Filed Pursuant to Rule 424(b)(5)
Registration No. 333-260618
The information in this preliminary prospectus supplement is not
complete and may be changed. A registration statement relating to
these securities has been filed with the Securities and Exchange
Commission and is effective. This preliminary prospectus supplement
and the accompanying prospectus are not an offer to sell these
securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
PRELIMINARY PROSPECTUS
SUPPLEMENT |
Subject to Completion,
dated May 25, 2022 |
(To Prospectus dated November 12, 2021)

BitNile Holdings, Inc.
120,000 Shares of
13.00% Series D Cumulative Redeemable Perpetual Preferred
Stock
$25.00 per Share
Liquidation Preference $25.00 per Share
We are offering 120,000 shares of our 13.00% Series D Cumulative
Redeemable Perpetual Preferred Stock, which we refer to in this
prospectus supplement as the Series D Preferred Stock.
Dividends on the Series D Preferred Stock are cumulative from the
date of initial issue and will be payable on the last day of each
month commencing on June 30, 2022 when, as and if declared by our
board of directors. Dividends will be payable out of amounts
legally available therefor at a rate equal to 13.00% per annum per
$25.00 of stated liquidation preference per share, or $0.2708333
per share of Series D Preferred Stock per month. We will place
proceeds equal to 18 monthly dividend payments into a separate bank
account to be used to pay the Series D Preferred Stock
dividends.
Prior to the date that is three years following the initial
issuance of the Series D Preferred Stock, we may redeem, at our
option, the Series D Preferred Stock, in whole or in part, from
time to time, at a redemption price of $25.50 per share, plus any
accumulated and unpaid dividends (whether or not declared) on the
Series D Preferred Stock up to, but not including, the date of such
redemption, upon written notice, as described in the section
entitled “Description of the Series D Preferred Stock — Redemption
— Redemption Procedures.” On and after the date that is three years
following the initial issuance, the redemption price will decrease
to $25.00 per share. The Series D Preferred Stock is perpetual and
has no stated maturity date, will not be subject to any sinking
fund or other mandatory redemption, and will not be convertible
into or exchangeable for any of our other securities, except under
certain limited circumstances.
Holders of the Series D Preferred Stock will generally have no
voting rights, except for limited voting rights if dividends
payable on the outstanding Series D Preferred Stock are in arrears
for 18 or more consecutive or non-consecutive monthly dividend
periods.
Alexander Capital, L.P. is acting as the underwriter in the public
offering on a firm commitment basis. If we sell all 120,000 shares
of Series D Preferred Stock we are offering pursuant to this
prospectus supplement at the offering price of $25.00 per share, we
will receive $3.0 million in gross proceeds and approximately $2.4
million in net proceeds, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
The Series D Preferred Stock is a new issue of securities with no
established trading market.
Our shares of common stock trade on the NYSE American under the
symbol “NILE.” We have applied to list the Series D Preferred Stock
on the NYSE American under the symbol “NILE PRD.” No assurance can
be given that our application will be approved. If our application
is not approved, we will not complete this offering. If the
application is approved, we expect trading in the Series D
Preferred Stock to begin on the date the Series D Preferred Stock
is first issued.
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Per Share |
|
|
Total |
|
Public offering price |
|
$ |
25.00 |
|
|
$ |
3,000,000 |
|
Underwriting discounts and commissions
(1) (2) |
|
$ |
|
|
|
$ |
|
|
Proceeds to us, before expenses |
|
$ |
|
|
|
$ |
|
|
________________
|
(1) |
See “Underwriting” on
page S-30 of this prospectus supplement for a description of all
underwriting compensation payable in connection with this
offering. |
|
(2) |
Represents a blended underwriting discount for all shares of Series
D Preferred Stock sold in the offering. See “Underwriting.”
|
Investing in the Series D Preferred Stock involves significant
risks. You should carefully consider the risk factors beginning on
page S-13 of this prospectus supplement and page 10 of the
accompanying prospectus before purchasing any of the Series D
Preferred Stock offered by this prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the shares against payment in
New York, New York on June ___, 2022.
Alexander Capital, L.P.
The date of this prospectus supplement is June __, 2022.
TABLE OF CONTENTS
Prospectus Supplement
About this Prospectus Supplement |
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S-ii |
Prospectus Supplement Summary |
|
S-1 |
The Offering |
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S-10 |
Risk Factors |
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S-13 |
Special Note Regarding Forward-Looking Statements |
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S-18 |
Use of Proceeds |
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S-19 |
Capitalization |
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S-20 |
Description of the Series D Preferred Stock |
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S-22 |
Underwriting |
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S-30 |
Legal Matters |
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S-33 |
Experts |
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S-33 |
Where You Can Find More Information |
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S-33 |
Incorporation of Certain Information by Reference |
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S-33 |
Accompanying Prospectus
About this
Prospectus |
|
1 |
Disclosure Regarding
Forward-Looking Statements |
|
1 |
About the Company |
|
4 |
Risk Factors |
|
12 |
Use of Proceeds |
|
13 |
The Securities We May Offer |
|
13 |
Description of Capital Stock |
|
13 |
Description of Warrants |
|
14 |
Description of Units |
|
16 |
Plan of Distribution |
|
17 |
Legal Matters |
|
18 |
Experts |
|
18 |
Where You Can Find More
Information |
|
18 |
Incorporation of Documents by
Reference |
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19 |
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus relate
to an offering of the Series D Preferred Stock by us. Before buying
any of the securities that we are offering, we urge you to
carefully read this prospectus supplement and the accompanying
prospectus, together with the information incorporated by reference
as described under “Where You Can Find More Information” and
“Incorporation of Certain Information by Reference” in this
prospectus supplement. These documents contain important
information that you should consider when making your investment
decision.
This prospectus supplement and the accompanying prospectus dated
November 12, 2021 are part of a registration statement
(Registration No. 333-260618) on Form S-3 that we filed with the
U.S. Securities and Exchange Commission, or SEC, using a “shelf”
registration process under which we may from time to time offer and
sell any combination of the securities described in that
accompanying prospectus up to a total dollar amount of $350
million.
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering and also
adds to, updates and changes information contained in the
accompanying prospectus and the documents incorporated by
reference. The second part is the accompanying prospectus, which
gives more general information. To the extent the information
contained in this prospectus supplement differs from or conflicts
with the information contained in the accompanying prospectus or
any document incorporated by reference, the information in this
prospectus supplement will control. If any statement in one of
these documents is inconsistent with a statement in another
document having a later date — for example, a document incorporated
by reference into the accompanying prospectus — the statement in
the document having the later date modifies or supersedes the
earlier statement.
We have not, and the underwriters have not, authorized anyone to
provide you with information different from that which is contained
in or incorporated by reference in this prospectus supplement and
the accompanying prospectus. No one is making offers to sell or
seeking offers to buy these securities in any jurisdiction where
the offer or sale is not permitted. You should assume that the
information contained in this prospectus supplement is accurate as
of the date on the front cover of this prospectus supplement only
and that any information we have incorporated by reference or
included in the accompanying prospectus is accurate only as of the
date given in the document incorporated by reference or as of the
date of the prospectus, as applicable, regardless of the time of
delivery of this prospectus supplement, the accompanying
prospectus, any related free writing prospectus, or any sale of our
securities. Our business, financial condition, results of
operations and prospects may have changed since that date.
We further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference into this prospectus
supplement or the accompanying prospectus were made solely for the
benefit of the parties to such agreement, including, in some cases,
for the purpose of allocating risk among the parties to such
agreements, and should not be deemed to be a representation,
warranty or covenant to you. Moreover, such representations,
warranties or covenants were accurate only as of the date when
made. Accordingly, such representations, warranties and covenants
should not be relied on as accurately representing the current
state of our affairs.
Unless otherwise stated or the context requires otherwise,
references to “BitNile,” the “Company,” “we,” “us” or “our” are to
BitNile Holdings, Inc., a Delaware corporation, and its
subsidiaries.
PROSPECTUS SUPPLEMENT SUMMARY
This summary does not contain all the information that you
should consider before investing in the securities offered by this
prospectus supplement. You should carefully read the entire
prospectus supplement and the accompanying prospectus, including
the “Risk Factors” sections, as well as the financial statements
and the other information incorporated by reference herein and the
information in any free writing prospectus that we may authorize
for use in connection with this offering before making an
investment decision.
About BitNile Holdings, Inc.
Overview of Our Company and Businesses
BitNile Holdings, Inc. is a diversified holding company owning
subsidiaries primarily engaged in the following operating
businesses: commercial and defense solutions, commercial lending,
data center operations, bitcoin mining and advanced textile
technology. Our direct and indirect wholly-owned subsidiaries
include Gresham Worldwide, Inc. (“GWW”), TurnOnGreen, Inc.,
formerly known as Coolisys Technologies Corp. (“TOGI”), TOG
Technologies, Inc. (“TOG Technologies”), Digital Power Corporation,
Gresham Power Electronics Ltd. (“Gresham Power”), Enertec Systems
2001 Ltd. (“Enertec”), Relec Electronics Ltd. (“Relec”), Digital
Power Lending, LLC (“DP Lending”), Ault Alliance, Inc. (“Ault
Alliance”), Ault Global Real Estate Equities, Inc. (“AGREE”),
BitNile, Inc. (“BNI”) and Alliance Cloud Services, LLC (“ACS”). We
also have a controlling interest in Microphase Corporation
(“Microphase”) and Ault Alliance has a significant investment in
Avalanche International Corp. (“Avalanche”).
BitNile was founded by Milton C. (Todd) Ault III, our Executive
Chairman, and is led by Mr. Ault, William B. Horne, our Chief
Executive Officer and Vice Chairman, and Henry Nisser, our
President and General Counsel. Together, they constitute the
Executive Committee, which manages the day-to-day operations of the
holding company. Our long-term objective is to maximize per share
intrinsic value. All of our major investment and capital allocation
decisions are made by Mr. Ault and the Executive Committee. We have
four reportable segments:
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· |
Ault Alliance: Digital learning,
commercial lending and trading through DP Lending, real estate
investing through AGREE, and textile treatment through
Avalanche. |
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· |
BNI: Bitcoin mining operation and
data center operations through ACS. |
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· |
GWW: Defense solutions with
operations conducted by Microphase, Enertec, Gresham Power and
Relec. |
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· |
TOGI: Commercial electronics
solutions with operations conducted by Digital Power Corporation,
and EV charging solutions through TOG Technologies. |
We operate as a holding company with operations conducted primarily
through our subsidiaries. We conduct our activities in a manner so
as not to be deemed an investment company under the Investment
Company Act of 1940, as amended (the “Investment Company Act”).
Generally, this means that we do not invest or intend to invest in
securities as our primary business and that no more than 40% of our
total assets are invested in investment securities, as that term is
defined in the Investment Company Act. Pursuant to that Act,
companies like our subsidiary DP Lending are excluded from the
definition of an investment company because its business consists
of making loans and industrial banking. We also maintain a
considerable investment in Avalanche, which does business as MTIX International
(“MTIX”).
Originally, we were a solution-driven organization that designed,
developed, manufactured and sold high-grade customized and flexible
power system solutions for the medical, military, telecom and
industrial markets. Currently, this business is conducted by
Digital Power Corporation. Although Digital Power Corporation
actively seeks growth through acquisitions, it continues to focus
on high-grade and custom product designs for the commercial,
medical and military/defense markets, where customers demand high
density, high efficiency and ruggedized products to meet the
harshest and/or military mission critical operating conditions.
We have operations located in Europe through our wholly-owned
subsidiaries, Gresham Power and Relec, each of which is located in
England. Gresham Power designs, manufactures and sells power
products and system solutions mainly for the European marketplace,
including power conversion, power distribution equipment, DC/AC
(direct current/active current) inverters and UPS (uninterrupted
power supply) products. Our European defense business is
specialized in the field of naval power distribution products.
We have operations based in Israel through our wholly-owned
subsidiary Enertec, which designs, develops, manufactures and
maintains advanced end-to-end high technology electronic solutions
for military, medical, telecommunications and industrial
markets.
Development of Our Businesses
On November 30, 2016, we formed DP Lending, a wholly-owned
subsidiary. DP Lending provides commercial loans to companies
throughout the United States to provide them with operating capital
to finance the growth of their businesses. The loans range in
duration from six months to three years, DP Lending loans made or
arranged pursuant to a California Financing Law license (Lic. No.
60 DBO77905).
On June 2, 2017, we purchased 56.4% of the outstanding equity
interests of Microphase. Microphase is a design-to-manufacture
original equipment manufacturer (“OEM”) industry leader delivering
world-class radio frequency and microwave filters, diplexers,
multiplexers, detectors, switch filters, integrated assemblies and
detector logarithmic video amplifiers to the military, aerospace
and telecommunications industries. Microphase is headquartered in
Shelton, Connecticut.
On December 31, 2017, Coolisys Technologies, Inc., a Delaware
corporation (“CTI”), entered into a share purchase agreement with
Micronet Enertec Technologies, Inc. (“MICT”), a Delaware
corporation, Enertec Management Ltd., an Israeli corporation and
wholly-owned subsidiary of MICT (“EML”), and Enertec, an Israeli
corporation and wholly-owned subsidiary of EML, pursuant to which
CTI acquired Enertec. Enertec is Israel’s largest private
manufacturer of specialized electronic systems for the military
market. On May 23, 2018, CTI completed its acquisition of Enertec.
Effective as of December 31, 2021, CTI was merged with and into
GWW.
GWW was incorporated under the laws of the State of Delaware on
November 21, 2018 as DPW Technologies Group, Inc. and effected a
name change on December 6, 2019.
On January 7, 2020, we formed TOGI, a wholly-owned subsidiary. TOGI
operates its existing businesses in the customized and flexible
power system solutions for the automotive, medical, military,
telecom, commercial and industrial markets, other than the European
markets, which are primarily served by Gresham Power. In April
2021, TOGI formed TOG Technologies as a Nevada corporation to
provide flexible and scalable EV charging solutions with a
portfolio of residential, commercial and ultra-fast charging
products, and comprehensive charging management software and
network services.
On November 30, 2020, we acquired Relec pursuant to a stock
purchase, under which we paid approximately $4,000,000 with
additional contingent cash payments up to approximately $665,000
based on Relec’s future financial performance. Relec specializes in
AC/DC power supplies, DC-DC converters, displays and
electromagnetic compatibility (“EMC”) filters.
Recent Events and Developments Involving our Businesses
Ault Alliance: Digital Learning, Commercial Lending, Real
Estate Investing and Textile Treatment
On March 9, 2021, DP Lending entered into a securities purchase
agreement with Alzamend Neuro, Inc. (“Alzamend”), a related party,
to invest $10 million in Alzamend common stock and warrants,
subject to the achievement of certain milestones. We agreed to fund
$4 million upon execution of the securities purchase agreement and
to fund the balance upon Alzamend achieving certain milestones
related to the U.S. Food and Drug Administration approval of
Alzamend’s Investigational New Drug application and Phase 1a human
clinical trials for Alzamend’s lithium based ionic cocrystal
therapy, known as AL001. Under the securities purchase agreement,
Alzamend has agreed to sell up to 6,666,667 shares of its common
stock to DPL Lending for $10 million, or $1.50 per share, and issue
to DP Lending warrants to acquire up to 3,333,334 shares of
Alzamend common stock with an exercise price of $3.00 per share.
The transaction was approved by our independent directors after
receiving a third-party valuation report of Alzamend. As of April
26, 2022, DP Lending funded the remaining $4 million due under the
securities purchase agreement because Alzamend achieved its final
milestone, the receipt of the full data set from Alzamend’s Phase I
clinical trial for AL001.
On May 12, 2021, we issued 275,862 shares of common stock to Ault
& Company, Inc. (“A&C”), a related party, upon the
conversion of $400,000 of principal on an 8% Convertible Promissory
Note dated February 5, 2020.
On June 11, 2021, we entered into a securities purchase agreement
with A&C, a related party, pursuant to which A&C is
entitled to purchase 1,000,000 shares of our common stock for a
total purchase price of $2,990,000, at a purchase price per share
of $2.99, which was $0.05 per share above the closing stock price
on June 10, 2021.
On June 15, 2021, Alzamend closed an initial public offering at a
price to the public of $5.00 per share. DP Lending purchased
2,000,000 shares of Alzamend’s common stock in the initial public
offering for an aggregate of $10,000,000. Alzamend’s common stock
is listed on The Nasdaq Capital Market under the ticker symbol
“ALZN.”
On December 15, 2021, DP Lending entered into an exchange agreement
with Imperalis Holding Corp. (“IMHC”) pursuant to which IMHC issued
us a convertible promissory note (the “IMHC Note”) in the principal
amount of $101,528.77, in exchange for those certain promissory
notes dated August 18, 2021 and November 5, 2021 previously issued
by IMHC to DP Lending in the aggregate principal amount of
$100,000, which prior notes had accrued interest of $1,528.77 as of
December 15, 2021. The IMHC Note accrues interest at 10% per annum,
is due on December 15, 2023, and the principal, together with any
accrued but unpaid interest on the amount of principal, is
convertible into shares of IMHC’s common stock at DP Lending’s
option at a conversion price of $0.01 per share.
On December 22, 2021, AGREE Madison, LLC, a wholly-owned subsidiary
of AGREE (“AGREE Madison”), through various wholly-owned
subsidiaries (the “Property Owners”), entered into construction
loan agreements (the “Loan Agreements”) in the aggregate amount of
$68,750,000 (the “Loans”) in connection with the acquisition of
four hotel properties (the “Hotel Properties”). The Hotel
Properties were acquired on December 22, 2021 for an aggregate
purchase price of $69,200,000, of which $2,500,000 was previously
funded on deposit, $21,378,000 was paid by the Company on December
22, 2021, and the remaining amounts were funded from the Loans. The
remaining $23,428,000 of the Loans are available to be drawn upon
by the Property Owners towards the completion of the $13,700,000 in
property improvement plans (“PIPs”) the Property Owners agreed to
undertake, as well as to fund working capital, interest reserves,
franchise fees and other costs and expenses related to the
acquisition. The Loans are due on January 1, 2025 (the “Maturity
Date”), but may be extended by the Property Owners for two
additional 12-month terms, subject to certain terms and conditions
as set forth in the Loan Agreements. The Loans accrue interest at a
rate equal to the greater of (i) the LIBOR Rate plus 675 basis
points or (ii) 7% per annum. The Property Owners will make monthly
installment payments of interest only, starting January 1,
2022.
On December 30, 2021, Third Avenue Apartments LLC (“Third Avenue
Apartments”), which is a wholly-owned subsidiary of AGREE Madison,
closed upon the acquisition of certain real property located in St.
Petersburg, Florida (the “St. Petersburg Real Property”) together
with all improvements on the St. Petersburg Real Property and all
singular rights and appurtenances pertaining thereto, including,
but not limited to, (i) all entitlements, easements, rights,
mineral rights, oil and gas rights, water, water rights, air
rights, development rights and privileges appurtenant to the St.
Petersburg Real Property, (ii) all tangible personal property,
owned and assignable by Seller, located on or used in connection
with the St. Petersburg Real Property, including, without
limitation, engineering studies, soils reports, (iii) all
warranties, guaranties, indemnities and other similar rights
relating to the St. Petersburg Real Property and/or the assets
transferred hereby, (iv) all permits, licenses, consents,
approvals and entitlements related to the St. Petersburg Real
Property, (v) any rights of way, appendages appurtenances,
easements, sidewalks, alleys, gores or strips of land adjoining or
appurtenant to the St. Petersburg Real Property or any portion
thereof, if any, and used in conjunction therewith, and
(vi) all intangible rights directly relating to the St.
Petersburg Real Property (collectively, with the St. Petersburg
Real Property, the “St. Petersburg Property”).
The St. Petersburg Property was acquired from Third Avenue at St
Petersburg LLC (the “St. Petersburg Seller”) pursuant to a contract
entered into by Third Avenue Apartments and the St. Petersburg
Seller. The purchase price for the property was $15,500,000, of
which $1,500,000 was previously funded on deposit and the remaining
$14,000,000 was paid by the Company on the closing date. We plan to
use the St. Petersburg Property for the development of a high-rise
multi-family project.
On April 22, 2022, Ault Alliance entered into a “stalking horse”
asset purchase agreement (the “EYP Agreement”) with EYP Group
Holdings, Inc. and each of its subsidiaries and affiliates listed
on the signature page to the EYP Agreement (collectively, “EYP”),
pursuant to which Ault Alliance agreed to purchase substantially
all of the assets of EYP. On April 24, 2022, EYP filed a voluntary
petition for relief under Chapter 11 of the United States
Bankruptcy Code (the “Bankruptcy Code”) with the United States
Bankruptcy Court for the District of Delaware. EYP has requested
joint administration of the Chapter 11 cases under the caption “In
re EYP Group Holdings, Inc., et. al.”, Case No. 22-10367 (MFW) (the
“Chapter 11 Cases”).
In connection with the Chapter 11 Cases, EYP filed motions seeking
court approval of debtor-in-possession financing on the terms set
forth in that certain Senior Secured Superpriority
Debtor-in-Possession Financing Term Sheet, dated April 22, 2022
(the “DIP Financing Agreement”), by and among Ault Alliance and
EYP. The DIP Financing Agreement provides for senior secured
superpriority debtor-in-possession financing facilities (the “DIP
Financing”) in a $5 million commitment, with up to $2.5 million of
such commitment available upon entry of an interim order approving
the DIP Financing (the “Initial Draw”). The DIP Financing will
become available upon the satisfaction of customary conditions
precedent thereto, including the entry of the interim order. The
remaining portion of the commitment, minus the Initial Draw, will
become available upon entry of the final order of the court
approving the DIP Financing (collectively, any borrowings under the
DIP Financing the “DIP Loans”).
The DIP Financing matures on the earlier of (i) June 30, 2022,
(ii) the closing date following entry of one or more final
orders approving the sale of all or substantially all of the assets
belonging to EYP in the Chapter 11 Cases, (iii) the acceleration of
any outstanding DIP Loans following the occurrence of an uncured
event of default (as defined in the DIP Financing Agreement), or
(iv) entry of an order by the court in the Chapter 11 Cases either
(a) dismissing such case or converting such Chapter 11 Case to a
case under Chapter 7 of the Bankruptcy Code, or (b) appointing a
Chapter 11 trustee or an examiner with enlarged powers relating to
the operation of the business of EYP (i.e., powers beyond those set
forth in sections 1106(a)(3) and (4) of the Bankruptcy Code), in
each case without the consent of Ault Alliance. EYP will use the
DIP Financing to provide working capital and financial resources
necessary to allow business operations to continue as normal during
the bankruptcy sale process, including meeting obligations to
employees, vendors, customers and others.
Under the EYP Agreement, Ault Alliance or its designee(s), upon the
closing, will purchase the EYP’s assets and assume certain of EYP’s
obligations associated with the purchased assets through a
supervised sale under Section 363 of the Bankruptcy Code. Ault
Alliance’s stalking horse bid is comprised of an aggregate
consideration equal to approximately $67,700,000, which includes
the purchase price for EYP’s assets under the EYP Agreement of
$62,500,000, as adjusted by a closing working capital adjustment,
plus Ault Alliance’s assumption of certain liabilities. The
purchase price would be paid in cash, less the outstanding amount
of the DIP Loans and the senior secured loans previously issued by
Ault Alliance to EYP, in an approximate aggregate amount of
$11,750,000, and less the amount of certain liabilities assumed by
Ault Alliance. The EYP Agreement requires the transaction to close
by June 30, 2022. Consummation of the transaction is subject to the
court’s approved bidding procedures, higher and better offers made
in the auction by other potential bidders, approval of the highest
bidder by the court and customary closing conditions.
BNI: Bitcoin Mining Operations and Data Center
Operations
On January 29, 2021, ACS closed on the acquisition of a 617,000
square foot energy-efficient facility located on a 34.5 acre site
in southern Michigan for a purchase price of $3,991,497 (the
“Facility”). The purchase price was paid by our own working
capital. Ownership of the Facility was subsequently assigned to
BNI.
On December 13, 2021, BNI closed an investment of Series A
preferred stock of Earnity Inc. (“Earnity”), a decentralized
finance marketplace based in San Mateo, California. BNI paid
approximately $11.5 million for the shares of Earnity’s Series A
preferred stock. Following the investment, BNI beneficially owned
approximately 19.99% of Earnity’s common stock.
During the year ended December 31, 2021, we executed contracts to
purchase 4,600 S-19 XP Antminer bitcoin miners. The total purchase
price is $27.3 million. In November 2021, we executed contracts to
purchase 16,000 S19j Pro Antminer bitcoin miners for $128 million.
The purchases include both the environmentally friendly S19 XP
Antminers that feature a processing power of 140 terahashes per
second (“TH/s”) with an energy consumption of 3.01 kilowatt-hours
(“kWh”) and the S19j Pro Antminers that feature a processing power
of 100 TH/s with an energy consumption of 2.95 kWh. As of May 16,
2022, 7,039 were in our possession, and the remaining miners are
expected to be shipped between May 2022 and September 2022.
Approximately $92.4 million of the total purchase price has been
paid as of March 24, 2022, with the balance scheduled to be paid
between May 2022 and November 2022, a portion of which will be
provided from the net proceeds of this offering.
On February 4, 2022, we and Ault Alliance entered into a securities
purchase agreement providing for our purchase of BNI from Ault
Alliance. As a result of this transaction, both BNI and Ault
Alliance are each stand-alone wholly owned subsidiaries of
ours.
On February 10, 2022, consistent with our objective to have BNI
operate the entirety of our business that relates to
cryptocurrencies, Ault Alliance assigned the entirety of its
interest in ACS to BNI.
GWW: Defense Solutions
On December 27, 2021, we and GWW entered into a Share Exchange
Agreement (the “GIGA Exchange Agreement”) with Giga-tronics
Incorporated, a California corporation (“GIGA”). Pursuant to the
GIGA Exchange Agreement, GIGA will acquire all of the outstanding
shares of capital stock of GWW in exchange for (i) issuing to the
Company 2,920,085 shares of GIGA’s common stock (“GIGA Common
Stock”) and 514.8 shares of a new series of preferred stock (“GIGA
Preferred Stock”) which are convertible into an aggregate of
3,960,043 shares of GIGA Common Stock, subject to adjustment, and
(ii) the assumption of GWW’s equity awards representing, on an
as-assumed basis, 249,875 shares of GIGA Common Stock (the “GIGA
Exchange Transaction”). Completion of the GIGA Exchange Transaction
is subject to the approval of GIGA’s shareholders and customary
closing conditions.
Immediately following the completion of the GIGA Exchange
Transaction, GWW will be a wholly-owned subsidiary of GIGA. In
addition, the GIGA Exchange Agreement provides that the Company
will loan to GIGA $4.25 million pursuant to a convertible
promissory note upon the closing of the GIGA Exchange Transaction,
and following such closing, GIGA will repurchase or redeem all of
its shares of Series B, Series C, Series D and Series E preferred
stock currently outstanding (the “Outstanding Preferred”). Assuming
the repurchase of the Outstanding Preferred and based upon
2,725,010 shares of GIGA Common Stock currently outstanding,
following the issuance of the shares of GIGA Common Stock and GIGA
Preferred Stock to us pursuant to the GIGA Exchange Transaction, we
would hold approximately 68% of the outstanding voting power and
capital stock of GIGA, and existing holders of GIGA Common Stock
would hold approximately 32%.
TOGI: Commercial Electronics Solutions and EV Charging
Solutions
On December 16, 2021, we entered into a stock purchase agreement
(the “IMHC Purchase Agreement”) with the majority stockholders of
IMHC. Pursuant to the IMHC Purchase Agreement, we purchased
129,363,756 shares of IMHC’s common stock from the stockholders in
exchange for $200,000. Upon the closing of the IMHC Purchase
Agreement, we owned a majority of IMHC’s common stock, resulting in
a change in control of IMHC.
On March 20, 2022, we and IMHC entered into a securities purchase
agreement (the “Acquisition Agreement”) with TOGI. Pursuant to the
Acquisition Agreement, we agreed to (i) deliver to IMHC all of the
outstanding shares of common stock of TOGI that we own, and (ii)
forgive and eliminate the intracompany accounts between us and TOGI
evidencing historical equity investments made by us in TOGI, in the
approximate amount of $25,000,000, in consideration for the
issuance by IMHC to us (the “TOGI Transaction”) of an aggregate of
25,000 shares of a new class of IMHC Series A Preferred Stock (the
“IMHC Preferred Stock”), with each such share having a stated value
of $1,000. The closing of the TOGI Transaction is subject to our
delivery to IMHC of audited historical financial statements of TOGI
and other customary closing conditions. Immediately following the
completion of the TOGI Transaction, TOGI will become a wholly-owned
subsidiary of IMHC. The parties to the Acquisition Agreement agreed
that, upon completion of the TOGI Transaction, IMHC will change its
corporate name to TurnOnGreen, Inc. and, through an upstream
merger, TOGI will be merged into IMHC and IMHC will own TOGI’s two
operating subsidiaries, TOG Technologies and Digital Power
Corporation. Promptly following the closing of the TOGI
Transaction, IMHC will dissolve its three dormant subsidiaries.
Following the closing of the transaction, we announced that we
would distribute to our stockholders of record some or all of the
shares of IMHC common stock owned by us.
BitNile
On February 10, 2020, we entered into a Master Exchange Agreement
(the “Master Exchange Agreement”) with Esousa Holdings, LLC
(“Esousa”) that acquired approximately $4.2 million in principal
amount, plus accrued but unpaid interest, of certain promissory
notes that had been previously issued by us to Dominion Capital,
LLC, a Connecticut limited liability company (the “Dominion Note”)
and the Canadian Special Opportunity Fund, LP (the “CSOF Note” and,
with the Dominion Note, the “Esousa Purchased Notes”) in separate
transactions. Esousa also agreed to purchase additional notes up to
an additional principal amount, plus accrued but unpaid interest,
of $3.5 million (the “Additional Notes” and collectively, with the
Esousa Purchased Notes, the “Esousa Notes”). Pursuant to the Master
Exchange Agreement, Esousa had the unilateral right to acquire
shares of our common stock (the “Exchange Shares”) in exchange for
the Esousa Notes, which Esousa Notes evidence an aggregate of up to
approximately $7.7 million of indebtedness of the Company. In
aggregate, we have issued to Esousa a total of 8,332,904 Exchange
Shares.
Between August 2020 and November 2020, we received $5,450,000 in
loans from Esousa and certain affiliates pursuant to which we
agreed to issue unsecured short-term promissory notes with interest
rates of 13% and 14% and warrants with terms of approximately one
and a half years to purchase an aggregate of 3,850,220 shares of
our common stock at an average exercise price of $2.28 per
share.
On October 2, 2020, we entered into an At-The-Market Issuance Sales
Agreement (the “2020 Sales Agreement”) with Ascendiant Capital
Markets, LLC (“Ascendiant”) to sell shares of common stock having
an aggregate offering price of up to $8,975,000 from time to time,
through an “at the market offering” program (the “2020 ATM
Offering”). On December 1, 2020, we filed an amendment to the
prospectus supplement with the SEC to increase the amount of common
stock that may be offered and sold in the 2020 ATM Offering, as
amended under the 2020 Sales Agreement to $40,000,000 in the
aggregate, inclusive of the up to $8,975,000 in shares of common
stock previously sold in the 2020 ATM Offering. The offer and sale
of shares of our common stock from the 2020 ATM Offering was made
pursuant to our effective “shelf” registration statement on Form
S-3 and an accompanying base prospectus, which became effective on
January 11, 2018. Through December 31, 2020, we had received gross
proceeds of $39,978,350 through the sale of 12,582,000 shares of
our common stock from the 2020 ATM Offering. The 2020 ATM Offering
was terminated on December 31, 2020.
On January 22, 2021, we entered into an At-The-Market Issuance
Sales Agreement (the “2021 Sales Agreement”) with Ascendiant to
sell shares of common stock having an aggregate offering price of
up to $50 million from time to time, through an “at the market
offering” program (the “2021 ATM Offering”). On February 16, 2021,
we filed an amendment to the prospectus supplement with the SEC to
increase the amount of common stock that may be offered and sold in
the 2021 ATM Offering, as amended under the 2021 Sales Agreement to
$125 million in the aggregate, inclusive of the up to $50 million
in shares of common stock previously sold in the 2021 ATM Offering.
On March 5, 2021, we filed a second amendment to the prospectus
supplement with the SEC to further increase the amount of common
stock that may be offered and sold in the 2021 ATM Offering, as
amended under the 2021 Sales Agreement to $200 million in the
aggregate, inclusive of the up to $125 million in shares of common
stock previously sold in the 2021 ATM Offering. The offer and sale
of shares of common stock from the 2021 ATM Offering was made
pursuant to our effective “shelf” registration statement on Form
S-3 and an accompanying base prospectus which became effective on
January 20, 2021. Through December 31, 2021, we had received gross
proceeds of $200 million through the sale of 52,552,353 shares of
common stock from the 2021 ATM Offering. The 2021 ATM Offering was
terminated in December 2021.
On December 30, 2021, we issued (i) secured promissory notes with
an aggregate principal face amount of approximately $66,000,000;
(ii) five-year Class A warrants to purchase an aggregate of
14,095,350 shares of our common stock at an exercise price of
$2.50, subject to adjustment; and (iii) five-year Class B warrants
to purchase an aggregate of 1,942,508 shares of our common stock at
an exercise price of $2.50 per share, subject to adjustment. We
agreed to file a registration statement to register the shares of
common stock underlying the foregoing warrants and certain other
shares underlying previously issued warrants to one of the
investors.
We, certain of our subsidiaries and Esousa, as the collateral agent
on behalf of the investors (the “Agent”) entered into a security
agreement, pursuant to which we (i) pledged the equity interests in
substantially all of our U.S. based subsidiaries and (ii) granted
to the investors a security interest in substantially all of our
deposit accounts, securities accounts, chattel paper, documents,
equipment, general intangibles, instruments and inventory, and all
proceeds therefrom. The entirety of the loan, including the
original issue discount and accrued but unpaid interest, was fully
paid off on March 30, 2022.
On February 25, 2022, we entered into an At-The-Market Issuance
Sales Agreement (the “2022 Sales Agreement”) with Ascendiant to
sell shares of common stock having an aggregate offering price of
up to $200 million from time to time, through an “at the market
offering” program (the “2022 ATM Offering”). The offer and sale of
shares of common stock from the 2022 ATM Offering was made pursuant
to our effective “shelf” registration statement on Form S-3 and an
accompanying base prospectus which became effective on November 12,
2021. Through March 31, 2022, we had received gross proceeds of
approximately $110 million through the sale of 140,658,096 shares
of common stock from the 2022 ATM Offering.
Our Corporate Structure
On January 19, 2021, we changed our corporate name from DPW
Holdings, Inc. to Ault Global Holdings, Inc. and, on December 13,
2021, we changed our corporate name from Ault Global Holdings, Inc.
to BitNile Holdings, Inc. (the “Name Changes”). The Name Changes
were each effected through a parent/subsidiary short-form merger
pursuant to an Agreement and Plan of Merger dated January 7, 2021
and December 1, 2021, respectively. Neither of the mergers nor the
corresponding Name Change affected the rights of our security
holders. Our common stock is traded on the NYSE American under the
symbol “NILE.” Existing stock certificates that reflect our prior
corporate name continue to be valid. Certificates reflecting the
new corporate name are issued as old stock certificates are
tendered for exchange or transfer to our transfer agent.
Concurrently with the change in our name to Ault Global Holdings,
Inc., Milton C. (Todd) Ault III was appointed as our Executive
Chairman, William B. Horne was appointed as our Chief Executive
Officer and remains as Vice Chairman of our board of directors, and
Henry Nisser was appointed as our President and remains as our
General Counsel.
Commencing in October 2019 and continuing through August 2021, we
reorganized our corporate structure pursuant to a series of
transactions by and among BitNile Holdings and our directly and
indirectly owned subsidiaries. The purpose of the reorganization
was to align our various businesses by the products and services
that constitute the majority of each subsidiaries’ revenues. As a
result of the foregoing transactions, our streamlined corporate
structure is currently as follows:
Settlement of Derivative Litigation
On February 24, 2020, we entered into a definitive settlement
agreement (the “Settlement Agreement”) intended to settle the
previously disclosed derivative litigation captioned Ethan Young
and Greg Young, Derivatively on Behalf of Nominal Defendant, DPW
Holdings, Inc. v. Milton C. Ault, III, Amos Kohn, William B. Horne,
Jeff Bentz, Mordechai Rosenberg, Robert O. Smith, and Kristine Ault
and DPW Holdings, Inc., as the nominal defendant (Case No.
18-cv-6587) (as amended on March 11, 2019, the “Amended Complaint”)
against the Company and certain of its officers and directors
pending in the United States District Court for the Central
District of California (the “Court”). As previously disclosed, the
Amended Complaint alleges violations including breaches of
fiduciary duties and unjust enrichment claims based on the
previously pled transactions.
On April 15, 2020, the Court issued an Order (the “Order”)
approving a Motion for Preliminary Approval of Settlement in the
Derivative Action. On July 16, 2020, the Court issued an Order (the
“Final Order”) approving a Motion for Final Approval of Settlement
in the Derivative Action filed against BitNile Holdings as a
nominal defendant and its directors who served on its board of
directors on July 31, 2018 who were not dismissed from the action
as a result of the Court’s partial grant of the preliminary motion.
On July 16, 2020, the Court entered a Judgement based upon the
Final Order.
Under the terms of the Final Order approving the Agreement, the
Board agreed to adopt and/or maintain resolutions and amendments to
committee charters and/or our bylaws to ensure adherence to certain
corporate governance policies (collectively, the “Reforms”), which
will remain in effect for no less than five years, subject to any
of the following: (a) a determination by a majority of the
independent directors that the Reforms are no longer in our best
interest, including, but not limited to, due to circumstances
making the Reforms no longer applicable, feasible, or available on
commercially reasonable terms, or (b) modifications which we
reasonably believe are required by applicable law or
regulation.
