | $ | 24,708,224 | $ | 25,287,490 | ||||
| F-20 |
Depreciation expense for the nine months ended September 30, 2021 and 2020 was $794,060 and $1,037,779, respectively.
| 4. | NOTES PAYABLE |
Debt balances and associated interest rates as of September 30, 2021 were:
| Principal balance as of | ||||||||||||||
| Interest Rate | September 30, | December 31, | ||||||||||||
| at September 30, 2021 | Maturity Date | 2021 | 2020 | |||||||||||
| Promissory Notes Payable: | ||||||||||||||
| Courtyard Middleton | 5.01% | March 1, 2024 | $ | 9,774,688 | $ | 9,938,308 | ||||||||
| Hilton Garden Inn Middleton | 4.46% | August 11, 2024 | 10,286,469 | 10,459,219 | ||||||||||
| Hilton Garden Inn Rockford | 5.12% | January 1, 2024 | 12,002,383 | 12,215,044 | ||||||||||
| Residence Inn Middleton | 5.04% | February 1, 2024 | 11,329,646 | 11,616,709 | ||||||||||
| Total notes payable | $ | 43,393,186 | $ | 44,229,280 | ||||||||||
Principal maturities of notes payable are as follows:
| Year Ending | ||||
| 2021 (October through December 2021) | $ | 336,337 | ||
| 2022 | 1,231,368 | |||
| 2023 | 1,293,277 | |||
| 2024 | 40,532,204 | |||
| Total | $ | 43,393,186 | ||
Accrued interest payable was $160,604 and $169,756 as of September 30, 2021 and December 31, 2020, respectively.
| 5. | CONCENTRATION OF RISK |
Cash and cash equivalents
The Company, in the normal course of business, maintains checking and savings account balances that may exceed the Federal Deposit Insurance Corporation insurance coverage limit of $250,000 per depositor.
| 6. | COMMITMENTS AND CONTINGENCIES |
Legal matters
The Company is subject to certain claims and complaints that arise during the ordinary course of business. The Company is not aware of any claims or complaints that would have a significant effect on the financial position or results of operations of the Company if disposed of unfavorably.
| 7. | COVID-19 |
The novel strain of coronavirus and the disease it causes (“COVID-19”) has had and continues to have a significant effect on the hospitality industry and the Company’s business. The effects of COVID-19, including government restrictions such as mandated closings of non-essential businesses and travel restrictions, have severely reduced overall lodging demand. Beginning in March 2020, the Company experienced a significant decline in occupancy and revenue per available room associated with COVID-19 throughout the Company’s hotel properties, which resulted in a decline in operating cash flow. The increase in vaccination rates across the country and the easing or removal of government restrictions, quarantining and “social distancing” mandates have resulted in increased travel and hospitality spending beginning in the second quarter of 2021. However, the seasonal decline in leisure travel following the holiday season and the delay in return of business travel, coupled with concerns over the spread of the Omicron variant, have reduced near-term demand.
| F-21 |
In August 2021, the Company received a $959,542 grant from the Wisconsin Department of Revenue as part of the Wisconsin Tomorrow Lodging Grant program that utilized Federal COVID relief funds from the American Rescue Plan Act. The proceeds from the grant are included in other income for the nine months ended September 30, 2021.
| 8. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through March 9, 2022 which is the date the financial statements were available to be issued, and noted the following event that requires disclosure:
Sale of Company assets
On December 22, 2021, the Company sold its four hotel properties to wholly owned subsidiaries of AGREE Madison, LLC, which is a wholly owned subsidiary of Ault Global Real Estate Equities, Inc., which is a wholly owned subsidiary of Ault Alliance, Inc., which is a wholly owned subsidiary of BitNile Holdings, Inc., for an aggregate purchase price of $69,200,000.
