Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
This Quarterly Report on Form 10-Q contains forward-looking
statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,”
“goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,”
“may,” “will,” “would,” “should,” “could,” and variations of such words and
similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of
our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations
of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the
date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed
or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual
Report on Form 10-K for the year ended December 31, 2022, as amended, particularly the “Risk Factors” sections of such reports.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking
statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations
that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements
in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements,
whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
28. SUBSEQUENT EVENTS
2023 Common ATM
Offering
During
the period between October 1, 2023 through November 17, 2023, the Company sold an aggregate of 54.2 million shares of common
stock pursuant to the 2023 Common ATM Offering for gross proceeds of $10.0 million.
Note Conversions
In October 2023,
an investor converted $0.5 million in principal of a convertible note into 2.1 million shares of the Company’s common stock.
Senior Secured
Convertible Note, Related Party
On
October 13, 2023 (the “Closing Date”), the Company entered into a note purchase agreement with Ault & Company, pursuant
to which the Company sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17,519,832
(the “Note”) and warrants (the “Warrants”) to purchase shares of the Company’s common stock for a total
purchase price of up to $17,519,832 (the “Transaction”).
The
purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to the Company since
June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by the Company to Ault & Company
in exchange for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25
million stated value of 125,000 shares of the Company’s Series B Convertible Preferred Stock (representing all shares issued and
outstanding of that series) being transferred from Ault & Company to the Company.
The
Note has a principal face amount of $17,519,832 and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note
bears interest at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at
the applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault &
Company has the option, on not less than 10 calendar days’ notice to the Company, to require payment of accrued but unpaid interest
on a monthly basis in arrears.
The Note is convertible into shares
of common stock at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”), and (ii) the
lesser of (A) $0.2952 or (B) 105% of the volume weighted average price of the common stock during the ten trading days immediately
prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of
an issuance of common stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock
splits, stock dividends, combinations or similar events. The Floor Price shall not be adjusted for stock dividends, stock splits,
stock combinations and other similar transactions.
The
Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring
on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the
Closing Date. The exercise price of the Warrants is $0.1837, which is subject to adjustment in the event of customary stock splits, stock
dividends, combinations or similar events.
In
addition, the Company and various subsidiaries of the Company granted Ault & Company a
senior security interest in substantially all of their assets as collateral for the repayment of the Note, which is subordinated to the
security interest granted to the holders of the outstanding secured promissory notes.
Series C Preferred Purchase Agreement, Related
Party
On
November 6, 2023, the Company entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to
which the Company agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase
up to 370 million shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may
be tendered for cancellation. The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series
C convertible preferred stock and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of the
Agreement, are subject to various customary closing conditions as well as regulatory and stockholder approval. In addition to customary
closing conditions, the closing of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate
the transaction. The SPA contains customary termination provisions for Ault & Company under certain circumstances, and the Agreement
shall automatically terminate if the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault &
Company for a period of 90 days as set forth in the SPA.
Series D Preferred Purchase Agreement,
Related Party
On November 15,
2023, the Company purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase
price of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by the Company to ROI between
January 1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible
into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million
shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the
conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders
are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033.
In addition, for
as long as at least 25% of the Preferred Shares remain outstanding, ROI must obtain from the Company consent with respect to certain corporate
events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors,
and declarations or payment of dividends, and further ROI is subject to certain negative covenants, including covenants against issuing
additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of
properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject
to certain exceptions and limitations.
Payment of Related
Party Advances
On October 5, 2023, William
B. Horne, the Company’s Chief Executive Officer, loaned the Company $262,500, including a $12,500 original issue discount. On October
12, 2023, the loan was repaid.
On October 10, 2023,
ROI repaid $52,000 of advances payable to Mr. Horne, the Company’s Chief Executive Officer and director of ROI.
Eco Pack Acquisition
On November 10,
2023, the Company’s wholly owned subsidiary, Eco Pack Technologies, Inc., completed the acquisition of an 80% ownership interest
in Eco Pack Technologies Limited, a company incorporated in England and Wales. As of the closing date, the total consideration paid amounted
to $0.8 million. Additionally, the Company is committed to providing approximately $2.5 million in further funding over the next two years.
Deficiency Letter from the NYSE American
On November 13, 2023, the
Company received a deficiency letter (the “Letter”) from the NYSE American LLC (the “NYSE American” or the “Exchange”)
indicating that the Company is not in compliance with the Exchange’s continued listing standard set forth in Section 1003(f)(v)
of the NYSE American Company Guide (the “Company Guide”) because the shares of common stock of the Company (the “Common
Stock”) for a substantial period of time have been selling at a low price per share, which the Exchange determined to be a 30-trading
day average price of less than $0.20 per share. The Letter has no immediate effect on the listing or trading of the Company’s Common
Stock and the Common Stock will continue to trade on the NYSE American under the symbol “AULT”. Additionally, the Letter does
not result in the immediate delisting of the Common Stock from the NYSE American.
Pursuant to Section 1003(f)(v)
of the Company Guide, the NYSE American staff determined that the Company’s continued listing is predicated on it demonstrating
sustained price improvement within a reasonable period of time or effecting a reverse stock split of its common stock, which the staff
determined to be no later than May 13, 2024. The Company intends to regain compliance with the NYSE American’s continued listing
standards by undertaking a measure or measures that are in the best interests of the Company and its stockholders.
The Company intends to closely
monitor the price of its common stock and consider available options if the Common Stock does not trade at a consistent level likely to
result in the Company regaining compliance by May 13, 2024. The Company’s receipt of the Letter does not affect the Company’s
business, operations or reporting requirements with the Securities and Exchange Commission. The Company is actively engaged in discussions
with the Exchange and is developing plans to regain compliance with the NYSE American’s continued listing standards within the cure
period.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
In this quarterly report, the “Company,”
“AAI,” “we,” “us” and “our” refer to Ault Alliance, Inc., a Delaware corporation. AAI
is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact.
Through our wholly and majority owned subsidiaries and strategic investments, we own and operate a data center at which we mine Bitcoin
and offer colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provide mission-critical
products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace,
industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, we own and operate hotels
and extend credit to select entrepreneurial businesses through a licensed lending subsidiary.
Recent Events and Developments
On January 23, 2023, we filed
a Certificate of Elimination with the Secretary of State of the State of Delaware with respect to our Series C convertible redeemable
preferred stock (“Series C Preferred Stock”) which, effective upon filing, eliminated the Series C Preferred Stock.
On February 8, 2023, we entered into a Share
Exchange Agreement (the “Agreement”) with ROI and the other signatories thereto. The Agreement provides that, subject to the
terms and conditions set forth therein, ROI will acquire all of the outstanding shares of capital stock of our then subsidiary, BitNile.com,
Inc. (“BitNile.com”), of which we owned approximately 86%, and the remaining 14% was owned by minority shareholders (the “Minority
Shareholders”), as well as Ault Iconic, (formerly Ault Media Group) and the securities of Earnity beneficially owned by BitNile.com
(which represented approximately 19.9% of the outstanding equity securities of Earnity as of the date of the Agreement), in exchange for
the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of ROI to be issued to our company (the “Series
B Preferred”), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of ROI to be issued to the to the
Minority Shareholders (the “Series C Preferred,” and together with the Series B Preferred, the “Preferred Stock”).
The Series B Preferred and the Series C Preferred each have a stated value of $10,000 per share (the “Stated Value”), for
a combined stated value of the Preferred Stock to be issued by ROI of $100 million, and subject to adjustment, are convertible into an
aggregate of 13.3 million shares of common stock of ROI (the “ROI Common Stock”). ROI received approval of the Series A Convertible
Preferred Stock transaction by its’s shareholders and the Nasdaq Stock Market to exceed the 19.9% beneficial ownership limitation.