In connection with the Settlement Agreement, the parties agreed
upon a payment of attorneys’ fees in the amount of $600,000 payable
by our Director’s & Officer’s liability insurance policy, which
sum was paid. The Settlement Agreement contains no admission of
wrongdoing. We have always maintained and continue to believe that
we did not engage in any wrongdoing or otherwise commit any
violation of federal or state securities laws or other laws.
Our Current Business Strategy
As principally a holding company, our business strategy is designed
to increase stockholder value. Under this strategy, we are focused
on managing and financially supporting our existing subsidiaries
and partner companies, with the goal of pursuing monetization
opportunities and maximizing the value returned to stockholders. We
have, are and will consider initiatives including, among others:
public offerings, the sale of individual partner companies, the
sale of certain or all partner company interests in secondary
market transactions, or a combination thereof, as well as other
opportunities to maximize stockholder value, such as activist
trading. We anticipate returning value to stockholders after
satisfying our debt obligations and working capital needs.
On October 7, 2019, we created an Executive Committee which is
comprised of our Executive Chairman, Chief Executive Officer and
President. The Executive Committee meets on a daily basis to
address the Company’s critical needs and provides a forum to
approve transactions which are communicated to our Chief Financial
Officer and Senior Vice President of Finance on a bi-weekly basis
by our Chief Executive Officer.
Our Executive Committee approves and manages our investment and
trading strategy. The Executive Committee has decades of experience
in financial, investing and securities transactions. Led by our
Founder and Executive Chairman, Milton C. (Todd) Ault III, we seek
to find undervalued companies and disruptive technologies with a
global impact. We use a traditional methodology for valuing
securities that primarily looks for deeply depressed prices. Upon
making an investment, we often become actively involved in the
companies we seek to acquire. That activity may involve a broad
range of approaches, from influencing the management of a target to
take steps to improve stockholder value, to acquiring a controlling
or sizeable but non-controlling interest or outright ownership of
the target company in order to implement changes that we believe
are required to improve its business, and then operating and
expanding that business. Mr. Ault relies heavily on William B.
Horne, our Vice Chairman and Chief Executive Officer, and Henry
Nisser, our President and General Counsel, to provide analysis and
guidance on all acquisition targets and throughout the acquisition
process.
From time to time, we engage in discussions with other companies
interested in our subsidiaries or partner companies, either in
response to inquiries or as part of a process we initiate. To the
extent we believe that a subsidiary partner company’s further
growth and development can best be supported by a different
ownership structure or if we otherwise believe it is in our
stockholders’ best interests, we will seek to sell some or all of
our position in the subsidiary or partner company. These sales may
take the form of privately negotiated sales of stock or assets,
mergers and acquisitions, public offerings of the subsidiary or
partner company’s securities and, in the case of publicly traded
partner companies, transactions in their securities in the open
market. Our plans may include taking subsidiaries or partner
companies public through rights offerings, mergers or spin-offs and
directed share subscription programs. We will continue to consider
these and functionally equivalent programs and the sale of certain
subsidiary or partner company interests in secondary market
transactions to maximize value for our stockholders.
Our Executive Committee acts as the underwriting committee for our
subsidiary DP Lending and approves all lending transactions. Under
its business model, DP Lending generates revenue through
origination fees charged to borrowers and interest generated from
each loan. DP Lending may also generate income from appreciation of
investments in marketable securities as well as any shares of
common stock underlying convertible notes or warrants issued to DP
Lending in any particular financing.
Over the recent past, we have provided capital and relevant
expertise to fuel the growth of businesses in cryptocurrency
mining, decentralized finance, defense/aerospace, industrial,
telecommunications, medical 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.
Impact of Coronavirus on Our Operations
On March 16, 2020, to try and mitigate the spread of the novel
coronavirus, San Diego County health officials issued orders
mandating that all restaurants must end dine-in services. As a
result of these temporary closures by the San Diego County health
officials and the deteriorating business conditions at both our
cryptocurrency mining and restaurant businesses, management
concluded that discontinuing these operations was ultimately in our
best interest. Although we have ceased operations at our Digital
Farms location, since the assets and operations have not yet been
abandoned, sold or distributed, these assets do not yet meet the
requirement for presentation as discontinued operations. However,
management determined that the permanent closing of the restaurant
operations met the criteria for presentation as discontinued
operations.
In March 2020, the World Health Organization declared the outbreak
of a novel coronavirus (“COVID-19”) as a pandemic which continues
to spread throughout the United States and the world. We are
monitoring the outbreak of COVID-19 and the related business and
travel restrictions and changes to behavior intended to reduce its
spread, and its impact on operations, financial position, cash
flows, inventory, supply chains, customer purchasing trends,
customer payments, and the industry in general, in addition to the
impact on our employees. Due to the rapid development and fluidity
of this situation, the magnitude and duration of the pandemic and
its impact on our operations and liquidity is uncertain as of the
date of this prospectus supplement.
As we have disclosed in our periodic SEC filings during the last
two years, our business has been disrupted and adversely affected
by the outbreak of COVID-19 and its variants. We continue to assess
our business operations and system supports and the impact COVID-19
may have on our results and financial condition, but there can be
no assurance that this analysis will enable us to avoid part or all
of any ongoing impact from the spread of COVID-19 or its
consequences, including downturns in business sentiment generally
or in our sectors in particular.
Our operations are located in Alameda County, CA, Orange County,
CA, Fairfield County, CT, the United Kingdom, Israel and members of
our senior management work in Seattle, WA and New York, NY. We have
been following the recommendations of local health authorities to
minimize exposure risk for our employees, including the temporary
closures of our offices and having employees work remotely to the
extent possible, which has to an extent adversely affected their
efficiency. For more information, see “Risk Factors – We face
business disruption and related risks resulting from the recent
outbreak of the novel coronavirus . . . .”
Risks Affecting Our Businesses
Our business is subject to numerous risks and uncertainties that
you should consider before investing in the Series D Preferred
Stock. These risks are described more fully in the section titled
“Risk Factors” in this prospectus supplement and the accompanying
prospectus. Below are the principal factors that make an investment
in our company speculative or risky:
• |
We may need to raise additional capital in the future to fund our
operations in furtherance of our business strategy and to pay
dividends on the Series D Preferred Stock.
|
• |
We face business disruption and related risks resulting from the
continuing impact of COVID-19 and its variants, which could have a
material adverse effect on our business and results of operations
and slowdown our ability to raise financing.
|
• |
We have an evolving, multi-industry business model that includes
bitcoin mining. This increases the complexity of valuing our
overall business.
|
• |
We received an order and a subpoena from the SEC in the
investigation now known as “In the Matter of DPW Holdings, Inc.,”
the consequences of which are unknown at this time.
|
• |
If we make any additional acquisitions, they may disrupt or have a
negative impact on our business.
|
• |
Our growth strategy is subject to a significant degree of risk.
|
• |
We are heavily dependent on our senior management, and a loss of a
member of our senior management team could cause our stock price to
suffer.
|
• |
If we fail to anticipate and adequately respond to rapid
technological changes in our industry, including evolving
industry-wide standards, in a timely and cost-effective manner, our
business, financial condition and results of operations would be
materially and adversely affected.
|
• |
We depend upon a few major customers for a majority of our
revenues, and the loss of any of these customers, or the
substantial reduction in the quantity of products that they
purchase from us, would significantly reduce our revenues and net
income.
|
• |
If we do not satisfy the NYSE American continued listing
requirements, our common stock and, assuming its listing, the
Series D Preferred Stock to be issued in this offering could be
delisted from NYSE American.
|
• |
Our common stock
price is volatile which may influence the market price of the
Series D Preferred Stock. The Series D Preferred Stock is not
convertible into our common stock except under certain limited
circumstances. |
Corporate Information
We are a Delaware corporation, initially formed in California in
1969 and reincorporated in Delaware in September 2017. On January
19, 2021, we changed our corporate name from DPW Holdings, Inc. to
Ault Global Holdings, Inc. and, on December 13, 2021, we changed
our corporate name from Ault Global Holdings, Inc. to BitNile
Holdings, Inc. The Name Changes were each effected through a
parent/subsidiary short-form merger pursuant to an Agreement and
Plan of Merger dated January 7, 2021 and December 1, 2021,
respectively. We are located at 11411 Southern Highlands Parkway,
Suite 240, Las Vegas, NV 89141. Our phone number is (949) 444-5464
and our website address is www.bitnile.com. Information on our
website does not constitute part of this prospectus supplement and
should not be relied upon with respect to this offering.
The Offering
The following summary contains basic terms about this offering
and the Series D Preferred Stock and is not intended to be
complete. It may not contain all of the information that is
important to you. For a more complete description of the terms of
the Series D Preferred Stock, see “Description of the Series D
Preferred Stock.”
Issuer: |
BitNile Holdings, Inc.
|
Securities Offered: |
120,000 shares of 13.00% Series D Cumulative Redeemable Perpetual
Preferred Stock (the “Series D Preferred Stock”).
|
Offering Price: |
$25.00 per share of Series D Preferred Stock.
|
Dividends: |
Holders of the Series D Preferred Stock will be entitled to receive
cumulative cash dividends at a rate of 13.00% per annum of the
$25.00 per share liquidation preference (equivalent to $3.25 per
annum per share or $0.2708333 per month per share).
Dividends will be payable monthly on the last day of each month,
commencing on June 30, 2022 when, as and if declared by our board
of directors (each, a “dividend payment date”), provided that if
any dividend payment date is not a business day, then the dividend
that would otherwise have been payable on that dividend payment
date may be paid on the next succeeding business day without
adjustment in the amount of the dividend. Dividends will be payable
to holders of record as they appear in our stock records for the
Series D Preferred Stock at the close of business on the
corresponding record date, which will be the last day of the month,
whether or not a business day, in which the applicable dividend
payment date falls (each, a “dividend record date”). As a result,
holders of shares of Series D Preferred Stock will not be entitled
to receive dividends on a dividend payment date if such shares were
not issued and outstanding on the applicable dividend record date.
In the event we do not pay dividends on the Series D Preferred
Stock for 18 or more monthly dividend periods (whether or not
consecutive), the holders of Series D Preferred Stock will have
certain voting rights. See the sections entitled “Description of
the Series D Preferred Stock — Dividends” and “— Voting
Rights.”
|
No Maturity, Sinking
Fund or
Mandatory
Redemption:
|
The Series D Preferred Stock is perpetual and has no stated
maturity date and will not be subject to any sinking fund or
mandatory redemption. Shares of the Series D Preferred Stock will
remain outstanding indefinitely unless we decide to redeem or
otherwise repurchase them. We are not required to set aside funds
to redeem the Series D Preferred Stock.
|
Optional
Redemption: |
Prior to the date that is three years following the initial
issuance of the Series D Preferred Stock, we may, at our option,
redeem the Series D Preferred Stock, in whole or in part, at any
time or from time to time, at a redemption price equal to $25.50
per share of Series D Preferred Stock, plus any accumulated
and unpaid dividends (whether or not declared) on the Series
D Preferred Stock up to, but not including, the date of such
redemption, upon written notice, as described in the section
entitled “Description of the Series D Preferred Stock — Redemption
— Redemption Procedures.” On and after the date that is three years
following the initial issuance, the redemption price decreases to
$25.00 per share. See the section entitled “Description of the
Series D Preferred Stock — Redemption — Optional Redemption.”
|
Special
Optional Redemption: |
Upon the occurrence of a Change of Control, we may, at our option,
redeem the Series D Preferred Stock, in whole or in part, within
120 days after the first date on which such Change of Control
occurred, for cash at a redemption price of $25.00 per share, plus
any accumulated and unpaid dividends (whether or not declared) to,
but not including, the redemption date.
|
|
A “Change of Control” is deemed to occur when, after the initial
issuance of the Series D Preferred Stock, the following have
occurred and are continuing: (i) the acquisition by any person,
including any syndicate or group deemed to be a “person” under
Section 13(d)(3) of the Exchange Act (other than A&C and Ault
Alpha LP (“AA”), both of which are significant stockholders of our
company and affiliates of Milton C. (Todd) Ault III, our Executive
Chairman, and any “person” or “group” under Section 13(d)(3) of the
Exchange Act that is an affiliate of A&C, AA, or any trust,
partnership, corporate or other entity affiliated with any of the
foregoing), of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or
series of purchases, mergers or other acquisition transactions of
our stock entitling that person to exercise more than 50% of the
total voting power of all our stock entitled to vote generally in
the election of our directors (except that such person will be
deemed to have beneficial ownership of all securities that such
person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a
subsequent condition); and (ii) following the closing of any
transaction referred to above, neither we nor the acquiring or
surviving entity has a class of common securities (or American
Depositary Receipts representing such securities) listed on the
NYSE, the NYSE American or the NASDAQ Stock Market (“NASDAQ”), or
listed or quoted on an exchange or quotation system that is a
successor to the NYSE, the NYSE American or NASDAQ.
|
Liquidation
Preference: |
If we liquidate, dissolve or wind up, holders of the Series D
Preferred Stock will have the right to receive $25.00 per share,
plus any accumulated and unpaid dividends to, but not including,
the date of payment, before any payment is made to the holders of
our common stock or any capital stock ranking junior to the Series
D Preferred Stock. See the section entitled “Description of the
Series D Preferred Stock — Liquidation Preference.”
|
Ranking: |
The Series D Preferred Stock will rank, with respect to rights to
the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up, (1) senior to all classes
or series of our common stock and to all other equity securities
issued by us other than equity securities referred to in clauses
(2) and (3); (2) on a parity with all equity securities issued by
us with terms specifically providing that those equity securities
rank on a parity with the Series D Preferred Stock with respect to
rights to the payment of dividends and the distribution of assets
upon our liquidation, dissolution or winding up, including our
Series A Cumulative Redeemable Perpetual Preferred Stock and Series
C Convertible Redeemable Preferred Stock; (3) junior to our Series
B Convertible Preferred Stock and all equity securities issued by
us with terms specifically providing that those equity securities
rank senior to the Series D Preferred Stock with respect to rights
to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up; and (4) effectively junior
to all of our existing and future indebtedness (including
indebtedness convertible into our common stock or preferred stock)
and to the indebtedness and other liabilities of (as well as any
preferred equity interests held by others in) our existing
subsidiaries and any future subsidiaries. See the section entitled
“Description of the Series D Preferred Stock — Ranking.”
|
Limited Voting
Rights: |
Holders of Series D Preferred Stock will generally have no voting
rights. However, if we do not pay dividends on the Series D
Preferred Stock for 18 or more monthly dividend periods (whether or
not consecutive), the holders of the Series D Preferred Stock
(voting separately as a class with the holders of all other classes
or series of our preferred stock we may issue upon which like
voting rights have been conferred and are exercisable and which are
entitled to vote as a class with the Series D Preferred Stock in
the election referred to below) will be entitled to vote for the
election of two additional directors to serve on our board of
directors until we pay, or declare and set aside funds for the
payment of, all dividends that we owe on the Series D Preferred
Stock, subject to certain limitations described in the section
entitled “Description of the Series D Preferred Stock — Voting
Rights.” In addition, the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series D Preferred
Stock is required at any time for us to authorize or issue any
class or series of our capital stock ranking senior to the Series D
Preferred Stock with respect to the payment of dividends or the
distribution of assets on liquidation, dissolution or winding up,
to amend any provision of our certificate of incorporation so as to
materially and adversely affect any rights of the Series D
Preferred Stock. If any such amendments to our certificate of
incorporation would be material and adverse to holders of the
Series D Preferred Stock and any other series of parity preferred
stock upon which similar voting rights have been conferred and are
exercisable, a vote of at least two-thirds of the outstanding
shares of Series D Preferred Stock and the shares of the other
applicable series materially and adversely affected, voting
together as a class, would be required. See the section entitled
“Description of the Series D Preferred Stock — Voting Rights.”
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Further, unless we have received the approval of two-thirds of the
votes entitled to be cast by the holders of Series D Preferred
Stock, we will not effect any consummation of a binding share
exchange or reclassification of the Series D Preferred Stock or a
merger or consolidation with another entity, unless (a) the shares
of Series D Preferred Stock remain outstanding or, in the case of a
merger or consolidation with respect to which we are not the
surviving entity, the shares of Series D Preferred Stock are
converted into or exchanged for preference securities, or (b) such
shares remain outstanding or such preference securities are not
materially less favorable than the Series D Preferred Stock
immediately prior to such consummation. See the section entitled
“Description of the Series D Preferred Stock — Voting Rights.”
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Information Rights: |
During any period in which we are not subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and any shares of Series D Preferred Stock are
outstanding, we will use our best efforts to (i) transmit by mail
(or other permissible means under the Exchange Act) to all holders
of Series D Preferred Stock, as their names and addresses appear on
our record books and without cost to such holders, copies of the
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that
we would have been required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act if we were subject thereto
(other than any exhibits that would not have been required) and
(ii) promptly, upon request, supply copies of such reports to any
holders or prospective holder of Series D Preferred Stock, subject
to certain exceptions described in this prospectus supplement. We
will use our best efforts to mail (or otherwise provide) the
information to the holders of the Series D Preferred Stock within
15 days after the respective dates by which a periodic report on
Form 10-K or Form 10-Q, as the case may be, in respect of such
information would have been required to be filed with the SEC, if
we were subject to Section 13 or 15(d) of the Exchange Act, in each
case, based on the dates on which we would be required to file such
periodic reports if we were a “non-accelerated filer” within the
meaning of the Exchange Act.
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Listing: |
Our shares of common stock trade on the NYSE American under the
symbol “NILE.” The Series D Preferred Stock is a new issue of
securities with no established trading market. We have applied to
list the Series D Preferred Stock on the NYSE American under the
symbol “NILE PRD.” No assurance can be given that our application
will be approved. If our application is not approved, we will not
complete this offering. If the application is approved, we expect
trading in the Series D Preferred Stock to begin on the date the
Series D Preferred Stock is first issued.
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Use of
Proceeds: |
We plan to use the net proceeds from this offering for the purchase
of bitcoin miners and general corporate purposes. We will place
proceeds equal to 18 monthly dividend payments into a separate bank
account to be used to pay the Series D Preferred Stock dividends.
See the section entitled “Use of Proceeds.”
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Transfer
Agent: |
The registrar, transfer agent and dividend and redemption price
disbursing agent in respect of the Series D Preferred Stock is
Computershare Trust Company, N.A.
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Book Entry and Form:
|
The Series D Preferred Stock will be represented by one or more
global certificates in definitive, fully registered form deposited
with a custodian for, and registered in the name of, a nominee of
The Depository Trust Company (“DTC”).
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Risk
Factors: |
Read the section entitled “Risk Factors” beginning on page S-13 of
this prospectus supplement and page 10 of the accompanying
prospectus for a discussion of some of the factors you should
carefully consider before deciding to invest in the Series D
Preferred Stock.
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RISK FACTORS
An investment in our securities involves a high degree of risk.
You should carefully consider the risks and uncertainties described
in this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference into this prospectus
supplement. The risks and uncertainties described in this
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference into this prospectus supplement
are not the only ones we face. Additional risks and uncertainties
that we do not presently know about or that we currently believe
are not material may also adversely affect our business, business
prospects, results of operations or financial condition. If any of
the risks and uncertainties described in this prospectus
supplement, the accompanying prospectus or the documents
incorporated by reference into this prospectus supplement actually
occurs, then our business, results of operations and financial
condition could be adversely affected in a material way. This could
cause the market price of the Series D Preferred Stock to decline,
perhaps significantly, and you may lose part or all of your
investment.
Risks Related to this Offering and Ownership of Our Series D
Preferred Stock
The Series D Preferred Stock ranks junior to all of our
indebtedness and other liabilities.
In the event of our bankruptcy, liquidation, dissolution or
winding-up of our affairs, our assets will be available to pay
obligations on the Series D Preferred Stock only after all of our
indebtedness and other liabilities have been paid. The rights of
holders of the Series D Preferred Stock to participate in the
distribution of our assets will rank junior to the prior claims of
our current and future creditors and any future series or class of
preferred stock we may issue that ranks senior to the Series D
Preferred Stock. Also, the Series D Preferred Stock effectively
ranks junior to all existing and future indebtedness and to the
indebtedness and other liabilities of our existing subsidiaries and
any future subsidiaries. Our existing subsidiaries are, and future
subsidiaries would be, separate legal entities and have no legal
obligation to pay any amounts to us in respect of dividends due on
the Series D Preferred Stock. If we are forced to liquidate our
assets to pay our creditors, we may not have sufficient assets to
pay amounts due on any or all of the Series D Preferred Stock then
outstanding. We have incurred and may in the future incur
substantial amounts of debt and other obligations that will rank
senior to the Series D Preferred Stock. At March 31, 2022, our
total liabilities (excluding contingent consideration, which is not
payable in cash) equaled approximately $93.7 million.
Certain of our existing or future debt instruments may restrict the
authorization, payment or setting apart of dividends on the Series
D Preferred Stock. There can be no assurance that we will always
remain in compliance with any credit agreement we may enter into in
the future, and if we default, we may be contractually prohibited
from paying dividends on the Series D Preferred Stock. Also, future
offerings of debt or senior equity securities may adversely affect
the market price of the Series D Preferred Stock. If we decide to
issue debt or senior equity securities in the future, it is
possible that these securities will be governed by an indenture or
other instruments containing covenants restricting our operating
flexibility. Additionally, any convertible or exchangeable
securities that we issue in the future may have rights, preferences
and privileges more favorable than those of the Series D Preferred
Stock and may result in dilution to owners of the Series D
Preferred Stock. We and, indirectly, our stockholders, will bear
the cost of issuing and servicing such securities. Because our
decision to issue debt or equity securities in any future offering
will depend on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or nature
of our future offerings. The holders of the Series D Preferred
Stock will bear the risk of our future offerings, which may reduce
the market price of the Series D Preferred Stock and may dilute the
value of their holdings in us.
There is no established trading market for the Series D
Preferred Stock, and a trading market that will provide you with
adequate liquidity may not develop for the Series D Preferred
Stock.
The Series D Preferred Stock is a new issue of securities with no
established trading market. We have applied to list the Series D
Preferred Stock on the NYSE American under the symbol “NILE PRD.”
However, even if the NYSE American approves our application, a
trading market for the Series D Preferred Stock may never develop
or, even if one develops, may not be maintained and may not provide
you with adequate liquidity. The liquidity of any market for the
Series D Preferred Stock that may develop will depend on a number
of factors, including prevailing interest rates, our financial
condition and operating results, the number of holders of the
Series D Preferred Stock, the market for similar securities and the
interest of securities dealers in making a market in the Series D
Preferred Stock. We cannot predict the extent to which investor
interest in our company will lead to the development of a trading
market in our Series D Preferred Stock, or how liquid that market
might be. If an active market does not develop, you may have
difficulty selling your shares of our Series D Preferred Stock.
We may issue additional shares of Series D Preferred Stock
and additional series of preferred stock that rank senior to or on
a parity with the Series D Preferred Stock as to dividend rights,
rights upon liquidation, voting rights and other
rights.
We are permitted to issue additional shares of Series D Preferred
Stock and additional series of preferred stock that would rank
equal to or, with the approval of holders of the Series D Preferred
Stock, above the Series D Preferred Stock as to dividend rights,
rights upon liquidation, voting rights, other rights or winding up
of our affairs pursuant to our certificate of incorporation and the
certificate of designation relating to the Series D Preferred Stock
without any vote of the holders of the Series D Preferred Stock.
The issuance of additional shares of Series D Preferred Stock and
additional series of preferred stock could have the effect of
reducing the amounts available to the Series D Preferred Stock
issued in this offering upon our liquidation or dissolution or the
winding up of our affairs. It also may reduce dividend payments on
the Series D Preferred Stock issued in this offering if we do not
have sufficient funds to pay dividends on all shares of Series D
Preferred Stock outstanding and other classes or series of stock
with equal priority with respect to dividends.
Also, while holders of Series D Preferred Stock are entitled to
limited voting rights, as described in “Description of the Series D
Preferred Stock — Voting Rights,” with respect to the circumstances
under which the holders of Series D Preferred Stock are entitled to
vote, the Series D Preferred Stock will vote separately as a class
along with all other series of our preferred stock that we may
issue upon which like voting rights have been conferred and are
exercisable. As a result, the voting rights of holders of Series D
Preferred Stock may be significantly diluted, and the holders of
such other series of preferred stock that we may issue may be able
to control or significantly influence the outcome of any vote.
Future issuances and sales of senior or pari passu preferred stock,
or the perception that such issuances and sales could occur, may
cause prevailing market prices for the Series D Preferred Stock and
our common stock to decline and may adversely affect our ability to
raise additional capital in the financial markets at times and
prices favorable to us.
Market interest rates may materially and adversely affect the
value of the Series D Preferred Stock.
One of the factors that will influence the price of the Series D
Preferred Stock will be the dividend yield on the Series D
Preferred Stock (as a percentage of the market price of the Series
D Preferred Stock) relative to market interest rates. An increase
in market interest rates, which are currently at low levels
relative to historical rates, may lead prospective purchasers of
the Series D Preferred Stock to expect a higher dividend yield (and
higher interest rates would likely increase our borrowing costs and
potentially decrease funds available for dividend payments). Thus,
higher market interest rates could cause the market price of the
Series D Preferred Stock to materially decrease.
We may not be able to pay dividends on the Series D Preferred
Stock if we have insufficient cash in the future to make dividend
payments.
Our ability to pay cash dividends on the Series D Preferred Stock
will require us to have net profits, positive net assets (total
assets less total liabilities) over our capital, or the ability
raise capital in amounts sufficient to pay the dividends as well as
being able to pay our debts as they become due in the usual course
of business.
Further, notwithstanding these factors, we may not have sufficient
cash to pay dividends on the Series D Preferred Stock when the
initial dividend payments that have been set aside are exhausted.
Our ability to pay dividends may be impaired if any of the risks
described in this prospectus supplement, or documents incorporated
by reference in this prospectus supplement, were to occur. Also,
payment of our dividends depends upon our financial condition and
other factors as our board of directors may deem relevant from time
to time. We cannot assure you that our businesses will generate
sufficient cash flow from operations, that we will be able to raise
additional financing if needed, or that future borrowings will be
available to us in an amount sufficient to enable us to make
distributions on our common stock, if any, and preferred stock,
including the Series D Preferred Stock to pay our indebtedness or
to fund our other liquidity needs.
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.”
Distributions paid to corporate U.S. holders of the Series D
Preferred Stock may be eligible for the dividends-received
deduction, and distributions paid to non-corporate U.S. holders of
the Series D Preferred Stock may be subject to tax at the
preferential tax rates applicable to “qualified dividend income,”
if we have current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. We do not
currently have accumulated earnings and profits. Additionally, we
may not have sufficient current earnings and profits during future
fiscal years for the distributions on the Series D Preferred Stock
to qualify as dividends for U.S. federal income tax purposes. If
the distributions fail to qualify as dividends, U.S. holders would
be unable to use the dividends-received deduction and may not be
eligible for the preferential tax rates applicable to “qualified
dividend income.” If any distributions on the Series D Preferred
Stock with respect to any fiscal year are not eligible for the
dividends-received deduction or preferential tax rates applicable
to “qualified dividend income” because of insufficient current or
accumulated earnings and profits, it is possible that the market
value of the Series D Preferred Stock could decline.
Our revenues, operating results and cash flows may fluctuate
in future periods and we may fail to meet investor expectations,
which may cause the price of the Series D Preferred Stock to
decline.
Variations in our quarterly and year-end operating results are
difficult to predict and our income and cash flow may fluctuate
significantly from period to period, which may impact our board of
directors’ willingness or legal ability to declare a monthly
dividend. If our operating results fall below the expectations of
investors or securities analysts, the price of our Series D
Preferred Stock could decline substantially. Specific factors that
may cause fluctuations in our operating results include, but are
not limited, to:
• demand
and pricing for our products and services;
• introduction
of competing products;
• our
operating expenses which fluctuate due to growth of our
business;
• timing
and size of any new product or technology acquisitions we may
complete; and
• variable
sales cycle and implementation periods for our products and
services.
The Series D Preferred Stock has not been rated by an
independent rating agency.
We have not sought to obtain a rating for the Series D Preferred
Stock. No assurance can be given, however, that one or more rating
agencies might not independently determine to issue such a rating
or that such a rating, if issued, would not adversely affect the
market price of the Series D Preferred Stock. Also, we may elect in
the future to obtain a rating for the Series D Preferred Stock,
which could adversely affect the market price of the Series D
Preferred Stock. Ratings only reflect the views of the rating
agency or agencies issuing the ratings and such ratings could be
revised downward, placed on a watch list or withdrawn entirely at
the discretion of the issuing rating agency if in its judgment
circumstances so warrant. Any such downward revision, placing on a
watch list or withdrawal of a rating could have an adverse effect
on the market price of the Series D Preferred Stock.
We may redeem the Series D Preferred Stock, which may have an
adverse economic effect on investors.
We may, at our option, redeem the Series D Preferred Stock, in
whole or in part, at any time or from time to time. Also, upon the
occurrence of a Change of Control, we may, at our option, redeem
the Series D Preferred Stock, in whole or in part, within 120 days
after the first date on which such Change of Control occurred. We
may have an incentive to redeem the Series D Preferred Stock
voluntarily if market conditions allow us to issue other preferred
stock or debt securities at a rate that is lower than the dividend
on the Series D Preferred Stock. If we redeem the Series D
Preferred Stock, then from and after the redemption date, your
dividends will cease to accrue on your shares of Series D Preferred
Stock, your shares of Series D Preferred Stock will no longer be
deemed outstanding and all your rights as a holder of those shares
will terminate, except the right to receive the redemption price
plus any accumulated and unpaid dividends (whether or not
declared), if any, payable upon redemption. Redemption of the
Series D Preferred Stock could force holders to sell the Series D
Preferred Stock at the then current market price when they might
otherwise wish to hold the Series D Preferred Stock for possible
additional appreciation and receipt of dividends or to accept the
redemption price, which is likely to be substantially less than the
market value of the Series D Preferred Stock at the time of
redemption.
The market price of the Series D Preferred Stock could be
substantially affected by various factors.
The market price of the Series D Preferred Stock depends on many
factors, which may change from time to time, including:
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prevailing interest rates,
increases in which may have an adverse effect on the market price
of the Series D Preferred Stock; |
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trading prices of similar
securities; |
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our history of timely dividend
payments; |
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the annual yield from dividends on
the Series D Preferred Stock as compared to yields on other
financial instruments; |
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general economic and financial
market conditions; |
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government action or
regulation; |
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the financial condition,
performance and prospects of us and our competitors; |
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changes in financial estimates or
recommendations by securities analysts with respect to us or our
competitors in our industry; |
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our issuance of additional
preferred equity or debt securities; and |
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actual or anticipated variations in quarterly operating results
of us and our competitors. |
As a result of these and other factors, investors who purchase the
Series D Preferred Stock in this offering may experience a
decrease, which could be substantial and rapid, in the market price
of the Series D Preferred Stock, including decreases unrelated to
our operating performance or prospects.
As a holder of Series D Preferred Stock, you will have
extremely limited voting rights.
Your voting rights as a holder of Series D Preferred Stock will be
limited. Our shares of common stock and the Series B Preferred
Stock are the only classes of our securities that carry full voting
rights. Voting rights for holders of Series D Preferred Stock exist
primarily with respect to the ability to elect, voting together
with the holders of any other series of our preferred stock having
similar voting rights, two additional directors to our board of
directors, subject to limitations described in the section entitled
“Description of the Series D Preferred Stock — Voting Rights,” in
the event that 18 or more monthly dividend periods (whether or not
consecutive) payable on the Series D Preferred Stock are in
arrears, and with respect to voting on amendments to our
certificate of incorporation or certificate of designation of the
Series D Preferred Stock that materially and adversely affect the
rights of the holders of Series D Preferred Stock or, in the case
of our certificate of incorporation, authorize, increase or create
additional classes or series of our capital stock that are senior
to the Series D Preferred Stock. Other than the limited
circumstances described in this prospectus supplement and except to
the extent required by law, holders of Series D Preferred Stock do
not have any voting rights. See the section entitled “Description
of the Series D Preferred Stock — 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.
The Series D Preferred Stock does not contain provisions that are
intended to protect you if our common stock is delisted from
trading on the NYSE American. Since the Series D Preferred Stock
has no stated maturity date, you may be forced to hold your shares
of Series D Preferred Stock and receive stated dividends on the
Series D Preferred Stock when, as and if authorized by our board of
directors and paid by us with no assurance to ever receive the
liquidation value thereof. Also, if our common stock is delisted
from the NYSE American, it is possible that the Series D Preferred
Stock will be delisted from the NYSE American as well. Accordingly,
if our common stock is delisted from trading on the NYSE American,
your ability to transfer or sell your shares of Series D Preferred
Stock may be limited and the market value of the Series D Preferred
Stock will likely be materially adversely affected.
We will have broad discretion in using the proceeds of this
offering, and we may not effectively spend the
proceeds.
We plan to use a portion of the net proceeds of this offering for
the purchase of bitcoin miners. We will use the balance for general
corporate purposes, which may include supporting the operations of
our businesses, as well as to pay the legal, accounting and other
fees associated with this offering. We will have significant
flexibility and broad discretion in applying the net proceeds of
this offering, and we may not apply these proceeds effectively. Our
management might not be able to yield a significant return for the
foreseeable future, if any, on any investment of these net
proceeds, and you will not have the opportunity to influence our
decisions on how to use our net proceeds from this offering.
Our proposed purchase of bitcoin miners with a portion of the
net proceeds of this offering subjects us to the risks inherent in
operating in the bitcoin market.
The price of cryptocurrencies and digital assets like bitcoin and
the associated demand for buying, selling and trading
cryptocurrencies and digital assets have historically been subject
to significant volatility. For example, on May 12, 2022, bitcoin
fell as low as $25,401.29, its lowest level since July 2021,
extending a selloff of more than 50% from its record high of
$68,990.90 set on November 10, 2021. The risks, price and trading
volume of any digital asset is subject to significant uncertainty
and volatility, depending on a number of factors, all of which may
impact our company and ultimately the Series D Preferred Stock.
They include:
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we lack a significant operating
history in the cryptocurrency mining space, and our focus on this
relatively new business is subject to a number of significant risks
and uncertainties that could affect our future viability; |
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acceptance and/or widespread use of
bitcoin is uncertain, which makes it more difficult for us to
conduct transactions using bitcoin as a medium of exchange; |
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we rely on a sole supplier for our
bitcoin mining machines, and may not be able to find replacements
or immediately transition to alternative suppliers. If we were to
lose Bitmain as a supplier, or if Bitmain were unable or unwilling
to fulfill our orders, any delay or interruption in planned
delivery could seriously interrupt our business; |
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political or economic crises may
motivate large-scale sales of cryptocurrencies, which could result
in a reduction in values of cryptocurrencies such as bitcoin and
adversely affect an investment in us; |
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negative media attention and public
perception surrounding energy consumption by cryptocurrency mining
may adversely affect our reputation and, consequently, our stock
price; particularly in the eyes of some of our investors who may be
more interested in our non-crypto operations as a holding
company; |
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banks and financial institutions
may not provide banking services, or may cut off services, to
businesses like us that engage in cryptocurrency-related
activities; |
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tariffs have increased costs of
digital asset mining equipment, and new or additional tariffs or
other restrictions on the import of equipment necessary for digital
asset mining could have a material adverse effect on our business,
financial condition and results of operations; |
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our results of operations are
expected to be impacted by fluctuations in the price of bitcoin
because a significant portion of our revenue is from bitcoin mining
production; |
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because of our focus on bitcoin
mining, the trading price of shares of our common stock may
increase or decrease with the trading price of bitcoin, which
subjects investors to pricing risks, including “bubble” type risks,
and volatility; |
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the emergence of competing
blockchain platforms or technologies may harm our business as
presently conducted by preventing us from realizing the anticipated
profits from our investments and forcing us to expend additional
capital in an effort to adapt; |
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we rely on one or more third
parties for depositing, storing and withdrawing the bitcoin we
mine, which could result in a loss of assets, disputes and other
liabilities or risks which could adversely impact our
business; |
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if a malicious actor or botnet
obtains control of more than 50% of the processing power on a
cryptocurrency network, such actor or botnet could manipulate
blockchains to adversely affect us, which would adversely affect an
investment in our company and ability to operate; |
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current interpretations require the
regulation of bitcoin under the Commodity Exchange Act by the
Commodity Futures Trading Commission, and we may be required to
register and comply with such regulations. Any disruption of our
operations in response to the changed regulatory circumstances may
be at a time that is disadvantageous to our investors; |
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we are subject to risks associated
with our need for significant electrical power. Government
regulators may potentially restrict the ability of electricity
suppliers to provide electricity to mining operations, such as
ours; |
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cryptocurrencies face significant
scaling obstacles that can lead to high fees or slow transaction
settlement times and attempts to increase the volume of
transactions may not be effective, which could adversely affect an
investment in our securities; |
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incorrect or fraudulent
cryptocurrency transactions may be irreversible and it is possible
that, through computer or human error, or through theft or criminal
action, our cryptocurrency rewards could be transferred in
incorrect amounts or to unauthorized third parties; and |
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because many of our digital assets
may in the future be held by digital asset exchanges, we could face
heightened risks from cybersecurity attacks and financial stability
of digital asset exchanges. |
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.
The Series D Preferred Stock is not convertible into our common
stock, except under certain limited circumstances, and earns
dividends at a fixed rate. Accordingly, an increase in market price
of our common stock may not necessarily result in an increase in
the market price of our Series D Preferred Stock. The market value
of the Series D Preferred Stock may be influenced by the market
price of our common stock but may depend more on dividend and
interest rates for other preferred stock, commercial paper and
other investment alternatives and our actual and perceived ability
to pay dividends on, and in the event of dissolution satisfy the
liquidation preference with respect to, the Series D Preferred
Stock.