F-22
Exhibit 99.3
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Financial Statements
The unaudited pro forma condensed combined financial statements (the “Pro Forma Statements”) presented below are derived from the historical consolidated financial statements of BitNile Holdings, Inc. (“BitNile” or the “Company”) and the combined results of:
| · | Middleton Lodging Investors, LLC, a Wisconsin limited liability company founded in August 2002 and operating a 133-room Hilton Garden Inn located at 1801 Deming Street, Middleton, Wisconsin; |
| · | Rockford Lodging Investors II, LLC, a Wisconsin limited liability company founded in December 2005 and operating a 135-room Hilton Garden Inn located at 7605 Walton Street, Rockford, Illinois; |
| · | Mid Discovery Springs SPE Hotel, LLC, a Wisconsin limited liability company founded in January 2014 and operating a 136-room Courtyard by Marriott located at 2266 Deming Street, Middleton, Wisconsin; and |
| · | MLI III SPE Hotel, LLC, a Wisconsin limited liability company founded in January 2014 and operating a 122-room Residence Inn by Marriott located at 8400 Market Street, Middleton, Wisconsin. |
The four companies above are together referred to as the “Madison Hotel Group”.
The Pro Forma Statements are prepared as an asset acquisition reflecting BitNile’s acquisition of the Madison Hotel Group (the “Acquisition”) as if the Acquisition had been completed on January 1, 2020 for statement of income purposes and on September 30, 2021 for balance sheet purposes. The Pro Forma Statements do not give effect to the realization of any expected cost savings or other synergies from the Acquisition as a result of restructuring activities or other cost savings initiatives.
The Pro Forma Statements have been developed from (a) the audited consolidated financial statements of BitNile contained in its Annual Report on Form 10-K for the year ended December 31, 2020 and the unaudited consolidated financial statements of BitNile contained in its Quarterly Report on Form 10-Q for the nine months ended September 30, 2021, and (b) the audited financial statements of Madison Hotel Group for the year ended December 31, 2020 and the unaudited combined financial statements of Madison Hotel Group for the nine months ended September 30, 2021, both of which are contained in this Current Report on Form 8-K. Historical results of Madison Hotel Group have been adjusted to reclassify certain amounts to conform to BitNile’s presentation.
The Pro Forma Statements have been prepared to reflect adjustments to BitNile’s historical consolidated financial information that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statement of income, expected to have a continuing impact on the Company’s results.
The acquired assets of Madison Hotel Group were recorded at their respective fair values as of the date of the Acquisition, December 22, 2021. The values of Madison Hotel Group’s assets and liabilities are based on preliminary valuations, as allowed by U.S. generally accepted accounting principles, and are subject to adjustment as additional information is obtained. The Company cannot provide any assurance that such adjustments will not result in a material change.
The Pro Forma Statements are provided for illustrative purposes only and do not purport to represent what the actual combined results of operations or the combined financial position of BitNile would have been had the Acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.
The Pro Forma Statements should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of BitNile and the historical combined financial statements and accompanying notes of Madison Hotel Group.
| 1 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2021