Pursuant to the Certificates
of Designations of the Rights, Preferences and Limitations of the Series B Preferred and the Series C Preferred (collectively, the “Preferred
Stock Certificates”), each share of Preferred Stock will be convertible into a number of shares of ROI Common Stock determined by
dividing the Stated Value by $7.50 (the “Conversion Price”), or 1,333 shares of ROI Common Stock. The Conversion Price will
be subject to certain adjustments, including potential downward adjustment if ROI closes a qualified financing resulting in at least $25
million in gross proceeds at a price per share that is lower than the Conversion Price then in effect. The holders of Preferred Stock
will be entitled to receive dividends at a rate of 5% of the Stated Value per annum from issuance until February 7, 2033 (the “Dividend
Term”). During the first two years of the Dividend Term, dividends will be payable in additional shares of Preferred Stock rather
than cash, and thereafter dividends will be payable in either additional shares of Preferred Stock or cash as each holder may elect. If
ROI fails to make a dividend payment as required by the Preferred Stock Certificates, the dividend rate will be increased to 12% for as
long as such default remains ongoing and uncured. Each share of Preferred Stock will also have an $11,000 liquidation preference in the
event of a liquidation, change of control event, dissolution or winding up of ROI, and will rank senior to all other capital stock of
ROI with respect thereto, except that the Series B Preferred and Series C Preferred shall rank pari passu. Each share of Series B Preferred
was originally entitled to vote with the ROI Common Stock at a rate of 10 votes per share of Common Stock into which the Series B Preferred
is convertible, but that provision was subsequently eliminated. Other than certain rights granted to the Company relating to amendments
or waiver of various negative covenants, the terms, rights, preferences and limitations of the Preferred Stock Certificates are essentially
identical. The Agreement closed on March 6, 2023.
On March 28, 2023, we entered into a securities
purchase agreement (the “Purchase Agreement”) with certain sophisticated investors (the “Investors”), pursuant
to which we agreed to issue and sell, in a private placement, an aggregate of 100,000 shares of our preferred stock, with each such share
having a stated value of $100.00 and consisting of (i) 83,000 shares of Series E Convertible Preferred Stock (the “Series E Preferred
Stock”), (ii) 1,000 shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and (iii) 16,000
shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock” and collectively, the “Preferred Shares”).
Each share of Series E Preferred
Stock and Series F Preferred Stock had a purchase price of $100.00, equal to each such share’s stated value. The purchase price
of the Series E Preferred Stock and the Series F Preferred Stock was paid for by the Investors’ canceling outstanding secured promissory
notes in the principal amount of $8.4 million, whereas the purchase price of the shares of Series G Preferred Stock consisted of accrued
but unpaid interest on these notes, as well as for other good and valuable consideration. Each Preferred Share is convertible into shares
of our common stock at a conversion price equal to 85% of the closing sale price of our common stock on the trading day prior to the date
of conversion, subject to a floor price of $0.10. The Preferred Shares are convertible at the option of the holder at any time following
our receipt of stockholder approval of the Reverse Split (as defined below). The private placement closed on March 30, 2023.
On April 6, 2023, we issued
a term note with a principal amount of $1.1 million, bearing an interest rate of 12% (the “Term Note”). The Term Note was
issued at a discount, with net proceeds to us amounting to $1.0 million. The Term Note was scheduled to mature on June 5, 2023. We exercised
the option to extend the maturity date by one month, by paying a $30,000 extension fee. Ault & Company guaranteed repayment of the
Term Note.
On May 1, 2023, we entered
into a securities purchase agreement (the “Series C Agreement”) with Ault & Company, pursuant to which we agreed to sell
to Ault & Company up to 40,000 shares of Series C convertible preferred stock and warrants to purchase up to 1.3 million shares of
common stock for a total purchase price of up to $40 million. The consummation of the transactions contemplated by the Series C Agreement
are subject to various customary closing conditions and the receipt of certain third party consents. In addition to customary closing
conditions, the closing of the transaction is also conditioned upon the receipt by Ault & Company of financing in an amount sufficient
to consummate the transaction, in whole or in part. The Series C Agreement contains customary termination provisions for Ault & Company
under certain circumstances, and the Series C Agreement shall automatically terminate if the closing has not occurred prior to May 31,
2023, although such date may be extended by Ault & Company for a period of 90 days as set forth in the Series C Agreement.
Our stockholders approved,
at a special meeting of our stockholders called for such purpose, an amendment (the “Amendment”) to our certificate of incorporation
to authorize a reverse split of our common stock (the “Reverse Split”). The Investors agreed in the Purchase Agreement to
not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the Preferred Shares until after the Reverse
Split. Pursuant to the certificate of designation of the Series E Preferred Stock, the shares of Series E Preferred Stock have the right
to vote on such Amendment on an as converted to common stock basis. In addition, pursuant to the certificate of designation of the Series
F Preferred Stock, the shares of Series F Preferred Stock have the right to vote on such Amendment. Each Investor has separately agreed
to vote the shares of the Series E Preferred Stock in favor of the Amendment and that the shares of the Series F Preferred Stock shall
automatically be voted in a manner that “mirrors” the proportions on which the shares of our common stock and Series E Preferred
Stock are voted on the Amendment. The Amendment requires the approval of the majority of the votes associated with our outstanding capital
stock entitled to vote on the proposal. Because the Series F Preferred Stock will automatically and without further action of the purchaser
be voted in a manner that “mirrors” the proportions on which the shares of common stock and Series E Preferred Stock are voted
on the Reverse Split, abstentions by common stockholders will not have any effect on the votes cast by the holders of the Series F Preferred
Stock. The Series G Preferred Stock does not carry any voting rights, except as required by law or expressly provided by its certificate
of designation.
On
June 8, 2023, we entered into a loan agreement with Ault & Company as lender. The loan agreement provides for an unsecured, non-revolving
credit facility in an aggregate principal amount of up to $10 million. All loans under the loan agreement are due within five business
days after request by Ault & Company and Ault & Company is not obligated to make any further advances under the loan agreement
after December 8, 2023. Advances under the loan agreement bear interest at the rate of 9.5% per annum and may be repaid at any time without
penalty or premium. As of the date of this report, $4.7 million has been advanced under the loan agreement and not repaid.
On
June 9, 2023, we entered into an At-the-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, as sales agent (“Ascendiant
Capital”) to sell shares of our common stock having an aggregate offering price of up to $10,000,000 (the “Shares”)
from time to time, through an “at the market offering” (the “2023 Common ATM Offering”). On July 12, 2023, we
and Ascendiant Capital entered into an amendment to the At-The-Market issuance sales agreement to increase the size of the 2023 Common
ATM Offering from $10.0 million to $20.0 million. Through August 14, 2023, we have sold an aggregate of 3.8 million shares of
common stock pursuant to the 2023 Common ATM Offering for gross proceeds of $16.1 million.
On June 26, 2023, we established
a record date for our initial distribution of TurnOnGreen securities. Stockholders as of this date were entitled to 40 shares of TurnOnGreen
common stock, along with warrants to purchase 40 shares of TurnOnGreen common stock (the “TurnOnGreen Securities”) for every
share of our common stock they held on the record date. The initial distribution was finalized in July 2023. We distributed 58.7 million
TurnOnGreen Securities in the first distribution.
On July 24, 2023, we established
a record date for our second partial distribution of TurnOnGreen Securities. Stockholders as of this date were entitled to 15 shares of
TurnOnGreen Securities for every share of the Company’s common stock they held on the record date. The second distribution was finalized
on August 7, 2023, whereby we relinquished control of voting interests of TurnOnGreen. We distributed 56.4 million TurnOnGreen Securities
in the second distribution.
On
July 19, 2023 we along with certain of our subsidiaries entered into a First Amendment and Joinder to Loan and Guarantee Agreement (the
“Amendment”) with the institutional investors pursuant to which the (i) Loan and Guarantee Agreement, dated November 7, 2022,
entered into between us and the institutional investors (the “Loan Agreement”) and (ii) Security Agreement, dated November
7, 2022, entered into between the institutional investors and Sentinum (the “Security Agreement”) was amended. Pursuant to
the Amendment, we borrowed an additional $8.8 million. The net proceeds of the additional loan amount were $7.5 million.
Effective
August 3, 2023, we and the Investors entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the Investors
exchanged all of their Preferred Shares as well as their demand notes (the “Demand Notes”) issued to the Investors by us on
or about May 20, 2023, with each Demand Note having a principal outstanding amount of approximately $0.8 million for two new 10% Secured
OID Promissory Notes (the “Exchange Notes”), each with a principal face amount of $5.3 million, for an aggregate of amount
owed of $10.5 million (the “Principal Amount”). We and Milton “Todd” Ault, III, our Executive Chairman, entered
into guaranty agreements with the Investors guaranteeing repayment by Ault & Company, Inc., a related party (“Ault & Company”)
of the Exchange Notes.
Effective as of August 3,
2023, we assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from us,
we issued a 10% demand promissory note in the principal face amount of $10.5 million (the “First A&C Demand Note”) to
Ault & Company.
Effective
as of August 10, 2023, we assigned the Term Note to Ault & Company. As consideration for Ault & Company assuming the Term Note
from us, we issued a 12% demand promissory note in the principal face amount of $1.1 million (the “Second Demand Note”) to
Ault & Company.