Provisions of Delaware law and our certificate of
incorporation and bylaws may make a takeover more difficult, which
could cause our stock price to decline.
Provisions in our certificate of incorporation and bylaws and in
the Delaware corporate law may make it difficult and expensive for
a third party to pursue a tender offer, change in control or
takeover attempt, which is opposed by management and the board of
directors. Public stockholders who might desire to participate in
such a transaction may not have an opportunity to do so. Philou
Ventures, LLC (“Philou Ventures”), as the holder of our Series B
Preferred Stock, has the right to appoint two members of our board
of directors. Further, our bylaws provide, subject to the rights of
Philou Ventures as the holder of the Series B Preferred Stock, for
the removal of a director only upon the affirmative vote of the
holders of at least 50.1% of the outstanding shares entitled to
cast their vote for the election of directors, which may discourage
a third party from making a tender offer or otherwise attempting to
obtain control of us. These and other anti-takeover provisions
could substantially impede the ability of public stockholders to
change our management and board of directors. Such provisions may
also limit the price that investors might be willing to pay for
shares of our Series D Preferred Stock in the future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus,
including the documents that we incorporate by reference herein and
therein, contain forward-looking statements regarding future events
and our future results that are subject to the safe harbors created
under the Securities Act of 1933 and the Securities Exchange Act of
1934. All statements other than statements of historical facts are
statements that could be deemed forward-looking statements. These
statements are based on our expectations, beliefs, forecasts,
intentions and future strategies and are signified by the words
“expects,” “anticipates,” “intends,” “believes” or similar
language. In addition, any statements that refer to projections of
our future financial performance, our anticipated growth, trends in
our business and other characterizations of future events or
circumstances are forward-looking statements. These forward-looking
statements are only predictions and are subject to risks,
uncertainties and assumptions that are difficult to predict,
including those identified above, under “Risk Factors” and
elsewhere in this prospectus supplement. Therefore, actual results
may differ materially and adversely from those expressed in any
forward-looking statements. All forward-looking statements included
in this prospectus supplement are based on information available to
us on the date of this report and speak only as of the date
hereof.
We disclaim our current intention to update its “forward-looking
statements,” and the estimates and assumptions within them, at any
time or for any reason, except as required by U.S. federal
securities laws. In particular, the following factors, among
others, could cause actual results to differ materially from those
described in the “forward-looking statements”:
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our continued operating and net
losses in the future; |
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our need for additional capital for
our operations and in furtherance of our business strategy; |
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dependency on our ability, and the
ability of our contract manufacturers, to timely procure electronic
components; |
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the potential ineffectiveness of
our strategic focus on power supply solution competencies; |
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dependency on developer partners
for the development of some of our custom design products; |
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dependency on sales of our legacy
products for a meaningful portion of our revenues; |
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the inherent risks in operating in
the bitcoin market; |
|
• |
the possible failure of our custom
product development efforts to result in products which meet
customers’ needs or such customers’ failure to accept such new
products; |
|
• |
our ability to attract, retain and
motivate key personnel; |
|
• |
dependence on a few major
customers; |
|
• |
dependence on the electronic
equipment industry; |
|
• |
reliance on third-party subcontract
manufacturers to manufacture certain aspects of the products sold
by us; |
|
• |
reduced profitability as a result
of increased competition, price erosion and product obsolescence
within the industry; |
|
• |
our ability to establish, maintain
and expand its OEM relationships and other distribution
channels; |
|
• |
our inability to procure necessary
key components for its products, or the purchase of excess or the
wrong inventory; |
|
• |
variations in operating results
from quarter to quarter; |
|
• |
dependence on international sales
and the impact of certain governmental regulatory restrictions on
such international sales and operations; and |
|
• |
other risk factors included in our
most recent filings with the SEC, including, but not limited to,
our Forms 10-K, 10-Q and 8-K. All filings are also available on our
website at www.bitnile.com. |
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the Series
D Preferred Stock in this offering will be approximately $2.4
million, based on the public offering price of $25.00 per share,
prior to deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
We plan to use the net proceeds from this offering for the purchase
of bitcoin miners and general corporate purposes. We will place
proceeds equal to 18 monthly dividend payments into a separate bank
account to be used to pay the Series D Preferred Stock dividends
(approximately $585,000 based on an offering of $3.0 million of
Series D Preferred Stock) into a separate bank account.
We intend to use approximately $____ million of the net proceeds of
this offering to fund the purchase of bitcoin miners. During the
year ended December 31, 2021, we executed contracts to purchase
4,600 S19 XP Antminer bitcoin miners. The total purchase price is
$27.3 million. In November 2021, we executed contracts to purchase
16,000 S19j Pro Antminer bitcoin miners for $128 million. The
purchases include both the environmentally friendly S19 XP
Antminers that feature a processing power of 140 TH/s with an
energy consumption of 3.01 kWh and the S19j Pro Antminers that
feature a processing power of 100 TH/s with an energy consumption
of 2.95 kWh. As of May 16, 2022, 7,039 miners were in our
possession, and the remaining miners are expected to be shipped
between May 2022 and September 2022. Approximately $92.4 million of
the total purchase price has been paid as of March 24, 2022 with
the balance scheduled to be paid between May 2022 and November
2022. The supplier, Bitmain, does not disclose when the miners are
manufactured. We have a futures purchase contract and Bitmain has
been supplying equipment according to the scheduled delivery as
outlined in these agreements. All dollar amounts provided in this
paragraph include fees payable in connection with obtaining the
ability to enter into the contracts, and not solely the cost of the
miners. The net proceeds to be used for this purpose will allow us
to pay for a portion of these purchases.
We expect to use the remainder of the net proceeds of this offering
for general corporate purposes to support the operations of our
businesses, as well as to pay the legal, accounting and other fees
associated with this offering of approximately $____.
The intended use of net proceeds from this offering represents our
expectations based upon our present plans and business conditions.
We cannot predict with certainty all of the particular uses for the
proceeds of this offering or the amounts that we will actually
spend on the uses described in this prospectus supplement.
Accordingly, our management will have significant flexibility in
applying the net proceeds of this offering. The timing and amount
of our actual expenditures will be based on many factors, including
cash flows from operations and the anticipated growth of our
business. Pending the use of the proceeds from this offering, we
plan to invest the net proceeds in highly liquid short-term
interest-bearing obligations, investment grade investments,
certificates of deposit or direct or guaranteed obligations of the
U.S. government.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 2022:
|
● |
on an
actual basis; and |
|
● |
on an
as adjusted basis to reflect the sale of 120,000 shares of
Series D Preferred Stock in this offering at the public offering
price of $25.00 per share, after deducting the underwriting
discounts and commissions and estimated offering expenses payable
by us. |
You should read this table along with our unaudited consolidated
financial statements and related notes for the three months ended
March 31, 2022 as well as the other financial information
incorporated by reference in this prospectus supplement and the
accompanying prospectus.
|
|
As of March 31, 2022 |
|
|
|
Actual
(Unaudited)
|
|
|
As Adjusted
(Unaudited)
|
|
Cash and cash equivalents |
|
$ |
39,446,000 |
|
|
$ |
41,846,000 |
|
Long-term
debt: |
|
|
|
|
|
|
|
|
Notes
payable |
|
$ |
53,999,000 |
|
|
$ |
53,999,000 |
|
Convertible notes payable |
|
$ |
488,000 |
|
|
$ |
488,000 |
|
Total liabilities |
|
$ |
54,487,000 |
|
|
$ |
54,487,000 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
|
|
|
|
|
|
Series A Cumulative Redeemable
Perpetual Preferred Stock, $25.00 stated value per share, $0.001
par value – 1,000,000 shares authorized; 7,040 shares issued and
outstanding at March 31, 2022 and December 31, 2021, respectively
(redemption amount and liquidation preference of $176,000 as of
March 31, 2022 and December 31, 2021) |
|
|
- |
|
|
|
- |
|
Series B Convertible Preferred
Stock, $10.00 stated value per share, $0.001 par value – 500,000
shares authorized; 125,000 shares issued and outstanding at March
31, 2022 and December 31, 2021 (liquidation preference of
$1,250,000 at March 31, 2022 and December 31, 2021) |
|
|
- |
|
|
|
- |
|
Series D Cumulative Redeemable
Perpetual Preferred Stock, $25.00 stated value per share, $0.001
par value – 450,000 shares authorized; none issued and outstanding,
120,000 shares outstanding as adjusted (aggregate liquidation
preference of $3,000,000) |
|
|
- |
|
|
|
120 |
|
Class A Common Stock, $0.001 par
value – 500,000,000 shares authorized; 225,015,203 and
84,344,607 shares issued and outstanding at March 31, 2022 and
December 31, 2021, respectively |
|
|
225,000 |
|
|
|
225,000 |
|
Class B Common Stock, $0.001 par
value – 25,000,000 shares authorized; nil shares issued and
outstanding at March 31, 2022 and December 31, 2021 |
|
|
- |
|
|
|
- |
|
Additional paid-in capital |
|
|
495,536,000 |
|
|
|
497,935,880 |
|
Accumulated deficit |
|
|
(174,378,000 |
) |
|
|
(174,378,000 |
) |
Accumulated other comprehensive
loss |
|
|
(393,000 |
) |
|
|
(393,000 |
) |
Treasury
stock, at cost |
|
|
(14,172,000 |
) |
|
|
(14,172,000 |
) |
Total BitNile
Holdings stockholders’ equity |
|
|
306,818,000 |
|
|
|
309,218,000 |
|
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
1,640,000 |
|
|
|
1,640,000 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity |
|
|
308,458,000 |
|
|
|
310,858,000 |
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
362,945,000 |
|
|
$ |
365,345,000 |
|
The number of shares of common stock outstanding as of March 31,
2022 in the table above excludes:
|
· |
20,015,000 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $3.09
per share; |
|
· |
6,396,000 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of
$2.42 per share; |
|
· |
3,245,000 shares of common stock issuable pursuant to
outstanding unvested restricted stock grants; |
|
· |
2,000 shares of common stock issuable upon conversion of
outstanding shares of Series B preferred stock; |
|
· |
165,000 shares of common stock issuable upon conversion of
outstanding convertible debt instruments at a weighted average
conversion price of $4.00 per share; and |
|
· |
4,677,000 shares of common stock reserved for future grants
pursuant to the exercise of stock options and other equity awards
under our stock incentive plans. |
DESCRIPTION OF THE SERIES D PREFERRED STOCK
The description of certain terms of our capital stock, including
the Series D Preferred Stock, in this prospectus supplement does
not purport to be complete and is in all respects subject to, and
qualified in its entirety by references to the relevant provisions
of our certificate of incorporation, the certificate of
designations establishing the terms of our Series D Preferred
Stock, our bylaws and Delaware corporate law. Copies of our
certificate of incorporation, certificate of designations and our
bylaws are available from us upon request.
We are authorized to issue 500,000,000 shares of Class A common
stock and 25,000,000 shares of Class B common stock, par value
$0.001 per share. As of the date of this prospectus supplement,
there were 313,176,586 shares of our Class A common stock issued
and outstanding and no shares of Class B common stock issued or
outstanding. The outstanding shares of our common stock are validly
issued, fully paid and nonassessable. In this prospectus
supplement, all references solely to “common stock” refer to the
Class A common stock except where otherwise indicated. We are
authorized to issue up to 25,000,000 shares of preferred stock, par
value $0.001 per share. Of these shares of preferred stock,
1,000,000 are designated as Series A Cumulative Redeemable
Perpetual Preferred Stock (the “Series A Preferred Stock”), 500,000
are designated as Series B Convertible Preferred Stock (the “Series
B Preferred Stock”), 2,500 are designated as Series C Convertible
Redeemable Preferred Stock (the “Series C Preferred Stock”) and
450,000 are designated as Series D Cumulative Redeemable Perpetual
Preferred Stock. As of the date of this prospectus supplement,
there were 7,040 shares of Series A Convertible Preferred Stock
outstanding, 125,000 shares of Series B Convertible Preferred
Stock, no shares of Series C Convertible Redeemable Preferred Stock
and no shares of the Series D Preferred Stock outstanding.
In connection with this offering, our board of directors has
designated 450,000 shares of our authorized preferred stock as
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock,
having the rights and privileges described in this prospectus
supplement, by adopting and filing the certificate of designations
with the State of Delaware. Following the issuance and sale of the
shares of Series D Preferred Stock in this offering, we will have
available for issuance 330,000 designated but unissued shares of
Series D Preferred Stock. Our board of directors may, without the
approval of holders of the Series D Preferred Stock or our common
stock, designate additional series of authorized preferred stock
ranking on a parity with or junior to the Series D Preferred Stock
or designate additional shares of the Series D Preferred Stock and
authorize the issuance of such shares. Designation of preferred
stock ranking senior to the Series D Preferred Stock will require
approval of the holders of Series D Preferred Stock, as described
below in “Voting Rights.”
The registrar, transfer agent and dividend and redemption price
disbursing agent in respect of the Series D Preferred Stock is
Computershare Trust Company, N.A., 8742 Lucent Blvd., Suite 225,
Highlands Ranch, Colorado 80129.
Listing
Our shares of common stock trade on the NYSE American under the
symbol “NILE.” The Series D Preferred Stock is a new issue of
securities with no established trading market. We have applied to
list the Series D Preferred Stock on the NYSE American under the
symbol “NILE PRD.” No assurance can be given that our application
will be approved. If our application is not approved, we will not
complete this offering. If the application is approved, we expect
trading in the Series D Preferred Stock to begin on the date the
Series D Preferred Stock is first issued.
No Maturity, Sinking Fund or Mandatory Redemption
The Series D Preferred Stock is perpetual and has no stated
maturity date and will not be subject to any sinking fund or
mandatory redemption. Shares of the Series D Preferred Stock will
remain outstanding indefinitely unless we decide to redeem or
otherwise repurchase them. We are not required to set aside funds
to redeem the Series D Preferred Stock.
Ranking
The Series D Preferred Stock will rank, with respect to rights to
the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up:
(i) senior to all classes
or series of our common stock and to all other equity securities
issued by us other than equity securities referred to in clauses
(ii) and (iii);
(ii) on a parity with all
equity securities issued by us with terms specifically providing
that those equity securities rank on a parity with the Series D
Preferred Stock with respect to rights to the payment of dividends
and the distribution of assets upon our liquidation, dissolution or
winding up, including the Series A Preferred Stock and the Series C
Preferred Stock;
(iii) junior to the Series
B Convertible Preferred Stock and all equity securities issued by
us with terms specifically providing that those equity securities
rank senior to the Series D Preferred Stock with respect to rights
to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up; and
(iv) effectively junior to
all of our existing and future indebtedness (including indebtedness
convertible into our common stock or preferred stock) and to the
indebtedness and other liabilities of (as well as any preferred
equity interests held by others in) our existing subsidiaries and
any future subsidiaries.
Dividends
Holders of shares of the Series D Preferred Stock are entitled to
receive cumulative cash dividends at the rate of 13.00% of the
$25.00 per share liquidation preference per annum (equivalent to
$3.25 per annum per share). Dividends on the Series D Preferred
Stock will be payable monthly on the last day of each month when,
as and if declared by our board of directors; provided that if any
dividend payment date is not a business day, as defined in the
certificate of designations, then the dividend that would otherwise
have been payable on that dividend payment date may be paid on the
next succeeding business day and no interest, additional dividends
or other sums will accrue on the amount so payable for the period
from and after that dividend payment date to that next succeeding
business day. Any dividend payable on the Series D Preferred Stock,
including dividends payable for any partial dividend period, will
be computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends will be payable to holders of record as
they appear in our stock records for the Series D Preferred Stock
at the close of business on the applicable record date, which will
be the last day of the month, whether or not a business day, in
which the applicable dividend payment date falls. As a result,
holders of shares of Series D Preferred Stock will not be entitled
to receive dividends on a dividend payment date if such shares were
not issued and outstanding on the applicable dividend record
date.
No dividends on shares of Series D Preferred Stock will be
authorized by our board of directors or paid or set apart for
payment by us at any time when the terms and provisions of any
agreement of ours, including any agreement relating to our
indebtedness, prohibit the authorization, payment or setting apart
for payment thereof or provide that the authorization, payment or
setting apart for payment thereof would constitute a breach of the
agreement or a default under the agreement, or if the
authorization, payment or setting apart for payment will be
restricted or prohibited by law. You should review the information
appearing above under “Risk Factors — We may not be able to pay
dividends on the Series D Preferred Stock if we have insufficient
cash in the future to make dividend payments” for information as
to, among other things, other circumstances under which we may be
unable to pay dividends on the Series D Preferred Stock.
Notwithstanding the foregoing, dividends on the Series D Preferred
Stock will accrue whether or not we have earnings, whether or not
there are funds legally available for the payment of those
dividends and whether or not those dividends are declared by our
board of directors. No interest, or sum in lieu of interest, will
be payable in respect of any dividend payment or payments on the
Series D Preferred Stock that may be in arrears, and holders of the
Series D Preferred Stock will not be entitled to any dividends in
excess of full cumulative dividends described above. Any dividend
payment made on the Series D Preferred Stock will first be credited
against the earliest accumulated but unpaid dividend due with
respect to those shares.
Future distributions on our common stock and preferred stock,
including the Series D Preferred Stock, will be at the discretion
of our board of directors and will depend on, among other things,
our results of operations, cash flow from operations, financial
condition and capital requirements, any debt service requirements
and any other factors our board of directors deems relevant.
Accordingly, we cannot guarantee that we will be able to make cash
distributions on our preferred stock or what the actual
distributions will be for any future period.
Unless full cumulative dividends on all shares of Series D
Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for payment for all past
dividend periods, no dividends (other than in shares of common
stock or in shares of any series of preferred stock that we may
issue ranking junior to the Series D Preferred Stock as to the
payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up) will be declared or paid or
set aside for payment upon shares of our common stock or preferred
stock that we may issue ranking junior to, or on a parity with, the
Series D Preferred Stock as to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up.
Nor will any other distribution be declared or made upon shares of
our common stock or preferred stock that we may issue ranking
junior to, or on a parity with, the Series D Preferred Stock as to
the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up. Also, any shares of our
common stock or preferred stock that we may issue ranking junior to
or on a parity with the Series D Preferred Stock as to the payment
of dividends or the distribution of assets upon liquidation,
dissolution or winding up will not be redeemed, purchased or
otherwise acquired for any consideration (or any moneys paid to or
made available for a sinking fund for the redemption of any such
shares) by us (except by conversion into or exchange for our other
capital stock that we may issue ranking junior to the Series D
Preferred Stock as to the payment of dividends and the distribution
of assets upon liquidation, dissolution or winding up).
When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series D Preferred Stock
and the shares of any other series of preferred stock that we may
issue ranking on a parity as to the payment of dividends with the
Series D Preferred Stock, all dividends declared upon the Series D
Preferred Stock and any other series of preferred stock that we may
issue ranking on a parity as to the payment of dividends with the
Series D Preferred Stock will be declared pro rata so that the
amount of dividends declared per share of Series D Preferred Stock
and such other series of preferred stock that we may issue will in
all cases bear to each other the same ratio that accrued dividends
per share on the Series D Preferred Stock and such other series of
preferred stock that we may issue (which will not include any
accrual in respect of unpaid dividends for prior dividend periods
if such preferred stock does not have a cumulative dividend) bear
to each other. No interest, or sum of money in lieu of interest,
will be payable in respect of any dividend payment or payments on
the Series D Preferred Stock that may be in arrears.
We will place proceeds equal to 18 months of dividend payments
(approximately $585,000 based on an offering of $3.0 million of
Series D Preferred Stock) into a separate bank account to be used
to pay the Series D Preferred Stock dividends. Whether or not this
account is exhausted, our obligation to pay Series D Preferred
dividends will not be affected.
Liquidation Preference
In the event of our voluntary or involuntary liquidation,
dissolution or winding up, the holders of shares of Series D
Preferred Stock will be entitled to be paid out of the assets we
have legally available for distribution to our stockholders,
subject to the preferential rights of the holders of any class or
series of our capital stock we may issue ranking senior to the
Series D Preferred Stock with respect to the distribution of assets
upon liquidation, dissolution or winding up, a liquidation
preference of $25.00 per share, plus an amount equal to any
accumulated and unpaid dividends to, but not including, the date of
payment, before any distribution of assets is made to holders of
our common stock or any other class or series of our capital stock
we may issue that ranks junior to the Series D Preferred Stock as
to liquidation rights.
In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, our available assets are
insufficient to pay the amount of the liquidating distributions on
all outstanding shares of Series D Preferred Stock and the
corresponding amounts payable on all shares of other classes or
series of our capital stock that we may issue ranking on a parity
with the Series D Preferred Stock in the distribution of assets,
then the holders of the Series D Preferred Stock and all other such
classes or series of capital stock will share ratably in any such
distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively
entitled.
Holders of Series D Preferred Stock will be entitled to written
notice of any such liquidation, dissolution or winding up no fewer
than 30 days and no more than 60 days prior to the payment date.
After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series D Preferred Stock
will have no right or claim to any of our remaining assets. The
consolidation or merger of us with or into any other corporation,
trust or entity or of any other entity with or into us, or the
sale, lease, transfer or conveyance of all or substantially all of
our property or business, will not be deemed a liquidation,
dissolution or winding up of us (although such events may give rise
to the special optional redemption to the extent described
below).
Redemption
Optional Redemption
Prior to the date that is three years following the initial
issuance of the Series D Preferred Stock, we may, at our option,
upon not less than 30 nor more than 60 days’ written notice, redeem
the Series D Preferred Stock, in whole or in part, at any time or
from time to time, at a redemption price of $25.50 per share of
Series D Preferred Stock, plus any accumulated and unpaid dividends
(whether or not declared) on the Series D Preferred Stock up to,
but not including, the date of such redemption, upon written notice
as described below under “— Redemption Procedures.” On and after
the date that is three years following the initial issuance, the
redemption price will decrease to $25.00 per share.
Special Optional Redemption
Upon the occurrence of a Change of Control, we may, at our option,
upon not less than 30 nor more than 60 days’ written notice, redeem
the Series D Preferred Stock, in whole or in part, within 120 days
after the first date on which such Change of Control occurred, for
cash at a redemption price of $25.00 per share, plus any
accumulated and unpaid dividends (whether or not declared) thereon
to, but not including, the redemption date.
A “Change of Control” is deemed to occur when, after the initial
issuance of the Series D Preferred Stock, the following have
occurred and are continuing:
(i) the acquisition by any
person, including any syndicate or group deemed to be a “person”
under Section 13(d)(3) of the “Exchange Act (other than A&C and
AA, both of which are significant stockholders of our company and
affiliates of Milton C. (Todd) Ault III, our Executive Chairman,
and any “person” or “group” under Section 13(d)(3) of the Exchange
Act that is an affiliate of A&C, AA, or any trust, partnership,
corporate or other entity affiliated with any of the foregoing), of
beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of purchases,
mergers or other acquisition transactions of our stock entitling
that person to exercise more than 50% of the total voting power of
all our stock entitled to vote generally in the election of our
directors (except that such person will be deemed to have
beneficial ownership of all securities that such person has the
right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition);
and
(ii) following the closing
of any transaction referred to above, neither we nor the acquiring
or surviving entity has a class of common securities (or American
Depositary Receipts representing such securities) listed on the
NYSE, the NYSE American or the NASDAQ Stock Market (“NASDAQ”), or
listed or quoted on an exchange or quotation system that is a
successor to the NYSE, the NYSE American or NASDAQ.
Redemption Procedures
In the event we elect to redeem Series D Preferred Stock, the
notice of redemption will be mailed to each holder of record of
Series D Preferred Stock called for redemption at such holder’s
address as it appear on our stock transfer records, not less than
30 nor more than 60 days prior to the redemption date, and will
state the following:
|
• |
the number of shares of Series D
Preferred Stock to be redeemed; |
|
• |
the place or places where
certificates (if any) for the Series D Preferred Stock are to be
surrendered for payment of the redemption price; |
|
• |
that dividends on the shares to be
redeemed will cease to accumulate on the redemption date; |
|
• |
whether such redemption is being
made pursuant to the provisions described above under “— Optional
Redemption” or “— Special Optional Redemption”; and |
|
• |
if applicable, that such redemption
is being made in connection with a Change of Control and, in that
case, a brief description of the transaction or transactions
constituting such Change of Control. |
If less than all of the Series D Preferred Stock held by any holder
are to be redeemed, the notice mailed to such holder will also
specify the number of shares of Series D Preferred Stock held by
such holder to be redeemed. No failure to give such notice or any
defect thereto or in the mailing thereof will affect the validity
of the proceedings for the redemption of any shares of Series D
Preferred Stock except as to the holder to whom notice was
defective or not given.
Holders of Series D Preferred Stock to be redeemed will surrender
the Series D Preferred Stock at the place designated in the notice
of redemption and will be entitled to the redemption price and any
accumulated and unpaid dividends payable upon the redemption
following the surrender. If notice of redemption of any shares of
Series D Preferred Stock has been given and if we have irrevocably
set aside the funds necessary for redemption in trust for the
benefit of the holders of the shares of Series D Preferred Stock so
called for redemption, then from and after the redemption date
(unless default will be made by us in providing for the payment of
the redemption price plus any accumulated and unpaid dividends
(whether or not declared), if any), dividends will cease to accrue
on those shares of Series D Preferred Stock, those shares of Series
D Preferred Stock will no longer be deemed outstanding and all
rights of the holders of those shares will terminate, except the
right to receive the redemption price plus any accumulated and
unpaid dividends (whether or not declared), if any, payable upon
redemption. If any redemption date is not a business day, then the
redemption price and accumulated and unpaid dividends, if any,
payable upon redemption may be paid on the next business day and no
interest, additional dividends or other sums will accrue on the
amount payable for the period from and after that redemption date
to that next business day. If less than all of the outstanding
Series D Preferred Stock is to be redeemed, the Series D Preferred
Stock to be redeemed will be selected pro rata (as nearly as may be
practicable without creating fractional shares) or by any other
equitable method we determine.
In connection with any redemption of Series D Preferred Stock, we
will pay, in cash, any accumulated and unpaid dividends to, but not
including, the redemption date, unless a redemption date falls
after a dividend record date and prior to the corresponding
dividend payment date, in which case each holder of Series D
Preferred Stock at the close of business on such dividend record
date will be entitled to the dividend payable on such shares on the
corresponding dividend payment date notwithstanding the redemption
of such shares before such dividend payment date. Except as
provided above, we will make no payment or allowance for unpaid
dividends, whether or not in arrears, on shares of the Series D
Preferred Stock to be redeemed.
Unless full cumulative dividends on all shares of Series D
Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for payment for all past
dividend periods, no shares of Series D Preferred Stock will be
redeemed unless all outstanding shares of Series D Preferred Stock
are simultaneously redeemed and we will not purchase or otherwise
acquire directly or indirectly any shares of Series D Preferred
Stock (except by exchanging it for our capital stock ranking junior
to the Series D Preferred Stock as to the payment of dividends and
distribution of assets upon liquidation, dissolution or winding
up); provided, however, that the foregoing will not prevent the
purchase or acquisition by us of shares of Series D Preferred Stock
pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Series D Preferred Stock.
Subject to applicable law, we may purchase shares of Series D
Preferred Stock in the open market, by tender or by private
agreement. Any shares of Series D Preferred Stock that we acquire
may be retired and reclassified as authorized but unissued shares
of preferred stock, without designation as to class or series, and
may thereafter be reissued as any class or series of preferred
stock.
Voting Rights
Holders of the Series D Preferred Stock do not have any voting
rights, except as set forth below or as otherwise required by
law.
On each matter on which holders of Series D Preferred Stock are
entitled to vote, each share of Series D Preferred Stock will be
entitled to one vote. In instances described below where holders of
Series D Preferred Stock vote with holders of any other class or
series of our preferred stock as a single class on any matter, the
Series D Preferred Stock and the shares of each such other class or
series will have one vote for each $25.00 of liquidation preference
(excluding accumulated dividends) represented by their respective
shares.
Whenever dividends on any shares of Series D Preferred Stock are in
arrears for 18 or more monthly dividend periods, whether or not
consecutive, the number of directors constituting our board of
directors will be automatically increased by two (if not already
increased by two by reason of the election of directors by the
holders of any other class or series of our preferred stock we may
issue upon which like voting rights have been conferred and are
exercisable and with which the Series D Preferred Stock is entitled
to vote as a class with respect to the election of those two
directors) and the holders of Series D Preferred Stock (voting
separately as a class with all other classes or series of preferred
stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a
class with the Series D Preferred Stock in the election of those
two directors) will be entitled to vote for the election of those
two additional directors (the “preferred stock directors”) at a
special meeting called by us at the request of the holders of
record of at least 25% of the outstanding shares of Series D
Preferred Stock or by the holders of any other class or series of
preferred stock upon which like voting rights have been conferred
and are exercisable and which are entitled to vote as a class with
the Series D Preferred Stock in the election of those two preferred
stock directors (unless the request is received less than 90 days
before the date fixed for the next annual or special meeting of
stockholders, in which case, such vote will be held at the earlier
of the next annual or special meeting of stockholders), and at each
subsequent annual meeting until all dividends accumulated on the
Series D Preferred Stock for all past dividend periods and the then
current dividend period have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In that
case, the right of holders of the Series D Preferred Stock to elect
any directors will cease and, unless there are other classes or
series of our preferred stock upon which like voting rights have
been conferred and are exercisable, any preferred stock directors
elected by holders of the Series D Preferred Stock will immediately
resign and the number of directors constituting the board of
directors will be reduced accordingly. In no event will the holders
of Series D Preferred Stock be entitled under these voting rights
to elect a preferred stock director that would cause us to fail to
satisfy a requirement relating to director independence of any
national securities exchange or quotation system on which any class
or series of our capital stock is listed or quoted. For the
avoidance of doubt, in no event will the total number of preferred
stock directors elected by holders of the Series D Preferred Stock
(voting separately as a class with all other classes or series of
preferred stock we may issue upon which like voting rights have
been conferred and are exercisable and which are entitled to vote
as a class with the Series D Preferred Stock in the election of
such directors) under these voting rights exceed two.
If a special meeting is not called by us within 75 days after
request from the holders of Series D Preferred Stock as described
above, then the holders of record of at least 25% of the
outstanding Series D Preferred Stock may designate a holder to call
the meeting at our expense.
If, at any time when the voting rights conferred upon the Series D
Preferred Stock are exercisable, any vacancy in the office of a
preferred stock director will occur, then such vacancy may be
filled only by a written consent of the remaining preferred stock
director, or if none remains in office, by vote of the holders of
record of the outstanding Series D Preferred Stock and any other
classes or series of preferred stock upon which like voting rights
have been conferred and are exercisable and which are entitled to
vote as a class with the Series D Preferred Stock in the election
of the preferred stock directors. Any preferred stock director
elected or appointed may be removed only by the affirmative vote of
holders of the outstanding Series D Preferred Stock and any other
classes or series of preferred stock upon which like voting rights
have been conferred and are exercisable and which classes or series
of preferred stock are entitled to vote as a class with the Series
D Preferred Stock in the election of the preferred stock directors,
such removal to be effected by the affirmative vote of a majority
of the votes entitled to be cast by the holders of the outstanding
Series D Preferred Stock and any such other classes or series of
preferred stock, and may not be removed by the holders of the
common stock.
So long as any shares of Series D Preferred Stock remain
outstanding, we will not, without the affirmative vote or consent
of the holders of at least two-thirds of the votes entitled to be
cast by the holders of the Series D Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a
meeting (voting together as a class with all other series of parity
preferred stock that we may issue upon which like voting rights
have been conferred and are exercisable):
(a) authorize or create, or increase the authorized or issued
amount of, any class or series of capital stock ranking senior to
the Series D Preferred Stock with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any of our authorized capital stock into
such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any
such shares;
(b) amend, alter, repeal or replace our certificate of
incorporation or bylaws, including by way of a merger,
consolidation or otherwise in which we may or may not be the
surviving entity, so as to materially and adversely affect and
deprive holders of Series D Preferred Stock of any right,
preference, privilege or voting power of the Series D Preferred
Stock; or
(c) effect any consummation of (x) a binding share exchange or
reclassification involving the Series D Preferred Stock or
(y) a merger or consolidation of our company with another
entity (whether or not a corporation), unless in each case
(A) the shares of Series D Preferred Stock remain outstanding
or, in the case of any such merger or consolidation with respect to
which we are not the surviving or resulting entity, the shares of
Series D Preferred Stock are converted into or exchanged for
preference securities of the surviving or resulting entity or its
ultimate parent and such surviving or resulting entity or ultimate
parent, as the case may be, is organized under the laws of the
United States or a state thereof, and (B) such shares
remaining outstanding or such preference securities, as the case
may be, have such rights, preferences, privileges and voting
powers, and limitations and restrictions thereof, taken as a whole,
as are not materially less favorable to the holders thereof than
the rights, preferences, privileges and voting powers, and
restrictions and limitations thereof, of the Series D Preferred
Stock immediately prior to such consummation, taken as a whole
(each, an “Event”).
An increase in the amount of the authorized preferred stock,
including the Series D Preferred Stock, or the creation or issuance
of any additional Series D Preferred Stock or other series of
preferred stock that we may issue, or any increase in the amount of
authorized shares of such series, in each case ranking on a parity
with or junior to the Series D Preferred Stock with respect to
payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, will not be deemed an Event
and will not require us to obtain two-thirds of the votes entitled
to be cast by the holders of the Series D Preferred Stock and all
such other similarly affected series, outstanding at the time
(voting together as a class).
The foregoing voting provisions will not apply if, at or prior to
the time when the act with respect to which such vote would
otherwise be required will be effected, all outstanding shares of
Series D Preferred Stock will have been redeemed or called for
redemption upon proper notice and sufficient funds will have been
deposited in trust to effect such redemption.
Except as expressly stated in the certificate of designation or as
may be required by applicable law, the shares of Series D Preferred
Stock do not have any relative, participating, optional or other
special voting rights or powers and the consent of the holders
thereof will not be required for the taking of any corporate
action.
Information Rights
During any period in which we are not subject to Section 13 or
15(d) of the Exchange Act and any shares of Series D Preferred
Stock are outstanding, we will use our best efforts to (i) transmit
by mail (or other permissible means under the Exchange Act) to all
holders of Series D Preferred Stock, as their names and addresses
appear on our record books and without cost to such holders, copies
of the Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q that we would have been required to file with the SEC pursuant
to Section 13 or 15(d) of the Exchange Act if we were subject
thereto (other than any exhibits that would have been required) and
(ii) promptly, upon request, supply copies of such reports to any
holders or prospective holder of Series D Preferred Stock. We will
use our best effort to mail (or otherwise provide) the information
to the holders of the Series D Preferred Stock within 30 days after
the respective dates by which a periodic report on Form 10-K or
Form 10-Q, as the case may be, in respect of such information would
have been required to be filed with the SEC, if we were subject to
Section 13 or 15(d) of the Exchange Act, in each case, based on the
dates on which we would be required to file such periodic reports
if we were a “non-accelerated filer” within the meaning of the
Exchange Act.
Conversion Rights
The Series D Preferred Stock is not convertible into our common
stock or any of our other securities, except that, upon the
occurrence of a Change of Control, each holder of Series D
Preferred Stock will have the right subject to our election to
redeem the Series D Preferred Stock in whole or part, as described
above under “—Optional Redemption” or “—Special Optional
Redemption,” prior to the change of control conversion date to
convert some or all of the Series D Preferred Stock held by such
holder on the change of control conversion date into a number of
shares of our common stock per share of Series D Preferred Stock
equal to the quotient obtained by dividing (i) the sum of the
$25.00 liquidation preference per share of Series D Preferred Stock
plus the amount of any accumulated and unpaid dividends thereon to,
but not including, the change of control conversion date (unless
the change of control conversion date is after a dividend record
date and prior to the corresponding dividend payment date for the
Series D Preferred Stock, in which case no additional amount for
such accrued and unpaid dividends will be included in this sum) by
(ii) the Common Stock Price, including provisions for the receipt,
under specified circumstances, of alternative consideration.
For these purposes, “Common Stock Price” means (i) if the
consideration to be received in the Change of Control by the
holders of shares of Common Stock is solely cash, the amount of
cash consideration per share of our common stock or (ii) if the
consideration to be received in the Change of Control by holders of
shares of our common stock is other than solely cash (x) the
average of the closing sale prices per share of our common stock
(or, if no closing sale price is reported, the average of the
closing bid and ask prices or, if more than one in either case, the
average of the average closing bid and the average closing ask
prices) for the ten consecutive trading days immediately preceding,
but not including, the effective date of the Change of Control as
reported on the principal U.S. national securities exchange on
which our common stock is then traded, or (y) the average of the
last quoted bid prices for our common stock in the over-the-counter
market as reported by OTC Markets Group Inc. or similar
organization for the ten consecutive trading days immediately
preceding, but not including, the effective date of the Change of
Control, if our common stock is not then listed for trading on a
U.S. national securities exchange.
No Preemptive Rights
No holders of the Series D Preferred Stock will, as holders of
Series D Preferred Stock, have any preemptive rights to purchase or
subscribe for our common stock or any other security.
Change of Control
Provisions in our certificate of incorporation, as amended, and
bylaws, as amended and restated, may make it difficult and
expensive for a third party to pursue a tender offer, change in
control or takeover attempt, which is opposed by management and our
board of directors. See “Risk Factors — Provisions of Delaware law,
our charter and bylaws may make a takeover more difficult, which
could cause our stock price to decline.”
Book-Entry Procedures
DTC acts as securities depository for our outstanding common stock
and will also act as securities depository for the Series D
Preferred Stock offered hereunder. With respect to the Series D
Preferred Stock offered hereunder, we will issue one or more fully
registered global securities certificates in the name of DTC’s
nominee, Cede & Co. These certificates will represent the total
aggregate number of shares of Series D Preferred Stock. We will
deposit these certificates with DTC or a custodian appointed by
DTC. We will not issue certificates to you for the shares of Series
D Preferred Stock that you purchase, unless DTC’s services are
discontinued as described below.