| Historical | Pro Forma | |||||||||||||||
| BitNile | Madison Hotel Group | Adjustments | Combined | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 44,047,000 | $ | 2,176,000 | $ | (25,226,000 | ) | (a) | $ | 20,997,000 | ||||||
| Restricted cash | - | 4,756,000 | (173,000 | ) | (b) | 4,583,000 | ||||||||||
| Marketable equity securities | 49,931,000 | - | - | 49,931,000 | ||||||||||||
| Accounts receivable | 5,115,000 | 422,000 | (422,000 | ) | (c) | 5,115,000 | ||||||||||
| Accounts and other receivable, related party | 1,196,000 | - | - | 1,196,000 | ||||||||||||
| Accrued revenue | 1,857,000 | - | - | 1,857,000 | ||||||||||||
| Inventories | 3,842,000 | - | - | 3,842,000 | ||||||||||||
| Prepaid expenses and other current assets | 7,987,000 | 2,985,000 | (1,960,000 | ) | (d) | 9,012,000 | ||||||||||
| TOTAL CURRENT ASSETS | 113,975,000 | 10,339,000 | (27,781,000 | ) | 96,553,000 | |||||||||||
| Intangible assets, net | 4,069,000 | - | - | 4,069,000 | ||||||||||||
| Goodwill | 9,606,000 | - | - | 9,606,000 | ||||||||||||
| Property and equipment, net | 29,550,000 | 24,708,000 | 46,626,000 | (e) | 100,884,000 | |||||||||||
| Right-of-use assets | 5,201,000 | - | - | 5,201,000 | ||||||||||||
| Investment in promissory notes, related parties | 19,194,000 | - | - | 19,194,000 | ||||||||||||
| Investments in common stock and warrants, related parties | 24,911,000 | - | - | 24,911,000 | ||||||||||||
| Investments in debt and equity securities | 9,924,000 | - | - | 9,924,000 | ||||||||||||
| Investment in limited partnership | 1,869,000 | - | - | 1,869,000 | ||||||||||||
| Loans receivable | 5,877,000 | - | - | 5,877,000 | ||||||||||||
| Other investments, related parties | 780,000 | - | - | 780,000 | ||||||||||||
| Other assets | 765,000 | - | - | 765,000 | ||||||||||||
| TOTAL ASSETS | $ | 225,721,000 | $ | 35,047,000 | $ | 18,845,000 | $ | 279,613,000 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 9,361,000 | $ | 1,752,000 | $ | (1,752,000 | ) | (f) | $ | 9,361,000 | ||||||
| Accounts payable and accrued expenses, related party | 26,000 | - | - | 26,000 | ||||||||||||
| Operating lease liability, current | 1,014,000 | - | - | 1,014,000 | ||||||||||||
| Revolving credit facility | - | - | - | - | ||||||||||||
| Notes payable, net | 1,697,000 | 1,216,000 | (1,216,000 | ) | (g) | 1,697,000 | ||||||||||
| Notes payable, related parties | - | 103,000 | (103,000 | ) | (h) | - | ||||||||||
| Convertible notes payable, related party | - | - | - | - | ||||||||||||
| Warrant liability | 4,322,000 | - | - | 4,322,000 | ||||||||||||
| Other current liabilities | 3,608,000 | - | - | 3,608,000 | ||||||||||||
| TOTAL CURRENT LIABILITIES | 20,028,000 | 3,071,000 | (3,071,000 | ) | 20,028,000 | |||||||||||
| 2 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET - CONTINUED
AS OF SEPTEMBER 30, 2021
| Historical | Pro Forma | |||||||||||||||
| BitNile | Madison Hotel Group | Adjustments | Combined | |||||||||||||
| LONG TERM LIABILITIES | ||||||||||||||||
| Operating lease liability, non-current | 4,265,000 | - | - | 4,265,000 | ||||||||||||
| Notes payable | - | 42,177,000 | 11,715,000 | (i) | 53,892,000 | |||||||||||
| Notes payable, related parties | - | - | - | - | ||||||||||||
| Convertible notes payable | 447,000 | - | - | 447,000 | ||||||||||||
| TOTAL LIABILITIES | 24,740,000 | 45,248,000 | 8,644,000 | 78,632,000 | ||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Series A Convertible Preferred Stock, $25.00 stated value per share, $0.001 par value – 1,000,000 shares authorized; 7,040 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively (redemption amount and liquidation preference of $176,000 as of September 30, 2021 and December 31, 2020) | - | - | - | - | ||||||||||||