On
October 13, 2023 (the “Closing Date”), we entered into a note purchase agreement with Ault & Company, pursuant to which
we sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”)
and warrants (the “Warrants”) to purchase shares of our common stock for a total purchase price of up to $17.5 million (the
“Transaction”).
The
purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to us since June
8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by us to Ault & Company in exchange
for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25 million
stated value of 125,000 shares of our Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series)
being transferred from Ault & Company to us.
The
Note has a principal face amount of $17.5 million and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note
bears interest at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at
the applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault &
Company has the option, on not less than 10 calendar days’ notice to us, to require payment of accrued but unpaid interest on a
monthly basis in arrears.
The
Note is convertible into shares of common stock at a conversion price equal to the greater
of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average
price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”).
The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion
Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price shall not
be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.
The
Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring
on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the
Closing Date. The exercise price of the Warrants is $0.1837, which is subject to adjustment in the event of customary stock splits, stock
dividends, combinations or similar events.
In
addition, we and various of our subsidiaries granted Ault & Company a senior security
interest in substantially all of our assets as collateral for the repayment of the Note, which is subordinated to the security interest
granted to the holders of the outstanding secured promissory notes.
On
November 6, 2023, we entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which we
agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million
shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may be tendered for cancellation.
The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock
and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of the Agreement, are subject to various
customary closing conditions as well as regulatory and stockholder approval. In addition to customary closing conditions, the closing
of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The SPA contains
customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if
the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault & Company for a period of 90 days
as set forth in the SPA.
On November 15,
2023, we purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price
of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by us to ROI between January
1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible
into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million
shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the
conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders
are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033. In addition, for as long as at least
25% of the Preferred Shares remain outstanding, ROI must obtain our consent with respect to certain corporate events, including reclassifications,
fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends,
and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative
securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering
the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
Presentation
of AGREE as Discontinued Operations
In September 2023, we committed
to a plan for our wholly owned subsidiary AGREE to list for sale its four recently renovated Midwest hotels, the Hilton Garden Inn in
Madison West, the Residence Inn in Madison West, the Courtyard in Madison West, and the Hilton Garden Inn in Rockford. The decision to
sell the hotels follows the decision to also list the multifamily development site in St. Petersburg, Florida and is driven by our desire
to focus on our core businesses, Energy, Fintech and Sentinum. We plan to use the proceeds from
the sales of the hotel properties to pay off debt and commit more capital to our core businesses. Our real estate properties, which
include both hotels and land are currently listed for sale.
In connection with the planned
sale of AGREE assets, we concluded that the net assets of AGREE met the criteria for classification as held for sale. In addition, the
proposed sale represents a strategic shift that will have a major effect on our operations and financial results. As a result, we have
presented the results of operations, cash flows and financial position of AGREE as discontinued operations in the accompanying consolidated
financial statements and notes for all periods presented.
General
As a holding company, our
business objective is designed to increase stockholder value. Under the strategy we have adopted, we are focused on managing and financially
supporting our existing subsidiaries and partner companies, with the goal of pursuing monetization opportunities and maximizing the value
returned to stockholders. We have, are and will consider initiatives including, among others: public offerings, the sale of individual
partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as
well as other opportunities to maximize stockholder value. We anticipate returning value to stockholders after satisfying our debt obligations
and working capital needs.
From time to time, we engage
in discussions with other companies interested in our subsidiaries or partner companies, either in response to inquiries or as part of
a process we initiate. To the extent we believe that a subsidiary or partner company’s further growth and development can best be
supported by a different ownership structure or if we otherwise believe it is in our stockholders’ best interests, we will seek
to sell some or all of our position in the subsidiary or partner company. These sales may take the form of privately negotiated sales
of stock or assets, mergers and acquisitions, public offerings of the subsidiary or partner company’s securities and, in the case
of publicly traded partner companies, sales of their securities in the open market. Our plans may include taking subsidiaries or partner
companies public through rights offerings and directed share subscription programs. We will continue to consider these (or similar) initiatives
and the sale of certain subsidiary or partner company interests in secondary market transactions to maximize value for our stockholders.
In recent years, we have provided
capital and relevant expertise to fuel the growth of businesses in metaverse platform, oil exploration, crane services, defense/aerospace,
industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. We have provided capital to subsidiaries
as well as partner companies in which we have an equity interest or may be actively involved, influencing development through board representation
and management support.
We are a 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.ault.com.
Results of Operations
Results of Operations for the Three Months Ended September 30, 2023
and 2022
The following table summarizes
the results of our operations for the three months ended September 30, 2023 and 2022.
| | |
For the Three Months Ended September 30, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Revenue | |
$ | 28,164,000 | | |
$ | 27,031,000 | |
| Revenue, cryptocurrency mining | |
| 7,558,000 | | |
| 3,874,000 | |
| Revenue, crane operations | |
| 12,490,000 | | |
| - | |
| Revenue, lending and trading activities | |
| (249,000 | ) | |
| 13,360,000 | |
| Total revenue | |
| 47,963,000 | | |
| 44,265,000 | |
| Cost of revenue, products | |
| 20,425,000 | | |
| 20,193,000 | |
| Cost of revenue, cryptocurrency mining | |
| 10,228,000 | | |
| 5,255,000 | |
| Cost of revenue, crane operations | |
| 7,642,000 | | |
| - | |
| Total cost of revenue | |
| 38,295,000 | | |
| 25,448,000 | |
| Gross profit | |
| 9,668,000 | | |
| 18,817,000 | |
| Total operating expenses | |
| 31,571,000 | | |
| 25,826,000 | |
| Loss from operations | |
| (21,903,000 | ) | |
| (7,009,000 | ) |
| Other income (expense): | |
| | | |
| | |
| Interest and other income | |
| 309,000 | | |
| 725,000 | |
| Interest expense | |
| (4,414,000 | ) | |
| (2,367,000 | ) |
| Loss on extinguishment of debt | |
| (1,546,000 | ) | |
| - | |
| Realized and unrealized gain on marketable securities | |
| 74,000 | | |
| 709,000 | |
| Loss on the sale of fixed assets | |
| (33,000 | ) | |
| - | |
| Change in fair value of warrant liability | |
| (562,000 | ) | |
| (3,000 | ) |
| Total other expense, net | |
| (6,172,000 | ) | |
| (936,000 | ) |
| Loss before income taxes | |
| (28,075,000 | ) | |
| (7,945,000 | ) |
| Income tax (benefit) provision | |
| (565,000 | ) | |
| 144,000 | |
| Net loss from continuing operations | |
| (27,510,000 | ) | |
| (8,089,000 | ) |
| Net income (loss) from discontinued operations | |
| (929,000 | ) | |
| 93,000 | |
| Net loss | |
| (28,439,000 | ) | |
| (7,996,000 | ) |
| Net loss attributable to non-controlling interest | |
| 6,668,000 | | |
| 725,000 | |
| Net loss attributable to Ault Alliance, Inc. | |
| (21,771,000 | ) | |
| (7,271,000 | ) |
| Preferred dividends | |
| (413,000 | ) | |
| (190,000 | ) |
| Net loss available to common stockholders | |
$ | (22,184,000 | ) | |
$ | (7,461,000 | ) |
| Comprehensive loss | |
| | | |
| | |
| Net loss available to common stockholders | |
$ | (22,184,000 | ) | |
$ | (7,461,000 | ) |
| Other comprehensive loss | |
| | | |
| | |
| Foreign currency translation adjustment | |
| (651,000 | ) | |
| 306,000 | |
| Other comprehensive loss | |
| (651,000 | ) | |
| 306,000 | |
| Total comprehensive loss | |
$ | (22,835,000 | ) | |
$ | (7,155,000 | ) |
Revenues
Revenues by segment for the
three months ended September 30, 2023 and 2022 were as follows:
| | |
For the Three Months Ended
September 30, | | |
Increase | | |
| |
| | |
2023 | | |
2022 | | |
(Decrease) | | |
% | |
| GIGA | |
$ | 10,275,000 | | |
$ | 7,781,000 | | |
$ | 2,493,000 | | |
| 32 | % |
| TurnOnGreen | |
| 1,166,000 | | |
| 1,662,000 | | |
| (496,000 | ) | |
| -30 | % |
| SMC | |
| 15,931,000 | | |
| 17,114,000 | | |
| (1,183,000 | ) | |
| -7 | % |
| Sentinum | |
| | | |
| | | |
| | | |
| | |
| Revenue, cryptocurrency mining | |
| 7,558,000 | | |
| 3,874,000 | | |
| 3,684,000 | | |
| 95 | % |
| Revenue, commercial real estate leases | |
| 333,000 | | |
| 273,000 | | |
| 61,000 | | |
| 22 | % |
| Fintech: | |
| | | |
| | | |
| | | |
| | |
| Revenue, lending and trading activities | |
| (249,000 | ) | |
| 13,360,000 | | |
| (13,609,000 | ) | |
| -102 | % |
| Other | |
| 18,000 | | |
| 201,000 | | |
| (183,000 | ) | |
| -91 | % |
| Energy | |
| 12,931,000 | | |
| - | | |
| 12,931,000 | | |
| — | |
| Total revenue | |
$ | 47,963,000 | | |
$ | 44,265,000 | | |
$ | 3,698,000 | | |
| 8 | % |
GIGA
GIGA revenues were up $2.5
million for the three months ended September 30, 2023, including $0.4 million growth attributable to our acquisition of Giga-tronics Incorporated
on September 8, 2022. Continued conflicts and tensions worldwide are driving defense-related investments in force protection technologies
at GIGA across the United States, U.K., Europe, Asia, and the Middle East. Additionally, demand for key electronics solutions, particularly
for customers in medicine and telecommunications, accelerated in the three months ended September 30, 2023.