Title to book-entry interests in the Series D Preferred Stock will
pass by book-entry registration of the transfer within the records
of DTC in accordance with its procedures. Book-entry interests in
the securities may be transferred within DTC in accordance with
procedures established for these purposes by DTC. Each person
owning a beneficial interest in shares of the Series D Preferred
Stock must rely on the procedures of DTC and the participant
through which such person owns its interest to exercise its rights
as a holder of the Series D Preferred Stock.
DTC has advised us that it is a limited-purpose trust company
organized under the New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the
New York Uniform Commercial Code and a “clearing agency” registered
under the provisions of Section 17A of the Exchange Act. DTC holds
securities that its participants (“Direct Participants”) deposit
with DTC. DTC also facilitates the settlement among Direct
Participants of securities transactions, such as transfers and
pledges in deposited securities through electronic computerized
book-entry changes in Direct Participants’ accounts, thereby
eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain
other organizations. Access to the DTC system is also available to
others such as securities brokers and dealers, including
underwriters, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either
directly or indirectly (“Indirect Participants”). The rules
applicable to DTC and its Direct and Indirect Participants are on
file with the SEC.
When you purchase shares of Series D Preferred Stock within the DTC
system, the purchase must be by or through a Direct Participant.
The Direct Participant will receive a credit for the Series D
Preferred Stock on DTC’s records. You will be considered to be the
“beneficial owner” of the Series D Preferred Stock. Your beneficial
ownership interest will be recorded on the Direct and Indirect
Participants’ records, but DTC will have no knowledge of your
individual ownership. DTC’s records reflect only the identity of
the Direct Participants to whose accounts shares of Series D
Preferred Stock are credited.
You will not receive written confirmation from DTC of your
purchase. The Direct or Indirect Participants through whom you
purchased the Series D Preferred Stock should send you written
confirmations providing details of your transactions, as well as
periodic statements of your holdings. The Direct and Indirect
Participants are responsible for keeping an accurate account of the
holdings of their customers like you.
Transfers of ownership interests held through Direct and Indirect
Participants will be accomplished by entries on the books of Direct
and Indirect Participants acting on behalf of the beneficial
owners.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to beneficial
owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time
to time.
We understand that, under DTC’s existing practices, in the event
that we request any action of the holders, or an owner of a
beneficial interest in a global security, such as you, desires to
take any action that a holder is entitled to take under our amended
and restated certificate of incorporation (including the
certificate of designations designating the Series D Preferred
Stock), DTC would authorize the Direct Participants holding the
relevant shares to take such action, and those Direct Participants
and any Indirect Participants would authorize beneficial owners
owning through those Direct and Indirect Participants to take such
action or would otherwise act upon the instructions of beneficial
owners owning through them.
Any redemption notices with respect to the Series D Preferred Stock
will be sent to Cede & Co. If less than all of the outstanding
shares of Series D Preferred Stock are being redeemed, DTC will
reduce each Direct Participant’s holdings of shares of Series D
Preferred Stock in accordance with its procedures.
In those instances where a vote is required, neither DTC nor Cede
& Co. itself will consent or vote with respect to the shares of
Series D Preferred Stock. Under its usual procedures, DTC would
mail an omnibus proxy to us as soon as possible after the record
date. The omnibus proxy assigns Cede & Co.’s consenting or
voting rights to those Direct Participants whose accounts the
shares of Series D Preferred Stock are credited to on the record
date, which are identified in a listing attached to the omnibus
proxy.
Dividends on the Series D Preferred Stock will be made directly to
DTC’s nominee (or its successor, if applicable). DTC’s practice is
to credit participants’ accounts on the relevant payment date in
accordance with their respective holdings shown on DTC’s records
unless DTC has reason to believe that it will not receive payment
on that payment date.
Payments by Direct and Indirect Participants to beneficial owners
will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers
in bearer form or registered in “street name.” These payments will
be the responsibility of the participant and not of DTC, us or any
agent of ours.
DTC may discontinue providing its services as securities depositary
with respect to the Series D Preferred Stock at any time by giving
reasonable notice to us. Additionally, we may decide to discontinue
the book-entry only system of transfers with respect to the Series
D Preferred Stock. In that event, we will print and deliver
certificates in fully registered form for the Series D Preferred
Stock. If DTC notifies us that it is unwilling to continue as
securities depositary, or it is unable to continue or ceases to be
a clearing agency registered under the Exchange Act and a successor
depositary is not appointed by us within 90 days after receiving
such notice or becoming aware that DTC is no longer so registered,
we will issue the Series D Preferred Stock in definitive form, at
our expense, upon registration of transfer of, or in exchange for,
such global security.
According to DTC, the foregoing information with respect to DTC has
been provided to the financial community for informational purposes
only and is not intended to serve as a representation, warranty or
contract modification of any kind.
Global Clearance and Settlement Procedures
Initial settlement for the Series D Preferred Stock will be made in
immediately available funds. Secondary market trading among DTC’s
participants will occur in the ordinary way in accordance with
DTC’s rules and will be settled in immediately available funds
using DTC’s Same-Day Funds Settlement System.
UNDERWRITING
Alexander Capital, L.P. is the book running manager for this
offering. We have entered into an underwriting agreement on the
date of this prospectus supplement with Alexander Capital, L.P. as
representative of the underwriters. Subject to the terms and
conditions set forth in our underwriting agreement, we have agreed
to sell to each underwriter named below, and each underwriter named
below has agreed to purchase from us, at the public offering price
less the underwriting discounts and commissions set forth on the
cover page of this prospectus supplement, the number of shares of
Series D Preferred Stock listed next to its name on the following
table:
Name of Underwriter |
|
Number of Shares |
Alexander Capital, L.P. |
|
|
|
|
|
Total |
|
|
The underwriters are committed to purchase all the shares of Series
D Preferred Stock offered by us. The obligations of the
underwriters may be terminated upon the occurrence of certain
events specified in the underwriting agreement. Furthermore,
pursuant to the underwriting agreement, the underwriters’
obligations are subject to customary conditions, representations
and warranties contained in the underwriting agreement, such as
receipt by the underwriters of officers’ certificates and legal
opinions.
We have agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in
respect thereof.
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval
of legal matters by their counsel and other conditions specified in
the underwriting agreement. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject
orders in whole or in part.
Commissions and Discounts
The following table shows the public offering price, underwriting
discount and proceeds, before expenses, to us.
|
|
Per Share |
|
|
Total |
|
Public offering price |
|
$ |
25.00 |
|
|
$ |
3,000,000 |
|
Underwriting discounts and commissions
(1) |
|
$ |
|
|
|
$ |
|
|
Proceeds to us, before expenses |
|
$ |
|
|
|
$ |
|
|
___________________
(1) Represents a blended
underwriting discount for all shares of Series D Preferred Stock.
The underwriters will receive an underwriting discount equal to
3.0% on 10,000 shares purchased by certain officers and directors
of our company and certain other company-introduced purchasers of
shares of Series D Preferred Stock in this offering, including Ault
Alpha LP, an entity controlled by Milton C. (Todd) Ault III, and
7.0% on all other shares sold in this offering.
The underwriters propose to offer the shares offered by us to the
public at the public offering price per share set forth on the
cover of this prospectus supplement. In addition, the underwriters
may offer some of the shares to other securities dealers at such
price less a concession of $0.72 per share. If all of the
shares offered by us are not sold at the public offering price per
share, the underwriters may change the offering price per share and
other selling terms by means of a supplement to this prospectus
supplement.
We will pay the out-of-pocket accountable expenses of the
underwriters in connection with this offering. The underwriting
agreement, however, provides that in the event the offering is
terminated, any advance expense deposits paid to the underwriters
will be returned to the extent that offering expenses are not
actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
We have agreed to pay the underwriters’ non-accountable expenses
allowance equal to 0.5% of the public offering price of the shares.
We have also agreed to pay the underwriters’ expenses relating to
the offering, including (a) all filing fees incurred in clearing
this offering with FINRA; (b) fees, expenses and disbursements
relating to background checks of our officers and directors; (c)
all fees, expenses and disbursements relating to the registration,
qualification or exemption of securities offered under the
securities laws of foreign jurisdictions designated by the
underwriters; (d) stock transfer and/or stamp taxes, if any,
payable upon the transfer of shares of our Series D Preferred Stock
to the underwriters; (e) the cost associated with the underwriter’s
use of book-building and compliance software for the offering, (f)
the underwriters’ actual accountable road show expenses for the
offering; and (g) up to $75,000 for the fees of the underwriters’
counsel; provided, the maximum amount we have agreed to pay the
underwriters for items (b), (e), (f) and (g) above is $250,000. We
paid an expense deposit of $25,000, or the Advance, to the
underwriters, which will be applied against the out-of-pocket
accountable expenses that will be payable by us to the underwriters
in connection with this offering. Any portion of the Advance will
be returned to us in the event it is not actually incurred.
We estimate that the total expenses of the offering payable by us,
excluding underwriting discounts and commissions, will be
approximately $400,000.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities
offered hereby to any accounts over which they have discretionary
authority.
Right of First Refusal
For a period ending six months from the date of this prospectus
supplement, we granted to Alexander Capital, L.P. a right of first
refusal to act as co-lead investment banker, joint book-runner
and/or co-lead underwriter, at its discretion, for each and every
future public financing consisting of securities for our company,
or any successor to our company. The right of first refusal may be
terminated by us for “Cause,” which means a material breach by
Alexander Capital, L.P. of the Underwriting Agreement or a material
failure by it to provide the services contemplated thereby.
Electronic Officer, Sale and Distribution of Shares
A prospectus, including this prospectus supplement, in electronic
format may be made available on the websites maintained by the
underwriters, if any, participating in this offering and the
underwriters participating in this offering may distribute
prospectuses electronically. The underwriters may agree to allocate
a number of shares for sale to its online brokerage account
holders. Internet distributions will be allocated by the
underwriters that will make internet distributions on the same
basis as other allocations. Other than the prospectus in electronic
format, the information on these websites is not part of, nor
incorporated by reference into, this prospectus or the registration
statement of which this prospectus forms a part, has not been
approved or endorsed by us or the underwriters in their capacity as
underwriters, and should not be relied upon by investors.
Stabilization
In connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions,
syndicate-covering transactions, penalty bids and purchases to
cover positions created by short sales.
|
● |
Stabilizing transactions permit bids to purchase shares so long as
the stabilizing bids do not exceed a specified maximum and are
engaged in for the purpose of preventing or retarding a decline in
the market price of the shares while the offering is in
progress. |
|
|
|
|
● |
Over-allotment
transactions involve sales by the underwriters of shares in excess
of the number of shares the underwriters are obligated to purchase.
This creates a syndicate short position which may be either a
covered short position or a naked short position. In a covered
short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares
in the over-allotment option. The underwriters may close out any
short position by exercising their over-allotment option and/or
purchasing shares in the open market. |
|
|
|
|
● |
Syndicate covering
transactions involve purchases of shares in the open market after
the distribution has been completed in order to cover syndicate
short positions. In determining the source of shares to close out
the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared with the price at which they may purchase shares
through exercise of the over-allotment option. If the underwriters
sell more shares than could be covered by exercise of the
over-allotment option and, therefore, have a naked short position,
the position can be closed out only by buying shares in the open
market. A naked short position is more likely to be created if the
underwriters are concerned that after pricing there could be
downward pressure on the price of the shares in the open market
that could adversely affect investors who purchase in the
offering. |
|
|
|
|
● |
Penalty bids
permits the underwriters to reclaim a selling concession from a
syndicate member when the shares originally sold by that syndicate
member are purchased in stabilizing or syndicate covering
transactions to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our shares of Series D Preferred Stock or
preventing or retarding a decline in the market price of our shares
of Series D Preferred Stock. As a result, the price of our Series D
Preferred Stock or warrants in the open market may be higher than
it would otherwise be in the absence of these transactions. Neither
we nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the
price of our Series D Preferred Stock. These transactions may be
effected on the NYSE American, in the over-the-counter market or
otherwise and, if commenced, may be discontinued at any time.
Other Relationships
Certain of the underwriters (including the representatives) and
their respective affiliates have engaged in, and may in the future
engage in, investment banking and other commercial dealings in the
ordinary course of business with us or our affiliates for which
they have received, or may in the future receive, customary fees
and commissions for these transactions.
Offer Restrictions outside the United States
Other than in the United States, no action has been taken by us or
the underwriters that would permit a public offering of the
securities offered by this prospectus supplement in any
jurisdiction where action for that purpose is required. The
securities offered by this prospectus supplement may not be offered
or sold, directly or indirectly, nor may this prospectus supplement
or any other offering material or advertisements in connection with
the offer and sale of any such securities be distributed or
published in any jurisdiction, except under circumstances that will
result in compliance with the applicable rules and regulations of
that jurisdiction. Persons into whose possession this prospectus
supplement comes are advised to inform themselves about and to
observe any restrictions relating to this offering and the
distribution of this prospectus supplement. This prospectus
supplement does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered by this prospectus
supplement in any jurisdiction in which such an offer or a
solicitation is unlawful.
LEGAL MATTERS
The validity of the shares of Series D Preferred Stock offered
hereby will be passed upon for us by our counsel, Olshan Frome
Wolosky LLP, New York, New York. Cozen O’Connor P.C., Minneapolis,
Minnesota, is acting as counsel to the underwriters in connection
with certain legal matters relating to this offering.
EXPERTS
The consolidated financial statements incorporated in this
prospectus by reference from our Annual Report on Form 10-K for the
years ended December 31, 2021 and 2020, and for each of the years
in the period ended December 31, 2021, have been so incorporated in
reliance on the report of Marcum, LLP, an independent registered
public accounting firm, incorporated herein by reference, given on
the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Enertec, as of December
31, 2021 and December 31, 2020, and for the year ended December 31,
2021 incorporated by reference in this prospectus have been so
incorporated in reliance on the report of BDO ZIV HAFT, an
independent registered public accounting firm, incorporated herein
by reference, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus supplement and the accompanying prospectus are part
of the registration statement on Form S-3 we filed with the SEC
under the Securities Act and do not contain all the information set
forth in the registration statement. Whenever a reference is made
in this prospectus supplement or the accompanying prospectus to any
of our contracts, agreements or other documents, the reference may
not be complete and you should refer to the exhibits that are a
part of the registration statement or the exhibits to the reports
or other documents incorporated by reference in this prospectus
supplement and the accompanying prospectus for a copy of such
contract, agreement or other document. Because we are subject to
the information and reporting requirements of the Exchange Act, we
file annual, quarterly and current reports, proxy statements and
other information with the SEC. Our SEC filings are available to
the public over the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document we file
at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Contact the SEC at 1-800-SEC-0330 for
further information on the operation of the Public Reference
Room.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information from
other documents that we file with it, which means that we can
disclose important information to you by referring you to those
documents. The information incorporated by reference is considered
to be part of this prospectus supplement and the accompanying
prospectus. Information contained in this prospectus supplement and
the accompanying prospectus and information that we file with the
SEC in the future and incorporate by reference in this prospectus
supplement and the accompanying prospectus will automatically
update and supersede this information. We incorporate by reference
the documents listed below and any future filings (other than
information in current reports furnished under Item 2.02 or Item
7.01 of Form 8-K and exhibits filed on such form that are related
to such items) we make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, after the date of the prospectus
supplement and prior to the termination of the offering of the
securities covered by this prospectus supplement:
|
• |
Our Annual Report on Form 10-K for
the period ended December 31, 2021, filed with the SEC on
April 15, 2022; |
|
• |
Current Reports on Form 8-K filed
with the SEC on
January 3, 2022,
January 3, 2022,
January 14, 2022, an amendment to Current Report originally
filed on January 3, 2022 that was filed on
January 21, 2022, an amendment to Current Report originally
filed on January 3, 2022 that was filed on
January 24, 2022,
February 23, 2022,
February 25, 2022, an amendment to Current Report originally
filed on December 23, 2021 that was filed on
March 9, 2022, and
April 25, 2022; and |
|
• |
The description of our common stock
contained in our Form 8-A filed with the SEC on January 30,
1997. |
We also incorporate by reference all additional documents that we
file with the SEC under the terms of Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act that are made after the initial filing
date of the registration statement of which this prospectus is a
part until the offering of the particular securities covered by a
prospectus supplement or term sheet has been completed. We are not,
however, incorporating, in each case, any documents or information
that we are deemed to furnish and not file in accordance with SEC
rules.
We will provide you, without charge upon written or oral request, a
copy of any and all of the information that has been incorporated
by reference in this prospectus and that has not been delivered
with this prospectus. Requests should be directed to BitNile
Holdings, Inc., 11411 Southern Highlands Parkway, Suite 240, Las
Vegas, Nevada 89141; Tel.: (949) 444-5464; Attention: Mr. Milton C.
(Todd) Ault III, Executive Chairman.
In accordance with Rule 412 under the Securities Act, any statement
contained in a document incorporated by reference herein shall be
deemed modified or superseded to the extent that a statement
contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement.
Filed pursuant to Rule 424(b)(1)
Registration No. 333-260618

$350,000,000
Common Stock
Preferred Stock
Debt Securities
Warrants
Rights
Units
We may offer and sell, from time to time in one or more offerings,
any combination of common stock, preferred stock, debt securities,
warrants, rights or units having an aggregate initial offering
price not exceeding $350,000,000. The preferred stock, debt
securities, warrants, rights and units may be convertible,
exercisable or exchangeable for common stock or preferred stock or
other securities of ours.
Each time we sell a particular class or series of securities, we
will provide specific terms of the securities offered in a
supplement to this prospectus. The prospectus supplement may
also add, update or change information in this prospectus.
You should read this prospectus and any prospectus supplement, as
well as the documents incorporated by reference or deemed to be
incorporated by reference into this prospectus, carefully before
you invest in any securities.
This prospectus may not be used to offer or sell our securities
unless accompanied by a prospectus supplement relating to the
offered securities.
Our common stock is presently listed on the NYSE American under the
symbol “DPW.” On October 22, 2021, the last reported sale
price of our common stock was $2.29.
These securities may be sold directly by us, through dealers or
agents designated from time to time, to or through underwriters or
dealers or through a combination of these methods on a continuous
or delayed basis. See “Plan of Distribution” in this
prospectus. We may also describe the plan of distribution for
any particular offering of our securities in a prospectus
supplement. If any agents, underwriters or dealers are involved in
the sale of any securities in respect of which this prospectus is
being delivered, we will disclose their names and the nature of our
arrangements with them in a prospectus supplement. The net proceeds
we expect to receive from any such sale will also be included in a
prospectus supplement.
An investment in our common
stock involves a high degree of risk. You should review carefully
the risks and uncertainties described under the heading “Risk
Factors” contained on page 9 of this prospectus and in our Annual
Report on Form 10-K for the year ended December 31, 2020, as well
as our subsequently filed periodic and current reports that we file
with the Securities and Exchange Commission and which are
incorporated by reference into the registration statement of which
this prospectus is a part. We may also include additional risk
factors in a prospectus supplement under the heading “Risk
Factors.” You should read this prospectus and the applicable
prospectus supplement carefully before you make your investment
decision.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus is dated November 12, 2021
TABLE OF CONTENTS
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|
Page
|
About this
Prospectus |
|
1 |
Disclosure
Regarding Forward-Looking Statements |
|
1 |
About the
Company |
|
2 |
Risk
Factors |
|
10 |
Use of
Proceeds |
|
34 |
The Securities
We May Offer |
|
34 |
Description of
Capital Stock |
|
35 |
Description of
Debt Securities |
|
35 |
Description of
Warrants |
|
43 |
Description of
Rights |
|
45 |
Description of
Units |
|
45 |
Plan of
Distribution |
|
46 |
Legal
Matters |
|
48 |
Experts |
|
48 |
Where you can
find more Information |
|
48 |
Incorporation
of Documents by Reference |
|
49 |
ABOUT THIS PROSPECTUS
This prospectus is part of a shelf registration statement that we
filed with the Securities and Exchange Commission (the
“Commission”) using a “shelf” registration process. Under this
shelf registration process, we may sell any combination of the
securities described in this prospectus in one or more offerings
from time to time having an aggregate initial offering price of
$350,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we offer
securities, we will provide you with a prospectus supplement that
describes the specific amounts, prices and terms of the securities
we offer. The prospectus supplement also may add, update or change
information contained in this prospectus. You should read carefully
both this prospectus and any prospectus supplement together with
additional information described below under the caption “Where You
Can Find More Information.”
This prospectus does not contain all the information provided in
the registration statement we filed with the Commission. You should
read both this prospectus, including the section titled “Risk
Factors,” and the accompanying prospectus supplement, together with
the additional information described under the heading “Where You
Can Find More Information.”
This prospectus may be supplemented from time to time to add, to
update or change information in this prospectus. Any statement
contained in this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a
statement contained in such prospectus supplement modifies or
supersedes such statement. Any statement so modified will be deemed
to constitute a part of this prospectus only as so modified, and
any statement so superseded will be deemed not to constitute a part
of this prospectus. You should rely only on the information
contained or incorporated by reference in this prospectus, any
applicable prospectus supplement or any related free writing
prospectus. We have not authorized any other person to provide you
with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. No dealer,
salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus, any
applicable prospectus supplement or any related free writing
prospectus. This prospectus is not an offer to sell securities, and
it is not soliciting an offer to buy securities, in any
jurisdiction where the offer or sale is not permitted. You should
assume that the information appearing in this prospectus or any
prospectus supplement, as well as information we have filed with
the SEC that is incorporated by reference, is accurate as of the
date on the front of those documents only, regardless of the time
of delivery of this prospectus or any applicable prospectus
supplement, or any sale of a security. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
No person is authorized in connection with this prospectus to give
any information or to make any representations about us, the
securities offered hereby or any matter discussed in this
prospectus, other than the information and representations
contained in this prospectus. If any other information or
representation is given or made, such information or representation
may not be relied upon as having been authorized by us.
This prospectus contains summaries of certain provisions contained
in some of the documents described herein, but reference is made to
the actual documents for complete information. All of the summaries
are qualified in their entirety by the actual documents. Copies of
some of the documents referred to herein have been filed, will be
filed or will be incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and you
may obtain copies of those documents as described below under
“Where You Can Find More Information.”
For investors outside the United States: Neither we nor any
Underwriter has done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United
States. You are required to inform yourselves about and to observe
any restrictions relating to this offering and the distribution of
this prospectus.
Unless otherwise stated or the context requires otherwise,
references to “AGH,” the “Company,” “we,” “us” or “our” are to Ault
Global Holdings, Inc., a Delaware corporation, and its
subsidiaries.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in it
contain forward-looking statements regarding future events and our
future results that are subject to the safe harbors created under
the Securities Act of 1933 and the Securities Exchange Act of 1934.
All statements other than statements of historical facts are
statements that could be deemed forward-looking statements. These
statements are based on our expectations, beliefs, forecasts,
intentions and future strategies and are signified by the words
“expects,” “anticipates,” “intends,” “believes” or similar
language. In addition, any statements that refer to projections of
our future financial performance, our anticipated growth, trends in
our business and other characterizations of future events or
circumstances are forward-looking statements. These forward-looking
statements are only predictions and are subject to risks,
uncertainties and assumptions that are difficult to predict,
including those identified above, under “Risk Factors” and
elsewhere in this prospectus. Therefore, actual results may differ
materially and adversely from those expressed in any
forward-looking statements. All forward-looking statements included
in this prospectus are based on information available to us on the
date of this prospectus and speak only as of the date hereof.
We disclaim any current intention to update our “forward-looking
statements,” and the estimates and assumptions within them, at any
time or for any reason. In particular, the following factors, among
others, could cause actual results to differ materially from those
described in the “forward-looking statements”:
|
• |
our continued operating and net
losses in the future; |
|
• |
our need for additional capital for
our operations and to fulfill our business plans; |
|
• |
the effect of COVID-19; |
|
• |
dependency on our ability, and the
ability of our contract manufacturers, to timely procure electronic
components; |
|
• |
the potential ineffectiveness of
our strategic focus on power supply solution competencies; |
|
• |
dependency on developer partners
for the development of some of our custom design products; |
|
• |
dependency on sales of our legacy
products for a meaningful portion of our revenues; |
|
• |
the possible failure of our custom
product development efforts to result in products which meet
customers’ needs or such customers’ failure to accept such new
products; |
|
• |
our ability to attract, retain and
motivate key personnel; |
|
• |
dependence on a few major
customers; |
|
• |
dependence on the electronic
equipment industry; |
|
• |
reliance on third-party subcontract
manufacturers to manufacture certain aspects of the products sold
by us; |
|
• |
reduced profitability as a result
of increased competition, price erosion and product obsolescence
within the industry; |
|
• |
our ability to establish, maintain
and expand our OEM relationships and other distribution
channels; |
|
• |
our inability to procure necessary
key components for our products, or the purchase of excess or the
wrong inventory; |
|
• |
variations in operating results
from quarter to quarter; |
|
• |
dependence on international sales
and the impact of certain governmental regulatory restrictions on
such international sales and operations; and |
|
• |
the risk factors included in our
most recent filings with the SEC, including, but not limited to,
our Forms 10-K and 10-Q. All filings are also available on our
website at www.aultglobal.com. |
ABOUT THE COMPANY
This summary highlights selected information contained in other
parts of this prospectus. Because it is a summary, it does not
contain all of the information that you should consider in making
your investment decision. Before investing in our securities, you
should read the entire prospectus carefully, including the
information set forth under the heading “Risk Factors.”
Company Overview
Ault Global Holdings, Inc., a Delaware corporation formerly known
as DPW Holdings, was incorporated in September 2017. We are a
diversified holding company owning subsidiaries engaged in, among
others, the following operating businesses: commercial and defense
solutions, commercial lending, data center operations,
cryptocurrency mining and advanced textile technology. Our direct
and indirect wholly-owned subsidiaries include Gresham Worldwide,
Inc. (“GWW”), TurnOnGreen, Corp., formerly known as Coolisys
Technologies Corp. (“TOGI”), Digital Power Corporation, Gresham
Power Electronics Ltd. (“Gresham Power”), Enertec Systems 2001 Ltd
(“Enertec”), Relec Electronics Ltd. (“Relec”), Digital Power
Lending, LLC (“DP Lending”), Ault Alliance, Inc. (“Ault Alliance”)
and Tansocial LLC (“Tansocial”). We also have a controlling
interest in Microphase Corporation (“Microphase”) and Ault Alliance
has a controlling interest in Alliance Cloud Services, LLC (“ACS”)
as well as Avalanche International Corp. (“Avalanche”).
Ault Global Holdings was founded by Milton “Todd” Ault III, its
Executive Chairman and is led by Mr. Ault, 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
holding company. The Company’s long-term objective is to maximize
per share intrinsic value. All major investment and capital
allocation decisions are made for the Company by Mr. Ault and the
Executive Committee. The Company has three reportable segments:
· GWW
– defense solutions with operations conducted by Microphase,
Enertec, Gresham Power and Relec,
· TOGI
– commercial electronics solutions with operations conducted by
Digital Power Corporation and EV charging solutions, and
|
· |
Ault Alliance – commercial lending
through DP Lending, data center operations through ACS, textile
treatment through Avalanche, digital marketing through Tansocial,
digital learning and cryptocurrency mining operations. |
We operate as a holding company with operations conducted primarily
through our subsidiaries. We conduct our activities in a manner so
as not to be deemed an investment company under the Investment
Company Act of 1940, as amended (the “Investment Company Act”).
Generally, this means that we do not invest or intend to invest in
securities as our primary business and that no more than 40% of our
total assets will be invested in investment securities, as that
term is defined in the Investment Company Act. Pursuant to the
Investment Company Act, companies such as our subsidiary DP Lending
are excluded from the definition of an investment company since its
business consists of making loans and industrial banking. We also
maintain a considerable investment in Avalanche, which does business as MTIX
International.
Originally, we were primarily a solution-driven organization that
designed, developed, manufactured and sold high-grade customized
and flexible power system solutions for the medical, military,
telecom and industrial markets. Although we actively seek growth
through acquisitions, we will also continue to focus on high-grade
and custom product designs for the commercial, medical and
military/defense markets, where customers demand high density, high
efficiency and ruggedized products to meet the harshest and/or
military mission critical operating conditions.
We have operations located in Europe through our wholly-owned
subsidiary, Gresham Power Electronics (f/k/a Digital Power Limited)
(“Gresham Power”), located in Salisbury, England. Gresham Power
designs, manufactures and sells power products and system solutions
mainly for the European marketplace, including power conversion,
power distribution equipment, DC/AC (Direct Current/Active Current)
inverters and UPS (Uninterrupted Power Supply) products. Our
European defense business is specialized in the field of naval
power distribution products.
On November 30, 2016, we formed DP Lending, a wholly-owned
subsidiary. DP Lending provides commercial loans to companies
throughout the United States to provide them with operating capital
to finance the growth of their businesses. The loans range in
duration from six months to three years, DP Lending loans made or
arranged pursuant to a California Financing Law license (Lic.no. 60
DBO77905).
On June 2, 2017, we purchased 56.4% of the outstanding equity
interests of Microphase Corporation (“Microphase”). Microphase is a
design-to-manufacture original equipment manufacturer (“OEM”)
industry leader delivering world-class radio frequency (“RF”) and
microwave filters, diplexers, multiplexers, detectors, switch
filters, integrated assemblies and detector logarithmic video
amplifiers (“DLVA”) to the military, aerospace and
telecommunications industries. Microphase is headquartered in
Shelton, Connecticut.
On January 7, 2020, we formed Coolisys Technologies Corp.
(“Coolisys”), a wholly-owned subsidiary. Coolisys operates its
existing businesses in the customized and flexible power system
solutions for the automotive, medical, military, telecom,
commercial and industrial markets, other than the European markets,
which are primarily served by Gresham Power. In August 2021,
Coolisys changed its name from Coolisys Technologies Corp. to
TurnOnGreen, Inc. In April 2021, Coolisys formed TOG Technologies
as a Nevada corporation (initially under the name TurnOnGreen,
Inc.) to provide flexible and scalable EV charging solutions with a
portfolio of residential, commercial and ultra-fast charging
products, and comprehensive charging management software and
network services.
On September 1, 2017, Digital Power Corporation, a Delaware
corporation (“DPC”), a subsidiary of Coolisys since January 20,
2020, acquired all of the outstanding membership interests in
Power-Plus Technical Distributors, LLC, a California limited
liability company (“Power-Plus”). Power-Plus is an industrial
distributor of value added power supply solutions, UPS systems,
fans, filters, line cords, and other power-related components. In
addition to its current business, Power-Plus serves as an extended
sales organization for our overall flexible power system
solutions.
On December 31, 2017, Coolisys Technologies, Inc., a Delaware
corporation (“CTI”), entered into a share purchase agreement with
Micronet Enertec Technologies, Inc. (“MICT”), a Delaware
corporation, Enertec Management Ltd., an Israeli corporation and
wholly owned subsidiary of MICT (“EML”), and Enertec Systems 2001
Ltd. (“Enertec”), an Israeli corporation and wholly owned
subsidiary of EML, pursuant to which CTI acquired Enertec. Enertec
is Israel’s largest private manufacturer of specialized electronic
systems for the military market. On May 23, 2018, CTI completed its
acquisition of Enertec.
In January 2018, we formed
Super Crypto Mining, Inc., a wholly-owned subsidiary, which changed
its name to Digital Farms, Inc. (“DFI”) on January 18, 2019. DFI
was established to operate our newly formed cryptocurrency
business, which pursued a variety of digital currency. Through DFI,
we used to mine the top three cryptocurrencies for our own account.
These cryptocurrencies included Bitcoin, Litecoin and
Ethereum. DFI’s operations were discontinued in the first
quarter of 2020.
On May 23, 2018, DP Lending entered into and closed a securities
purchase agreement with I. AM, Inc. (“I. AM”), David J. Krause and
Deborah J. Krause. Pursuant to the securities purchase agreement,
I. AM sold to DP Lending, 981 shares of common stock for a purchase
price of $981, representing, upon the closing, 98.1% of I. AM’s
outstanding common stock. I.AM owed DP Lending $1,715,330 in
outstanding principal, pursuant to a loan and security agreement,
between I. AM and DP Lending. The purchase agreement provides that,
as I. AM repays the outstanding loan to DP Lending in accordance
with the loan agreement, DP Lending will on a pro rata basis
transfer shares of common stock of I. AM to David J. Krause,
up to an aggregate of 471 shares. I. AM’s operations were discontinued in
the first quarter of 2020.
Gresham Worldwide, Inc. was incorporated under the laws of the
State of Delaware on November 21, 2018 as DPW Technologies Group,
Inc. and effected a name change on December 6, 2019.
On November 30, 2020, we acquired Relec, a privately held company
based in Wareham, the United Kingdom. The transaction was
structured as a stock purchase under which we paid approximately
$4,000,000 with additional contingent cash payments up to
approximately $665,000 based on Relec’s future financial
performance. The acquisition of Relec has enhanced our presence in
industrial and transportation markets in the United Kingdom and
Europe and considerably broadened our product portfolio, including
high-quality power conversion and display product offerings. Relec
specializes in AC-DC power supplies, DC-DC converters, displays and
EMC filters.
On January 29, 2021, Alliance Cloud Services, LLC, a majority-owned
subsidiary of its wholly-owned subsidiary, Ault Alliance, closed on
the acquisition of a 617,000 square foot energy-efficient facility
located on a 34.5 acre site in southern Michigan for a purchase
price of $3,991,497. The purchase price was paid by the Company
using its own working capital.
Corporate Information
We are a Delaware corporation, initially formed in California in
1969 and reincorporated in Delaware in 2017. We are located at
11411 Southern Highlands Parkway, Suite 240, Las Vegas, NV 89141.
Our phone number is (949) 444-5464 and our website address is
www.aultglobal.com.
Recent Events and Developments
Our Corporate Structure
On January 19, 2021, we changed our corporate name from DPW
Holdings, Inc., to Ault Global Holdings, Inc. (the “Name Change”).
The Name Change was effected through a parent/subsidiary short form
merger pursuant to an Agreement and Plan of Merger dated January 7,
2021. Neither the merger nor resulting Name Change affected the
rights of our security holders. Our common stock continues to be
quoted on the NYSE American under the symbol “DPW.” Existing stock
certificates that reflect our prior corporate name will continue to
be valid. Certificates reflecting the new corporate name will be
issued in due course as old stock certificates are tendered for
exchange or transfer to our transfer agent. Concurrently with the
change in our name, Milton C. Ault, III was appointed as our
Executive Chairman, William B. Horne was appointed as our Chief
Executive Officer and remains as Vice Chairman of our board of
directors, and Henry Nisser was appointed as our President and
remains as our General Counsel.
Commencing in October of 2019 and continuing through August 2021,
we reorganized our corporate structure pursuant to a series of
transactions by and among AGH and our directly and indirectly owned
subsidiaries. The purpose of the reorganization was to align our
various businesses by the products and services that constitute the
majority of each subsidiaries’ revenues. As a result of the
foregoing transactions, our streamlined corporate structure is as
follows:

On June 11, 2021, we entered into a securities purchase agreement
with Ault & Company, Inc., a Delaware corporation and a
stockholder of ours (“A&C”). Pursuant to the terms of the
agreement, A&C is entitled to purchase 1,000,000 shares of our
common stock for a total purchase price of $2,990,000, at a
purchase price per share of $2.99, which was $0.05 per share above
the closing stock price on June 10, 2021.
On May 12, 2021, we issued 275,862 shares of common stock to
A&C upon the conversion of $400,000 of principal on an 8%
Convertible Promissory Note dated February 5, 2020.
On February 10, 2020, we entered into a Master Exchange Agreement
(the “Master Exchange Agreement”) with Esousa Holdings, LLC
(“Esousa”) that acquired approximately $4.2 million in principal
amount, plus accrued but unpaid interest, of certain promissory
notes that had been previously issued by us to Dominion Capital,
LLC, a Connecticut limited liability company (the “Dominion Note”)
and the Canadian Special Opportunity Fund, LP (the “CSOF Note” and
with the Dominion Note, the “Esousa Purchased Notes”) in separate
transactions. Esousa also agreed to purchase additional notes up to
an additional principal amount, plus accrued but unpaid interest,
of $3.5 million (the “Additional Notes” and collectively, with the
Esousa Purchased Notes, the “Notes”). Pursuant to the Exchange
Agreement, Esousa has the unilateral right to acquire shares of our
common stock (the “Exchange Shares”) in exchange for the Notes,
which Notes evidence an aggregate of up to approximately $7.7
million of indebtedness of the Company. In aggregate, we have
issued to Esousa a total of 8,332,904 Exchange Shares.
On June 26, 2020, we issued to several institutional investors
unsecured 12% short-term promissory notes in the aggregate
principal amount of $800,000 and seventeen month warrants to
purchase an aggregate of 361,991 shares of our common stock at an
exercise price of $2.43 per share.
Between August 2020 and November 2020, we received $5,450,000 in
loans from Esousa and certain affiliates pursuant to which we
agreed to issue unsecured short-term promissory notes with interest
rates of 13% and 14% and warrants with terms of approximately one
and a half years to purchase an aggregate of 3,850,220 shares of
common stock at an average exercise price of $2.28 per share.
On October 2, 2020, we entered into an At-The-Market Issuance Sales
Agreement (the “Sales Agreement”) with Ascendiant Capital Markets,
LLC to sell shares of common stock having an aggregate offering
price of up to $8,975,000 from time to time, through an “at the
market offering” program (the “2020 ATM Offering”). On December 1,
2020, we filed an amendment to the prospectus supplement with the
SEC to increase the amount of common stock that may be offered and
sold in the ATM Offering, as amended under the Sales Agreement to
$40,000,000 in the aggregate, inclusive of the up to $8,975,000 in
shares of common stock previously sold in the 2020 ATM Offering.