| 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, 2021 and December 31, 2020 (liquidation preference of $1,250,000 at September 30, 2021 and December 31, 2020) | - | - | - | - | ||||||||||||
| Class A Common Stock, $0.001 par value – 500,000,000 shares authorized; 63,346,921 and 27,753,562 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 63,000 | - | - | 63,000 | ||||||||||||
| Class B Common Stock, $0.001 par value – 25,000,000 shares authorized; nil shares issued and outstanding at September 30, 2021 and December 31, 2020 | - | - | - | - | ||||||||||||
| Additional paid-in capital | 331,886,000 | - | - | 331,886,000 | ||||||||||||
| Members’ deficit | - | (10,201,000 | ) | 10,201,000 | (j) | - | ||||||||||
| Accumulated deficit | (120,066,000 | ) | - | - | (120,066,000 | ) | ||||||||||
| Accumulated other comprehensive loss | (9,631,000 | ) | - | - | (9,631,000 | ) | ||||||||||
| Treasury stock, at cost | (2,773,000 | ) | - | - | (2,773,000 | ) | ||||||||||
| TOTAL BITNILE HOLDINGS STOCKHOLDERS’ EQUITY (DEFICIT) | 199,479,000 | (10,201,000 | ) | 10,201,000 | 199,479,000 | |||||||||||
| Non-controlling interest | 1,502,000 | - | - | 1,502,000 | ||||||||||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | 200,981,000 | (10,201,000 | ) | 10,201,000 | 200,981,000 | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 225,721,000 | $ | 35,047,000 | $ | 18,845,000 | $ | 279,613,000 | ||||||||
| 3 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENTS OF INCOME AND
COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
| Historical | Pro Forma | |||||||||||||||
| BitNile | Madison Hotel Group | Adjustments | Combined | |||||||||||||
| Revenue | $ | 24,272,000 | $ | - | $ | - | $ | 24,272,000 | ||||||||
| Revenue, hotels | - | 8,885,000 | - | 8,885,000 | ||||||||||||
| Revenue, cryptocurrency mining | 693,000 | - | - | 693,000 | ||||||||||||
| Revenue, lending activities | 19,615,000 | - | - | 19,615,000 | ||||||||||||
| Total revenue | 44,580,000 | 8,885,000 | - | 53,465,000 | ||||||||||||
| Cost of revenue | 16,657,000 | - | - | 16,657,000 | ||||||||||||
| Gross profit | 27,923,000 | 8,885,000 | - | 36,808,000 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | 1,657,000 | - | - | 1,657,000 | ||||||||||||
| Selling and marketing | 4,740,000 | - | - | 4,740,000 | ||||||||||||
| General and administrative | 24,376,000 | 7,842,000 | 1,690,000 | (k) | 33,908,000 | |||||||||||
| Total operating expenses | 30,773,000 | 7,842,000 | 1,690,000 | 40,305,000 | ||||||||||||
| Gain (loss) from continuing operations | (2,850,000 | ) | 1,043,000 | (1,690,000 | ) | (3,497,000 | ) | |||||||||
| Other income (expenses) | ||||||||||||||||
| Interest and other income | 176,000 | 960,000 | - | 1,136,000 | ||||||||||||
| Accretion of discount on note receivable, related party | 4,210,000 | 4,210,000 | ||||||||||||||
| Interest expense | (475,000 | ) | (1,695,000 | ) | (1,482,000 | ) | (l) | (3,652,000 | ) | |||||||
| Change in fair value of marketable equity securities | (705,000 | ) | - | - | (705,000 | ) | ||||||||||
| Realized gain on marketable securities | 428,000 | - | - | 428,000 | ||||||||||||
| Gain on extinguishment of debt | 929,000 | - | - | 929,000 | ||||||||||||
| Change in fair value of warrant liability | (130,000 | ) | - | - | (130,000 | ) | ||||||||||
| Total other expenses, net | 4,433,000 | (735,000 | ) | (1,482,000 | ) | 2,216,000 | ||||||||||
| Income (loss) from continuing operations before income taxes | 1,583,000 | 308,000 | (3,172,000 | ) | (1,281,000 | ) | ||||||||||
| Income tax provision | (144,000 | ) | - | - | (144,000 | ) | ||||||||||
| Net income (loss) | 1,439,000 | 308,000 | (3,172,000 | ) | (1,425,000 | ) | ||||||||||