TurnOnGreen
TurnOnGreen revenues were down $0.5
million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022 due to the cancellation
of large projects that contributed to revenue in 2022.
SMC
SMC revenues decreased by
$1.2 million primarily due to timing of shipments to a large customer.
Sentinum
Revenues from Sentinum’s
cryptocurrency mining operations increased $3.7 million as we increased our cryptocurrency mining activities from the prior period, and
further increased by a 32% increase in the average Bitcoin price, partially offset an 84% increase in the average Bitcoin mining difficulty
level in the current year period.
Fintech
Revenues from our lending
and trading activities were negative $0.2 million. Revenue from lending and trading activities for the three months ended September 30,
2023 included an approximate $3.0 million unrealized losses from our investment in Alzamend, partially offset by realized gains from our
investment portfolio for the three months ended September 30, 2023. During the three months ended September 30, 2022, Ault Lending generated
income from appreciation of investments in marketable securities as well as shares of common stock underlying equity securities issued
to Ault Lending in certain financing transactions. Ault Lending also generates revenue through origination fees
charged to borrowers and interest generated from each loan.
Revenues
from our trading activities for the three months ended September 30, 2023 included net losses 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.
Energy
Energy revenues increased
by $12.9 million for the three months ended September 30, 2023, due to the acquisition of the Circle 8 crane operations in December 2022.
Gross Margins
Gross margins decreased to
20% for the three months ended September 30, 2023, compared to 43% for the three months ended September 30, 2022. Our gross margins of
21% recognized during the three months ended September 30, 2023 were negatively impacted by unfavorable margins from our lending and trading
activities and negative margins from our Sentinum cryptocurrency mining segment due to the significant increase in Bitcoin mining difficulty
level. Excluding the effects of margin from our lending and trading activities and cryptocurrency mining operations, our adjusted gross
margins for the three months ended September 30, 2023 and 2022 would have been 31% and 25%, respectively.
Research and Development
Research and development expenses
increased by $1.2 million for the three months ended September 30, 2023, due to expenditures related to development work on ROI’s
BitNile metaverse platform.
Selling and Marketing
Selling and marketing expenses
were $8.0 million for the three months ended September 30, 2023, compared to $7.4 million for the three months ended September 30, 2022,
an increase of $0.6 million, or 8%. The increase was primarily the result of higher advertising and promotion costs related to ROI’s
BitNile metaverse platform, partially offset by a decline in employee related costs and consulting expenses.
General and Administrative
General and administrative
expenses were $17.8 million for the three months ended September 30, 2023, compared to $15.4 million for the three months ended September
30, 2022, an increase of $2.4 million, or 16%. General and administrative expenses increased from the comparative prior period, mainly
due to increases from new acquisitions:
| · | general and administrative costs of $2.2 million from ROI, which was acquired in March 2023; |
| · | general and administrative costs of $2.0 million from Circle 8, which was acquired in December 2022; and |
| · | general and administrative costs of $0.7 million from GIGA, which was acquired in September 2022. |
The increases above were partially
offset by a $2.4 million decrease performance bonus related to realized gains on trading activities.
Impairment of Property and Equipment
During the three months ended
September 30, 2023, we recognized an impairment charge of $3.9 million related to property and equipment at ROI’s Agora and Bitstream
Bitcoin mining operations as they have been unable to commence Bitcoin mining operations, either for themselves or from others through
hosting arrangements.
Impairment of Deposit Due to Vendor Bankruptcy Filing
During the three months ended
September 30, 2022, Compute North Holdings, Inc. (along with its affiliated debtors, collectively, “Compute North”), filed
for chapter 11 bankruptcy protection. We had a deposit of approximately $2.0 million with Compute North for services yet to be performed
by Compute North. We assessed this financial exposure and recorded an impairment of the deposit totaling $2.0 million during the three months
ended September 30, 2022.
Impairment of Mined Cryptocurrency
Impairment of mined cryptocurrency
for the three months ended September 30, 2023 and 2022 was $0.1 million and $0.5 million, respectively. Impairment losses are attributable
to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods. The impairment
of mined cryptocurrency for the three months ended September 30, 2023 is lower than the comparable prior year period as the average
amount of digital currency held decreased during the three months ended September 30, 2023 as we generally sold our mined digital currency
the next business day.
Other Expense, Net
Other expense, net was $6.2 million for
the three months ended September 30, 2023, compared to $0.9 million for the three months ended September 30, 2022.
Interest and other income was $0.3 million
for the three months ended September 30, 2023, compared to $0.7 million for the three months ended September 30, 2022. The decrease in
interest and other income is primarily due to the decline in ADRT’s cash and marketable securities held in the trust account as
a result of redemptions that occurred in June 2023.
Interest expense was $4.4 million for the
three months ended September 30, 2023, compared to $2.4 million for the three months ended September 30, 2022. Interest expense increased
due to higher levels of borrowing during the three months ended September 30, 2023 as compared to the three months ended September 30,
2023. Interest expense for the three months ended September 30, 2023 included contractual interest of $3.3 million, amortization of debt
discount of $0.6 million, and forbearance and extension fees of $0.5 million. Interest expense for the three months ended September 30,
2022 consisted primarily of contractual interest.
The $1.5 million loss on extinguishment
of debt for the three months ended September 30, 2023 related to the August 2023 exchange of preferred stock liabilities for secured notes.
The preferred stock liabilities were remeasured from their fair value prior to the exchange to the fair value of the secured notes at
the date of the exchange.
Income Tax (Benefit) Provision
Benefit from income taxes was $0.6 million
during the three months ended September 30, 2023 compared to a provision of $0.1 million during the three months ended September 30, 2022.
The effective income tax benefit rate was 2.0% for the three months ended September 30, 2023 as compared to a provision of 1.8% for the
three months ended September 30, 2022.
Results of Operations for the Nine Months Ended
September 30, 2023 and 2022
The following table summarizes
the results of our operations for the nine months ended September 30, 2023 and 2022.