The offer and sale of shares of common stock from the 2020 ATM
Offering was made pursuant to our effective “shelf” registration
statement on Form S-3 and an accompanying base prospectus contained
therein (Registration No. 333-222132) which became effective on
January 11, 2018. Through December 31, 2020, we had received gross
proceeds of $39,978,350 through the sale of 12,582,000 shares of
common stock from the 2020 ATM Offering. The 2020 ATM Offering was
terminated on December 31, 2020.
On January 22, 2021, we entered into an At-The-Market Issuance
Sales Agreement, as amended on February 17, 2021 and thereafter on
March 5, 2021 (the “2021 Sales Agreement”) with Ascendiant Capital
Markets, LLC, or the sales agent, relating to the sale of shares of
common stock offered by a prospectus supplement and the
accompanying prospectus, as amended by the amendments to the sales
agreement dated February 16, 2021 and March 5, 2021. In accordance
with the terms of the 2021 Sales Agreement, we may offer and sell
shares of common stock having an aggregate offering price of up to
$200 million from time to time through the sales agent. As of the
date of this prospectus, we had sold an aggregate of 38,171,760
shares of common stock pursuant to the sales agreement for gross
proceeds of $168,709,204.
On March 9, 2021, our wholly owned subsidiary, DP Lending, entered
into a securities purchase agreement with Alzamend Neuro, Inc., or
Alzamend, a related party, to invest $10 million in Alzamend common
stock and warrants, subject to the achievement of certain
milestones. We agreed to fund $4 million upon execution of the
securities purchase agreement and to fund the balance upon Alzamend
achieving certain milestones related to the U.S. Food and Drug
Administration approval of Alzamend’s Investigational New Drug
application and Phase 1a human clinical trials for Alzamend’s
lithium based ionic cocrystal therapy, known as AL001. As of the
date of this prospectus, we have funded an aggregate of $6 million
pursuant to the securities purchase agreement. Under the securities
purchase agreement, Alzamend has agreed to sell up to 6,666,667
shares of its common stock to DPL for $10 million, or $1.50 per
share, and issue to DPL warrants to acquire up to 3,333,334 shares
of Alzamend common stock with an exercise price of $3.00 per share.
The transaction was approved by our independent directors after
receiving a third-party valuation report of Alzamend.
On June 15, 2021, Alzamend closed an initial public offering at a
price to the public of $5.00 per share. DP Lending purchased
2,000,000 shares of Alzamend’s common stock in the initial public
offering for an aggregate of $10,000,000. Alzamend’s common stock
is listed on The Nasdaq Capital Market under the ticker symbol
“ALZN.”
On July 28, 2021, Alzamend received from the U.S. Food and Drug
Administration a “Study May Proceed” letter for a Phase 1 study
under the Alzamend’s Investigational New Drug application for
AL001, a lithium-based ionic cocrystal oral therapy for patients
with dementia related to mild, moderate, and severe cognitive
impairment associated with Alzheimer’s disease.
On October 26, 2020, we announced that we had successfully
converted all of our secured debt, totaling just under $5 million,
to equity thus improving our net equity.
On November 2, 2020, I.AM, Inc. filed a voluntary petition for
bankruptcy under Chapter 7 in the United States Bankruptcy Court in
the Central District of California, Santa Ana Division, case number
8:20-bk-13076.
Settlement of Derivative Litigation
On February 24, 2020, we entered into a definitive settlement
agreement (the “Settlement Agreement”) intended to settle the
previously disclosed derivative litigation captioned Ethan Young
and Greg Young, Derivatively on Behalf of Nominal Defendant, DPW
Holdings, Inc. v. Milton C. Ault, III, Amos Kohn, William B. Horne,
Jeff Bentz, Mordechai Rosenberg, Robert O. Smith, and Kristine Ault
and DPW Holdings, Inc., as the nominal defendant (Case No.
18-cv-6587) (as amended on March 11, 2019, the “Amended Complaint”)
against the Company and certain of its officers and directors
pending in the United States District Court for the Central
District of California (the “Court”). As previously disclosed, the
Amended Complaint alleges violations including breaches of
fiduciary duties and unjust enrichment claims based on the
previously pled transactions.
On April 15, 2020, the Court issued an Order (the “Order”)
approving a Motion for Preliminary Approval of Settlement in the
Derivative Action. On July 16, 2020, the Court issued an Order (the
“Final Order”) approving a Motion for Final Approval of Settlement
in the Derivative Action filed against AGH as a Nominal Defendant
and its directors who served on its board of directors on July 31,
2018 who were not dismissed from the action as a result of the
Court’s partial grant of the Motion.
On July 16, 2020, the Court entered a Judgement based upon the
Final Order.
Under the terms of the Final Order approving the Agreement, the
Board shall adopt and/or maintain resolutions and amendments to
committee charters and/or the Company’s bylaws to ensure adherence
to certain corporate governance policies (collectively, the
“Reforms”), which shall remain in effect for no less than five (5)
years, subject to any of the following: (a) a determination by a
majority of the independent directors that the Reform is no longer
in the best interest of the Company, including, but not limited to,
due to circumstances making the Reform no longer applicable,
feasible, or available on commercially reasonable terms, or (b)
modifications which the Company reasonably believes are required by
applicable law or regulation.
In connection with the Settlement Agreement, the parties agreed
upon a payment of attorneys’ fees in the amount of $600,000 payable
by the Company’s Director & Officer liability insurance, which
sum was paid. The Settlement Agreement contains no admission of
wrongdoing. The Company has always maintained and continues to
believe that it did not engage in any wrongdoing or otherwise
commit any violation of federal or state securities laws or other
laws.
Our Current Business Strategy
As a holding company, our business strategy is designed to increase
shareholder value. Under this strategy, we are focused on managing
and financially supporting our existing subsidiaries and partner
companies, with the goal of pursuing monetization opportunities and
maximizing the value returned to shareholders. 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 shareholder value, such as activist
trading. We anticipate returning value to shareholders after
satisfying our debt obligations and working capital needs.
On October 7, 2019, we created an Executive Committee which is
comprised of our Executive Chairman, Chief Executive Officer and
President. The Executive Committee meets on a daily basis to
address the Company’s critical needs and provides a forum to
approve transactions which are communicated to our Chief Financial
Officer and Senior Vice President of Finance on a bi-weekly basis
by our Chief Executive Officer.
Our Executive Committee approves and manages our investment and
trading strategy. The Executive Committee has decades of experience
in financial, investing and securities transactions. Led by our
Founder and Executive Chairman, Milton C. (Todd) Ault III, we seek
to find undervalued companies and disruptive technologies with a
global impact. We also use a traditional methodology for valuing
securities that primarily looks for deeply depressed prices. Upon
making an investment, we often become actively involved in the
companies we seek to acquire. That activity may involve a broad
range of approaches, from influencing the management of a target to
take steps to improve stockholder value, to acquiring a controlling
interest or outright ownership of the target company in order to
implement changes that we believe are required to improve its
business, and then operating and expanding that business. Mr. Ault
relies heavily on William B. Horne, our Vice Chairman and Chief
Executive Officer, and Henry Nisser, our President and General
Counsel, to provide analysis and guidance on all acquisition
targets and throughout the acquisition process.
From time to time, we engage in discussions with other companies
interested in our subsidiaries or partner companies, either in
response to inquiries or as part of a process we initiate. To the
extent we believe that a subsidiary partner company’s further
growth and development can best be supported by a different
ownership structure or if we otherwise believe it is in our
shareholders’ 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, transactions in 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 and
functionally equivalent programs and the sale of certain subsidiary
or partner company interests in secondary market transactions to
maximize value for our shareholders.
Our Executive Committee acts as the underwriting committee for our
subsidiary DP Lending and approves all lending transactions. Under
its business model, DP Lending generates revenue through
origination fees charged to borrowers and interest generated from
each loan. DP Lending may also generate income from appreciation of
investments in marketable securities as well as any shares of
common stock underlying convertible notes or warrants issued to DP
Lending in any particular financing.
As a holding company, our business strategy is designed to increase
shareholder value. Under this strategy, we are focused on managing
and financially supporting our existing subsidiaries and partner
companies, with the goal of pursuing monetization opportunities and
maximizing the value returned to shareholders. 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 shareholder value. We anticipate
returning value to shareholders after satisfying our debt
obligations and working capital needs.
Over the recent past we have provided capital and relevant
expertise to fuel the growth of businesses in defense/aerospace,
industrial, telecommunications, medical 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.
Impact of Coronavirus on Our Operations
On March 16, 2020, to try and mitigate the spread of the novel
coronavirus, San Diego County health officials issued orders
mandating that all restaurants must end dine-in services. As a
result of these temporary closures by the San Diego County health
officials and the deteriorating business conditions at both our
cryptocurrency mining and restaurant businesses, management
concluded that discontinuing these operations was ultimately in our
best interest. Although we have ceased operations at Digital Farms,
since the assets and operations have not yet been abandoned, sold
or distributed, these assets do not yet meet the requirement for
presentation as discontinued operations. However, management
determined that the permanent closing of the restaurant operations
met the criteria for presentation as discontinued operations.
In March 2020, the World Health Organization declared the outbreak
of a novel coronavirus (“COVID-19”) as a pandemic which continues
to spread throughout the United States and the World. We are
monitoring the outbreak of COVID-19 and the related business and
travel restrictions and changes to behavior intended to reduce its
spread, and its impact on operations, financial position, cash
flows, inventory, supply chains, customer purchasing trends,
customer payments, and the industry in general, in addition to the
impact on our employees. Due to the rapid development and fluidity
of this situation, the magnitude and duration of the pandemic and
its impact on our operations and liquidity is uncertain as of the
date of this prospectus.
However, our business has been disrupted and materially adversely
affected by the outbreak of COVID-19. We continue to assess our
business operations and system supports and the impact COVID-19 may
have on our results and financial condition, but there can be no
assurance that this analysis will enable us to avoid part or all of
any impact from the spread of COVID-19 or its consequences,
including downturns in business sentiment generally or in our
sectors in particular.
Our operations are located in Alameda County, CA, Orange County,
CA, Fairfield County, CT, the United Kingdom, Israel and members of
our senior management work in Seattle, WA and New York, NY. We have
been following the recommendations of local health authorities to
minimize exposure risk for our employees, including the temporary
closures of our offices and having employees work remotely to the
extent possible, which has to an extent adversely affected their
efficiency. California and the UK recently reinstituted a second
round of stay-at-home orders and lockdowns, respectively. For more
information, see “Risk Factors – We face business disruption and
related risks resulting from the recent outbreak of the novel
coronavirus . . . .”
Risks Affecting Our Business
Our business is subject to numerous risks and uncertainties that
you should consider before investing in our company. These risks
are described more fully in the section titled “Risk Factors” in
this prospectus. Below are the principal factors that make an
investment in our company speculative or risky:
• |
We will need to raise additional capital to fund our operations in
furtherance of our business plan.
|
• |
We face business disruption and related risks resulting from the
outbreak of COVID-19, which could have a material adverse effect on
our business and results of operations and curtail our ability to
raise financing.
|
• |
We have an evolving business model, which increases the complexity
of our business.
|
• |
We received an order and a subpoena from the Commission in the
investigation now known as “In the Matter of DPW Holdings, Inc.,”
the consequences of which are unknown.
|
• |
If we make any additional acquisitions, they may disrupt or have a
negative impact on our business.
|
• |
Our growth strategy is subject to a significant degree of risk.
|
• |
We are heavily dependent on our senior management, and a loss of a
member of our senior management team could cause our stock price to
suffer.
|
• |
If we fail to anticipate and adequately respond to rapid
technological changes in our industry, including evolving
industry-wide standards, in a timely and cost-effective manner, our
business, financial condition and results of operations would be
materially and adversely affected.
|
• |
We depend upon a few major customers for a majority of our
revenues, and the loss of any of these customers, or the
substantial reduction in the quantity of products that they
purchase from us, would significantly reduce our revenues and net
income.
|
• |
If we do not continue to satisfy the NYSE American continued
listing requirements, our common stock could be delisted from NYSE
American.
|
• |
Our common stock price is
volatile. |
The Offering
We may offer and sell, from time to time, in one or more offerings,
any combination of debt and equity securities that we describe in
this prospectus having a total initial offering price not exceeding
$350,000,000 at prices and on terms to be determined by market
conditions at the time of any offering. This prospectus provides
you with a general description of the securities we may offer. Each
time we offer a type or series of securities under this prospectus,
we will provide a prospectus supplement that will describe the
specific amounts, prices and other important terms of the
securities.
The prospectus supplement also may add, update or change
information contained in this prospectus or in documents we have
incorporated by reference into this prospectus. However, no
prospectus supplement will fundamentally change the terms that are
set forth in this prospectus or offer a security that is not
registered and described in this prospectus at the time of its
effectiveness.
RISK FACTORS
An investment in our securities is speculative and involves a
high degree of risk. Our business, financial condition or results
of operations could be adversely affected by any of these risks.
You should carefully consider the risks described below and those
risks set forth in the reports that we file with the SEC and that
we incorporate by reference into this prospectus, before deciding
to invest in our securities. The risks and uncertainties we have
described are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem
immaterial may also affect our operations. Past financial
performance may not be a reliable indicator of future performance,
and historical trends should not be used to anticipate results or
trends in future periods. If any of these risks actually occurs,
our business, business prospects, financial condition or results of
operations could be seriously harmed. This could cause the trading
price of our shares of common stock to decline, resulting in a loss
of all or part of your investment. Please also read carefully the
section above entitled “Disclosure Regarding Forward-Looking
Statements.”
Risks Related to Our Company
We have historically incurred annual operating and net losses,
which may continue.
We have historically experienced annual operating and net losses.
For the years ended December 31, 2020 and 2019, we had an operating
loss of $6,033,473 and $24,697,918 and net losses of $32,728,629
and $32,913,412, respectively. As of December 31, 2020 and 2019, we
had working capital of $12,466,673 and a working capital deficiency
of $19,150,075, respectively. For the six months ended June 30,
2021, we had operating income of $47,025,000 and a net income of
$44,215,000. As of June 30, 2021, we had working capital of
$127,863,000. There are no assurances that we will be able to
continue to achieve a level of revenues adequate to generate
sufficient cash flow from operations or obtain additional financing
through private placements, public offerings and/or bank financing
necessary to support our working capital requirements. To the
extent that funds generated internally and from any private
placements, public offerings and/or bank financing are
insufficient, we will have to raise additional working capital. No
assurance can be given that additional financing will be available
or, if available, will be on acceptable terms.
If we incur annual losses, we will need to raise additional capital
to continue business development initiatives and to support our
working capital requirements. However, if we are unable to raise
additional capital, we may be required to curtail operations and
take additional measures to reduce costs, including reducing our
workforce, eliminating outside consultants and reducing legal fees
in order to conserve cash in amounts sufficient to sustain
operations and meet our obligations.
We will need to raise additional capital to fund our operations
in furtherance of our business strategy.
Until we are profitable, we will need to raise additional capital
in order to fund our operations in furtherance of our business
strategy. Any proposed financing may include shares of common
stock, shares of preferred stock, warrants to purchase shares of
common stock or preferred stock, debt securities, units consisting
of the foregoing securities, equity investments from strategic
development partners or some combination of each. Any additional
equity financings may be financially dilutive to, and will be
dilutive from an ownership perspective to our stockholders, and
such dilution may be significant based upon the size of such
financing. Additionally, we cannot assure that such funding will be
available on a timely basis, in needed quantities, or on terms
favorable to us, if at all.
We face business disruption and related risks resulting from the
continuing impact of COVID-19, which could have a material adverse
effect on our business and results of operations and curtail our
ability to raise financing.
Our business has been disrupted and materially adversely affected
by the outbreak of COVID-19. As a result of measures imposed by the
governments in affected regions, businesses and schools have been
suspended due to quarantines intended to contain this outbreak and
many people have been forced to work from home in those areas. The
spread of COVID-19 from China to other countries has resulted in
the Director General of the World Health Organization declaring the
outbreak of COVID-19 as a Public Health Emergency of International
Concern, based on the advice of the Emergency Committee under the
International Health Regulations (2005), and the Centers for
Disease Control and Prevention in the U.S. issued a warning on
February 25, 2020 regarding the likely spread of COVID-19 to the
U.S. While COVID-19 persists on a global basis, international stock
markets currently likely reflect the uncertainty associated with
the slow-down in the American, Israeli and UK economies, the
reduced levels of international travel experienced since the
beginning of January 2020 and the impact COVID-19 has had on the
availability of labor, particularly in the case of international
shipping. We continue to assess our business operations and system
supports and the impact COVID-19 may have on our results and
financial condition, but there can be no assurance that this
analysis will enable us to avoid part or all of any impact from the
spread of COVID-19 or its consequences, including downturns in
business sentiment generally or in our sectors in particular.
Our operations are located in Las
Vegas, NV, Orange County, CA, Alameda County, CA, Fairfield County,
CT, the United Kingdom, Israel and members of our senior management
work in Seattle, WA and New York, NY, which is also the location of
the offices of the Company’s independent auditor. We have been following the
recommendations of local health authorities to minimize exposure
risk for its employees for the past several weeks, including the
temporary closures of our offices and having employees work
remotely to the extent possible, which
has to an extent adversely affected their efficiency.
Updates by business unit are as follows:
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• |
Our corporate headquarters are
located in Las Vegas, NV. Most
of our staff in Las Vegas no longer works remotely, but some
employees may do so from time to time on as as-needed basis. The
headquarters staff has tested the secure remote access systems and
technology infrastructure to adjust working arrangements for its
employees and believes it has adequate internal communications
system and can remain operational with a remote staff. |
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• |
Our finance department is located
in Orange County, CA. Most of our staff in Orange County no longer
works remotely, but some employees may do so from time to time on
as as-needed basis or as required by the occupancy and social
distancing order from the Orange County Health Officer
(http://www.ochealthinfo.com/phs/about/epidasmt/epi/dip/prevention/novel_coronavirus).
The finance staff has tested the secure remote access systems and
technology infrastructure to adjust working arrangements for its
employees and believes it has adequate internal communications
system and can remain operational with a remote staff. |
|
• |
TurnOnGreen (formerly Coolisys
Technologies Corp.), located in Milpitas, CA, presently operates at
normal capacity; however, in order to maintain social distancing,
certain employees work remotely. |
|
• |
Microphase operates a production
facility in Connecticut. In March 2020, the Defense Department
designated Microphase an “essential” operation of critical
infrastructure workers as part of the defense industrial base. To
limit the impact of the COVID-19 pandemic, Microphase implemented a
series of protocols to limit access to the facility, heighten
sanitization, facilitate social distancing and require face
coverings. The company asked workers to travel only as necessary
and limit exposure to others. All employees, including management,
that do not have to be in the facility work remotely whenever
possible. Any employees who come in contact or potential contact
with anyone who has tested positive for COVID-19 or who traveled
outside the immediate area went into quarantine and must provide
proof of negative tests before returning to work. Rigorous
adherence to these protocols enabled Microphase to operate without
disruption for 10 months. |
In December 2020, five employees tested positive for COVID-19.
Microphase temporarily shut down the production facility in
Connecticut for a week for deep cleaning and to have all employees
tested for COVID-19. Since the outbreak disproportionately affected
assembly workers, Microphase’s assembly operations remained shut
down for three weeks until all assembly workers had at least 2
negative tests. Operations resumed as workers gradually in late
December and the workforce returned to full strength in mid-January
2021.
The disruption to production operations deferred order completion
and delayed shipments with a significant decrease in revenue from
forecast for December of 2020 and a lingering, but only partial and
less substantial, effect on January 2021 and February 2021 revenue.
Disruption of production added costs from paying employees who
could not work and deferred revenue from delayed shipments.
Microphase continues to follow CDC guidelines for social
distancing, face coverings and heightened sanitizing to keep the
workforce safe and healthy. Microphase has strictly limited access
to its facility and mandated that all employees minimize exposure
to the others. All Microphase employees who can work from home will
do so while COVID-19 levels remain high in the surrounding
communities. However, some workers may still need to work in
proximity to others. Management is working with state and federal
authorities to get all employees vaccinated on a priority basis as
“essential workers” whom the DoD has officially designated as
“critical infrastructure workforce” as part of the “defense
industrial base.” Some employees have already received
vaccinations. Microphase has implemented a COVID-19 policy designed
to protect its employees and minimize the impact on its operations.
Further, microphase requires all employees to be vaccinated or
submit weekly negative tests and limits access to its facilities to
vaccinated people only.
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• |
Gresham Power suspended production
operations in its Salisbury, UK facility from mid-March through
June 2020 before resuming production until a subsequent shutdown in
November 2020. Notwithstanding the current lockdown, production
operations have resumed to complete work on order for products
critically needed for military operations. However, engineers, back
office staff and management have worked from home as much as
possible throughout the pandemic period and continue to do so. The
pandemic has disrupted production at times and delayed contract
actions as well as other customer decision making, which decreased
revenue realized in 2020. Gresham Power has also implemented
a COVID-19 policy. All its employees must provide weekly negative
tests before entering the facility. |
|
• |
Relec, which does not operate any
manufacturing or assembly facilities, has not experienced any
material COVID-19 related disruptions to date and continues normal
operations notwithstanding the lockdown in the United Kingdom. All
employees who can work from home do so. Others who must work at the
Wareham site to move product or access systems continue to do so
under strict safety protocols with face coverings, social
distancing and heightened attention to sanitization. The principal
impact on Relec’s operations has come from deferral of some orders
and modest decrease in revenue year-over-year. We presently expect
business to rebound and resume a steady growth pattern in the third
quarter of 2021, although the pandemic may impact this outlook.
Relec has also implemented a COVID-19 policy. |
|
• |
The Israeli government exempted
Enertec from pandemic-related lockdown orders to keep production
operations open for key projects that impact national security.
Approximately 50% of the Enertec’s workforce is working remotely.
Enertec incurred additional costs for increased sanitizing
costs, personal protective equipment, increased virtual operations,
measures to facilitate social distancing and other precautions to
avoid the spread of COVID-19. The pandemic also affected Enertec’s
customers and supply chain partners, slowing order processing,
materials and parts delivery and service order completion. The
principal impact on Enertec’s business has come from deferral of
customer decisions and order issuance. We presently expect
business to rebound and resume substantial growth in 2021 as orders
increase to address deferred, pent up demand. Enertec has also
implemented a COVID-19 policy. |
Due to the unprecedented market conditions domestically and
internationally, and the effect COVID-19 has had and will continue
to have on our operations and financial performance, the extent of
which is not currently known, we have suspended guidance for 2021.
We will monitor the situation rigorously and provide business
updates as circumstances warrant and resume providing guidance on
our business when management believes that such information would
be both reliable and substantively informative.
The duration and extent of the impact from the COVID-19 pandemic
depends on future developments that cannot be accurately predicted
at this time, such as the severity and transmission rate of the
virus or variants thereof, the extent and effectiveness of
containment actions and the impact of these and other factors on
our employees, customers, partners and vendors. If we are not able
to respond to and manage the impact of such events effectively, our
business will be harmed.
We have an evolving business model, which increases the
complexity of our business.
Our business model has evolved in the past and continues to do so.
In prior years we have added additional types of services and
product offerings and in some cases we have modified or
discontinued those offerings. We intend to continue to try to offer
additional types of products or services, and we do not know
whether any of them will be successful. From time to time we have
also modified aspects of our business model relating to our product
mix. We do not know whether these or any other modifications will
be successful. The additions and modifications to our business have
increased the complexity of our business and placed significant
strain on our management, personnel, operations, systems, technical
performance, financial resources, and internal financial control
and reporting functions. Future additions to or modifications of
our business are likely to have similar effects. Further, any new
business we launch that is not favorably received by the market
could damage our reputation or our brand. The occurrence of any of
the foregoing could have a material adverse effect on our
business.
We are a holding company whose subsidiaries are given a certain
degree of independence and our failure to integrate our
subsidiaries may adversely affect our financial condition.
We have given our subsidiary companies and their executives a
certain degree of independence in decision-making. On the one hand,
this independence may increase the sense of ownership at all
levels, on the other hand it has also increased the difficulty of
the integration of operation and management, which has resulted in
increased difficulty of management integration. In the event we are
not able to successfully manage our subsidiaries this will result
in operating difficulties and have a negative impact on our
business.
We received an order and a subpoena from the SEC in the
investigation now known as “In the Matter of DPW Holdings,
Inc.,” the consequences of which are
unknown.
We received an order and related subpoena from the SEC that stated
that the staff of the SEC is conducting an investigation now known
as “In the Matter of DPW Holdings, Inc.,” and that the
subpoena was issued as part of an investigation as to whether we
and certain of our officers, directors, employees, partners,
subsidiaries and/or affiliates, and/or other persons or entities,
directly or indirectly, violated certain provisions of the
Securities Act and the Exchange Act, in connection with the offer
and sale of our securities. Although the order states that the SEC
may have information relating to such alleged violations, the
subpoena expressly provides that the inquiry is not to be construed
as an indication by the SEC or its staff that any violations of the
federal securities laws have occurred. We have produced documents
in response to the subpoena and certain members of our management
team have testified before the SEC. The SEC may in the future
require us to produce additional documents or information, or seek
testimony from other members of our management team.
We are unaware of the scope or timing of the SEC’s investigation.
As a result, we do not know how the SEC’s investigation is
proceeding or when the investigation will be concluded. We also are
unable to predict what action, if any, might be taken in the future
by the SEC or its staff as a result of the matters that are the
subject to its investigation or what impact, if any, the cost of
continuing to respond to subpoenas might have on our financial
position, results of operations, or cash flows. We have not
established any provision for losses in respect of this matter In
addition, complying with any such future requests by the SEC for
documents or testimony distracts the time and attention of our
officers and directors and diverts our resources away from ongoing
business matters. This investigation has resulted in significant
legal expenses, the diversion of management’s attention from our
business, and could damage our business and reputation. Finally,
results of the investigation could subject us to a wide range of
remedies, including an enforcement action by the SEC. There can be
no assurance that any final resolution of this and any similar
matters will not have a material adverse effect on our financial
condition or results of operations.
Our inability to successfully integrate new acquisitions could
adversely affect our combined business; our operations are widely
dispersed.
Our growth strategy through acquisitions is subject to various
risks. On June 2, 2017, we acquired a majority interest in
Microphase and on May 23, 2018 we acquired Enertec Systems 2001
Ltd. (“Enertec”). Further, on November 30, 2020, Gresham Worldwide
acquired Relec Electronics Ltd. from its shareholders. Our strategy
and business plan are dependent on our ability to successfully
integrate Microphase’s, Enertec’s and our other acquired entities’
operations. In addition, while we are based in Las Vegas, NV, our
finance department is situated in Newport Beach, CA, Microphase’s
operations are located in Shelton, Connecticut, Enertec’s
operations are located in Karmiel, Israel and Gresham Power’s
operations are located in Salisbury, England. These distant
locations and others that we may become involved with in the future
will stretch our resources and management time. Further, failure to
quickly and adequately integrate all of these operations and
personnel could adversely affect our combined business and our
ability to achieve our objectives and strategy. No assurance can be
given that we will realize synergies in the areas we currently
operate.
We are heavily dependent on our senior management, and a loss of
a member of our senior management team could cause our stock price
to suffer.
If we lose the services of Milton C. Ault III, our Executive
Chairman, William B. Horne, our Chief Executive Officer, Henry
Nisser, our President and General Counsel, or Christopher Wu, our
Executive Vice President of Alternative Investments and President
of Ault Alliance, and/or certain key employees, we may not be able
to find appropriate replacements on a timely basis, and our
business could be adversely affected. Our existing operations and
continued future development depend to a significant extent upon
the performance and active participation of these individuals and
certain key employees. Although we have entered into employment
agreements with Messrs. Ault, Horne, Nisser and Wu, and we may
enter into employment agreements with additional key employees in
the future, we cannot guarantee that we will be successful in
retaining the services of these individuals. If we were to lose any
of these individuals, we may not be able to find appropriate
replacements on a timely basis, if at all, and our financial
condition and results of operations could be materially adversely
affected.
We rely on highly skilled personnel and the continuing efforts
of our executive officers and, if we are unable to retain, motivate
or hire qualified personnel, our business may be severely
disrupted.
Our performance largely depends on the talents, knowledge, skills,
know-how and efforts of highly skilled individuals and in
particular, the expertise held by our Executive Chairman, Milton C.
Ault III. His absence, were it to occur, would materially and
adversely impact development and implementation of our projects and
businesses. Our future success depends on our continuing ability to
identify, hire, develop, motivate and retain highly skilled
personnel for all areas of our organization. Our continued ability
to compete effectively depends on our ability to attract, among
others, new technology developers and to retain and motivate our
existing contractors. If one or more of our executive officers are
unable or unwilling to continue in their present positions, we may
not be able to replace them readily, if at all. Therefore, our
business may be severely disrupted, and we may incur additional
expenses to recruit and retain new officers. In addition, if any of
our executives joins a competitor or forms a competing company, we
may lose some customers.
We may be classified as an inadvertent investment
company.
We are not engaged in the business of investing, reinvesting, or
trading in securities, and we do not hold ourselves out as being
engaged in those activities. Under the Investment Company Act,
however, a company may be deemed an investment company under
section 3(a)(1)(C) of the Investment Company Act if the value of
its investment securities is more than 40% of its total assets
(exclusive of government securities and cash items) on a
consolidated basis.
Our lending subsidiary, Digital Power Lending, LLC (“DP Lending”),
operates under California Finance Lending License #60DBO-77905. Per
the Investment Company Act of 1940 companies with substantially all
their business confined to making small loans, industrial banking
or similar business, such as DP Lending, are excluded from the
definition of an investment company.
We have commenced digital asset mining, the output of which is
cryptocurrencies, which the SEC has indicated it deems a security.
In the event that the digital assets held by us exceed 40% of our
total assets, exclusive of cash, we inadvertently become an
investment company. An inadvertent investment company can avoid
being classified as an investment company if it can rely on one of
the exclusions under the Investment Company Act. One such
exclusion, Rule 3a-2 under the Investment Company Act, allows an
inadvertent investment company a grace period of one year from the
earlier of (a) the date on which an issuer owns securities and/or
cash having a value exceeding 50% of the issuer’s total assets on
either a consolidated or unconsolidated basis and (b) the date on
which an issuer owns or proposes to acquire investment securities
having a value exceeding 40% of the value of such issuer’s total
assets (exclusive of government securities and cash items) on an
unconsolidated basis. We are putting in place policies that we
expect will work to keep the investment securities held by us at
less than 40% of our total assets, which may include acquiring
assets with our cash, liquidating our investment securities or
seeking a no-action letter from the SEC if we are unable to acquire
sufficient assets or liquidate sufficient investment securities in
a timely manner.
As Rule 3a-2 is available to a company no more than once every
three years, and assuming no other exclusion were available to us,
we would have to keep within the 40% limit for at least three years
after we cease being an inadvertent investment company. This may
limit our ability to make certain investments or enter into joint
ventures that could otherwise have a positive impact on our
earnings. In any event, we do not intend to become an investment
company engaged in the business of investing and trading
securities.
Classification as an investment company under the Investment
Company Act requires registration with the SEC. If an investment
company fails to register, it would have to stop doing almost all
business, and its contracts would become voidable. Registration is
time consuming and restrictive and would require a restructuring of
our operations, and we would be very constrained in the kind of
business we could do as a registered investment company. Further,
we would become subject to substantial regulation concerning
management, operations, transactions with affiliated persons and
portfolio composition, and would need to file reports under the
Investment Company Act regime. The cost of such compliance would
result in our incurring substantial additional expenses, and the
failure to register if required would have a materially adverse
impact to conduct our operations.
We will not be able to successfully execute our business
strategy if we are deemed to be an investment company under the
Investment Company Act.
U.S. companies that have more than 100 stockholders or are publicly
traded in the U.S. and are, or hold themselves out as being,
engaged primarily in the business of investing, reinvesting or
trading in securities are subject to regulation under the
Investment Company Act. Unless a substantial part of our
assets consists of, and a substantial part of our income is derived
from, interests in majority-owned subsidiaries and companies that
we primarily control, we may be required to register and become
subject to regulation under the Investment Company Act. If we
were deemed to own but not operate one or more of our other
subsidiaries, we would have difficulty avoiding classification and
regulation as an investment company.
If we were deemed to be, and were required to register as, an
investment company, we would be forced to comply with substantive
requirements under the Investment Company Act, including
limitations on our ability to borrow, limitations on our capital
structure; restrictions on acquisitions of interests in associated
companies, prohibitions on transactions with affiliates,
restrictions on specific investments, and compliance with
reporting, record keeping, voting, proxy disclosure and other rules
and regulations. If we were forced to comply with the rules
and regulations of the Investment Company Act, our operations would
significantly change, and we would be prevented from successfully
executing our business strategy. To avoid regulation under
the Investment Company Act and related rules promulgated by the
SEC, we could need to sell bitcoin and other assets which we would
otherwise want to retain and could be unable to sell assets which
we would otherwise want to sell. In addition, we could be
forced to acquire additional, or retain existing, income-generating
or loss-generating assets which we would not otherwise have
acquired or retained and could need to forgo opportunities to
acquire bitcoin and other assets that would benefit our
business. If we were forced to sell, buy or retain assets in
this manner, we could be prevented from successfully executing our
business strategy.
Securitization of our assets subjects us to various
risks.
We may securitize assets to generate cash for funding new
investments. We refer to the term securitize to describe a form of
leverage under which a company (sometimes referred to as an
“originator” or “sponsor”) transfers income producing assets to a
single-purpose, bankruptcy-remote subsidiary (also referred to as a
“special purpose entity” or “SPE”), which is established solely for
the purpose of holding such assets and entering into a structured
finance transaction. The SPE would then issue notes secured by such
assets. The special purpose entity may issue the notes in the
capital markets either publicly or privately to a variety of
investors, including banks, non-bank financial institutions and
other investors. There may be a single class of notes or multiple
classes of notes, the most senior of which carries less credit risk
and the most junior of which may carry substantially the same
credit risk as the equity of the SPE.
An important aspect of most debt securitization transactions is
that the sale and/or contribution of assets into the SPE be
considered a true sale and/or contribution for accounting purposes
and that a reviewing court would not consolidate the SPE with the
operations of the originator in the event of the originator's
bankruptcy based on equitable principles. Viewed as a whole, a debt
securitization seeks to lower risk to the note purchasers by
isolating the assets collateralizing the securitization in an SPE
that is not subject to the credit and bankruptcy risks of the
originator. As a result of this perceived reduction of risk, debt
securitization transactions frequently achieve lower overall
leverage costs for originators as compared to traditional secured
lending transactions.
In accordance with the above description, to securitize loans, we
may create a wholly owned subsidiary and contribute a pool of our
assets to such subsidiary. The SPE may be funded with, among other
things, whole loans or interests from other pools and such loans
may or may not be rated. The SPE would then sell its notes to
purchasers whom we would expect to be willing to accept a lower
interest rate and the absence of any recourse against us to invest
in a pool of income producing assets to which none of our creditors
would have access. We would retain all or a portion of the equity
in the SPE. An inability to successfully securitize portions of our
portfolio or otherwise leverage our portfolio through secured and
unsecured borrowings could limit our ability to grow our business
and fully execute our business strategy, and could decrease our
earnings, if any. However, the successful securitization of
portions of our portfolio exposes us to a risk of loss for the
equity we retain in the SPE and might expose us to greater risk on
our remaining portfolio because the assets we retain may tend to be
those that are riskier and more likely to generate losses. A
successful securitization may also impose financial and operating
covenants that restrict our business activities and may include
limitations that could hinder our ability to finance additional
loans and investments. The Investment Company Act may also impose
restrictions on the structure of any securitizations.
Interests we hold in the SPE, if any, will be subordinated to the
other interests issued by the SPE. As such, we will only receive
cash distributions on such interests if the SPE has made all cash
interest and other required payments on all other interests it has
issued. In addition, our subordinated interests will likely be
unsecured and rank behind all of the secured creditors, known or
unknown, of the SPE, including the holders of the senior interests
it has issued. Consequently, to the extent that the value of the
SPE's portfolio of assets has been reduced as a result of
conditions in the credit markets, or as a result of defaults, the
value of the subordinated interests we retain would be reduced.
Securitization imposes on us the same risks as borrowing except
that our risk in a securitization is limited to the amount of
subordinated interests we retain, whereas in a borrowing or debt
issuance by us directly we would be at risk for the entire amount
of the borrowing or debt issuance.
We may also engage in transactions utilizing SPEs and
securitization techniques where the assets sold or contributed to
the SPE remain on our balance sheet for accounting purposes. If,
for example, we sell the assets to the SPE with recourse or provide
a guarantee or other credit support to the SPE, its assets will
remain on our balance sheet. Consolidation would also generally
result if we, in consultation with the SEC, determine that
consolidation would result in a more accurate reflection of our
assets, liabilities and results of operations. In these structures,
the risks will be essentially the same as in other securitization
transactions but the assets will remain our assets for purposes of
the limitations described above on investing in assets that are not
qualifying assets and the leverage incurred by the SPE will be
treated as borrowings incurred by us for purposes of our limitation
on the issuance of senior securities.
We may not be able to utilize our net operating loss carry
forwards.
At December 31, 2020, we had Federal net operating loss carry
forwards (“NOLs”) for income tax purposes of approximately
$18,568,667 after taking into consideration of the §382 limitation.
The Coronavirus Aid, Relief, and Economic Security Act signed in to
law on March 27, 2020 provided that NOLs generated in a taxable
year beginning in 2018, 2019, or 2020, may now be carried back five
years and forward indefinitely. In addition, the 80% taxable income
limitation is temporarily removed, allowing NOLs to fully offset
net taxable income. However, we do not know if or when we will have
any earnings and capital gains against which we could apply these
carry forwards. Furthermore, as a result of changes in the
ownership of our common stock, our ability to use our federal NOLs
will be limited under Internal Revenue Code Section 382. State NOLs
are subject to similar limitations in many cases. As a result, our
substantial NOLs may not have any value to us.
