WTH?

[ValueArb]

Came across this company when it's offer to exchange new preferred shares valued at 25 cents for common trading at 9 cents popped up. 
Looks like it's lost over a half billion in the last four years or so. How the heck does it keep raising more money?

 

 

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Ault Alliance, Inc., a Delaware corporation (“Ault Alliance” or the “Company”) is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly- and majority-owned subsidiaries and strategic investments, the Company owns and operates a data center at which it mines Bitcoin and offers colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provides 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, the Company extends credit to select entrepreneurial businesses through a licensed lending subsidiary.

 

Ault Alliance was founded by Milton “Todd” Ault, III, its Executive Chairman and is led by Milton “Todd” Ault, III, William B. Horne, its Chief Executive Officer and Vice Chairman and Henry Nisser, its President and General Counsel. Together, they constitute the Executive Committee, which manages the day-to-day operations of the Company. All major investment and capital allocation decisions are made for the Company by the Executive Committee. The Company has the following eight reportable segments:

 

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Energy and Infrastructure (“Energy”) – crane operations, advanced textiles processing and oil exploration;

 

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Technology and Finance (“Fintech”) – commercial lending, activist investing, stock trading, media, and digital learning;

 

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The Singing Machine Company, Inc. (“SMC”) – consumer electronics;

 

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Sentinum, Inc. (“Sentinum”) – cryptocurrency mining operations and colocation and hosting services for the emerging artificial intelligence ecosystems and other industries;

 

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GIGA – defense industry;

 

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TurnOnGreen – commercial electronics solutions;

 

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RiskOn International, Inc., formerly BitNile Metaverse, Inc. (“ROI”) – immersive metaverse platform; and

 

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Ault Disruptive – a special purpose acquisition company.

 

On May 15, 2023, pursuant to the authorization provided by the Company’s stockholders at a special meeting of stockholders, the Company’s board of directors approved an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding common stock by a ratio of one-for-three hundred (the “Reverse Split”).

 

As of September 30, 2023, the Company had cash and cash equivalents of $8.7 million, negative working capital of $45.1 million and a history of net operating losses. The Company has financed its operations principally through issuances of convertible debt, promissory notes and equity securities. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that these condensed consolidated financial statements are issued.

 

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On March 28, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company sold, in a private placement (the “Offering”), an aggregate of 100,000 shares of its 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”). The Preferred Shares are convertible into shares of the Company’s common stock at the option of the holders and, in certain circumstances, by the Company.

 

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 primarily of accrued but unpaid interest on these notes. The Company recorded a loss on extinguishment of debt of $0.1 million related to the transaction. The Preferred Shares have been classified as a liability as they embody an unconditional obligation to transfer a variable number of shares, based on a fixed monetary amount known at inception. The Company elected the fair value option to record the Preferred Shares with changes in fair value recorded through earnings.

 

During the nine months ended September 30, 2023, the Investors converted 1,000 shares of Series F Preferred Stock and 6,756 shares of Series G Preferred Stock into an aggregate of 143,402 shares of the Company’s common stock. During the nine months ended September 30, 2023, the Company recorded a loss of $0.3 million on the conversions of Series F Preferred Stock and Series G Preferred Stock.

 

Exchange of Preferred Shares for Secured Debt and Assignment of Secured Note

 

In August 2023, the Company and the Investors entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the Investors exchanged 83,000 shares of Series E Convertible Stock and 9,244 shares of Series G Convertible Stock as well as their demand notes (the “Demand Notes”) 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”). The Company recorded a loss on extinguishment of debt of $1.5 million related to the transaction based on the difference between the carrying amount of the preferred stock liability and the value of the Exchange Notes.

 

Concurrent with the Exchange Agreement, the Company assigned the Exchange Notes to Ault & Company. As consideration for Ault & Company assuming the Exchange Notes from the Company, the Company issued a 10% demand promissory note in the principal face amount of $10.5 million to Ault & Company. The Company and Milton “Todd” Ault, III, the Company’s Executive Chairman, entered into guaranty agreements with the Investors guaranteeing Ault & Company’s repayment of the Exchange Notes.

 

Certificates of Elimination of Series E Preferred Stock, Series F Preferred Stock, and the Series G Preferred Stock

 

On August 17, 2023, the Company filed certificates of elimination with respect to the Company’s Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock.

 

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August 15, 2023 - The Securities and Exchange Commission today announced settled charges against Ault Alliance, Inc. (f/k/a BitNile Holdings, Inc., Ault Global Holdings, Inc., DPW Holdings, Inc., and Digital Power Corporation) (“AAI”) and its Executive Chairman and then-Chief Executive Officer, Milton Charles (“Todd”) Ault III, arising out of misleading disclosures and reporting, proxy statement, books and records, and internal controls violations during the period 2016-2021. The Commission also announced settled charges against AAI’s former Chief Financial Officer and current CEO, William Horne, CPA, for his role in the falsification of AAI’s books and records.

 

According to the SEC’s order, in 2018 and 2019, AAI and Ault made materially false and misleading statements and omissions concerning the performance of a) a $50 million purchase order that AAI received from a related party that Ault controlled, Avalanche International, Inc, and b) AAI’s new crypto asset mining business. Separately, in 2019, through Ault and Horne, AAI improperly recorded a $75,000 payment to an individual as being for consulting services when, in fact, the payment was to extinguish a personal debt owed by Ault. In addition, AAI failed to make related-person disclosures in 2016-2021, has had long-running internal control weaknesses beginning in June 2017, and engaged in improper accounting related to its investments in warrants of Avalanche during its fiscal years ended 2018 through 2021.  AAI restated its financial statements to correct for its erroneous warrant accounting in amended filings on April 14, 2023. 

 

Edited December 21, 2023 by ValueArb