| | |
For the Nine Months Ended September 30, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Revenue | |
$ | 54,594,000 | | |
$ | 43,539,000 | |
| Revenue, cryptocurrency mining | |
| 23,273,000 | | |
| 11,398,000 | |
| Revenue, crane operations | |
| 37,726,000 | | |
| - | |
| Revenue, lending and trading activities | |
| 4,337,000 | | |
| 32,224,000 | |
| Total revenue | |
| 119,930,000 | | |
| 87,161,000 | |
| Cost of revenue, products | |
| 39,248,000 | | |
| 30,985,000 | |
| Cost of revenue, cryptocurrency mining | |
| 28,057,000 | | |
| 12,206,000 | |
| Cost of revenue, crane operations | |
| 22,671,000 | | |
| - | |
| Cost of revenue, lending and trading activities | |
| 1,180,000 | | |
| - | |
| Total cost of revenue | |
| 91,156,000 | | |
| 43,191,000 | |
| Gross profit | |
| 28,774,000 | | |
| 43,970,000 | |
| Total operating expenses | |
| 131,201,000 | | |
| 72,120,000 | |
| Loss from operations | |
| (102,427,000 | ) | |
| (28,150,000 | ) |
| Other income (expense): | |
| | | |
| | |
| Interest and other income | |
| 3,888,000 | | |
| 1,255,000 | |
| Interest expense | |
| (30,537,000 | ) | |
| (32,063,000 | ) |
| Loss on extinguishment of debt | |
| (1,700,000 | ) | |
| - | |
| Realized and unrealized (loss) gain on marketable securities | |
| (170,000 | ) | |
| 1,016,000 | |
| Loss from investment in unconsolidated entity | |
| - | | |
| (924,000 | ) |
| Impairment of equity securities | |
| (9,555,000 | ) | |
| - | |
| (Loss) gain on the sale of fixed assets | |
| 2,728,000 | | |
| - | |
| Change in fair value of warrant liability | |
| 2,655,000 | | |
| (27,000 | ) |
| Total other expense, net | |
| (32,691,000 | ) | |
| (30,743,000 | ) |
| Loss before income taxes | |
| (135,118,000 | ) | |
| (58,893,000 | ) |
| Income tax provision | |
| 540,000 | | |
| 361,000 | |
| Net loss from continuing operations | |
| (135,658,000 | ) | |
| (59,254,000 | ) |
| Net income (loss) from discontinued operations | |
| (5,862,000 | ) | |
| (3,614,000 | ) |
| Net loss | |
| (141,520,000 | ) | |
| (62,868,000 | ) |
| Net loss attributable to non-controlling interest | |
| 10,420,000 | | |
| 1,061,000 | |
| Net loss attributable to Ault Alliance, Inc. | |
| (131,100,000 | ) | |
| (61,807,000 | ) |
| Preferred dividends | |
| (963,000 | ) | |
| (239,000 | ) |
| Net loss available to common stockholders | |
$ | (132,063,000 | ) | |
$ | (62,046,000 | ) |
| Comprehensive loss | |
| | | |
| | |
| Net loss available to common stockholders | |
$ | (132,063,000 | ) | |
$ | (62,046,000 | ) |
| Other comprehensive loss | |
| | | |
| | |
| Foreign currency translation adjustment | |
| (1,001,000 | ) | |
| (1,452,000 | ) |
| Other comprehensive loss | |
| (1,001,000 | ) | |
| (1,452,000 | ) |
| Total comprehensive loss | |
$ | (133,064,000 | ) | |
$ | (63,498,000 | ) |
Revenues
Revenues by segment for the
nine months ended September 30, 2023 and 2022 were as follows:
| | |
For the Nine Months Ended
September 30, | | |
Increase | | |
| |
| | |
2023 | | |
2022 | | |
(Decrease) | | |
% | |
| GIGA | |
$ | 27,723,000 | | |
$ | 21,530,000 | | |
$ | 6,193,000 | | |
| 29 | % |
| TurnOnGreen | |
| 2,766,000 | | |
| 3,853,000 | | |
| (1,087,000 | ) | |
| -28 | % |
| SMC | |
| 21,939,000 | | |
| 17,114,000 | | |
| 4,825,000 | | |
| 28 | % |
| Sentinum | |
| | | |
| | | |
| | | |
| | |
| Revenue, cryptocurrency mining | |
| 23,273,000 | | |
| 11,398,000 | | |
| 11,875,000 | | |
| 104 | % |
| Revenue, commercial real estate leases | |
| 1,116,000 | | |
| 822,000 | | |
| 294,000 | | |
| 36 | % |
| Fintech: | |
| | | |
| | | |
| | | |
| | |
| Revenue, lending and trading activities | |
| 4,337,000 | | |
| 32,224,000 | | |
| (27,887,000 | ) | |
| -87 | % |
| Other | |
| 63,000 | | |
| 220,000 | | |
| (157,000 | ) | |
| -71 | % |
| Energy | |
| 38,713,000 | | |
| - | | |
| 38,713,000 | | |
| — | |
| Total revenue | |
$ | 119,930,000 | | |
$ | 87,161,000 | | |
$ | 32,769,000 | | |
| 38 | % |
GIGA
The $6.2 million increase
in our GIGA segment revenue for the nine months ended September 30, 2023 included $1.6 million attributable to our acquisition of Giga-tronics
Incorporated on September 8, 2022. Continued conflicts and tensions worldwide are driving defense-related investments in force protection
technologies at GIGA across the United States, UK, Europe, Asia, and the Middle East. Additionally, demand for key electronics solutions,
particularly for customers in medicine and telecommunications, accelerated in the nine months ended September 30, 2023.
TurnOnGreen
TurnOnGreen revenues were down $1.1 million
for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to the cancellation of large projects
that contributed to revenue in 2022.
SMC
SMC revenues increased by $4.8 million primarily
due to the acquisition of SMC in June 2022.
Sentinum
Revenues from Sentinum’s
cryptocurrency mining operations increased $11.9 million as we increased our cryptocurrency mining activities from the prior period, partially
offset by 17% lower average Bitcoin prices and a 66% increase in average Bitcoin mining difficulty level in the current year period.
Fintech
Revenues from our lending and trading activities
were $4.3 million due to realized gains for the nine months ended September 30, 2023 from our investment portfolio. During the nine
months ended September 30, 2022, Ault Lending generated income from realized gains from investments in marketable securities as well as
shares of common stock underlying equity securities issued to Ault Lending in certain financing transactions. Revenue from lending and
trading activities for the nine months ended September 30, 2023 included an approximate $3.6 million unrealized loss from our investment
in Alzamend. Ault Lending also generates revenue through origination fees charged to borrowers and interest generated from each loan.
Revenues
from our trading activities for the nine months ended September 30, 2023 included net losses 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.
Energy
Energy revenues increased
by $38.7 million for the nine months ended September 30, 2023, due to the acquisition of the Circle 8 crane operations in December 2022.
Gross Margins
Gross margins decreased to 24% for the nine
months ended September 30, 2023, compared to 50% for the nine months ended September 30, 2022. Our gross margins of 24% recognized during
the nine months ended September 30, 2023 were impacted by negative margins from our Sentinum cryptocurrency mining segment due to the
decline in the price of Bitcoin coupled with an increase in Bitcoin mining difficulty level, offset by favorable margins from our lending
and trading activities as compared to other segments. Excluding the effects of margin from our lending and trading activities and cryptocurrency
mining operations, our adjusted gross margins for the nine months ended September 30, 2023 and 2022 would have been 32% and 29%, respectively.
Research and Development
Research and development expenses
increased by $3.5 million for the nine months ended September 30, 2023, primarily due to expenditures related to development work on ROI’s
BitNile metaverse platform.
Selling and Marketing
Selling and marketing expenses
were $26.4 million for the nine months ended September 30, 2023, compared to $20.9 million for the nine months ended September 30, 2022,
an increase of $5.5 million, or 26%. The increase was the result of $6.4 million higher advertising and promotion costs related to ROI’s
BitNile metaverse platform, partially offset by a $2.6 million decline in employee related costs and consulting expenses. The increase
is also attributable to $1.5 million increases in sales and marketing costs from SMC, which was acquired in June 2022.
General and Administrative
General and administrative
expenses were $59.5 million for the nine months ended September 30, 2023, compared to $44.4 million for the nine months ended September
30, 2022, an increase of $15.2 million, or 34%. General and administrative expenses increased from the comparative prior period, mainly
due to increases from new acquisitions:
| · | general and administrative costs of $8.4 million from Circle 8, which was acquired in December 2022; |
| · | general and administrative costs of $5.3 million from SMC, which was acquired in June 2022; |
| · | general and administrative costs of $5.3 million from ROI, which was acquired in March 2023; |
| · | general and administrative costs of $4.3 million from GIGA, which was acquired in September 2022; and |
| · | general and administrative costs of $1.2 million from AVLP, which was acquired in June 2022. |
The increases above were partially offset by the
following decreases in general and administrative expenses:
| · | $6.5 million lower performance bonus related to realized gains on trading activities; and |
| · | $2.4 million lower corporate legal fees. |
Impairment of AVLP Goodwill and Intangible
Assets
Goodwill
We test the recorded amount
of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of the
goodwill exceeds its carried value. We performed a goodwill impairment test as of June 30, 2023 related to AVLP as there were indicators
of impairment related to certain unforeseen business developments and changes in financial projections.
The valuation of the AVLP
reporting unit was determined using a market and income approach methodology of valuation.
The income approach was based
on the projected cash flows discounted to their present value using discount rates, that in the Company’s judgment, consider the
timing and risk of the forecasted cash flows using internally developed forecasts and assumptions. Under the income approach, the discount
rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.
The analysis included assumptions regarding AVLP’s revenue forecast and discount rates of 26.7% using a weighted average cost of
capital analysis. The market approach utilized the guideline public company method.
The results of the quantitative
test indicated the fair value of the AVLP reporting unit did not exceed its carrying amounts, including goodwill, in excess of the carrying
value of the goodwill. As a result, the entire $18.6 million carrying amount of AVLP’s goodwill was recognized as a non-cash impairment
charge during the nine months ended September 30, 2023.