| Net loss attributable to non-controlling interest | (93,000 | ) | - | - | (93,000 | ) | ||||||||||
| Net income (loss) | 1,346,000 | 308,000 | (3,172,000 | ) | (1,518,000 | ) | ||||||||||
| Preferred dividends | (13,000 | ) | - | - | (13,000 | ) | ||||||||||
| Net income (loss) available to common stockholders | $ | 1,333,000 | $ | 308,000 | $ | (3,172,000 | ) | $ | (1,531,000 | ) | ||||||
| Basic and diluted net income (loss) per common share: | ||||||||||||||||
| Net income (loss) per common share - basic | $ | 0.03 | $ | (0.03 | ) | |||||||||||
| Net income (loss) per common share - diluted | $ | 0.03 | $ | (0.03 | ) | |||||||||||
| Weighted average basic common shares outstanding | 49,714,000 | 49,714,000 | ||||||||||||||
| Weighted average diluted common shares outstanding | 50,145,000 | 50,145,000 | ||||||||||||||
| Comprehensive income (loss) | ||||||||||||||||
| Income (loss) available to common stockholders | $ | 1,333,000 | $ | 308,000 | $ | (3,172,000 | ) | $ | (1,531,000 | ) | ||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustment | (141,000 | ) | - | - | (141,000 | ) | ||||||||||
| Net unrealized
loss on derivative securities of related party | (7,773,000 | ) | - | - | (7,773,000 | ) | ||||||||||
| Other comprehensive loss | (7,914,000 | ) | - | - | (7,914,000 | ) | ||||||||||
| Total comprehensive income (loss) | $ | (6,581,000 | ) | $ | 308,000 | $ | (3,172,000 | ) | $ | (9,445,000 | ) | |||||
| 4 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENTS OF INCOME AND
COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2020
| Historical | Pro Forma | |||||||||||||||
| BitNile | Madison Hotel Group | Adjustments | Combined | |||||||||||||
| Revenue | $ | 23,629,000 | $ | - | $ | - | $ | 23,629,000 | ||||||||
| Revenue, hotels | - | 7,906,000 | - | 7,906,000 | ||||||||||||
| Revenue, lending activities | 242,000 | - | - | 242,000 | ||||||||||||
| Total revenue | 23,871,000 | 7,906,000 | - | 31,777,000 | ||||||||||||
| Cost of revenue | 16,357,000 | - | - | 16,357,000 | ||||||||||||
| Gross profit | 7,514,000 | 7,906,000 | - | 15,420,000 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | 1,849,000 | - | - | 1,849,000 | ||||||||||||
| Selling and marketing | 1,177,000 | - | - | 1,177,000 | ||||||||||||
| General and administrative | 12,527,000 | 9,044,000 | 1,942,000 | (k) | 23,513,000 | |||||||||||
| Benefit for credit losses | (2,000,000 | ) | - | - | (2,000,000 | ) | ||||||||||
| Gain on digital currency | (5,000 | ) | - | - | (5,000 | ) | ||||||||||
| Total operating expenses | 13,548,000 | 9,044,000 | 1,942,000 | 24,534,000 | ||||||||||||
| Loss from continuing operations | (6,034,000 | ) | (1,138,000 | ) | (1,942,000 | ) | (9,114000 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income | 105,000 | - | - | 105,000 | ||||||||||||
| Interest expense | (9,649,000 | ) | (2,313,000 | ) | (1,924,000 | ) | (l) | (13,886,000 | ) | |||||||
| Change in fair value of marketable equity securities | 919,000 | - | - | 919,000 | ||||||||||||
| Loss on extinguishment of debt | (18,706,000 | ) | - | - | (18,706,000 | ) | ||||||||||
| Change in fair value of warrant liability | (49,000 | ) | - | - | (49,000 | ) | ||||||||||
| Total other expenses, net | (27,380,000 | ) | (2,313,000 | ) | (1,924,000 | ) | (31,617,000 | ) | ||||||||
| Loss from continuing operations before income taxes | (33,414,000 | ) | (3,451,000 | ) | (3,866,000 | ) | (40,731,000 | ) | ||||||||
| Income tax benefit | 24,000 | - | - | 24,000 | ||||||||||||
| Net loss from continuing operations | (33,390,000 | ) | (3,451,000 | ) | (3,866,000 | ) | (40,707,000 | ) | ||||||||
| Net gain from discontinued operations, net of taxes | 661,000 | - | - | 661,000 | ||||||||||||