Risks Related to Related Party Transactions
There may be conflicts of interest between our company and certain
of our related parties and their respective directors and officers
which might not be resolved in our favor. More importantly, there
may be conflicts between certain of our related parties and their
respective directors and officers which might not be resolved in
our favor. These risks are set forth below appurtenant to the
relevant related party.
Ault & Company
Our relationship with Ault & Company may enhance the
difficulty inherent in obtaining financing for us as well as expose
us to certain conflicts of interest.
As of the date of this prospectus, Ault & Company, of which
Milton C. Ault is the Chief Executive Officer, beneficially owned
5,316,882 shares of common stock, consisting of (i) 1,658,916
shares of common stock, (ii) 94 shares of common stock underlying
currently exercisable warrants, (iii) 1,000,000 shares of common
stock purchasable pursuant to a Securities Purchase Agreement
entered into on June 11, 2021 with us, (iv) 2,650,000 shares of
common stock held by Ault Alpha, a recently formed hedge fund that
is affiliated with us, (v) 3,408 shares of common stock held by
Philou Ventures, (vi) 2,232 shares of common stock underlying
currently exercisable warrants held by Philou Ventures, and (vii)
2,232 shares of common stock issuable upon the conversion of
125,000 shares of Series B Preferred Stock held by Philou
Ventures.
Given the close relationship between Ault & Company on the one
hand, and our company on the other, it is far from inconceivable
that we could enter into additional securities purchase agreements
with Ault & Company.
Although we have relied on Philou, which no longer beneficially
owns any meaningful number of our shares of common stock, to
finance us in the past, we cannot assure you that either Philou or
Ault & Company will assist us in the future. However, Messrs.
Ault, Horne and Nisser could face a conflict of interest in that
they serve on the board of directors of each of Ault & Company
and our company. If they determine that an investment in our
company is not in Ault & Company’s best interest, we could be
forced to seek financing from other sources that would not
necessarily be likely to provide us with equally favorable
terms.
Other conflicts of interest between us, on the one hand, and Ault
& Company, on the other hand, may arise relating to commercial
or strategic opportunities or initiatives. Mr. Ault, as the
controlling shareholder of Ault & Company, may not resolve such
conflicts in our favor. For example, we cannot assure you that Ault
& Company would not pursue opportunities to provide financing
to other entities whether or not it currently has a relationship
with such other entities. Furthermore, our ability to explore
alternative sources of financing other than Ault & Company may
be constrained due to Mr. Ault’s vision for us and he may not wish
for us to receive any financing at all other than from entities
that he controls.
Alzamend Neuro, Inc.
Our relationship with Alzamend may expose us to certain
conflicts of interest.
In August 2020, Alzamend entered into a securities purchase
agreement with our company to sell a convertible promissory note of
Alzamend, in the aggregate principal amount of $50,000 and issue a
5-year warrant to purchase 16,667 of shares of its common stock.
The convertible promissory note bears interest at 8% per annum,
which principal and all accrued and unpaid interest are due six
months after the date of issuance. The principal and interest
earned on the convertible promissory note may be converted into
shares of the Alzamend’s common stock at $1.50 per share. The
exercise price of the warrant is $3.00 per share.
In December 2020, we provided Alzamend $1,000,000 in short-term
advances.
In March 2021, Alzamend entered into a securities purchase
agreement with DP Lending, one of our wholly owned subsidiaries,
pursuant to which Alzamend agreed to sell DP Lending an aggregate
of 6,666,667 shares of Alzamend common stock for an aggregate of
$10 million, or $1.50 per share, which the purchase agreement
stated will be made in tranches. On March 9, 2021, DP Lending paid
$4 million, less the $1.8 million in advances and the surrender for
cancellation of a $50,000 convertible promissory note held by us,
for an aggregate of 2,666,667 shares of Alzamend common stock.
Under the terms of the purchase agreement, DP Lending purchased an
additional (i) 1,333,333 shares of Alzamend common stock upon
approval of its IND for Phase Ia clinical trials for a purchase
price of $2 million, and (ii) will purchase 2,666,667 shares of
Alzamend Neuro common stock upon the completion of these Phase Ia
clinical trials for a purchase price of $4 million. Alzamend
further agreed to issue to DP Lending warrants to purchase a number
of shares of Alzamend Neuro common stock equal to 50% of the shares
of Alzamend common stock purchased under the purchase agreement at
an exercise price of $3.00 per share. Finally, Alzamend agreed that
for a period of 18 months following the date of the payment of the
final tranche of $4 million, DP Lending will have the right, but
not the obligation, to invest an additional $10 million on the same
terms, except that no specific milestones have been determined with
respect to the additional $10 million as of the date of this
prospectus.
Alzamend conducted an IPO on June 15, 2021, in which DP Lending
purchased 2,000,000 of the IPO shares.
Messrs. Horne and Nisser could face a conflict of interest in that
they serve on the board of directors of each of Alzamend Neuro and
our company. In connection with Alzamend’s IPO, Mr. Ault resigned
as one of its directors but remains involved with Alzamend on a
limited basis as he presently serves as one of its consultants.
Avalanche International Corp.
We have lent a substantial amount of funds to Avalanche, a
related party, whose ability to repay us is subject to significant
doubt and it may not be in our stockholders’ best interest to
convert the notes into shares of Avalanche common stock even if we
had a reasonably viable means of doing so.
On September 6, 2017, we entered into a Loan and Security Agreement
with Avalanche (as amended, the “AVLP Loan Agreement”) with an
effective date of August 21, 2017 pursuant to which we will provide
Avalanche a non-revolving credit facility. The AVLP Loan Agreement
was recently increased to up to $20 million and extended to
December 31, 2023. Avalanche currently owes us approximately $16
million under the note issued to us under the credit facility (the
“New Note”).
At December 31, 2020, we had provided Avalanche with $11,269,136
pursuant to the AVLP Loan Agreement. The warrants issued in
conjunction with the non-revolving credit facility entitles us to
purchase up to 22,538,272 shares of Avalanche common stock at an
exercise price of $0.50 per share for a period of five years. The
exercise price of $0.50 is subject to adjustment for customary
stock splits, stock dividends, combinations or similar events. The
warrants may be exercised for cash or on a cashless basis.
While Avalanche received funds from a third party in the amount of
$2,750,000 in early April of 2019 in consideration for its issuance
of a convertible promissory note to such third party (the “Third
Party Note”), $2,676,220 was used to pay an outstanding receivable
due us and no amount was used to repay the debt Avalanche owes us
pursuant to the AVLP Loan Agreement.
On October 12, 2021, Ault Alpha paid the debt to the holder of the
Third Party Note, including accrued but unpaid interest, and (i)
received a term note from Avalanche in the principal amount of
$3,600,000 with a maturity date of January 8, 2022 (the “AA Note”),
and (ii) acquired a warrant previously issued by Avalanche to this
holder, entitling Ault Alpha to purchase 1,617,647 shares of
Avalanche common stock at an exercise price of $0.85 per share.
There is doubt as to whether Avalanche will be able to repay the AA
Note on a timely basis, if at all, unless it generates significant
net income from its operations or receives additional financing
from another source; even then, unless such financing consists
solely of the issuance by Avalanche of its equity securities, it
will only add to the amount that Avalanche owes to Ault Alpha, an
affiliate of our company. Ault Alpha anticipates that it will
negotiate the exchange of the AA Note for a convertible note that
would have a longer term than the AA Note. It should be noted that
the members of our Executive Committee are all involved with Ault
Alpha.
There is currently no market for the Avalanche common stock.
Consequently, even if we were inclined to convert the debt owed us
by Avalanche into shares of its common stock, our ability to sell
such shares would be limited to private transactions. Avalanche is
not current in its filings with the Commission and is not required
to register the shares of its common stock underlying the New Note
or any other loan arrangement we or Ault Alpha have made with
Avalanche described above.
As a result, there is some doubt as to whether Avalanche will ever
have the ability to repay its debt to us or Ault Alpha, or if we
convert the debt owed us by Avalanche into shares of its common
stock, our ability to convert such shares into cash through the
sale of such shares would be severely limited until such time, if
ever, a liquid market for Avalanche’s common stock develops. If we
are unable to recoup our investment in Avalanche in the foreseeable
future or at all, such failure would have a materially adverse
effect on our financial condition and future prospects.
Originally, the loans we made to Avalanche were secured by a
lien on all of Avalanche’s assets. Presently, we only have a second
priority interest, which may revert to a third priority
interest.
Originally, the loans we made to Avalanche were secured by a lien
on all of Avalanche’s assets. When Avalanche entered into the
Exchange Agreement with MTIX, as has been previously disclosed, the
former owners of MTIX were granted a first priority interest in all
of MTIX’s assets, which constitute virtually all of Avalanche’s
assets and reduced our interest to that of a second position,
greatly diminishing its value. When Avalanche issued the Third
Party Note referred to above, it granted the third party a first
priority security interest in all its assets, to include those
comprised of MTIX. Both we and the former owners of MTIX consented
to the subordination of our respective security interests. Given
that, as described above, Ault Alpha paid off the Third Party Note,
our position has returned to a second priority interest. Ault Alpha
has not yet determined whether it will require that Avalanche
provide it a first priority interest, and thereby require both the
former owners of MTIX and us to subordinate our security interest
to Ault Alpha’s.
Since our security interests have been reduced to a second, which
could become a third, position, we will have no ability to use
Avalanche’s assets to offset any default in Avalanche’s debt
obligations to us unless and until the one, or possibly two, other
security interests are terminated, which would not occur until
Avalanche’s debts to the senior creditors have been repaid. We do
not anticipate that Avalanche will repay its debts to these
creditors within the foreseeable future and will therefore have no
recourse should Avalanche default on its debts to us during this
period of time. Any failure by Avalanche to repay us would
therefore have a materially adverse effect on our results of
operations, financial condition and future prospects.
Milton C. Ault, III and William Horne, our Executive Chairman
and Chief Executive Officer, respectively, and two of our directors
are directors of Avalanche. In addition, Philou is the controlling
stockholder of Avalanche.
Milton C. Ault, III and William Horne, our Executive Chairman and
Chief Executive Officer, respectively, and two of our directors are
directors of Avalanche. In addition, Philou is the controlling
stockholder of Avalanche through its ownership of super-voting
preferred stock. Certain conflicts of interest between us, on the
one hand, and Avalanche, on the other hand, may arise relating to
commercial or strategic opportunities or initiatives, in addition
to the conflicts related to the debt that Avalanche owes us. For
example, Messrs. Ault and Horne may find it difficult to determine
how to meet their fiduciary duties to us as well as Avalanche,
which could result in a less favorable result for us than would be
the case if they were solely directors of our company. Further,
even if Messrs. Ault and Horne were able to successfully meet their
fiduciary obligations to us and Avalanche, the fact that they are
members of the board of directors of both companies could attenuate
their ability to focus on our business and best interests, possibly
to the detriment of both companies. Mr. Ault’s control of Philou
through Ault & Company only enhances the risk inherent in
having Messrs. Ault and Horne serve as directors of both our
company and Avalanche.
Risks Related to Our Business and Industry -
Overview
Technology changes rapidly in our business, and if we fail to
anticipate new technologies, the quality, timeliness and
competitiveness of our products will suffer.
Rapid technology changes in our industry require us to anticipate,
sometimes years in advance, which technologies and/or distribution
platforms our products must take advantage of in order to make them
competitive in the market at the time they are released. Therefore,
we usually start our product development with a range of technical
development goals that we hope to be able to achieve. We may not be
able to achieve these goals, or our competition may be able to
achieve them more quickly than we can. In either case, our products
may be technologically inferior to competitive products, or less
appealing to consumers, or both. If we cannot achieve our
technology goals within the original development schedule of our
products, then we may delay products until these technology goals
can be achieved, which may delay or reduce revenue and increase our
development expenses. Alternatively, we may increase the resources
employed in research and development in an attempt to accelerate
our development of new technologies, either to preserve our product
launch schedule or to keep up with our competition, which would
increase our development expenses and adversely affect our
operations and financial condition.
We are dependent upon our ability, and our contract
manufacturers’ ability, to timely procure electronic
components.
Because of the global economy, many raw material vendors have
reduced capacities, closed production lines and, in some cases,
even discontinued their operations. As a result, there is a global
shortage of certain electronic or mineral components, which may
extend our production lead-time and our production costs. Some
materials are no longer available to support some of our products,
thereby requiring us to search for cross materials or, even worse,
redesign some of our products to support currently-available
materials. Such redesign efforts may require certain regulatory and
safety agency re-submittals, which may cause further production
delays. While we have initiated actions that we believe will limit
our exposure to such problems, the dynamic business conditions in
many of our markets may challenge the solutions that have been put
in place, and issues may recur in the future.
In addition, some of our products are manufactured, assembled and
tested by third party subcontractors and contract manufacturers
located in Asia. While we have had relationships with many of these
third parties in the past, we cannot predict how or whether these
relationships will continue in the future. In addition, changes in
management, financial viability, manufacturing demand or capacity,
or other factors, at these third parties could hurt our ability to
manufacture our products.
Our strategic focus on our custom power supply solution
competencies and concurrent cost reduction plans may be ineffective
or may limit our ability to compete.
As a result of our strategic focus on custom power supply
solutions, we will continue to devote significant resources to
developing and manufacturing custom power supply solutions for a
large number of customers, where each product represents a uniquely
tailored solution for a specific customer’s requirements. Failure
to meet these customer product requirements or a failure to meet
production schedules and/or product quality standards may put us at
risk with one or more of these customers. Moreover, changes in
market conditions and strategic changes at the direction of our
customers may affect their decision to continue to purchase from
us. The loss of one or more of our significant custom power supply
solution customers could have a material adverse impact on our
revenues, business or financial condition.
We have also implemented a series of initiatives designed to
increase efficiency and reduce costs. While we believe that these
actions will reduce costs, they may not be sufficient to achieve
the required operational efficiencies that will enable us to
respond more quickly to changes in the market or result in the
improvements in our business that we anticipate. In such event, we
may be forced to take additional cost-reducing initiatives,
including those involving our personnel, which may negatively
impact quarterly earnings and profitability as we account for
severance and other related costs. In addition, there is the risk
that such measures could have long-term adverse effects on our
business by reducing our pool of talent, decreasing or slowing
improvements in our products or services, making it more difficult
for us to respond to customers, limiting our ability to increase
production quickly if and when the demand for our solutions
increases and limiting our ability to hire and retain key
personnel. These circumstances could cause our earnings to be lower
than they otherwise might be.
We depend upon a few major
customers for a majority of our revenues, and the loss of any of
these customers, or the substantial reduction in the quantity of
products that they purchase from us, would significantly reduce our
revenues and net income.
We currently depend upon a few major OEMs and other customers for a
significant portion of our revenues. If our major OEM customers
will reduce or cancel their orders scaling back some of their
activities, our revenues and net income would be significantly
reduced. Furthermore, diversions in the capital spending of certain
of these customers to new network elements have and could continue
to lead to their reduced demand for our products, which could, in
turn, have a material adverse effect on our business and results of
operations. If the financial condition of one or more of our major
customers should deteriorate, or if they have difficulty acquiring
investment capital due to any of these or other factors, a
substantial decrease in our revenues would likely result. We are
dependent on the electronic equipment industry, and accordingly
will be affected by the impact on that industry of current economic
conditions.
Substantially all of our existing customers are in the electronic
equipment industry, and they manufacture products that are subject
to rapid technological change, obsolescence, and large fluctuations
in demand. This industry is further characterized by intense
competition and volatility. The OEMs serving this industry are
pressured for increased product performance and lower product
prices. OEMs, in turn, make similar demands on their suppliers,
such as us, for increased product performance and lower prices.
Such demands may adversely affect our ability to successfully
compete in certain markets or our ability to sustain our gross
margins.
Our reliance on subcontract manufacturers to manufacture certain
aspects of our products involves risks, including delays in product
shipments and reduced control over product quality.
Since we do not own significant manufacturing facilities, we must
rely on, and will continue to rely on, a limited number of
subcontract manufacturers to manufacture our power supply products.
Our reliance upon such subcontract manufacturers involves several
risks, including reduced control over manufacturing costs, delivery
times, reliability and quality of components, unfavorable currency
exchange fluctuations, and continued inflationary pressures on many
of the raw materials used in the manufacturing of our power supply
products. If we were to encounter a shortage of key manufacturing
components from limited sources of supply, or experience
manufacturing delays caused by reduced manufacturing capacity,
inability of our subcontract manufacturers to procure raw
materials, the loss of key assembly subcontractors, difficulties
associated with the transition to our new subcontract manufacturers
or other factors, we could experience lost revenues, increased
costs, and delays in, or cancellations or rescheduling of, orders
or shipments, any of which would materially harm our business.
We outsource, and are dependent upon developer partners for, the
development of some of our custom design products.
We made an operational decision to outsource some of our custom
design products to numerous developer partners. This business
structure will remain in place until the custom design volume
justifies expanding our in house capabilities. Incomplete product
designs that do not fully comply with the customer specifications
and requirements might affect our ability to transition to a volume
production stage of the custom designed product where the revenue
goals are dependent on the high volume of custom product
production. Furthermore, we rely on the design partners’ ability to
provide high quality prototypes of the designed product for our
customer approval as a critical stage to approve production.
We face intense industry competition, price erosion and product
obsolescence, which, in turn, could reduce our
profitability.
We operate in an industry that is generally characterized by
intense competition. We believe that the principal bases of
competition in our markets are breadth of product line, quality of
products, stability, reliability and reputation of the provider,
along with cost. Quantity discounts, price erosion, and rapid
product obsolescence due to technological improvements are
therefore common in our industry as competitors strive to retain or
expand market share. Product obsolescence can lead to increases in
unsaleable inventory that may need to be written off and,
therefore, could reduce our profitability. Similarly, price erosion
can reduce our profitability by decreasing our revenues and our
gross margins. In fact, we have seen price erosion over the last
several years on most of the products we sell, and we expect
additional price erosion in the future.
Our future results are dependent on our ability to establish,
maintain and expand our manufacturers’ representative OEM
relationships and our other relationships.
We market and sell our products through domestic and international
OEM relationships and other distribution channels, such as
manufacturers’ representatives and distributors. Our future results
are dependent on our ability to establish, maintain and expand our
relationships with OEMs as well as with manufacturers’
representatives and distributors to sell our products. If, however,
the third parties with whom we have entered into such OEM and other
arrangements should fail to meet their contractual obligations,
cease doing, or reduce the amount of their, business with us or
otherwise fail to meet their own performance objectives, customer
demand for our products could be adversely affected, which would
have an adverse effect on our revenues.
We may not be able to procure necessary key components for our
products, or we may purchase too much inventory or the wrong
inventory.
The power supply industry, and the electronics industry as a whole,
can be subject to business cycles. During periods of growth and
high demand for our products, we may not have adequate supplies of
inventory on hand to satisfy our customers' needs. Furthermore,
during these periods of growth, our suppliers may also experience
high demand and, therefore, may not have adequate levels of the
components and other materials that we require to build products so
that we can meet our customers' needs. Our inability to secure
sufficient components to build products for our customers could
negatively impact our sales and operating results. We may choose to
mitigate this risk by increasing the levels of inventory for
certain key components. Increased inventory levels can increase the
potential risk for excess and obsolescence should our forecasts
fail to materialize or if there are negative factors impacting our
customers’ end markets. If we purchase too much inventory or the
wrong inventory, we may have to record additional inventory
reserves or write-off the inventory, which could have a material
adverse effect on our gross margins and on our results of
operations.
Although we depend on sales of our legacy products for a
meaningful portion of our revenues, these products are mature and
their sales will decline.
A relatively large portion of our sales have historically been
attributable to our legacy products. We expect that these products
may continue to account for a meaningful percentage of our revenues
for the foreseeable future. However, these sales are declining.
Although we are unable to predict future prices for our legacy
products, we expect that prices for these products will continue to
be subject to significant downward pressure in certain markets for
the reasons described above. Accordingly, our ability to maintain
or increase revenues will be dependent on our ability to expand our
customer base, to increase unit sales volumes of these products and
to successfully, develop, introduce and sell new products such as
custom design and value-added products. We cannot assure you that
we will be able to expand our customer base, increase unit sales
volumes of existing products or develop, introduce and/or sell new
products.
We are subject to certain governmental regulatory restrictions
relating to our international sales.
Some of our products are subject to International Traffic in Arms
Regulation (“ITAR”), which are interpreted, enforced and
administered by the U.S. Department of State. ITAR regulation
controls not only the export, import and trade of certain products
specifically designed, modified, configured or adapted for military
systems, but also the export of related technical data and defense
services as well as foreign production. Any delays in obtaining the
required export, import or trade licenses for products subject to
ITAR regulation and rules could have a material adverse effect on
our business, financial condition, and/or operating results. In
addition, changes in United States export and import laws that
require us to obtain additional export and import licenses or
delays in obtaining export or import licenses currently being
sought could cause significant shipment delays and, if such delays
are too great, could result in the cancellation of orders. Any
future restrictions or charges imposed by the United States or any
other country on our international sales or foreign subsidiary
could have a materially adverse effect on our business, financial
condition, and/or operating results. In addition, from time to
time, we have entered into contracts with the Israeli Ministry of
Defense which were governed by the U.S. Foreign Military Financing
program (“FMF”). Any such future sales would be subject to these
regulations. Failure to comply with ITAR or FMF rules could have a
material adverse effect on our financial condition, and/or
operating results.
We depend on international operations for a substantial majority
of our components and products.
We purchase a substantial majority of our components from foreign
manufacturers and have a substantial majority of our commercial
products assembled, packaged, and tested by subcontractors located
outside the United States. These activities are subject to the
uncertainties associated with international business operations,
including trade barriers and other restrictions, changes in trade
policies, governmental regulations, currency exchange fluctuations,
reduced protection for intellectual property, war and other
military activities, terrorism, changes in social, political, or
economic conditions, and other disruptions or delays in production
or shipments, any of which could have a materially adverse effect
on our business, financial condition, and/or operating results.
We depend on international sales for a portion of our
revenues.
Sales to customers outside of North America accounted for 52% and
56.9% of net revenues for the years ended December 31, 2020 and
2019, and we expect that international sales will continue to
represent a material portion of our total revenues. International
sales are subject to the risks of international business operations
as described above, as well as generally longer payment cycles,
greater difficulty collecting accounts receivable, and currency
restrictions. In addition, Gresham Power, our wholly-owned
subsidiary in the United Kingdom, supports our European and other
international customers, distributors, and sales representatives,
and therefore is also subject to local regulation. International
sales are also subject to the export laws and regulations of the
United States and other countries.
If we are unable to satisfy our customers’ specific product
quality, certification or network requirements, our business could
be disrupted and our financial condition could be harmed.
Our customers demand that our products meet stringent quality,
performance and reliability standards. We have, from time to time,
experienced problems in satisfying such standards. Defects or
failures have occurred in the past, and may in the future occur,
relating to our product quality, performance and reliability. From
time to time, our customers also require us to implement specific
changes to our products to allow these products to operate within
their specific network configurations. If we are unable to remedy
these failures or defects or if we cannot effect such required
product modifications, we could experience lost revenues, increased
costs, including inventory write-offs, warranty expense and costs
associated with customer support, delays in, or cancellations or
rescheduling of, orders or shipments and product returns or
discounts, any of which would harm our business.
Some of our business is
subject to U.S. government procurement laws and
regulations.
We must comply with certain
laws and regulations relating to the formation, administration and
performance of federal government contracts. These laws and
regulations affect how we conduct business with our federal
government contracts, including the business that we do as a
subcontractor. In complying with these laws and regulations, we may
incur additional costs, and non-compliance may lead to the
assessment of fines and penalties, including contractual damages,
or the loss of business.
Risks Related to Our Business and Industry -
Microphase
Microphase has a history of losses and our future profitability
on a quarterly or annual basis is uncertain, which could have a
harmful effect on our business and the value of our
company.
While Microphase was marginally profitable during the past fiscal
year, during the previous three fiscal years Microphase incurred
losses from operations. These losses are attributable to lower
volumes of its products sold to major defense contractors partially
as a result of the overall reduction in defense spending and
sequestration by the U.S. Congress. Since the financial crisis of
2008, Microphase has been significantly short of capital needed to
acquire parts for production of its products to complete orders for
such products. At times, Microphase has not had the cash available
to make advance payments for the purchase of parts, and then, as a
consequence, Microphase would not receive the parts from its
vendors required to finish a customer order. This would then delay
the delivery of products to customers, and would also delay
recognition of the resulting revenues and the receipt of cash from
the customer. Sometimes after experiencing a delay in delivery of
an order from Microphase, the customer would not place its next
order with Microphase, resulting in a loss of business. There can
be no assurance that Microphase will not operate at a loss during
the current or future discal years.
Microphase’s future profitability depends upon many factors,
including several that are beyond its control. These factors
include, without limitation:
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changes in the demand for ITS
products and services; |
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loss of key customers or
contracts; |
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the introduction of competitive
products; |
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the failure to gain market
acceptance of ITS new and existing products; and |
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the failure to successfully and
cost effectively develop, introduce and market new products,
services and product enhancements in a timely manner. |
In addition, Microphase is incurring significant legal, accounting,
and other expenses related to being a reporting company without
there being a trading market for any of its securities. As a result
of these expenditures, Microphase will have to generate and sustain
increased revenue to achieve and maintain future profitability.
A large percentage of Microphase’s current revenue is derived
from prime defense contractors to the U.S. government and its
allies, and the loss of these relationships, a reduction in U.S.
government funding or a change in U.S. government spending
priorities or bidding processes could have an adverse impact on its
business, financial condition, results of operations and cash
flows.
Microphase is highly dependent on sales to major defense
contractors of the U.S. military and its allies, including Lockheed
Martin, Raytheon, BAE Systems and SAAB. The percentages of its
revenue that were derived from sales to these named major defense
contractors and directly to the U.S. Government were 50.7% in
fiscal 2020 and 51.5% in fiscal 2019. Therefore, any significant
disruption or deterioration of Microphase’s relationship with any
such major defense contractors or the U.S. Government could
materially reduce its revenue. During the year ended December 31,
2020 there were five customers that accounted for more than 10% of
Microphase’s sales: BAE Systems, Boeing/Argonist, Inc., DFAS
Columbus Center, Raytheon Company and Sierra Nevada Corporation.
During the year ended December 31, 2019 there were two customers
that accounted for more than 10% of Microphase’s sales: BAE Systems
and DFAS Columbus Center. Microphase’s competitors continuously
engage in efforts to expand their business relationships with the
same major defense contractors and the U.S. Government and will
continue these efforts in the future, and the U.S. Government may
choose to use other contractors. Microphase expects that a majority
of the business that it seeks will be awarded through competitive
bidding. Microphase operates in highly competitive markets and its
competitors have more extensive or more specialized engineering,
manufacturing and marketing capabilities than Microphase does in
many areas, and Microphase may not be able to continue to win
competitively awarded contracts or to obtain task orders under
multi-award contracts. Further, the competitive bidding process
involves significant cost and managerial time to prepare bids and
proposals for contracts that may not be awarded to Microphase, as
well as the risk that Microphase may fail to accurately estimate
the resources and costs required to fulfill any contract awarded to
us. Following any contract award, Microphase may experience
significant expense or delay, contract modification or contract
rescission as a result of its competitors protesting or challenging
contracts awarded to it in competitive bidding. Major defense
contractors to whom Microphase supplies components for systems must
compete with other major defense contractors (to which Microphase
may not supply components) for military orders from the U.S.
Government.
In addition, Microphase competes with other policy needs, which may
be viewed as more necessary, for limited resources and an
ever-changing amount of available funding in the budget and
appropriation process. Budget and appropriations decisions made by
the U.S. Government are outside of Microphase control and have
long-term consequences for its business. U.S. Government spending
priorities and levels remain uncertain and difficult to predict and
are affected by numerous factors, including until recently
sequestration (automatic, across-the-board U.S. Government
budgetary spending cuts), and the purchase of our products could be
superseded by alternate arrangements. While the US defense budget
was recently increased, there can be no assurance that this
increase will be maintained for the foreseeable future,
particularly in light of the recent federal expenditures the
federal government has made with a view to ameliorating the
economic damage suffered as a result of COVID-19. A change in U.S.
Government spending priorities or an increase in non-procurement
spending at the expense of our programs, or a reduction in total
U.S. Government spending, could have material adverse consequences
on Microphase’s future business.
Microphase’s U.S. government contracts may be terminated by the
federal government at any time prior to their completion, which
could lead to unexpected loss of sales and reduction in
Microphase’s backlog.
Under the terms of Microphase’s U.S. government contracts, the U.S.
government may unilaterally:
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terminate or modify existing contracts; |
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reduce the value of existing contracts through partial
termination; and |
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delay the payment of Microphase’s invoices by government
payment offices. |
The federal government can terminate or modify any of its contracts
with Microphase or its prime contractors either for the federal
government’s convenience, or if Microphase or its prime contractors
default, by failing to perform under the terms of the applicable
contract. A termination arising out of Microphase’s default could
expose it to liability and have a material adverse effect on its
ability to compete for future federal government contracts and
subcontracts. If the federal government or its prime contractors
terminate and/or materially modify any of Microphase’s contracts or
if any applicable options are not exercised, Microphase’s failure
to replace sales generated from such contracts would result in
lower sales and would adversely affect its earnings, which could
have a material adverse effect on Microphase’s business, results of
operations and financial condition. Microphase’s backlog as of
December 31, 2020 was approximately $5.5 million. Microphase’s
backlog could be adversely affected if contracts are modified or
terminated.
Microphase’s products with military applications are subject to
export regulations, and compliance with these regulations may be
costly.
Microphase is required to obtain export licenses before filling
foreign orders for many of its products that have military or other
governmental applications. United States Export Administration
regulations control technology exports like its products for
reasons of national security and compliance with foreign policy, to
guarantee domestic reserves of products in short supply and, under
certain circumstances, for the security of a destination country.
Thus, any foreign sales of its products requiring export licenses
must comply with these general policies. Compliance with these
regulations is costly, and these regulations are subject to change,
and any such change may require Microphase to improve its
technologies, incur expenses or both in order to comply with such
regulations.
Microphase depends on U.S. government contracts issued to major
defense contractors, which often are only partially funded, subject
to immediate termination, and heavily regulated and audited. The
termination or failure to fund, or negative audit findings for, one
or more of these contracts could have an adverse impact on
Microphase’s business.
Over its lifetime, a U.S. Government program awarded to a major
defense contractor may be implemented by the award of many
different individual contracts and subcontracts. The funding of
U.S. Government programs is subject to Congressional
appropriations. Although multi-year contracts may be authorized and
appropriated in connection with major procurements, Congress
generally appropriates funds on a fiscal year basis. Procurement
funds are typically made available for obligations over the course
of one to three years. Consequently, programs often receive only
partial funding initially, and additional funds are designated only
as Congress authorizes further appropriations. The termination of
funding for a U.S. Government program with respect to major defense
contractors for which Microphase is a subcontractor would result in
a loss of anticipated future revenue attributable to that program,
which could have an adverse impact on its operations. In addition,
the termination of, or failure to commit additional funds to, a
program for which Microphase is a subcontractor could result in
lost revenue and increase its overall costs of doing
business.
Generally, U.S. Government contracts are subject to oversight
audits by U.S. Government representatives. Such audits could result
in adjustments to Microphase’s contract costs. Any costs found to
be improperly allocated to a specific contract will not be
reimbursed, and such costs already reimbursed must be refunded.
Microphase has recorded contract revenues based on costs Microphase
expect to realize upon final audit. However, Microphase does not
know the outcome of any future audits and adjustments, and
Microphase may be required to materially reduce its revenues or
profits upon completion and final negotiation of audits. Negative
audit findings could also result in termination of a contract,
forfeiture of profits, suspension of payments, fines and suspension
or debarment from U.S. Government contracting or subcontracting for
a period of time.
In addition, U.S. Government contracts generally contain provisions
permitting termination, in whole or in part, without prior notice
at the U.S. Government’s convenience upon the payment only for work
done and commitments made at the time of termination. Microphase
can give no assurance that one or more of the U.S. Government
contracts with a major defense contractor under which Microphase
provides component products will not be terminated under these
circumstances. Also, Microphase can give no assurance that it will
be able to procure new contracts to offset the revenue or backlog
lost as a result of any termination of its U.S. Government
contracts. Because a significant portion of Microphase’s revenue is
dependent on its performance and payment under its U.S. Government
contracts, the loss of one or more large contracts could have a
material adverse impact on its business, financial condition,
results of operations and cash flows.
Microphase’s government business also is subject to specific
procurement regulations and other requirements. These requirements,
though customary in U.S. Government contracts, increase its
performance and compliance costs. In addition, these costs might
increase in the future, thereby reducing Microphase’s margins,
which could have an adverse effect on its business, financial
condition, results of operations and cash flows. Failure to comply
with these regulations and requirements could lead to fines,
penalties, repayments, or compensatory or treble damages, or
suspension or debarment from U.S. Government contracting or
subcontracting for a period of time. Among the causes for debarment
are violations of various laws, including those related to
procurement integrity, export control, U.S. Government security
regulations, employment practices, protection of the environment,
accuracy of records, proper recording of costs and foreign
corruption. The termination of a U.S. Government contract or
relationship as a result of any of these acts would have an adverse
impact on Microphase’s operations and could have an adverse effect
on its standing and eligibility for future U.S. Government
contracts.
Microphase’s business could be negatively impacted by
cybersecurity threats and other security threats and
disruptions.
As a U.S. Government defense contractor, Microphase faces certain
security threats, including threats to its information technology
infrastructure, attempts to gain access to its proprietary or
classified information, threats to physical security, and domestic
terrorism events. Microphase’s information technology networks and
related systems are critical to the operation of its business and
essential to its ability to successfully perform day-to-day
operations. Microphase is also involved with information technology
systems for certain customers and other third parties, which
generally face similar security threats. Cybersecurity threats in
particular, are persistent, evolve quickly and include, but are not
limited to, computer viruses, attempts to access information,
denial of service and other electronic security breaches.
Microphase believes that it has implemented appropriate measures
and controls and has invested in skilled information technology
resources to appropriately identify threats and mitigate potential
risks, but there can be no assurance that such actions will be
sufficient to prevent disruptions to mission critical systems, the
unauthorized release of confidential information or corruption of
data. A security breach or other significant disruption involving
these types of information and information technology networks and
related systems could:
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disrupt the proper functioning of
these networks and systems and therefore its operations and/or
those of certain of its customers; |
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result in the unauthorized access
to, and destruction, loss, theft, misappropriation or release of,
proprietary, confidential, sensitive or otherwise valuable
information of Microphase or its customers, including trade
secrets, which others could use to compete against Microphase or
for disruptive, destructive or otherwise harmful purposes and
outcomes; |
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compromise national security and
other sensitive government functions; |
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require significant management
attention and resources to remedy the damages that result; |
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subject Microphase to claims for
breach of contract, damages, credits, penalties or termination;
and |
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damage Microphase’s reputation with
its customers (particularly agencies of the U.S. Government) and
the public generally. |
Any or all of the foregoing could have a negative impact on its
business, financial condition, results of operations and cash
flows.
Microphase enters into fixed-price contracts that could subject
it to losses in the event of cost overruns or a significant
increase in inflation.
Microphase has a number of fixed-price contracts which allow it to
benefit from cost savings but subject it to the risk of potential
cost overruns, particularly for firm fixed-price contracts, because
Microphase assumes the entire cost burden. If its initial estimates
are incorrect, Microphase can lose money on these contracts. U.S.
Government contracts can expose Microphase to potentially large
losses because the U.S. Government can hold Microphase responsible
for completing a project or, in certain circumstances, paying the
entire cost of its replacement by another provider regardless of
the size or foreseeability of any cost overruns that occur over the
life of the contract. Because many of these contracts involve new
technologies and applications, unforeseen events such as
technological difficulties, fluctuations in the price of raw
materials, problems with its suppliers and cost overruns, can
result in the contractual price becoming less favorable or even
unprofitable to Microphase. The U.S. and other countries also may
experience a significant increase in inflation. A significant
increase in inflation rates could have a significant adverse impact
on the profitability of these contracts. Furthermore, if Microphase
does not meet contract deadlines or specifications, Microphase may
need to renegotiate contracts on less favorable terms, be forced to
pay penalties or liquidated damages or suffer major losses if the
customer exercises its right to terminate. In addition, some of its
contracts have provisions relating to cost controls and audit
rights, and if Microphase fails to meet the terms specified in
those contracts Microphase may not realize their full benefits.
Microphase’s results of operations are dependent on its ability to
maximize its earnings from its contracts. Cost overruns could have
an adverse impact on its financial results.
Risks Related to Our Business and Industry -
Enertec
Potential political, economic and military instability in
Israel could adversely affect our operations.
Enertec’s operating facilities are located in Israel. Accordingly,
political, economic and military conditions in Israel directly
affect Enertec’s operations. Since the establishment of the State
of Israel in 1948, a number of armed conflicts have taken place
between Israel and its Arab neighbors. A state of hostility,
varying in degree and intensity, has led to security and economic
problems for Israel. Since October 2000, there has been an increase
in hostilities between Israel and the Palestinian Arabs, which has
adversely affected the peace process and has negatively influenced
Israel’s relationship with its Arab citizens and several Arab
countries, including the Israel-Gaza conflict. Such ongoing
hostilities may hinder Israel’s international trade relations and
may limit the geographic markets where Enertec can sell its
products and solutions. Hostilities involving or threatening
Israel, or the interruption or curtailment of trade between Israel
and its present trading partners, could materially and adversely
affect Enertec’s operations.