Intangible Assets
Due to indicators of impairment,
AVLP intangible assets were tested for impairment as of June 30, 2023. Based on internally developed forecasts of undiscounted expected
future cash flows, it was determined that the carrying amount of the assets were not recoverable and, based on an assessment of the fair
value of the assets, impairment of $17.0 million was recognized as a non-cash impairment charge during the nine months ended September
30, 2023.
The tradenames and patents/developed
technology intangible assets were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under
the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate
the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying royalty rates of
18% for patents and developed technology and 0.25% for trademarks. The resulting net annual royalty payments are then discounted to present
value using a discount factor of 25.7%.
Impairment of Property and Equipment
During the nine months ended
September 30, 2023, we recognized an impairment charge of $3.9 million related to property and equipment at ROI’s Agora and Bitstream
Bitcoin mining operations as they have been unable to commence Bitcoin mining operations, either for themselves or from others through
hosting arrangements.
Impairment of Deposit Due to Vendor Bankruptcy
Filing
During the nine months ended
September 30, 2022, Compute North filed for chapter 11 bankruptcy protection. We had a deposit of approximately $2.0 million with Compute
North for services yet to be performed by Compute North. We assessed this financial exposure and recorded an impairment of the deposit
totaling $2.0 million during the nine months ended September 30, 2022.
Impairment of Mined Cryptocurrency
Impairment of mined cryptocurrency
for the nine months ended September 30, 2023 and 2022 was $0.4 million and $2.9 million, respectively. Impairment losses are attributable
to the volatility of the Bitcoin market as market price of Bitcoin drops below our carrying value within the respective periods. The impairment
of mined cryptocurrency for the nine months ended September 30, 2023 is lower than the comparable prior year period as the average
amount of digital currency held decreased during the first half of 2023 as we generally sold our mined digital currency the next business
day.
Other Expense, Net
Other expense, net was $32.7 million for
the nine months ended September 30, 2023, compared to $30.7 million for the nine months ended September 30, 2022.
Interest and other income was $3.9 million
for the nine months ended September 30, 2023, compared to $1.3 million for the nine months ended September 30, 2022. The increase in interest
and other income is primarily due to higher interest rates resulting in higher income from ADRT’s cash and marketable securities
held in the trust account as a result of redemptions that occurred in June 2023.
Interest expense was $30.5 million for the
nine months ended September 30, 2023, compared to $32.1 million for the nine months ended September 30, 2022. Interest expense for the
nine months ended September 30, 2023 included amortization of debt discount of $18.2 million, forbearance and extension fees of $7.3 million
and contractual interest of $5.0 million. Interest expense for the nine months ended September 30, 2022 related primarily to amortization
of debt discount of $26.4 million, contractual interest of $4.4 million, and forbearance and extension fees of $1.2 million.
The $1.5 million loss on extinguishment
of debt for the nine months ended September 30, 2023 related to the August 2023 exchange of preferred stock liabilities for secured notes.
The preferred stock liabilities were remeasured from their fair value prior to the exchange to the fair value of the secured notes at
the date of the exchange.
Loss from investment in unconsolidated entity
was $0 for the nine months ended September 30, 2023, compared to $0.9 million for the nine months ended September 30, 2022, representing
our share of losses from our equity method investment in AVLP prior to the June 1, 2022 acquisition.
Cumulative downward adjustments for impairments
for our equity securities without readily determinable fair values held at September 30, 2023 were $9.6 million.
Income Tax Provision
Provision for income taxes was $0.5 million
during the three months ended September 30, 2023 compared to a provision of $0.4 million during the nine months ended September 30, 2022.
The effective income tax provision rate was 0.4% for the nine months ended September 30, 2023 as compared to a provision of 0.6% for the
nine months ended September 30, 2022.
Liquidity and Capital Resources
On September 30, 2023, excluding cash and
cash equivalents from discontinued operations, we had cash and cash equivalents of $8.7 million (excluding restricted cash of $1.9 million),
compared to cash and cash equivalents of $7.9 million (excluding restricted cash of $0.7 million) at December 31, 2022. The increase in
cash and cash equivalents was primarily due to cash provided by operating activities and cash provided by financing activities related
to the sale of common and preferred stock, as well as proceeds from convertible notes partially offset by the payment of debt, purchases
of property and equipment and investments in equity securities.
Net cash used in operating activities totaled
$2.2 million for the nine months ended September 30, 2023, compared to net cash provided by operating activities of $21.9 million
for the nine months ended September 30, 2022. Cash used in operating activities for the nine months ended September 30, 2023 included
$71.2 million net cash provided by marketable securities from trading activities related to the operations of Ault Lending and $21.3 million
proceeds from the sale of cryptocurrencies from our Sentinum Bitcoin mining operations, offset by operating losses and changes in working
capital. Net cash used in operating activities for the nine months ended September 30, 2023 included $3.6 million cash used in operating
activities from discontinued operations.
Net cash used in investing activities was
$22.9 million for the nine months ended September 30, 2023, compared to $115.4 million for the nine months ended September 30, 2022, which
included $80.1 million of capital expenditures, primarily for Bitcoin mining equipment. Net cash used in investing activities for the
nine months ended September 30, 2023 was primarily related to $8.7 million capital expenditures and the $10.7 million purchase of
equity securities, partially offset by proceeds from the sale of fixed assets of $4.5 million. Net cash used in investing activities for
the nine months ended September 30, 2023 included $6.1 million cash used in investing activities from discontinued operations.
Net cash provided by financing
activities was $23.8 million for the nine months ended September 30, 2023, compared to net cash provided by financing activities of $86.1 million
for the nine months ended September 30, 2022, and primarily reflects the following transactions:
| · | 2022 Common ATM Offering – During the nine months ended September 30, 2023, we sold an aggregate
of 0.1 million shares of common stock pursuant to the 2022 Common ATM Offering for gross proceeds of $4.2 million and effective March
17, 2023, the 2022 Common ATM Offering was terminated; |
| · | 2022 Preferred ATM Offering – During the nine months ended September 30, 2023, we sold an
aggregate of 162,175 shares of Series D Preferred Stock pursuant to the 2022 Preferred ATM Offering for net proceeds of $3.0 million and
effective June 16, 2023, the 2022 Preferred ATM Offering was terminated; |
| · | 2023 Common ATM Offering –On June 9, 2023, we entered into the 2023 Common ATM Offering with
Ascendiant Capital. During the nine months ended September 30, 2023, we sold an aggregate of 10.8 million shares of common stock pursuant
to the 2023 Common ATM Offering for gross proceeds of $21.2 million; |
| · | $58.1 million payments on notes payable, partially offset by $40.6 million proceeds from notes payable;
and |
| · | $9.2 million proceeds from convertible notes payable, partially offset by $0.7 million payments on convertible
notes payable. |
Net provided by financing activities for
the nine months ended September 30, 2023 included $5.2 million cash provided by financing activities from discontinued operations.
Financing Transactions Subsequent to September
30, 2023
Financing transactions subsequent
to September 30, 2023 included the following:
2023 Common ATM Offering
During the period
between October 1, 2023 through November 17, 2023, we sold an aggregate of 54.2 million shares of common stock pursuant to the
2023 Common ATM Offering for gross proceeds of $10.0 million.
Senior Secured Convertible
Note, Related Party
On
October 13, 2023 (the “Closing Date”), we entered into a note purchase agreement with Ault & Company, pursuant to which
we sold to the Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”)
and warrants (the “Warrants”) to purchase shares of our common stock for a total purchase price of up to $17.5 million (the
“Transaction”).
The
purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to us since June
8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by us to Ault & Company in exchange
for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25 million
stated value of 125,000 shares of our Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series)
being transferred from Ault & Company to us.
The
Note has a principal face amount of $17.5 million and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note
bears interest at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at
the applicable Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that Ault &
Company has the option, on not less than 10 calendar days’ notice to us, to require payment of accrued but unpaid interest on a
monthly basis in arrears.
The
Note is convertible into shares of common stock at a conversion price equal to the greater
of (i) $0.10 per share (the “Floor Price”), and (ii) the lesser of (A) $0.2952 or (B) 105% of the volume weighted average
price of the common stock during the ten trading days immediately prior to the date of conversion (the “Conversion Price”).
The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion
Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The Floor Price shall not
be adjusted for stock dividends, stock splits, stock combinations and other similar transactions.
The
Warrants grant Ault & Company the right to purchase 47,685,988 shares of common stock. The Warrants have a five-year term, expiring
on the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the
Closing Date. The exercise price of the Warrants is $0.1837, which is subject to adjustment in the event of customary stock splits, stock
dividends, combinations or similar events.