| Net loss | (32,729,000 | ) | (3,451,000 | ) | (3,866,000 | ) | (40,046,000 | ) | ||||||||
| Preferred dividends | (17,000 | ) | - | - | (17,000 | ) | ||||||||||
| Net loss available to common stockholders | $ | (32,746,000 | ) | $ | (3,451,000 | ) | $ | (3,866,000 | ) | $ | (40,063,000 | ) | ||||
| Basic and diluted net income (loss) per common share: | ||||||||||||||||
| Continuing operations | $ | (3.48 | ) | $ | (4.24 | ) | ||||||||||
| Discontinued operations | 0.07 | 0.07 | ||||||||||||||
| Net loss per common share | $ | (3.41 | ) | $ | (4.17 | ) | ||||||||||
Weighted average common shares outstanding, basic and diluted | 9,606,000 | 9,606,000 | ||||||||||||||
| Comprehensive loss | ||||||||||||||||
| Loss available to common stockholders | $ | (32,746,000 | ) | $ | (3,451,000 | ) | $ | (3,866,000 | ) | $ | (40,063,000 | ) | ||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation adjustment | 481,000 | - | - | 481,000 | ||||||||||||
| Net unrealized gain on derivative securities of related party | 3,312,000 | - | - | 3,312,000 | ||||||||||||
| Other comprehensive income | 3,793,000 | - | - | 3,793,000 | ||||||||||||
| Total comprehensive loss | $ | (28,953,000 | ) | $ | (3,451,000 | ) | $ | (3,866,000 | ) | $ | (36,270,000 | ) | ||||
| 5 |
BITNILE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Basis of Presentation
The accompanying Unaudited Pro Forma Condensed Combined Financial Statements (the “Pro Forma Statements”) present the pro forma combined financial position and results of operations of the combined company based upon the historical consolidated financial statements of BitNile and combined financial statements of Madison Hotel Group, after giving effect to the Acquisition and adjustments described in these footnotes, and are intended to reflect the impact of the Acquisition on BitNile.
On December 22, 2021, wholly owned subsidiaries of AGREE Madison, LLC, which is a wholly owned subsidiary of Ault Global Real Estate Equities, Inc., which is a wholly owned subsidiary of Ault Alliance, Inc., which is a wholly owned subsidiary of BitNile, entered into construction loan agreements in the aggregate amount of $68,750,000 (the “Loans”) in connection with the Acquisition, as follows:
| Borrower | Lender | Property | Loan Amount |
| 1801 Deming, LLC | PDOF Q4 21 Middleton 1801, LLC |
133-room Hilton Garden Inn 1801 Deming Street, Middleton, WI 53562 |
$16,750,000 |
| 2226 Deming, LLC | PDOF Q4 21 Middleton 2266, LLC |
136-room Courtyard by Marriott 2266 Deming Street, Middleton, WI 53562 |
$14,250,000 |
| 8400 Market, LLC | PDOF Q4 21 Middleton 8400, LLC |
122-room Residence Inn by Marriott 8400 Market Street, Middleton, WI 53562 |
$15,375,000 |
| 7605 Walton, LLC | PDOF Q4 21 Rockford 7605, LLC |
135-room Hilton Garden Inn 7605 Walton Street, Rockford, IL 61108 |
$22,375,000 |
The properties were acquired for an aggregate purchase price of $69,200,000, of which $2,500,000 was previously funded on deposit, $21,378,000 was paid by the Company on the closing date, and the remaining amounts were funded from the Loans. The remaining $23,428,000 of the Loans are available to be drawn upon by the Company towards the completion of the $13,700,000 in property improvement plans as well as to fund working capital, interest reserves, franchise fees and other costs and expenses related to the Acquisition.
The Loans are due on January 1, 2025 (the “Maturity Date”), but may be extended for two additional 12-month terms, subject to certain terms and conditions as set forth in the loan agreements. The Loans accrue interest at a rate equal to the greater of (i) the LIBOR Rate plus 675 basis points or (ii) 7% per annum. The Company will make monthly installment payments of interest only, starting January 1, 2022.