In addition, Israel-based companies and companies doing business
with Israel have been the subject of an economic boycott by members
of the Arab League and certain other predominantly Muslim countries
since Israel’s establishment. Although Israel has entered into
various agreements with certain Arab countries and the Palestinian
Authority, and various declarations have been signed in connection
with efforts to resolve some of the economic and political problems
in the Middle East, we cannot predict whether or in what manner
these problems will be resolved. Wars and acts of terrorism have
resulted in significant damage to the Israeli economy, including
reducing the level of foreign and local investment.
Furthermore, certain of our officers and employees may be obligated
to perform annual reserve duty in the Israel Defense Forces and are
subject to being called up for active military duty at any time.
All Israeli male citizens who have served in the army are subject
to an obligation to perform reserve duty until they are between 40
and 49 years old, depending upon the nature of their military
service.
Enertec may become subject to claims for remuneration or
royalties for assigned service invention rights by its employees,
which could result in litigation and harm our business.
A significant portion of the intellectual property covered by
Enertec’s products has been developed by Enertec’s employees in the
course of their employment for Enertec. Under the Israeli Patent
Law, 5727-1967, or the Patent Law, and recent decisions by the
Israeli Supreme Court and the Israeli Compensation and Royalties
Committee, a body constituted under the Patent Law, Israeli
employees may be entitled to remuneration for intellectual property
that they develop for us unless they explicitly waive any such
rights. To the extent that Enertec is unable to enter into
agreements with its future employees pursuant to which they agree
that any inventions created in the scope of their employment or
engagement are owned exclusively by Enertec (as it has done in the
past), Enertec may face claims demanding remuneration. As a
consequence of such claims, Enertec could be required to pay
additional remuneration or royalties to its current and former
employees, or be forced to litigate such claims, which could
negatively affect its business.
Risks Related to Ownership of Our Common Stock and
Future Offerings
If we do not continue to satisfy the NYSE American continued
listing requirements, our common stock could be delisted from NYSE
American.
The listing of our common stock on the NYSE American is contingent
on our compliance with the NYSE American’s conditions for continued
listing. While we are presently in compliance with all such
conditions, it is possible that we will fail to meet one or more of
these conditions in the future.
If we were to fail to meet a NYSE American listing requirement, we
may be subject to delisting by the NYSE American. In the event our
common stock is no longer listed for trading on the NYSE American,
our trading volume and share price may decrease and we may
experience further difficulties in raising capital which could
materially affect our operations and financial results. Further,
delisting from the NYSE American could also have other negative
effects, including potential loss of confidence by partners,
lenders, suppliers and employees and could also trigger various
defaults under our lending agreements and other outstanding
agreements. Finally, delisting could make it harder for us to raise
capital and sell securities. You may experience future dilution as
a result of future equity offerings. In order to raise additional
capital, we may in the future offer additional shares of our common
stock or other securities convertible into or exchangeable for our
common stock at prices that may not be the same as the price per
share in this offering. We may sell shares or other securities in
any other offering at a price per share that is less than the price
per share paid by investors in this offering, and investors
purchasing shares or other securities in the future could have
rights superior to existing stockholders. The price per share at
which we sell additional shares of our common stock, or securities
convertible or exchangeable into common stock, in future
transactions may be higher or lower than the price per share paid
by investors in this offering.
You may experience future dilution as a result of future equity
offerings.
In order to raise additional capital, we may in the future offer
additional shares of our common stock or other securities
convertible into or exchangeable for our common stock at prices
that may not be the same as the price per share in this offering.
We may sell shares or other securities in any other offering at a
price per share that is less than the price per share paid by
investors in this offering, and investors purchasing shares or
other securities in the future could have rights superior to
existing stockholders. The price per share at which we sell
additional shares of our common stock, or securities convertible or
exchangeable into common stock, in future transactions may be
higher or lower than the price per share paid by investors in this
offering.
Our common stock price is volatile.
Our common stock is listed on the NYSE American. In the past, our
trading price has fluctuated widely, depending on many factors that
may have little to do with our operations or business prospects.
During the past year, through October 22, 2021, our stock price
traded between $1.49 per share and $7.19 per share as reported on
Nasdaq.com. Further, during the first quarter of 2018, our common
stock closed at a high of $2,880.00 per share as reported on
Nasdaq.com. On October 22, 2021, our common stock closed at
$2.29.
Stock markets, in general, have experienced, and continue to
experience, significant price and volume volatility, and the market
price of our common stock may continue to be subject to similar
market fluctuations unrelated to our operating performance or
prospects. This increased volatility, coupled with depressed
economic conditions, could continue to have a depressive effect on
the market price of our common stock. The following factors, many
of which are beyond our control, may influence our stock price:
|
· |
the status of our growth strategy
including the development of new products with any proceeds we may
be able to raise in the future; |
|
· |
announcements of technological or
competitive developments; |
|
· |
announcements or expectations of
additional financing efforts; |
|
· |
our ability to market new and
enhanced products on a timely basis; |
|
· |
changes in laws and regulations
affecting our business; |
|
· |
commencement of, or involvement in,
litigation involving us; |
|
· |
regulatory developments affecting
us, our customers or our competitors; |
|
· |
announcements regarding patent or
other intellectual property litigation or the issuance of patents
to us or our competitors or updates with respect to the
enforceability of patents or other intellectual property rights
generally in the US or internationally; |
|
· |
actual or anticipated fluctuations
in our quarterly financial results or the quarterly financial
results of companies perceived to be similar to us; |
|
· |
changes in the market’s
expectations about our operating results; |
|
· |
our operating results failing to
meet the expectations of securities analysts or investors in a
particular period; |
|
· |
changes in the economic performance
or market valuations of our competitors; |
|
· |
additions or departures of our
executive officers; |
|
· |
sales or perceived sales of our
common stock by us, our insiders or our other stockholders; |
|
· |
share price and volume fluctuations
attributable to inconsistent trading volume levels of our shares;
and |
|
· |
general economic, industry,
political and market conditions and overall fluctuations in
the financial markets in the United States and abroad, including as
a result of ongoing COVID-19 pandemic. |
In addition, the securities markets have, from time to time,
experienced significant price and volume fluctuations that are not
related to the operating performance of particular companies. Any
of these factors could result in large and sudden changes in the
volume and trading price of our common stock and could cause our
stockholders to incur substantial losses. In the past, following
periods of volatility in the market price of a company’s
securities, stockholders have often instituted securities class
action litigation against that company. If we were involved in a
class action suit or other securities litigation, it would divert
the attention of our senior management, require us to incur
significant expense and, whether or not adversely determined, have
a material adverse effect on our business, financial condition,
results of operations and prospects.
Volatility in our common stock price may subject us to
securities litigation.
Stock markets, in general, have experienced, and continue to
experience, significant price and volume volatility, and the market
price of our common stock may continue to be subject to similar
market fluctuations unrelated to our operating performance or
prospects. This increased volatility, coupled with depressed
economic conditions, could continue to have a depressing effect on
the market price of our common stock.
In addition, the securities markets have, from time to time,
experienced significant price and volume fluctuations that are not
related to the operating performance of particular companies. Any
of these factors could result in large and sudden changes in the
volume and trading price of our common stock and could cause our
stockholders to incur substantial losses. In the past, following
periods of volatility in the market price of a company’s
securities, stockholders have often instituted securities class
action litigation against that company. If we were involved in a
class action suit or other securities litigation, it would divert
the attention of our senior management, require us to incur
significant expense and, whether or not adversely determined, have
a material adverse effect on our business, financial condition,
results of operations and prospects.
We have a substantial number of convertible notes, warrants,
options and preferred stock outstanding that could affect our
price.
Due to a number of financings, we have a substantial number of
shares that are subject to issuance pursuant to outstanding
convertible debt, warrants and options. These conversion prices and
exercise prices range from $0.88 to $2,000 per share of common
stock. As of the date of this prospectus, the number of shares of
common stock subject to convertible notes, warrants, options and
preferred stock were 165,000, 5,936,454, 4,760,919 and 2,232,
respectively. The issuance of common stock pursuant to convertible
notes, warrants, options and preferred stock at conversion or
exercise prices less than market prices may have the effect of
limiting an increase in market price of our common stock until all
of these underling shares have been issued.
The issuance of shares of our Class B Common Stock to our
management or others could provide such persons with voting control
leaving our other stockholders unable to elect our directors and
the holders of our shares of common stock will have little
influence over our Management.
Although there are currently no shares of our Class B Common Stock
issued and outstanding, our certificate of incorporation authorizes
the issuance of 25,000,000 shares of Class B Common Stock. Each
share of Class B Common Stock provides the holder thereof with ten
(10) votes on all matters submitted to a stockholder vote. Our
certificate of incorporation does not provide for cumulative voting
for the election of directors. Any person or group who controls or
can obtain more than 50% of the votes cast for the election of each
director will control the election of directors and the other
stockholders will not be able to elect any directors or exert any
influence over management decisions. As a result of the
super-voting rights of our shares of Class B Common Stock, the
issuance of such shares to our management or others could provide
such persons with voting control and our other stockholders will
not be able to elect our directors and will have little influence
over our management. While we are listed on the NYSE American or
any other national securities exchange it is highly unlikely that
we would issue any shares of Class B Common Stock as doing so would
jeopardize our continued listing any such exchange. However, if
were to be delisted for some other reason and our shares of Class A
Common Stock trade on an over-the-counter market, then we would
face no restriction on issuing shares of Class B Common Stock.
General Risk Factors
Our limited operating history makes it difficult to evaluate our
future business prospects and to make decisions based on our
historical performance.
Although our executive officers have been engaged in the industries
in which we operate for varying degrees of time, we did not begin
operations of our current business until recently. We have a very
limited operating history in our current form, which makes it
difficult to evaluate our business on the basis of historical
operations. As a consequence, it is difficult, if not impossible,
to forecast our future results based upon our historical data.
Reliance on our historical results may not be representative of the
results we will achieve, and for certain areas in which we operate,
principally those unrelated to defense contracting, will not be
indicative at all. Because of the uncertainties related to our lack
of historical operations, we may be hindered in our ability to
anticipate and timely adapt to increases or decreases in sales,
product costs or expenses. If we make poor budgetary decisions as a
result of unreliable historical data, we could be less profitable
or incur losses, which may result in a decline in our stock
price.
If we make any additional acquisitions, they may disrupt or have
a negative impact on our business.
We have plans to eventually make additional acquisitions beyond
Microphase, Enertec, Relec and the Facility. Whenever we make
acquisitions, we could have difficulty integrating the acquired
companies’ personnel and operations with our own. In addition, the
key personnel of the acquired business may not be willing to work
for us. We cannot predict the effect expansion may have on our core
business. Regardless of whether we are successful in making an
acquisition, the negotiations could disrupt our ongoing business,
distract our management and employees and increase our expenses. In
addition to the risks described above, acquisitions are accompanied
by a number of inherent risks, including, without limitation, the
following:
· |
If
Relec senior management and/or management of future acquired
companies terminate their employment prior to our completion of
integration; |
· |
difficulty of
integrating acquired products, services or operations;
|
· |
integration of new
employees and management into our culture while maintaining focus
on operating efficiently and providing consistent, high-quality
goods and services;
|
· |
potential disruption of
the ongoing businesses and distraction of our management and the
management of acquired companies;
|
· |
unanticipated issues
with transferring customer relationships;
|
· |
complexity associated
with managing our combined company;
|
· |
difficulty of
incorporating acquired rights or products into our existing
business;
|
· |
difficulties in
disposing of the excess or idle facilities of an acquired company
or business and expenses in maintaining such facilities;
|
· |
difficulties in
maintaining uniform standards, controls, procedures and
policies;
|
· |
potential impairment of
relationships with employees and customers as a result of any
integration of new management personnel;
|
· |
potential inability or
failure to achieve additional sales and enhance our customer base
through cross-marketing of the products to new and existing
customers;
|
· |
effect of any
government regulations which relate to the business acquired;
and
|
· |
potential unknown
liabilities associated with acquired businesses or product lines,
or the need to spend significant amounts to retool, reposition or
modify the marketing and sales of acquired products or the defense
of any litigation, whether or not successful, resulting from
actions of the acquired company prior to our
acquisition. |
Our business could be severely impaired if and to the extent that
we are unable to succeed in addressing any of these risks or other
problems encountered in connection with these acquisitions, many of
which cannot be presently identified, these risks and problems
could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results
of operations.
We may not be able to successfully identify suitable acquisition
targets and complete acquisitions to meet our growth strategy, and
even if we are able to do so, we may not realize the full
anticipated benefits of such acquisitions, and our business,
financial conditions and results of operations may suffer.
Increasing revenues through acquisitions is one of the key
components of our growth strategy. Identifying suitable acquisition
candidates can be difficult, time-consuming and costly, and we may
not be able to identify suitable candidates or complete
acquisitions in a timely manner, on a cost-effective basis or at
all.
We will have to pay cash, incur debt, or issue equity as
consideration in any future acquisitions, each of which could
adversely affect our financial condition or the market price of our
common stock. The sale of equity or issuance of equity-linked debt
to finance any future acquisitions could result in dilution to our
stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could limit our flexibility in
managing our business due to covenants or other restrictions
contained in debt instruments.
Further, we may not be able to realize the anticipated benefits of
completed acquisitions. Some acquisition targets may not have a
developed business or are experiencing inefficiencies and incur
losses. Additionally, small defense contractors which we consider
suitable acquisition targets may be uniquely dependent on their
prior owners and the loss of such owners’ services following the
completion of acquisitions may adversely affect their business.
Therefore, we may lose our investment in the event that the
acquired businesses do not develop as planned or that we are unable
to achieve the anticipated cost efficiencies or reduction of
losses.
Additionally, our acquisitions have previously required, and any
similar future transactions may also require, significant
management efforts and expenditures. Regardless of whether we are
successful in making an acquisition, the negotiations could disrupt
our ongoing business, divert the attention of our management and
key employees and increase our expenses.
No assurance of successful expansion of operations.
Our significant increase in the scope and the scale of our
operations, including the hiring of additional personnel, has
resulted in significantly higher operating expenses. We anticipate
that our operating expenses will continue to increase. Expansion of
our operations may also make significant demands on our management,
finances and other resources. Our ability to manage the anticipated
future growth, should it occur, will depend upon a significant
expansion of our accounting and other internal management systems
and the implementation and subsequent improvement of a variety of
systems, procedures and controls. We cannot assure that significant
problems in these areas will not occur. Failure to expand these
areas and implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with our
business could have a material adverse effect on our business,
financial condition and results of operations. We cannot assure
that attempts to expand our marketing, sales, manufacturing and
customer support efforts will succeed or generate additional sales
or profits in any future period. As a result of the expansion of
our operations and the anticipated increase in our operating
expenses, along with the difficulty in forecasting revenue levels,
we expect to continue to experience significant fluctuations in its
results of operations.
We may be unable to successfully expand our production capacity,
which could result in material delays, quality issues, increased
costs and loss of business opportunities, which may negatively
impact our product margins and profitability.
Part of our future growth strategy is to increase our production
capacity to meet increasing demand for our goods. Assuming we
obtain sufficient funding to increase our production capacity, any
projects to increase such capacity may not be constructed on the
anticipated timetable or within budget. We may also experience
quality control issues as we implement any production upgrades. Any
material delay in completing these projects, or any substantial
cost increases or quality issues in connection with these projects
could materially delay our ability to bring our products to market
and adversely affect our business, reduce our revenue, income and
available cash, all of which could harm our financial
condition.
If we fail to establish and maintain an effective system of
internal control over financial reporting, we may not be able to
report our financial results accurately or prevent fraud. Any
inability to report and file our financial results accurately and
timely could harm our reputation and adversely impact the trading
price of our common stock.
Effective internal control over financial reporting is necessary
for us to provide reliable financial reports and prevent fraud. If
we cannot provide reliable financial reports or prevent fraud, we
may not be able to manage our business as effectively as we would
if an effective control environment existed, and our business and
reputation with investors may be harmed. As a result, our small
size and any current internal control deficiencies may adversely
affect our financial condition, results of operations and access to
capital. We have carried out an evaluation under the supervision
and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the most recent period
covered by this report. Based on the foregoing, our principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weaknesses described
below.
A material weakness is a deficiency, or a combination of
deficiencies, within the meaning of Public Company Accounting
Oversight Board (“PCAOB”) Audit Standard No. 5, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely
basis. Management has identified the following material weakness
which has caused management to conclude that as of December 31,
2020 our internal control over financial reporting (“ICFR”) was not
effective at the reasonable assurance level:
We do not have sufficient resources in our accounting function,
which restricts our ability to gather, analyze and properly review
information related to financial reporting, including fair value
estimates, in a timely manner. In addition, 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.
Management, in coordination with the input, oversight and support
of our Board of Directors, has identified the measures below to
strengthen our control environment and internal control over
financial reporting.
On August 19, 2020, Mr. Horne resigned as our Chief Financial
Officer and was appointed our President, and later became our Chief
Executive Officer. Mr. Cragun, who had served as the Company’s
Chief Accounting Officer since October 1, 2018, succeeded Mr. Horne
as the Chief Financial Officer of the Company. In January 2018, we
engaged the services of a financial accounting advisory firm. In
January 2019, we hired a Senior Vice President of Finance. In May
2019, we hired an Executive Vice President and General Counsel, who
later became our President and General Counsel. Finally, in January
2021, we hired a Director of Reporting. These individuals were
tasked with expanding and monitoring the Company’s internal
controls, to provide an additional level of review of complex
financial issues and to assist with financial reporting. On October
7, 2019, we created an Executive Committee which is currently
comprised of our Executive Chairman, Chief Executive Officer and
President. The Executive Committee meets on a daily basis to
address the Company’s critical needs and provides a forum to
approve transactions which are communicated to the Company’s Chief
Financial Officer and Senior Vice President of Finance on a
bi-weekly basis by our Chief Executive Officer, who also reviews
all of the Company’s material transactions and reviews the
financial performance of each of our subsidiaries. On December 16,
2020, in consultation with the Chairman of the Audit Committee, we
engaged a professional services firm to review management’s
assessment of compliance with Section 404 of the Sarbanes-Oxley Act
of 2002 and to identify internal control process improvement
opportunities. While these changes have improved and simplified our
internal processes and resulted in enhanced controls, these
enhancements have not been operating for a sufficient period of
time for management to conclude, through testing, that these
controls are operating effectively. Further, as we continue to
expand our internal accounting department, the Chairman of the
Audit Committee shall perform the following:
|
· |
assists with documentation and
implementation of policies and procedures and monitoring of
controls, and |
|
· |
reviews all anticipated
transactions that are not considered in the ordinary course of
business to assist in the early identification of accounting issues
and ensure that appropriate disclosures are made in the Company’s
financial statements. |
We are currently working to further improve and simplify our
internal processes and implement enhanced controls, as discussed
above, to address the material weakness in our internal control
over financial reporting and to remedy the ineffectiveness of our
disclosure controls and procedures. This material weakness 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.
If our accounting controls and procedures are circumvented or
otherwise fail to achieve their intended purposes, our business
could be seriously harmed.
We evaluate our disclosure controls and procedures as of the end of
each fiscal quarter, and annually review and evaluate our internal
control over financial reporting in order to comply with the
Commission’s rules relating to internal control over financial
reporting adopted pursuant to the Sarbanes-Oxley Act of 2002.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. If we fail to maintain
effective internal control over financial reporting or our
management does not timely assess the adequacy of such internal
control, we may be subject to regulatory sanctions, and our
reputation may decline.
We face significant competition, including changes in
pricing.
The markets for our products are both competitive and price
sensitive. Many competitors have significant financial, operations,
sales and marketing resources, plus experience in research and
development, and compete with us by offering lower prices.
Competitors could develop new technologies that compete with our
products to achieve a lower unit price. If a competitor develops
lower cost and/or superior technology or cost-effective
alternatives to our products and services, our business could be
seriously harmed.
The markets for some of our products are also subject to specific
competitive risks because these markets are highly price sensitive.
Our competitors have competed in the past by lowering prices on
certain products. If they do so again, we may be forced to respond
by lowering our prices. This would reduce sales revenues and
increase losses. Failure to anticipate and respond to price
competition may also impact sales and aggravate losses.
Many of our competitors are larger and have greater financial
and other resources than we do.
Our products compete and will compete with similar if not identical
products produced by our competitors. These competitive products
could be marketed by well-established, successful companies that
possess greater financial, marketing, distribution personnel, and
other resources than we do. Using said resources, these companies
can implement extensive advertising and promotional campaigns, both
generally and in response to specific marketing efforts by
competitors. They can introduce new products to new markets more
rapidly. In certain instances, competitors with greater financial
resources may be able to enter a market in direct competition with
us, offering attractive marketing tools to encourage the sale of
products that compete with our products or present cost features
that consumers may find attractive.
Our growth strategy is subject to a significant degree of
risk.
Our growth strategy through acquisitions involves a significant
degree of risk. Some of the companies that we have identified as
acquisition targets or made a significant investment in may not
have a developed business or are experiencing inefficiencies and
incur losses. Therefore, we may lose our investment in the event
that these companies’ businesses do not develop as planned or that
they are unable to achieve the anticipated cost efficiencies or
reduction of losses.
Further, in order to implement our growth plan, we have hired
additional staff and consultants to review potential investments
and implement our plan. As a result, we have substantially
increased our infrastructure and costs. If we fail to quickly find
new companies that provide revenue to offset our costs, we will
continue to experience losses. No assurance can be given that our
product development and investments will produce sufficient
revenues to offset these increases in expenditures.
Our business and operations are growing rapidly. If we fail to
effectively manage our growth, our business and operating results
could be harmed.
We have experienced, and may continue to experience, rapid growth
in our operations. This has placed, and may continue to place,
significant demands on our management, operational and financial
infrastructure. If we do not manage our growth effectively, the
quality of our products and services could suffer, which could
negatively affect our operating results. To effectively manage our
growth, we must continue to improve our operational, financial and
management controls and reporting systems and procedures. These
systems improvements may require significant capital expenditures
and management resources. Failure to implement these improvements
could hurt our ability to manage our growth and our financial
position.
Our operating results may vary from quarter to quarter.
Our operating results have in the past been subject to
quarter-to-quarter fluctuations, and we expect that these
fluctuations will continue, and may increase in magnitude, in
future periods. Demand for our products is driven by many factors,
including the availability of funding for our products in our
customers’ capital budgets. There is a trend for some of our
customers to place large orders near the end of a quarter or fiscal
year, in part to spend remaining available capital budget funds.
Seasonal fluctuations in customer demand for our products driven by
budgetary and other concerns can create corresponding fluctuations
in period-to-period revenues, and we therefore cannot assure you
that our results in one period are necessarily indicative of our
revenues in any future period. In addition, the number and timing
of large individual sales and the ability to obtain acceptances of
those sales, where applicable, have been difficult for us to
predict, and large individual sales have, in some cases, occurred
in quarters subsequent to those we anticipated, or have not
occurred at all. The loss or deferral of one or more significant
sales in a quarter could harm our operating results for such
quarter. It is possible that, in some quarters, our operating
results will be below the expectations of public market analysts or
investors. In such events, or in the event adverse conditions
prevail, the market price of our common stock may decline
significantly.
Changes in the U.S. tax and other laws and regulations may
adversely affect our business.
The U.S. government may revise tax laws, regulations or official
interpretations in ways that could have a significant adverse
effect on our business, including modifications that could reduce
the profits that we can effectively realize from our international
operations, or that could require costly changes to those
operations, or the way in which they are structured. For example,
the effective tax rates for most U.S. companies reflect the fact
that income earned and reinvested outside the U.S. is generally
taxed at local rates, which may be much lower than U.S. tax rates.
If we expand abroad and there are changes in tax laws, regulations
or interpretations that significantly increase the tax rates on
non-U.S. income, our effective tax rate could increase and our
profits could be reduced. If such increases resulted from our
status as a U.S. company, those changes could place us at a
disadvantage to our non-U.S. competitors if those competitors
remain subject to lower local tax rates.
Our sales and profitability may be affected by changes in
economic, business and industry conditions.
If the economic climate in the United States or abroad
deteriorates, customers or potential customers could reduce or
delay their technology investments. Reduced or delayed technology
and entertainment investments could decrease our sales and
profitability. In this environment, our customers may experience
financial difficulty, cease operations and fail to budget or reduce
budgets for the purchase of our products and professional services.
This may lead to longer sales cycles, delays in purchase decisions,
payment and collection, and can also result in downward price
pressures, causing our sales and profitability to decline. In
addition, general economic uncertainty and general declines in
capital spending in the information technology sector make it
difficult to predict changes in the purchasing requirements of our
customers and the markets we serve. There are many other factors
which could affect our business, including:
|
· |
The introduction and market
acceptance of new technologies, products and services; |
|
· |
New competitors and new forms of
competition; |
|
· |
The size and timing of customer
orders (for retail distributed physical product); |
|
· |
The size and timing of capital
expenditures by our customers; |
|
· |
Adverse changes in the credit
quality of our customers and suppliers; |
|
· |
Changes in the pricing policies of,
or the introduction of, new products and services by us or our
competitors; |
|
· |
Changes in the terms of our
contracts with our customers or suppliers; |
|
· |
The availability of products from
our suppliers; and |
|
· |
Variations in product costs and the
mix of products sold. |
These trends and factors could adversely affect our business,
profitability and financial condition and diminish our ability to
achieve our strategic objectives.
The sale of our products is dependent upon our ability to
satisfy the proprietary requirements of our customers.
We depend upon a relatively narrow range of products for the
majority of our revenue. Our success in marketing our products is
dependent upon their continued acceptance by our customers. In some
cases, our customers require that our products meet their own
proprietary requirements. If we are unable to satisfy such
requirements, or forecast and adapt to changes in such
requirements, our business could be materially harmed.
The sale of our products is dependent on our ability to respond
to rapid technological change, including evolving industry-wide
standards, and may be adversely affected by the development, and
acceptance by our customers, of new technologies which may compete
with, or reduce the demand for, our products.
Rapid technological change, including evolving industry standards,
could render our products obsolete. To the extent our customers
adopt such new technology in place of our products, the sales of
our products may be adversely affected. Such competition may also
increase pricing pressure for our products and adversely affect the
revenues from such products.
Our limited ability to protect our proprietary information and
technology may adversely affect our ability to compete, and our
products could infringe upon the intellectual property rights of
others, resulting in claims against us, the results of which could
be costly.
Many of our products consist entirely or partly of proprietary
technology owned by us. Although we seek to protect our technology
through a combination of copyrights, trade secret laws and
contractual obligations, these protections may not be sufficient to
prevent the wrongful appropriation of our intellectual property,
nor will they prevent our competitors from independently developing
technologies that are substantially equivalent or superior to our
proprietary technology. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent
as the laws of the United States. In order to defend our
proprietary rights in the technology utilized in our products from
third party infringement, we may be required to institute legal
proceedings, which would be costly and would divert our resources
from the development of our business. If we are unable to
successfully assert and defend our proprietary rights in the
technology utilized in our products, our future results could be
adversely affected.
Although we attempt to avoid infringing known proprietary rights of
third parties in our product development efforts, we may become
subject to legal proceedings and claims for alleged infringement
from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights,
even if not meritorious, could result in costly litigation, divert
management’s attention and resources, require us to reengineer or
cease sales of our products or require us to enter into royalty or
license agreements which are not advantageous to us. In addition,
parties making claims may be able to obtain an injunction, which
could prevent us from selling our products in the United States or
abroad.
If we ship products that contain defects, the market acceptance
of our products and our reputation will be harmed and our customers
could seek to recover their damages from us.
Our products are complex, and despite extensive testing, may
contain defects or undetected errors or failures that may become
apparent only after our products have been shipped to our customers
and installed in their network or after product features or new
versions are released. Any such defect, error or failure could
result in failure of market acceptance of our products or damage to
our reputation or relations with our customers, resulting in
substantial costs for us and our customers as well as the
cancellation of orders, warranty costs and product returns. In
addition, any defects, errors, misuse of our products or other
potential problems within or out of our control that may arise from
the use of our products could result in financial or other damages
to our customers. Our customers could seek to have us pay for these
losses. Although we maintain product liability insurance, it may
not be adequate.
Failure of our information technology infrastructure to operate
effectively could adversely affect our business.
We depend heavily on information technology infrastructure to
achieve our business objectives. If a problem occurs that impairs
this infrastructure, the resulting disruption could impede our
ability to record or process orders, manufacture and ship in a
timely manner, or otherwise carry on business in the normal course.
Any such events could cause us to lose customers or revenue and
could require us to incur significant expense to remediate.
The rights of the holders of common stock may be impaired by the
potential issuance of preferred stock.
Our certificate of incorporation gives our board of directors the
right to create new series of preferred stock. As a result, the
board of directors may, without stockholder approval, issue
preferred stock with voting, dividend, conversion, liquidation or
other rights which could adversely affect the voting power and
equity interest of the holders of common stock. Preferred stock,
which could be issued with the right to more than one vote per
share, could be utilized as a method of discouraging, delaying or
preventing a change of control. The possible impact on takeover
attempts could adversely affect the price of our common stock.
Although we have no present intention to issue any shares of
preferred stock or to create a series of preferred stock, we may
issue such shares in the future.
The requirements of being a public company may strain our
resources, divert management’s attention and affect our ability to
attract and retain qualified board members.
We are a public company and subject to the reporting requirements
of the Exchange Act, and the Sarbanes-Oxley Act of 2002. The
Exchange Act requires, among other things, that we file annual,
quarterly and current reports with respect to our business and
financial condition. The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and
procedures and internal controls for financial reporting. For
example, Section 404 of the Sarbanes-Oxley Act requires that
our management report on the effectiveness of our internal controls
structure and procedures for financial reporting. Section 404
compliance may divert internal resources and will take a
significant amount of time and effort to complete. If we fail
to maintain compliance under Section 404, or if in the future
management determines that our internal control over financial
reporting are not effective as defined under Section 404, we
could be subject to sanctions or investigations by the NYSE
American should we in the future be listed on this market, the
Commission, or other regulatory authorities. Furthermore, investor
perceptions of our company may suffer, and this could cause a
decline in the market price of our common stock. Any failure of our
internal controls could have a material adverse effect on our
stated results of operations and harm our reputation. If we are
unable to implement these changes effectively or efficiently, it
could harm our operations, financial reporting or financial results
and could result in an adverse opinion on internal controls from
our independent auditors. We may need to hire a number of
additional employees with public accounting and disclosure
experience in order to meet our ongoing obligations as a public
company, particularly if we become fully subject to Section 404 and
its auditor attestation requirements, which will increase costs.
Our management team and other personnel will need to devote a
substantial amount of time to new compliance initiatives and to
meeting the obligations that are associated with being a public
company, which may divert attention from other business concerns,
which could have a material adverse effect on our business,
financial condition and results of operations.
If we fail to comply with the rules under the
Sarbanes-Oxley Act of 2002 related to accounting controls and
procedures, or if we discover material weaknesses and deficiencies
in our internal control and accounting procedures, our stock price
could decline significantly and raising capital could be more
difficult.
If we fail to comply with the rules under the Sarbanes-Oxley
Act of 2002 related to disclosure controls and procedures, or, if
we discover material weaknesses and other deficiencies in our
internal control and accounting procedures, our stock price could
decline significantly and raising capital could be more difficult.
Section 404 of the Sarbanes-Oxley Act requires annual
management assessments of the effectiveness of our internal control
over financial reporting. If material weaknesses or significant
deficiencies are discovered or if we otherwise fail to achieve and
maintain the adequacy of our internal control, we may not be able
to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act. Moreover,
effective internal controls are necessary for us to produce
reliable financial reports and are important to helping prevent
financial fraud. If we cannot provide reliable financial reports or
prevent fraud, our business and operating results could be harmed,
investors could lose confidence in our reported financial
information, and the trading price of our common stock could drop
significantly.
If securities or industry analysts do not publish research or
reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume
could decline.
The trading market for our common stock will be influenced by the
research and reports that industry or securities analysts publish
about us or our business. Our research coverage by industry and
financial analysts is currently limited. Even if our analyst
coverage increases, if one or more of the analysts who cover us
downgrade our stock, our stock price would likely decline. If one
or more of these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
The elimination of monetary liability against our directors,
officers and employees under law and the existence of
indemnification rights for or obligations to our directors,
officers and employees may result in substantial expenditures by us
and may discourage lawsuits against our directors, officers and
employees.
Our certificate of incorporation contains a provision permitting us
to eliminate the personal liability of our directors to us and our
stockholders for damages for the breach of a fiduciary duty as a
director or officer to the extent provided by Delaware law. We may
also have contractual indemnification obligations under any future
employment agreements with our officers. The foregoing
indemnification obligations could result in us incurring
substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which we may be unable to
recoup. These provisions and the resulting costs may also
discourage us from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties, and may similarly
discourage the filing of derivative litigation by our stockholders
against our directors and officers even though such actions, if
successful, might otherwise benefit us and our
stockholders.
We do not anticipate paying dividends on our common stock and,
accordingly, stockholders must rely on stock appreciation for any
return on their investment.
We have never declared or paid cash dividends on our common stock
and do not expect to do so in the foreseeable future. The
declaration of dividends is subject to the discretion of our board
of directors and will depend on various factors, including our
operating results, financial condition, future prospects and any
other factors deemed relevant by our board of directors. You should
not rely on an investment in our company if you require dividend
income from your investment in our company. The success of your
investment will likely depend entirely upon any future appreciation
of the market price of our common stock, which is uncertain and
unpredictable. There is no guarantee that our common stock will
appreciate in value.
USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus
supplement, we intend to use the net proceeds from the sale of the
securities offered by this prospectus for general corporate
purposes, which may include working capital, capital expenditures,
research and development expenditures, regulatory affairs
expenditures, clinical trial expenditures, acquisitions of new
technologies and investments, the financing of possible
acquisitions or business expansions, and the repayment,
refinancing, redemption or repurchase of future indebtedness or
capital stock.
The intended application of proceeds from the sale of any
particular offering of securities using this prospectus will be
described in the accompanying prospectus supplement relating to
such offering. The precise amount and timing of the application of
these proceeds will depend on our funding requirements and the
availability and costs of other funds.
THE SECURITIES WE MAY OFFER
The descriptions of the securities contained in this prospectus,
together with the applicable prospectus supplements, summarize all
the material terms and provisions of the various types of
securities that we may offer. We will describe in the applicable
prospectus supplement relating to any securities the particular
terms of the securities offered by that prospectus supplement. If
we indicate in the applicable prospectus supplement, the terms of
the securities may differ from the terms we have summarized below.
We will also include in the prospectus supplement information,
where applicable, about material United States federal income tax
considerations relating to the securities, and the securities
exchange, if any, on which the securities will be listed.
We may sell from time to time, in one or more offerings:
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shares of our common stock; |
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shares of our preferred stock; |
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warrants to purchase shares of our
common stock or preferred stock; |
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rights to purchase shares of our
common stock; and/or |
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units consisting of any of the
securities listed above. |
The terms of any securities we offer will be determined at the time
of sale. We may issue securities that are exchangeable for or
convertible into common stock or any of the other securities that
may be sold under this prospectus. When particular securities are
offered, a supplement to this prospectus will be filed with the
Commission, which will describe the terms of the offering and sale
of the offered securities.
DESCRIPTION OF CAPITAL STOCK
The summary does not purport
to be complete and is qualified in its entirety by reference to our
certificate of incorporation and bylaws, and to the provisions of
the General Corporation Law of the State of Delaware, as
amended.
We are authorized to issue 500,000,000 shares of Class A Common
Stock and 25,000,000 shares of Class B Common Stock, par value
$0.001 per share. As of the date of this prospectus, there
were 66,899,396 shares of our Class A Common Stock issued and
outstanding but no shares of Class B common stock issued or
outstanding. The outstanding shares of our common stock are validly
issued, fully paid and nonassessable. In this prospectus, all
references solely to “common stock” shall refer to the Class A
Common Stock except where otherwise indicated. In this
prospectus, all references solely to “common stock” shall refer to
both the Class A Common Stock and the Class B Common Stock except
where otherwise indicated. We are authorized to issue up to
25,000,000 shares of preferred stock, par value $0.001 per
share. Of these shares of preferred stock, 1,000,000 are
designated as Series A Convertible Preferred Stock, 500,000 are
designated as Series B Convertible Preferred Stock, and 2,500 are
designated as Series C Convertible Redeemable Preferred Stock. As
of the date of this prospectus, there were 7,040 shares of Series A
Convertible Preferred Stock outstanding, 125,000 shares of Series B
Convertible Preferred Stock and no shares of Series C Convertible
Redeemable Preferred Stock outstanding.
Common Stock
Holders of our shares of Class A common stock are entitled to one
vote for each share on all matters submitted to a shareholder vote.
Holders of our shares Class B common stock are entitled to ten
votes for each share on all matters submitted to a shareholder
vote. Holders of our common stock do not have cumulative voting
rights. Therefore, holders of a majority of the shares of our
common stock voting for the election of directors can elect all of
the directors. Holders of our common stock representing a majority
of the voting power of our capital stock issued, outstanding and
entitled to vote, represented in person or by proxy, are necessary
to constitute a quorum at any meeting of shareholders. A vote by
the holders of a majority of our outstanding shares is required to
effectuate certain fundamental corporate changes such as
liquidation, merger or an amendment to our certificate of
incorporation.
Holders of our common stock are entitled to share in all dividends
that our Board of Directors, in its discretion, declares from
legally available funds. In the event of a liquidation, dissolution
or winding up, each outstanding share entitles its holder to
participate pro rata in all assets that remain after payment of
liabilities and after providing for each class of stock, if any,
having preference over our common stock. Our common stock has no
preemptive, subscription or conversion rights and there are no
redemption provisions applicable to our common stock.
Preferred Stock
The shares of preferred stock may be issued in series, and shall
have such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issuance of such stock
adopted from time to time by the board of directors. The board of
directors is expressly vested with the authority to determine and
fix in the resolution or resolutions providing for the issuances of
preferred stock the voting powers, designations, preferences and
rights, and the qualifications, limitations or restrictions
thereof, of each such series to the full extent now or hereafter
permitted by the laws of the State of Delaware.