In
addition, we and various of our subsidiaries granted Ault & Company a senior security
interest in substantially all of our assets as collateral for the repayment of the Note, which is subordinated to the security interest
granted to the holders of the outstanding secured promissory notes.
Series C Preferred Purchase Agreement,
Related Party
On
November 6, 2023, we entered into a securities purchase agreement (the “SPA”) with Ault & Company, pursuant to which we
agreed to sell to Ault & Company up to 50,000 shares of Series C convertible preferred stock and warrants to purchase up to 370 million
shares of common stock for a total purchase price of up to $50 million, of which up to $17.5 million of the Note may be tendered for cancellation.
The consummation of the transactions contemplated by the SPA, specifically the conversion of the Series C convertible preferred stock
and the exercise of the warrants in an aggregate number in excess of 19.99% on the execution date of the Agreement, are subject to various
customary closing conditions as well as regulatory and stockholder approval. In addition to customary closing conditions, the closing
of the financing is also conditioned upon the receipt by Ault & Company of financing to consummate the transaction. The SPA contains
customary termination provisions for Ault & Company under certain circumstances, and the Agreement shall automatically terminate if
the closing has not occurred prior to December 29, 2023, although such date may be extended by Ault & Company for a period of 90 days
as set forth in the SPA.
Series D Preferred Purchase Agreement,
Related Party
On November 15,
2023, we purchased from ROI 603.44 shares of ROI’s newly designated Series D Convertible Preferred Stock for a total purchase price
of $15.1 million. The purchase price was paid by the cancellation of $15.1 million of cash advances made by us to ROI between January
1, 2023 and November 9, 2023. The preferred shares each have a stated value of $25,000 per share and each preferred share is convertible
into a number of shares of ROI’s common stock determined by dividing the stated value by $0.51, or an aggregate of 29.6 million
shares of ROI common stock, subject to adjustment in the event of an issuance of ROI common stock at a price per share lower than the
conversion price, as well as upon customary stock splits, stock dividends, combinations or similar events. The preferred shares holders
are entitled to receive dividends at a rate of 10% per annum from issuance until November 14, 2033. In addition, for as long as at least
25% of the Preferred Shares remain outstanding, ROI must obtain our consent with respect to certain corporate events, including reclassifications,
fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends,
and further ROI is subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative
securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering
the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
Critical Accounting Policies
Variable Interest Entities
The accounting guidance requires
an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling
financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary
of a Variable Interest Entity (“VIE”); to eliminate the solely quantitative approach previously required for determining the
primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in
facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar
rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance;
and to require enhanced disclosures that will provide readers of financial statements with more transparent information about an enterprise’s
involvement in a VIE.
For VIEs, the Company assesses
whether it is the primary beneficiary as prescribed by the accounting guidance on the consolidation of a VIE.
The Company evaluates its business relationships
with related parties to identify potential VIEs under ASC 810, Consolidation. The Company consolidates VIEs in which it is 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. The Company’s judgment
with respect to its level of influence or control of an entity involves the consideration of various factors including the form of its
ownership interest, its representation in the entity’s governance, the size of its investment, estimates of future cash flows, its
ability to participate in policy making decisions and the rights of the other investors to participate in the decision making process
and to replace the Company as manager and/or liquidate the joint venture, if applicable.
Business Combination
We allocate the purchase price
of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values
on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired
customer relations, technology, trade names and know how are recognized at fair value. The purchase price allocation process requires
management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct
transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in
certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up
to one year from the acquisition date. We include the results of operations of the business that we have acquired in our consolidated
results prospectively from the date of acquisition.
If the business combination
is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is re-measured
to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not
applicable for a smaller reporting company.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have established disclosure
controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated
to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required
disclosure.
Our principal executive officer
and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this quarterly report. Based upon our evaluation, each of our principal executive
officer and principal financial officer has concluded that the Company’s internal control over financial reporting was not effective
as of the end of the period covered by this Quarterly Report on Form 10-Q because the Company has not yet completed its remediation of
the material weakness previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended December
31, 2022, the end of its most recent fiscal year.
Management has identified
the following material weaknesses:
| 1. | We do not have sufficient resources in our accounting department, which restricts our ability to gather,
analyze and properly review information related to financial reporting, including applying complex accounting principles relating to consolidation
accounting, fair value estimates and analysis of financial instruments for proper classification in the consolidated financial statements,
in a timely manner; |
| 2. | Due to our size and nature, segregation of all conflicting duties may not always be possible and may not
be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of
transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties
during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a
material weakness; |
| 3. | Our primary user access controls (i.e., provisioning, de-provisioning, privileged access and user access
reviews) to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the
financially relevant systems and data to appropriate personnel were not designed and/or implemented effectively. We did not design and/or
implement sufficient controls for program change management to certain financially relevant systems affecting our processes; and |
| 4. | The Company did not design and/or implement user access controls to ensure appropriate segregation of
duties or program change management controls for certain financially relevant systems impacting the Company’s processes around revenue
recognition and digital assets to ensure that IT program and data changes affecting the Company’s (i) financial IT applications,
(ii) digital currency mining equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately
to validate that data produced by its relevant IT system(s) were complete and accurate. Automated process-level controls and manual controls
that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result
of such deficiency. In addition, the Company has not effectively designed a manual key control to detect material misstatements in revenue. |
Planned Remediation
Management continues to work
to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding our
IT systems and applications. Management will continue to implement measures to remediate material weaknesses, such that these controls
are designed, implemented, and operating effectively. The remediation actions include: (i) enhancing design and documentation related
to both user access and change management processes and control activities; and (ii) developing and communicating additional policies
and procedures to govern the area of IT change management. In order to achieve the timely implementation of the above, management has
commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
| · | Engaging a third-party specialist to assist management with improving the Company’s overall control
environment, focusing on change management and access controls; |
| · | Implementing new applications and systems that are aligned with management’s focus on creating strong
internal controls; and |
| · | Continuing to increase headcount across the Company, with a particular focus on hiring individuals with
strong Sarbanes Oxley and internal control backgrounds. |
We are currently working to
improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in
our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material
weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time
and management has concluded, through testing, that these controls are operating effectively.
Despite the existence of these
material weaknesses, we believe that the condensed consolidated financial statements included in the period covered by this Quarterly
Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods
presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Controls over Financial Reporting.
Except as detailed above,
during the fiscal quarter ended September 30, 2023, there were no significant changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely
to materially affect our internal control over financial reporting.
PART II — OTHER INFORMATION
Litigation Matters
The Company is involved in
litigation arising from other matters in the ordinary course of business. We are regularly subject to claims, suits, regulatory and government
investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory
and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding
matters include speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable
that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss
or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could
affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and
make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount
of a loss related to such matters.
With respect to our other
outstanding matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either
individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations,
or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
There are no updates
or changes to the risk factors set forth in our amended Annual Report on Form 10-K/A for the year ended December 31, 2022.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
From July 1, 2023
through September 30, 2023, Ault Alpha LP purchased 147,000 shares of common stock. Ault Alpha LP may be deemed to be an “affiliated
purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended. The purchases were made through
open market transactions.
| | |
Total
Number of
Shares
Purchased | | |
Average Price
Paid Per
Share | | |
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | |
Maximum
Number of Shares
That May Yet Be
Purchased Under
Plans or Programs | |
| July 1, 2023 – July 31, 2023 | |
| 147,000 | | |
$ | 4.22 | | |
| | | |
| | |
| August 1, 2023 – August 31, 2023 | |
| - | | |
$ | - | | |
| | | |
| | |
| September 1, 2023 – September 30, 2023 | |
| - | | |
$ | - | | |
| | | |
| | |
| Total | |
| 147,000 | | |
$ | 4.22 | | |
| - | | |
| - | |
From July 1, 2023
through September 30, 2023, Ault Alpha LP purchased 9,500 shares of series D preferred stock. Ault Alpha LP may be deemed to be an “affiliated
purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended. The purchases were made through
open market transactions.
| | |
Total
Number of
Shares
Purchased | | |
Average Price
Paid Per
Share | | |
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | |
Maximum
Number of Shares
That May Yet Be
Purchased Under
Plans or Programs | |
| July 1, 2023 – July 31, 2023 | |
| 9,500 | | |
$ | 15.50 | | |
| | | |
| | |
| August 1, 2023 – August 31, 2023 | |
| - | | |
$ | - | | |
| | | |
| | |
| September 1, 2023 – September 30, 2023 | |
| - | | |
$ | - | | |
| | | |
| | |
| Total | |
| 9,500 | | |
$ | 15.50 | | |
| - | | |
| - | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
On November 15, 2023, we filed the certificate of designation
of the Series C convertible preferred stock to be issued pursuant to the SPA entered into with Ault & Company on November 6, 2023.