The Company paid a loan commitment fee of 1% of the total amount of the Loans on the closing date, and will pay an exit fee of 0.5% of the total amount of the Loans, which is fully earned on the Closing Date but payable on the earlier of the Maturity Date or the date of payment in full of the Loans. The Loans have maximum loan-to-value and loan-to-cost ratios that cannot exceed 75%. The Loans contain customary representations, warranties and covenants for transactions of this nature.
The assets and liabilities of Madison Hotel Group have been reflected on the opening balance sheet. Long-lived assets such as property, plant and equipment reflect a value that a market participant would spend to replace the assets. This approach often results in differences, sometimes material, from recorded book values even if, absent the Acquisition, the assets would be neither increased in value nor impaired.
The accompanying Pro Forma Statements are presented for illustrative purposes only and do not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of BitNile’s and Madison Hotel Group’s operations. The accompanying Pro Forma Statements have been adjusted to reflect adjustments to BitNile’s historical consolidated financial information that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) to reclassify certain Madison Hotel Group items to conform to BitNile’s presentation. The Unaudited Pro Forma Combined Statements of Income reflect the Acquisition as if it had been completed on January 1, 2021. The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the Acquisition as if it was completed on September 30, 2021.
| 6 |
Note 2. Preliminary Purchase Price Allocation
The Company has performed a preliminary valuation analysis of the fair market value of the assets acquired. The following table summarizes the preliminary allocation of the purchase price as of the date of the Acquisition. The purchase price consists of $69,200,000 paid to the seller and $2,133,706 of direct transaction costs.
| Land | $ | 7,578,990 | ||
| Building Improvements | 60,265,347 | |||
| Site Improvements | 1,441,999 | |||
| Furniture, Fixtures and Equipment | 2,047,370 | |||
| Assets acquired | $ | 71,333,706 |
The preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma condensed combined statement of comprehensive income. The final purchase price allocation is subject to change as more detailed analyses are completed and additional information about the fair value of assets acquired becomes available.
Note 3. Pro Forma Adjustments
The pro forma adjustments are based on the Company’s preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
| (a) | Represents cash of $23.1 million paid by the Company upon closing the Acquisition, comprised of $14.1 million paid to the seller, $2.1 million of direct transaction costs, $4.6 million paid for interest and other reserves and included in restricted cash, working capital costs of $1.0 million included in prepaid expenses and the elimination of the $2.2 million Madison Hotel Group cash balance at September 30, 2021; |
| (b) | Represents $4.6 million restricted cash related to interest and other reserves and the elimination of the $4.8 million Madison Hotel Group restricted cash balance at September 30, 2021; |
| (c) | Represents the elimination of the $422,000 Madison Hotel Group accounts receivable balance at September 30, 2021; |
| (d) | Represents $1.0 million of working capital payments made and the elimination of the $3.0 million Madison Hotel Group prepaid expenses and other current assets balance at September 30, 2021; |
| (e) | Reflects adjustment of the acquired hotel property, plant and equipment to estimated fair value of $71.3 million as of the date of Acquisition. |
| (f) | Represents the elimination of the $1.8 million Madison Hotel Group accounts payable and accrued expenses balance at September 30, 2021; |
| (g) | Represents the elimination of the $1.2 million Madison Hotel Group current notes payable balance at September 30, 2021; |
| (h) | Represents the elimination of the $103,000 Madison Hotel Group notes payable, related party balance at September 30, 2021; |
| (i) | Represents the adjustment of notes payable to a total balance of $53.9 million, which consist of the $55.1 million notes used to finance the Acquisition offset by the debt discount of $1.2 million from loan origination and placement fees; |
| (j) | Represents the elimination of the $10.2 million Madison Hotel Group members’ equity balance at September 30, 2021; |
| (k) | Represents an increase in pro forma depreciation expense related to the acquired hotel property, plant and equipment to estimated fair value of $71.3 million as of the date of Acquisition. Estimated useful lives of the acquired assets are: |
| · | 1.5 years for furniture, fixtures and equipment, |
| · | 6-10 years for site improvements, and |
| · | 29-39 years for building and improvements. |
| (l) | Represents an increase in pro forma interest expense related to the notes payable of $55.1 million used to finance the Acquisition. |
7