S-1: Ault Alliance Files for Resale of 1.5 Million Shares of Series D Preferred Stock

Ault Alliance, Inc. has filed a registration statement for the resale of up to 1.5 million shares of its 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock by Orion Equity Partners LLC.

Summary

• Ault Alliance, Inc. has filed a Form S-1 registration statement with the SEC to allow Orion Equity Partners LLC to resell up to 1,500,000 shares of the company's 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock.
• These shares include those that may be issued to Orion as a commitment fee and those that Ault Alliance may elect to sell to Orion under a purchase agreement.
• Ault Alliance could receive up to $25 million in gross proceeds from the sale of Series D Preferred Stock to Orion, which will be used to repay debt under the 2024 Credit Agreement and then for working capital.
• The Selling Stockholder may sell or otherwise dispose of the shares of our Series D Preferred Stock included in this prospectus in a number of different ways and at varying prices.
• The company will not receive any proceeds from the resale of shares by the Selling Stockholder.
• The company's Series D Preferred Stock trades on the NYSE American under the symbol AULT PRD, with the last reported sales price on July 29, 2024, at $27.70 per share.
• The company is a smaller reporting company and has elected to comply with certain reduced public company reporting requirements.
• Investing in the Series D Preferred Stock is highly speculative and involves a high degree of risk.

Sentiment

Score: 5

Explanation: The document presents a neutral outlook. While it outlines a potential capital raise, it also highlights significant risks associated with the investment. The high dividend rate could be attractive, but it also signals a higher risk profile.

Positives

• The company has the potential to raise up to $25 million through the sale of Series D Preferred Stock to Orion Equity Partners LLC.
• The funds will be used to repay debt and for working capital, potentially improving the company's financial position.
• The Series D Preferred Stock offers a fixed dividend rate of 13.00% per annum.

Negatives

• The company will not receive any proceeds from the resale of shares by the Selling Stockholder.
• Investing in the Series D Preferred Stock is highly speculative and involves a high degree of risk.
• The market price of our Series D Preferred Stock could be substantially affected by various factors.
• The market for our Series D Preferred Stock may not provide investors with adequate liquidity.
• As a holder of Series D Preferred Stock, you will have extremely limited voting rights.
• If our common stock is delisted from trading, your ability to transfer or sell your shares of the Series D Preferred Stock may be limited and the market value of the Series D Preferred Stock will likely be materially adversely affected.
• If we do not continue to satisfy the NYSE American continued listing requirements, our Series D Preferred Stock could be delisted from NYSE American.
• The Series D Preferred Stock is not convertible into our common stock except under certain limited circumstances, and investors will not realize a corresponding upside if the price of our common stock increases.

Risks

• The actual number of shares sold under the Purchase Agreement and the gross proceeds are uncertain.
• The company may not have access to the full amount available under the Purchase Agreement.
• Sales of Series D Preferred Stock may cause dilution to existing stockholders and could cause the price of the Series D Preferred Stock to fall.
• The Selling Stockholder will pay less than the then-prevailing market price for our Series D Preferred Stock, which could cause the price of our Series D Preferred Stock to decline.
• The management team has broad discretion over the use of the net proceeds.
• The Series D Preferred Stock ranks junior to all of the company's indebtedness and other liabilities.
• Market interest rates may materially and adversely affect the value of the Series D Preferred Stock.
• The company may not be able to pay dividends on the Series D Preferred Stock if it has insufficient cash in the future to make dividend payments.
• Holders of the Series D Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to qualified dividend income.
• The Series D Preferred Stock has not been rated by an independent rating agency.
• The company may redeem the Series D Preferred Stock, which may have an adverse economic effect on investors.
• The market price of the company's Series D Preferred Stock could be substantially affected by various factors.
• The market for the company's Series D Preferred Stock may not provide investors with adequate liquidity.
• As a holder of Series D Preferred Stock, you will have extremely limited voting rights.
• If the company's common stock is delisted from trading, your ability to transfer or sell your shares of the Series D Preferred Stock may be limited and the market value of the Series D Preferred Stock will likely be materially adversely affected.
• If the company does not continue to satisfy the NYSE American continued listing requirements, the company's Series D Preferred Stock could be delisted from NYSE American.
• The Series D Preferred Stock is not convertible into the company's common stock except under certain limited circumstances, and investors will not realize a corresponding upside if the price of the company's common stock increases.

Future Outlook

The company may receive up to $25 million in aggregate gross proceeds under the Purchase Agreement from any sales it makes to the Selling Stockholder pursuant to the Purchase Agreement. However, the company is unable to estimate the actual amount of proceeds that it may receive, as it will depend on the number of shares that it chooses to sell, its ability to meet the conditions set forth in the Purchase Agreement, market conditions and the price of shares of its Series D Preferred Stock, among other factors.

Industry Context

This announcement is a common financial maneuver for companies seeking to raise capital. The use of preferred stock and committed equity financing are established methods, but the specific terms and risks are unique to Ault Alliance.

Comparison to Industry Standards

• Comparable companies that have used similar financing structures include those in the technology and energy sectors, where capital needs are often significant.
• However, the high dividend rate of 13.00% on the Series D Preferred Stock is relatively high, suggesting a higher risk profile compared to industry benchmarks.
• Companies like Digital Realty Trust and Equinix issue preferred stock with lower dividend yields, reflecting their more stable financial positions.

Stakeholder Impact

• Existing shareholders of Series D Preferred Stock may experience dilution.
• The company's ability to execute its business plan may be enhanced by the potential capital raise.
• The company's creditors may benefit from the repayment of debt.
• Potential investors in the Series D Preferred Stock should carefully consider the risks outlined in the prospectus.

Next Steps

• The registration statement needs to be declared effective by the SEC.
• Ault Alliance may then elect to sell shares of Series D Preferred Stock to Orion Equity Partners LLC.
• Orion Equity Partners LLC will then resell these shares to the public.

Key Dates

Keywords

Series D Preferred Stock, Ault Alliance, Orion Equity Partners, Resale, Registration Statement, Dividends, Preferred Stock, NYSE American, AULT PRD, Equity Financing