As of the date of this filing, no shares of Series C convertible preferred stock have been issued.
Exhibit
Number |
|
Description |
| 3.1 |
|
Form of Certificate of Determination of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, dated March 3, 2017. Incorporated by reference to the Current Report on Form 8-K filed on March 9, 2017 as Exhibit 3.1 thereto. |
| 3.2 |
|
Certificate of Incorporation, dated September 22, 2017. Incorporated herein by reference to the Current Report on Form 8-K filed on December 29, 2017 as Exhibit 3.1 thereto. |
| 3.3 |
|
Certificate of Designations of Rights and Preferences of 10% Series A Cumulative Redeemable Perpetual Preferred Stock, dated September 13, 2018. Incorporated herein by reference to the Current Report on Form 8-K filed on September 14, 2018 as Exhibit 3.1 thereto. |
| 3.4 |
|
Certificate of Amendment to Certificate of Incorporation, dated January 2, 2019. Incorporated by reference to the Current Report on Form 8-K filed on January 3, 2019 as Exhibit 3.1 thereto. |
| 3.5 |
|
Certificate of Amendment to Certificate of Incorporation (1-for-20 Reverse Stock Split of Common Stock), dated March 14, 2019. Incorporated herein by reference to the Current Report on Form 8-K filed on March 14, 2019 as Exhibit 3.1 thereto. |
| 3.6 |
|
Certificate of Elimination of the Series C convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on January 27, 2023 as Exhibit 3.1 thereto. |
| 3.7 |
|
Certificate of Ownership and Merger. Incorporated by reference to the Current Report on Form 8-K filed on January 19, 2021 as Exhibit 3.1 thereto. |
| 3.8 |
|
Amended and Restated Bylaws, effective as of November 2, 2021. Incorporated by reference to the Current Report on Form 8-K filed on November 3, 2021 as Exhibit 3.1 thereto. |
| 3.9 |
|
Certificate of Ownership and Merger, as filed with the Secretary of State of the State of Delaware on December 1, 2021. Incorporated by reference to the Current Report on Form 8-K filed on December 13, 2021 as Exhibit 3.1 thereto. |
| 3.10 |
|
Certificate of Designation, Preferences and Rights relating to the 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated May 25, 2022. Incorporated by reference to the Registration Statement on Form 8-A filed on May 26, 2022 as Exhibit 3.6 thereto. |
| 3.11 |
|
Certificate of Increase of the Designated Number of Shares of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 10, 2022. Incorporated by reference to the Current Report on Form 8-K filed on June 14, 2022 as Exhibit 3.1 thereto. |
| 3.12 |
|
Certificate of Correction to the Certificate of Designation, Rights and Preferences of 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, dated June 16, 2022. Incorporated by reference to the Current Report on Form 8-K filed on June 17, 2022 as Exhibit 3.1 thereto. |
| 3.13 |
|
Certificate of Amendment to Certificate of Incorporation (1-for-300 Reverse Stock Split of Common Stock), dated May 15, 2023. Incorporated herein by reference to the Current Report on Form 8-K filed on May 16, 2023 as Exhibit 3.1 thereto. |
| 3.14 |
|
Certificate of Elimination of the Series E convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on August 18, 2023 as Exhibit 3.1 thereto. |
| 3.15 |
|
Certificate of Elimination of the Series F convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on August 18, 2023 as Exhibit 3.2 thereto. |
| 3.16 |
|
Certificate of Elimination of the Series G convertible redeemable preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on August 18, 2023 as Exhibit 3.3 thereto. |
| 3.17 |
|
Certificate of Elimination of the Series C convertible preferred stock of Ault Alliance, Inc. Incorporated herein by reference to the Current Report on Form 8-K filed on October 12, 2023 as Exhibit 3.1 thereto. |
| 3.18 |
|
Certificate of Designation of Preferences, Rights and Limitations of Series C Cumulative Preferred Stock, filed November 15, 2023. |
| 10.1 |
|
Amendment to At-The-Market Issuance Sales Agreement, dated July 12, 2023, with Ascendiant Capital Markets, LLC. Incorporated by reference to the Current Report on Form 8-K filed on July 13, 2023 as Exhibit 10.1 thereto. |
| 10.2 |
|
Form of First Amendment and Joinder to Loan and Guarantee Agreement. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.1 thereto. |
| 10.3 |
|
Form of Montana Security Agreement. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.2 thereto. |
| 10.4 |
|
Form of the Circle 8 Pledge. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.3 thereto. |
| 10.5 |
|
Form of the Florida Mortgage Amendment. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.4 thereto. |
| 10.6 |
|
Form of the Michigan Mortgage Amendment. Incorporated by reference to the Current Report on Form 8-K filed on July 20, 2023 as Exhibit 10.5 thereto. |
| 10.7 |
|
Form of Exchange Agreement. Incorporated by reference to the Current Report on Form 8-K filed on August 3, 2023 as Exhibit 10.1 thereto. |
| 10.8 |
|
Form of Exchange Note. Incorporated by reference to the Current Report on Form 8-K filed on August 3, 2023 as Exhibit 4.1 thereto. |
| 10.9 |
|
Form of Amended and Restated Assignment. Incorporated by reference to the Current Report on Form 8-K/A filed on August 16, 2023 as Exhibit 10.2 thereto. |
| 10.10 |
|
Form of Guaranty. Incorporated by reference to the Current Report on Form 8-K filed on August 3, 2023 as Exhibit 10.3 thereto. |
| 10.11 |
|
Form of Investor Agreement. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 10.1 thereto. |
| 10.12 |
|
Form of 7.00% Senior Note due 2024. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 4.1 thereto. |
| 10.13 |
|
Form of 8.50% Senior Note due 2026. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 4.2 thereto. |
| 10.14 |
|
Form of 10.50% Senior Note due 2028. Incorporated by reference to the Current Report on Form 8-K filed on September 1, 2023 as Exhibit 4.3 thereto. |
| 10.15 |
|
Amendment to At-The-Market Issuance Sales Agreement, dated September 7, 2023, with Ascendiant Capital Markets, LLC. Incorporated by reference to the Current Report on Form 8-K filed on September 8, 2023 as Exhibit 10.1 thereto. |
| 10.16 |
|
Form of Term Note. Incorporated by reference to the Current Report on Form 8-K filed on September 11, 2023 as Exhibit 4.1 thereto. |
| 10.17 |
|
Form of Guaranty. Incorporated by reference to the Current Report on Form 8-K filed on September 11, 2023 as Exhibit 10.1 thereto. |
| 10.18 |
|
Securities Exchange Agreement, dated September 27, 2023, by and between the Company and the Investor. Incorporated by reference to the Current Report on Form 8-K filed on September 28, 2023 as Exhibit 10.1 thereto. |
| 10.19 |
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Form of Note. Incorporated by reference to the Current Report on Form 8-K filed on September 28, 2023 as Exhibit 4.1 thereto. |
| 31.1* |
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Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
| 31.2* |
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Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
| 32.1** |
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Certification of Chief Executive and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
| 101.INS* |
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Inline XBRL Instance Document. The instance
document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH* |
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Inline XBRL Taxonomy Extension Schema
Document. |
| 101.CAL* |
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Inline XBRL Taxonomy Extension Calculation
Linkbase Document. |
| 101.LAB* |
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Inline XBRL Taxonomy Extension Label
Linkbase Document. |
| 101.PRE* |
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Inline XBRL Taxonomy Extension Presentation
Linkbase Document. |
| 101.DEF* |
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Inline XBRL Taxonomy Extension Definition
Linkbase Document. |
| 104 |
|
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101). |
_______________________
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Filed herewith. |
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Furnished herewith. |
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 thereunto duly authorized.
Dated: November 20, 2023
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AULT ALLIANCE, INC. |
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By: |
/s/ William B. Horne |
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William B. Horne |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Kenneth S. Cragun |
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Kenneth S. Cragun |
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Chief Financial Officer |
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(Principal Accounting Officer) |
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23
DelawareThe First StatePage 1 6551776 8100Authentication: 204606135SR# 20233988486Date: 11-16-23You may verify this certificate online at corp.delaware.gov/authver.shtmlI, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "AULT ALLIANCE, INC.", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF NOVEMBER, A.D. 2023, AT 5:38 O`CLOCK P.M. 