The authorized shares of preferred stock will be available for
issuance without further action by our stockholders unless such
action is required by applicable law or the rules of any stock
exchange or automated quotation system on which our securities may
be listed or traded. The NYSE American currently requires
stockholder approval as a prerequisite to listing shares in several
circumstances, including, in certain circumstances, where the
issuance of shares could result in an increase in the number of
shares of common stock outstanding, or in the amount of voting
securities outstanding, of at least 20%.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is
Computershare, 8742 Lucent Blvd., Suite 225, Highlands Ranch, CO
80129.
DESCRIPTION OF DEBT SECURITIES
As used in this prospectus, debt securities means the debentures,
notes, bonds and other evidences of indebtedness that AGH may issue
from time to time. Debt securities offered by this prospectus will
be either senior debt securities or subordinated debt securities.
Senior debt securities will be issued under a “Senior Indenture”
and subordinated debt securities will be issued under a
“Subordinated Indenture.” This prospectus sometimes refers to the
Senior Indenture and the Subordinated Indenture collectively as the
“Indentures.”
The form of Senior Indenture and the form of the Subordinated
Indenture are filed as exhibits to the registration statement. The
statements and descriptions in this prospectus or in any prospectus
supplement regarding provisions of the Indentures and debt
securities are summaries thereof, do not purport to be complete and
are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indentures and debt securities,
including the definitions therein of certain terms.
General
Debt securities will be direct unsecured obligations of AGH Senior
debt securities will rank equally with all of AGH’s other senior
and unsubordinated debt. The subordinated debt securities will be
subordinate and junior in right of payment to all of AGH’s present
and future senior indebtedness.
Because AGH is principally a holding company, its right to
participate in any distribution of assets of any subsidiary, upon
the subsidiary’s liquidation or reorganization or otherwise, is
subject to the prior claims of creditors of the subsidiary, except
to the extent AGH may be recognized as a creditor of that
subsidiary. Accordingly, AGH’s obligations under debt securities
will be structurally subordinated to all existing and future
indebtedness and liabilities of its subsidiaries, and holders of
debt securities should look only to AGH’s assets for payment
thereunder.
The Indentures do not limit the aggregate principal amount of debt
securities that AGH may issue and provide that AGH may issue debt
securities from time to time in one or more series, in each case
with the same or various maturities, at par or at a discount. AGH
may issue additional debt securities of a particular series without
the consent of the holders of debt securities of such series
outstanding at the time of the issuance. Any such additional debt
securities, together with all other outstanding debt securities of
that series, will constitute a single series of debt securities
under the applicable Indenture. The Indentures also do not limit
our ability to incur other debt, except as described under
“Restrictive Covenants” herein.
Each prospectus supplement will describe the terms relating to the
specific series of debt securities being offered. These terms will
include some or all of the following:
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the title of debt securities and
whether they are subordinated debt securities or senior debt
securities; |
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any limit on the aggregate
principal amount of such debt securities; |
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the price or prices at which AGH
will sell such debt securities; |
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the maturity date or dates of such
debt securities; |
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the rate or rates of interest, if
any, which may be fixed or variable, at which such debt securities
will bear interest, or the method of determining such rate or
rates, if any; |
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the date or dates from which any
interest will accrue or the method by which such date or dates will
be determined; |
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the right, if any, to extend the
interest payment periods and the duration of any such deferral
period, including the maximum consecutive period during which
interest payment periods may be extended; |
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whether the amount of payments of
principal of (and premium, if any) or interest on such debt
securities may be determined with reference to any index, formula
or other method, such as one or more currencies, commodities,
equity indices or other indices, and the manner of determining the
amount of such payments; |
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the dates on which AGH will pay
interest on such debt securities and the regular record date for
determining who is entitled to the interest payable on any interest
payment date; |
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whether the debt securities will be
secured or unsecured; |
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the place or places where the
principal of (and premium, if any) and interest on such debt
securities will be payable; |
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if AGH possesses the option to do
so, the periods within which and the prices at which AGH may redeem
such debt securities, in whole or in part, pursuant to optional
redemption provisions, and the other terms and conditions of any
such provisions; |
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AGH’s obligation, if any, to
redeem, repay or purchase such debt securities by making periodic
payments to a sinking fund or through an analogous provision or at
the option of holders of the debt securities, and the period or
periods within which and the price or prices at which AGH will
redeem, repay or purchase such debt securities, in whole or in
part, pursuant to such obligation, and the other terms and
conditions of such obligation; |
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the denominations in which such
debt securities will be issued, if other than denominations of
$1,000 and integral multiples of $1,000; |
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the portion, or methods of
determining the portion, of the principal amount of such debt
securities which AGH must pay upon the acceleration of the maturity
of the debt securities in connection with an Event of Default (as
described below), if other than the full principal amount; |
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the currency, currencies or
currency unit in which AGH will pay the principal of (and premium,
if any) or interest, if any, on such debt securities, if not United
States dollars; |
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provisions, if any, granting
special rights to holders of such debt securities upon the
occurrence of specified events; |
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any deletions from, modifications
of or additions to the Events of Default or AGH’s covenants with
respect to the applicable series of debt securities, and whether or
not such Events of Default or covenants are consistent with those
contained in the applicable Indenture; |
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the application, if any, of the
terms of the Indentures relating to defeasance and covenant
defeasance (which terms are described below) to such debt
securities; |
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whether the subordination
provisions summarized below or different subordination provisions
will apply to such debt securities; |
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the terms, if any, upon which the
holders may convert or exchange such debt securities into or for
AGH’s common stock, preferred stock or other securities or
property; |
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whether any of such debt securities
will be issued in global form and, if so, the terms and conditions
upon which global debt securities may be exchanged for certificated
debt securities; |
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any change in the right of the
trustee or the requisite holders of such debt securities to declare
the principal amount thereof due and payable because of an Event of
Default; |
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the depositary for global or
certificated debt securities; |
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any special tax implications of
such debt securities; |
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any trustees, authenticating or
paying agents, transfer agents or registrars or other agents with
respect to such debt securities; and |
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any other terms of such debt
securities. |
Unless otherwise specified in the applicable prospectus supplement,
debt securities will not be listed on any securities exchange.
Unless otherwise specified in the applicable prospectus supplement,
debt securities will be issued in fully-registered form without
coupons.
Debt securities may be sold at a substantial discount below their
stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. The applicable
prospectus supplement will describe the federal income tax
consequences and special considerations applicable to any such debt
securities. Debt securities may also be issued as indexed
securities or securities denominated in foreign currencies,
currency units or composite currencies, as described in more detail
in the prospectus supplement relating to any of the particular debt
securities. The prospectus supplement relating to specific debt
securities will also describe any special considerations and
certain additional tax considerations applicable to such debt
securities.
Subordination
The prospectus supplement relating to any offering of subordinated
debt securities will describe the specific subordination
provisions. However, unless otherwise noted in the prospectus
supplement, subordinated debt securities will be subordinate and
junior in right of payment to all of AGH’s Senior Indebtedness, to
the extent and in the manner set forth in the Subordinated
Indenture.
Under the Subordinated Indenture, “Senior Indebtedness” means all
obligations of AGH in respect of any of the following, whether
outstanding at the date of execution of the Subordinated Indenture
or thereafter incurred or created:
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the principal of (and premium, if
any) and interest due on indebtedness of AGH for borrowed
money; |
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all obligations guaranteed by AGH
for the repayment of borrowed money, whether or not evidenced by
bonds, debentures, notes or other written instruments; |
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all obligations guaranteed by AGH
evidenced by bonds, debentures, notes or similar written
instruments, including obligations assumed or incurred in
connection with the acquisition of property, assets or businesses
(provided, however, that the deferred purchase price of any other
business or property or assets shall not be considered indebtedness
if the purchase price thereof is payable in full within 90 days
from the date on which such indebtedness was created); |
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any obligations of AGH as lessee
under leases required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles; |
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all obligations of AGH for the
reimbursement on any letter of credit, banker’s acceptance,
security purchase facility or similar credit transaction; |
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all obligations of AGH in respect
of interest rate swap, cap or other agreements, interest rate
future or options contracts, currency swap agreements, currency
future or option contracts and other similar agreements; |
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all obligations of the types
referred to above of other persons for the payment of which AGH is
responsible or liable as obligor, guarantor or otherwise; and |
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all obligations of the types
referred to above of other persons secured by any lien on any
property or asset of AGH (whether or not such obligation is assumed
by AGH). |
Senior Indebtedness does not include:
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indebtedness or monetary
obligations to trade creditors created or assumed by AGH in the
ordinary course of business in connection with the obtaining of
materials or services; |
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indebtedness that is by its terms
subordinated to or ranks equal with the subordinated debt
securities; and |
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any indebtedness of AGH to its
affiliates (including all debt securities and guarantees in respect
of those debt securities issued to any trust, partnership or other
entity affiliated with AGH that is a financing vehicle of AGH in
connection with the issuance by such financing entity of preferred
securities or other securities guaranteed by AGH) unless otherwise
expressly provided in the terms of any such indebtedness. |
Senior Indebtedness shall continue to be Senior Indebtedness and be
entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term
of such Senior Indebtedness.
Unless otherwise noted in the accompanying prospectus supplement,
if AGH defaults in the payment of any principal of (or premium, if
any) or interest on any Senior Indebtedness when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise, then, unless and until such default is
cured or waived or ceases to exist, AGH will make no direct or
indirect payment (in cash, property, securities, by set-off or
otherwise) in respect of the principal of or interest on the
subordinated debt securities or in respect of any redemption,
retirement, purchase or other requisition of any of the
subordinated debt securities.
In the event of the acceleration of the maturity of any
subordinated debt securities, the holders of all senior debt
securities outstanding at the time of such acceleration will first
be entitled to receive payment in full of all amounts due on senior
debt securities before the holders of subordinated debt securities
will be entitled to receive any payment of principal (and premium,
if any) or interest on the subordinated debt securities.
If any of the following events occurs, AGH will pay in full all
Senior Indebtedness before it makes any payment or distribution
under subordinated debt securities, whether in cash, securities or
other property, to any holder of subordinated debt securities:
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any dissolution or winding-up or
liquidation or reorganization of AGH, whether voluntary or
involuntary or in bankruptcy, insolvency or receivership; |
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any general assignment by AGH for
the benefit of creditors; or |
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any other marshaling of AGH’s
assets or liabilities. |
In such event, any payment or distribution under subordinated debt
securities, whether in cash, securities or other property, which
would otherwise (but for the subordination provisions) be payable
or deliverable in respect of such subordinated debt securities,
will be paid or delivered directly to the holders of Senior
Indebtedness in accordance with the priorities then existing among
such holders until all Senior Indebtedness has been paid in full.
If any payment or distribution under subordinated debt securities
is received by the trustee of any subordinated debt securities in
contravention of any of the terms of the Subordinated Indenture and
before all the Senior Indebtedness has been paid in full, such
payment or distribution or security will be received in trust for
the benefit of, and paid over or delivered and transferred to, the
holders of Senior Indebtedness at the time outstanding in
accordance with the priorities then existing among such holders for
application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all such Senior Indebtedness
in full.
The Subordinated Indenture does not limit the issuance of
additional Senior Indebtedness.
If subordinated debt securities are issued to a trust in connection
with the issuance of trust preferred securities, such subordinated
debt securities may thereafter be distributed pro rata to the
holders of such trust securities in connection with the dissolution
of such trust upon the occurrence of certain events described in
the applicable prospectus supplement.
Restrictive Covenants
Unless an accompanying prospectus supplement states otherwise, the
following restrictive covenant shall apply to each series of senior
debt securities:
Limitation on Liens. So long as any senior debt securities
are outstanding, neither AGH nor any of its subsidiaries will
create, assume, incur or guarantee any indebtedness for money
borrowed which is secured by any pledge of, lien on or security
interest in any capital stock of its Designated Subsidiaries, other
than specified types of permitted liens.
However, this restriction will not apply if all debt securities
then outstanding and, at our option, any other senior indebtedness
ranking equally with such debt securities, are secured at least
equally and ratably with the otherwise prohibited secured debt so
long as it is outstanding.
This limitation shall not apply to debt secured by a pledge of,
lien on or security interest in any shares of stock of any
subsidiary at the time it becomes a Designated Subsidiary,
including any renewals or extensions of such secured debt.
“Designated Subsidiary” means any subsidiary of AGH, the
consolidated net worth of which represents at least 10% of the
consolidated net worth of AGH
The Subordinated Indenture does not contain a similar limitation on
liens.
Consolidation, Merger, Sale of Assets and Other
Transactions
AGH may not (i) merge with or into or consolidate with another
person or sell, assign, transfer, lease or convey all or
substantially all of its properties and assets to, any other person
other than a direct or indirect wholly-owned subsidiary of AGH, and
(ii) no person may merge with or into or consolidate with AGH or,
except for any direct or indirect wholly-owned subsidiary of AGH,
sell, assign, transfer, lease or convey all or substantially all of
its properties and assets to AGH unless:
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AGH is the surviving corporation or
the person formed by or surviving such merger or consolidation or
to which such sale, assignment, transfer, lease or conveyance has
been made, if other than AGH, has expressly assumed by supplemental
indenture all the obligations of AGH under such debt securities,
the Indentures and any guarantees of preferred securities or common
securities issued by certain trusts; |
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immediately after giving effect to
such transaction, no default or Event of Default has occurred and
is continuing; and |
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AGH delivers to the trustee an
officers’ certificate and an opinion of counsel, each stating that
the supplemental indenture complies with the applicable
Indenture. |
Events of Default, Notice and Waiver
Unless an accompanying prospectus supplement states otherwise, the
following shall constitute “Events of Default” under the Indentures
with respect to each series of debt securities:
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AGH’s failure to pay any interest
on any debt security of such series when due and payable, continued
for 30 days; |
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AGH’s failure to pay principal (or
premium, if any) on any debt security of such series when due,
regardless of whether such payment became due because of maturity,
redemption, acceleration or otherwise, or is required by any
sinking fund established with respect to such series; |
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AGH’s failure to observe or perform
any other of its covenants or agreements with respect to such debt
securities for 90 days after it receives notice of such
failure; |
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• |
certain defaults with respect to
AGH’s debt (other than such debt securities or non-recourse debt)
in any aggregate principal amount in excess of $25,000,000
consisting of the failure to make any payment at maturity or that
results in acceleration of the maturity of such debt; and |
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certain events of bankruptcy,
insolvency or reorganization of AGH |
If an Event of Default with respect to any debt securities of any
series outstanding under either of the Indentures shall occur and
be continuing, the trustee under such Indenture or the holders of
at least 25% in aggregate principal amount of the debt securities
of that series outstanding may declare, by notice as provided in
the applicable Indenture, the principal amount (or such lesser
amount as may be provided for in the debt securities of that
series) of the debt securities of that series outstanding to be due
and payable immediately; provided that, in the case of an Event of
Default involving certain events in bankruptcy, insolvency or
reorganization, acceleration is automatic; and, provided further,
that after such acceleration, but before a judgment or decree based
on acceleration, the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series may, under
certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the nonpayment of accelerated
principal, have been cured or waived.
Upon the acceleration of the maturity of original issue discount
securities, an amount less than the principal amount thereof will
become due and payable.
Reference is made to the prospectus supplement relating to any
original issue discount securities for the particular provisions
relating to acceleration of maturity thereof. Any past default
under either Indenture with respect to debt securities of any
series, and any Event of Default arising therefrom, may be waived
by the holders of a majority in principal amount of all debt
securities of such series outstanding under such Indenture, except
in the case of (i) default in the payment of the principal of (or
premium, if any) or interest on any debt securities of such series
or (ii) default in respect of a covenant or provision which may not
be amended or modified without the consent of the holder of each
outstanding debt security of such series affected.
The trustee is required, within 90 days after the occurrence of a
default (which is known to the trustee and is continuing), with
respect to the debt securities of any series (without regard to any
grace period or notice requirements), to give to the holders of
debt securities of such series notice of such default; provided,
however, that, except in the case of a default in the payment of
the principal of (and premium, if any) or interest, or in the
payment of any sinking fund installment, on any debt securities of
such series, the trustee shall be protected in withholding such
notice if it in good faith determines that the withholding of such
notice is in the interests of the holders of debt securities of
such series.
The trustee, subject to its duties during default to act with the
required standard of care, may require indemnification by the
holders of debt securities of any series with respect to which a
default has occurred before proceeding to exercise any right or
power under the Indentures at the request of the holders of debt
securities of such series. Subject to such right of indemnification
and to certain other limitations, the holders of a majority in
principal amount of the outstanding debt securities of any series
under either Indenture may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee,
or exercising any trust or power conferred on the trustee with
respect to debt securities of such series.
No holder of a debt security of any series may institute any action
against AGH under either of the Indentures (except actions for
payment of overdue principal of (and premium, if any) or interest
on such debt security or for the conversion or exchange of such
debt security in accordance with its terms) unless (i) the holder
has given to the trustee written notice of an Event of Default and
of the continuance thereof with respect to debt securities of such
series specifying an Event of Default, as required under the
applicable Indenture, (ii) the holders of at least 25% in aggregate
principal amount of debt securities of that series then outstanding
under such Indenture shall have requested the trustee to institute
such action and offered to the trustee indemnity reasonably
satisfactory to it against the costs, expenses and liabilities to
be incurred in compliance with such request and (iii) the trustee
shall not have instituted such action within 60 days of such
request.
AGH is required to furnish annually to the trustee statements as to
its compliance with all conditions and covenants under each
Indenture.
Discharge, Defeasance and Covenant Defeasance
If indicated in the applicable prospectus supplement, AGH may
discharge or defease its obligations under each Indenture as set
forth below.
AGH may discharge certain obligations to holders of any series of
debt securities issued under either the Senior Indenture or the
Subordinated Indenture which have not already been delivered to the
trustee for cancellation and which have either become due and
payable or are by their terms due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing
with the trustee cash or, in the case of debt securities payable
only in U.S. dollars, U.S. Government Obligations (as defined in
either Indenture), as trust funds in an amount certified to be
sufficient to pay when due, whether at maturity, upon redemption or
otherwise, the principal of (and premium, if any) and interest on
such debt securities.
If indicated in the applicable prospectus supplement, AGH may elect
either (i) to defease and be discharged from any and all
obligations with respect to debt securities of or within any series
(except as otherwise provided in the relevant Indenture)
(“defeasance”) or (ii) to be released from its obligations with
respect to certain covenants applicable to debt securities of or
within any series (“covenant defeasance”), upon the deposit with
the relevant Indenture trustee, in trust for such purpose, of money
and/or government obligations which through the payment of
principal and interest in accordance with their terms will provide
money in an amount sufficient, without reinvestment, to pay the
principal of (and premium, if any) or interest on such debt
securities to maturity or redemption, as the case may be, and any
mandatory sinking fund or analogous payments thereon. As a
condition to defeasance or covenant defeasance, AGH must deliver to
the trustee an opinion of counsel to the effect that the holders of
such debt securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on
the same amounts and in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance
had not occurred. Such opinion of counsel, in the case of
defeasance under clause (i) above, must refer to and be based upon
a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after the date of the relevant
Indenture. In addition, in the case of either defeasance or
covenant defeasance, AGH shall have delivered to the trustee (i) an
officers’ certificate to the effect that the relevant debt
securities exchange(s) have informed it that neither such debt
securities nor any other debt securities of the same series, if
then listed on any securities exchange, will be delisted as a
result of such deposit and (ii) an officers’ certificate and an
opinion of counsel, each stating that all conditions precedent with
respect to such defeasance or covenant defeasance have been
complied with. AGH may exercise its defeasance option with respect
to such debt securities notwithstanding its prior exercise of its
covenant defeasance option.
Modification and Waiver
Under the Indentures, AGH and the applicable trustee may supplement
the Indentures for certain purposes which would not materially
adversely affect the interests or rights of the holders of debt
securities of a series without the consent of those holders. AGH
and the applicable trustee may also modify the Indentures or any
supplemental indenture in a manner that affects the interests or
rights of the holders of debt securities with the consent of the
holders of at least a majority in aggregate principal amount of the
outstanding debt securities of each affected series issued under
the Indenture. However, the Indentures require the consent of each
holder of debt securities that would be affected by any
modification which would:
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• |
extend the fixed maturity of any
debt securities of any series, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any premium payable upon the redemption
thereof; |
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• |
reduce the amount of principal of
an original issue discount debt security or any other debt security
payable upon acceleration of the maturity thereof; |
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• |
change the currency in which any
debt security or any premium or interest is payable; |
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• |
impair the right to institute suit
for any payment on or with respect to any debt security; |
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• |
reduce the percentage in principal
amount of outstanding debt securities of any series, the consent of
whose holders is required for modification or amendment of the
Indentures or for waiver of compliance with certain provisions of
the Indentures or for waiver of certain defaults; |
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reduce the requirements contained
in the Indentures for quorum or voting; or |
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• |
modify any of the above
provisions. |
If subordinated debt securities are held by a trust or a trustee of
a trust, a supplemental indenture that affects the interests or
rights of the holders of debt securities will not be effective
until the holders of not less than a majority in liquidation
preference of the preferred securities and common securities of the
applicable trust, collectively, have consented to the supplemental
indenture; provided, further, that if the consent of the holder of
each outstanding debt security is required, the supplemental
indenture will not be effective until each holder of the preferred
securities and the common securities of the applicable trust has
consented to the supplemental indenture.
The Indentures permit the holders of at least a majority in
aggregate principal amount of the outstanding debt securities of
any series issued under the Indentures which is affected by the
modification or amendment to waive AGH’s compliance with certain
covenants contained in the Indentures.
Payment and Paying Agents
Unless otherwise indicated in the applicable prospectus supplement,
payment of interest on a debt security on any interest payment date
will be made to the person in whose name a debt security is
registered at the close of business on the record date for the
interest.
Unless otherwise indicated in the applicable prospectus supplement,
principal, interest and premium on the debt securities of a
particular series will be payable at the office of such paying
agent or paying agents as AGH may designate for such purpose from
time to time.
Notwithstanding the foregoing, at AGH’s option, payment of any
interest may be made by check mailed to the address of the person
entitled thereto as such address appears in the security
register.
Unless otherwise indicated in the applicable prospectus supplement,
a paying agent designated by AGH and located in the Borough of
Manhattan, The City of New York will act as paying agent for
payments with respect to debt securities of each series. All paying
agents initially designated by AGH for debt securities of a
particular series will be named in the applicable prospectus
supplement. AGH may at any time designate additional paying agents
or rescind the designation of any paying agent or approve a change
in the office through which any paying agent acts, except that AGH
will be required to maintain a paying agent in each place of
payment for debt securities of a particular series.
All moneys paid by AGH to a paying agent for the payment of the
principal, interest or premium on any debt security which remain
unclaimed at the end of two years after such principal, interest or
premium has become due and payable will be repaid to AGH upon
request, and the holder of such debt security thereafter may look
only to AGH for payment thereof.
Denominations, Registrations and Transfer
Unless an accompanying prospectus supplement states otherwise, debt
securities will be represented by one or more global certificates
registered in the name of a nominee for The Depository Trust
Company, or DTC. In such case, each holder’s beneficial interest in
the global securities will be shown on the records of DTC and
transfers of beneficial interests will only be effected through
DTC’s records.
A holder of debt securities may only exchange a beneficial interest
in a global security for certificated securities registered in the
holder’s name if:
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• |
DTC notifies AGH that it is
unwilling or unable to continue serving as the depositary for the
relevant global securities; |
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• |
DTC ceases to maintain certain
qualifications under the Exchange Act and no successor depositary
has been appointed for 90 days; or |
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AGH determines, in its sole
discretion, that the global security shall be exchangeable. |
If debt securities are issued in certificated form, they will only
be issued in the minimum denomination specified in the accompanying
prospectus supplement and integral multiples of such denomination.
Transfers and exchanges of such debt securities will only be
permitted in such minimum denomination. Transfers of debt
securities in certificated form may be registered at the trustee’s
corporate office or at the offices of any paying agent or trustee
appointed by AGH under the Indentures. Exchanges of debt securities
for an equal aggregate principal amount of debt securities in
different denominations may also be made at such locations.
Governing Law
The Senior Indenture, the Subordinated Indenture and debt
securities will be governed by, and construed in accordance with,
the internal laws of the State of New York, without regard to its
principles of conflicts of laws.
Conversion or Exchange Rights
The prospectus supplement will describe the terms, if any, on which
a series of debt securities may be convertible into or exchangeable
for AGH’s Class A Common Stock, preferred stock or other debt
securities. These terms will include provisions as to whether
conversion or exchange is mandatory, at the option of the holder or
at AGH’s option. These provisions may allow or require the number
of shares of AGH’s Class A Common Stock or other securities to be
received by the holders of such series of debt securities to be
adjusted.
DESCRIPTION OF WARRANTS
The following description, together with the additional information
we may include in any applicable prospectus supplements, summarizes
the material terms and provisions of the warrants that we may offer
under this prospectus and the related warrant agreements and
warrant certificates. While the terms summarized below will apply
generally to any warrants that we may offer, we will describe the
particular terms of any series of warrants in more detail in the
applicable prospectus supplement. If we indicate in the prospectus
supplement, the terms of any warrants offered under that prospectus
supplement may differ from the terms described below. If
there are differences between that prospectus supplement and this
prospectus, the prospectus supplement will control. Thus, the
statements we make in this section may not apply to a particular
series of warrants. Specific warrant agreements will contain
additional important terms and provisions and will be incorporated
by reference as an exhibit to the registration statement which
includes this prospectus.
General
We may issue warrants for the purchase of common stock and/or
preferred stock in one or more series. We may issue warrants
independently or together with common stock and/or preferred stock,
and the warrants may be attached to or separate from these
securities.
We will evidence each series of warrants by warrant certificates
that we may issue under a separate agreement. We may enter into the
warrant agreement with a warrant agent. Each warrant agent may be a
bank that we select which has its principal office in the United
States and a combined capital and surplus of at least
$50,000,000. We may also choose to act as our own warrant
agent. We will indicate the name and address of any such
warrant agent in the applicable prospectus supplement relating to a
particular series of warrants.
We will describe in the applicable prospectus supplement the terms
of the series of warrants, including:
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the offering price and aggregate
number of warrants offered; |
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• |
the currency for which the warrants
may be purchased; |
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• |
if applicable, the designation and
terms of the securities with which the warrants are issued and the
number of warrants issued with each such security or each principal
amount of such security; |
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• |
if applicable, the date on and
after which the warrants and the related securities will be
separately transferable; |
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in the case of warrants to purchase
common stock or preferred stock, the number of shares of common
stock or preferred stock, as the case may be, purchasable upon the
exercise of one warrant and the price at which these shares may be
purchased upon such exercise; |
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the warrant agreement under which
the warrants will be issued; |
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• |
the effect of any merger,
consolidation, sale or other disposition of our business on the
warrant agreement and the warrants; |
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anti-dilution provisions of the
warrants, if any; |
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the terms of any rights to redeem
or call the warrants; |
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• |
any provisions for changes to or
adjustments in the exercise price or number of securities issuable
upon exercise of the warrants; |
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• |
the dates on which the right to
exercise the warrants will commence and expire or, if the warrants
are not continuously exercisable during that period, the specific
date or dates on which the warrants will be exercisable; |
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• |
the manner in which the warrant
agreement and warrants may be modified; |
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• |
the identities of the warrant agent
and any calculation or other agent for the warrants; |
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• |
federal income tax consequences of
holding or exercising the warrants; |
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• |
the terms of the securities
issuable upon exercise of the warrants; |
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• |
any securities exchange or
quotation system on which the warrants or any securities
deliverable upon exercise of the warrants may be listed; and |
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any other specific terms,
preferences, rights or limitations of or restrictions on the
warrants. |
Before exercising their warrants, holders of warrants will not have
any of the rights of holders of the securities purchasable upon
such exercise, including in the case of warrants to purchase common
stock or preferred stock, the right to receive dividends, if any,
or, payments upon our liquidation, dissolution or winding up or to
exercise voting rights, if any.
Exercise of Warrants
Each warrant will entitle the holder to purchase the securities
that we specify in the applicable prospectus supplement at the
exercise price that we describe in the applicable prospectus
supplement. Unless we otherwise specify in the applicable
prospectus supplement, holders of the warrants may exercise the
warrants at any time up to 5:00 p.m. Eastern Time on the
expiration date that we set forth in the applicable prospectus
supplement. After the close of business on the expiration date,
unexercised warrants will become void.
Holders of the warrants may exercise the warrants by delivering the
warrant certificate representing the warrants to be exercised
together with specified information, and paying the required amount
to the warrant agent in immediately available funds, as provided in
the applicable prospectus supplement. We will set forth on the
reverse side of the warrant certificate, and in the applicable
prospectus supplement, the information that the holder of the
warrant will be required to deliver to the warrant agent.
Until the warrant is properly exercised, no holder of any warrant
will be entitled to any rights of a holder of the securities
purchasable upon exercise of the warrant.
Upon receipt of the required payment and the warrant certificate
properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the
applicable prospectus supplement, we will issue and deliver the
securities purchasable upon such exercise. If fewer than all of the
warrants represented by the warrant certificate are exercised, then
we will issue a new warrant certificate for the remaining amount of
warrants. If we so indicate in the applicable prospectus
supplement, holders of the warrants may surrender securities as all
or part of the exercise price for warrants.
Enforceability of Rights by Holders of Warrants
Any warrant agent will act solely as our agent under the applicable
warrant agreement and will not assume any obligation or
relationship of agency or trust with any holder of any warrant. A
single bank or trust company may act as warrant agent for more than
one issue of warrants. A warrant agent will have no duty or
responsibility in case of any default by us under the applicable
warrant agreement or warrant, including any duty or responsibility
to initiate any proceedings at law or otherwise, or to make any
demand upon us. Any holder of a warrant may, without the consent of
the related warrant agent or the holder of any other warrant,
enforce by appropriate legal action its right to exercise, and
receive the securities purchasable upon exercise of, its warrants
in accordance with their terms.
Warrant Agreement Will Not Be Qualified Under the Trust
Indenture Act
No warrant agreement will be qualified as an indenture, and no
warrant agent will be required to qualify as a trustee, under the
Trust Indenture Act. Therefore, holders of warrants issued under a
warrant agreement will not have the protection of the Trust
Indenture Act with respect to their warrants.
Governing Law
Each warrant agreement and any warrants issued under the warrant
agreements will be governed by New York law.
Calculation Agent
Calculations relating to warrants may be made by a calculation
agent, an institution that we appoint as our agent for this
purpose. The prospectus supplement for a particular warrant
will name the institution that we have appointed to act as the
calculation agent for that warrant as of the original issue date
for that warrant. We may appoint a different institution to serve
as calculation agent from time to time after the original issue
date without the consent or notification of the holders.
The calculation agent’s determination of any amount of money
payable or securities deliverable with respect to a warrant will be
final and binding in the absence of manifest error.
DESCRIPTION OF RIGHTS
This section describes the general terms of the rights that we may
offer and sell by this prospectus. This prospectus and any
accompanying prospectus supplement will contain the material terms
and conditions for each right. The accompanying prospectus
supplement may add, update or change the terms and conditions of
the rights as described in this prospectus.
The particular terms of each issue of rights, the rights agreement
relating to the rights and the rights certificates representing
rights will be described in the applicable prospectus supplement,
including, as applicable:
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the title of the rights; |
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the date of determining the
stockholders entitled to the rights distribution; |
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• |
the title, aggregate number of
shares of Class A common stock or preferred stock purchasable upon
exercise of the rights; |
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• |
the aggregate number of rights
issued; |
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• |
the date, if any, on and after
which the rights will be separately transferable; |
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• |
the date on which the right to
exercise the rights will commence and the date on which the right
will expire; and |
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any other terms of the rights,
including terms, procedures and limitations relating to the
distribution, exchange and exercise of the rights. |
DESCRIPTION OF UNITS
We may issue units comprised of one or more of the other securities
described in this prospectus in any combination. Each unit will be
issued so that the holder of the unit is also the holder of each
security included in the unit. Thus, the holder of a unit will have
the rights and obligations of a holder of each included security.
The unit agreement under which a unit is issued may provide that
the securities included in the unit may not be held or transferred
separately, at any time or at any time before a specified date.
The applicable prospectus supplement will describe:
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• |
the designation and terms of the
units and of the securities comprising the units, including whether
and under what circumstances those securities may be held or
transferred separately; |
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• |
any unit agreement under which the
units will be issued; |
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• |
any provisions for the issuance,
payment, settlement, transfer or exchange of the units or of the
securities comprising the units; and |
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whether the units will be issued in
fully registered or global form. |
The applicable prospectus supplement will describe the terms of any
units. The preceding description and any description of units in
the applicable prospectus supplement does not purport to be
complete and is subject to and is qualified in its entirety by
reference to the unit agreement and, if applicable, collateral
arrangements and depositary arrangements relating to such
units.
PLAN OF DISTRIBUTION
We may sell the securities being offered pursuant to this
prospectus through underwriters or dealers, through agents, or
directly to one or more purchasers or through a combination of
these methods. The applicable prospectus supplement will
describe the terms of the offering of the securities,
including:
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the name or names of any
underwriters, if any, and if required, any dealers or agents; |
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• |
the purchase price of the
securities and the proceeds we will receive from the sale; |
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• |
any underwriting discounts and
other items constituting underwriters’ compensation; |
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• |
any discounts or concessions
allowed or reallowed or paid to dealers; and |
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• |
any securities exchange or market
on which the securities may be listed. |
We may distribute the securities from time to time in one or more
transactions at:
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• |
a fixed price or prices, which may
be changed; |
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• |
market prices prevailing at the
time of sale; |
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• |
prices related to such prevailing
market prices; or |
Only underwriters named in the prospectus supplement are
underwriters of the securities offered by the prospectus
supplement.
If underwriters are used in an offering, we will execute an
underwriting agreement with such underwriters and will specify the
name of each underwriter and the terms of the transaction
(including any underwriting discounts and other terms constituting
compensation of the underwriters and any dealers) in a prospectus
supplement. The securities may be offered to the public either
through underwriting syndicates represented by managing
underwriters or directly by one or more investment banking firms or
others, as designated. If an underwriting syndicate is used, the
managing underwriter(s) will be specified on the cover of the
prospectus supplement. If underwriters are used in the sale, the
offered securities will be acquired by the underwriters for their
own accounts and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
Any public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time.
Unless otherwise set forth in the prospectus supplement, the
obligations of the underwriters to purchase the offered securities
will be subject to conditions precedent and the underwriters will
be obligated to purchase all of the offered securities if any are
purchased.
We may grant to the underwriters options to purchase additional
securities to cover over-allotments, if any, at the public offering
price, with additional underwriting commissions or discounts, as
may be set forth in a related prospectus supplement. The terms of
any over-allotment option will be set forth in the prospectus
supplement for those securities.
If we use a dealer in the sale of the securities being offered
pursuant to this prospectus or any prospectus supplement, we will
sell the securities to the dealer, as principal. The dealer
may then resell the securities to the public at varying prices to
be determined by the dealer at the time of resale. The names
of the dealers and the terms of the transaction will be specified
in a prospectus supplement.
We may sell the securities directly or through agents we designate
from time to time. We will name any agent involved in the
offering and sale of securities and we will describe any
commissions we will pay the agent in the prospectus supplement.
Unless the prospectus supplement states otherwise, any agent will
act on a best-efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by
institutional investors to purchase securities from us at the
public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and
delivery on a specified date in the future. We will describe the
conditions to these contracts and the commissions we must pay for
solicitation of these contracts in the prospectus supplement.
In connection with the sale of the securities, underwriters,
dealers or agents may receive compensation from us or from
purchasers of the securities for whom they act as agents in the
form of discounts, concessions or commissions. Underwriters may
sell the securities to or through dealers, and those dealers may
receive compensation in the form of discounts, concessions or
commissions from the underwriters or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers
and agents that participate in the distribution of the securities,
and any institutional investors or others that purchase securities
directly and then resell the securities, may be deemed to be
underwriters, and any discounts or commissions received by them
from us and any profit on the resale of the securities by them may
be deemed to be underwriting discounts and commissions under the
Securities Act.
We may provide agents and underwriters with indemnification against
particular civil liabilities, including liabilities under the
Securities Act, or contribution with respect to payments that the
agents or underwriters may make with respect to such liabilities.
Agents and underwriters may engage in transactions with, or perform
services for, us in the ordinary course of business.
In addition, we may enter into derivative transactions with third
parties (including the writing of options), or sell securities not
covered by this prospectus to third parties in privately negotiated
transactions. If the applicable prospectus supplement indicates, in
connection with such a transaction, the third parties may, pursuant
to this prospectus and the applicable prospectus supplement, sell
securities covered by this prospectus and the applicable prospectus
supplement. If so, the third party may use securities borrowed from
us or others to settle such sales and may use securities received
from us to close out any related short positions. We may also loan
or pledge securities covered by this prospectus and the applicable
prospectus supplement to third parties, who may sell the loaned
securities or, in an event of default in the case of a pledge, sell
the pledged securities pursuant to this prospectus and the
applicable prospectus supplement. The third party in such sale
transactions will be an underwriter and will be identified in the
applicable prospectus supplement or in a post-effective
amendment.
Stabilization Activities
To facilitate an offering of a series of securities, persons
participating in the offering may engage in transactions that
stabilize, maintain, or otherwise affect the market price of the
securities. This may include over-allotments or short sales of the
securities, which involves the sale by persons participating in the
offering of more securities than have been sold to them by us. In
those circumstances, such persons would cover such over-allotments
or short positions by purchasing in the open market or by
exercising the over-allotment option granted to those persons. In
addition, those persons may stabilize or maintain the price of the
securities by bidding for or purchasing securities in the open
market or by imposing penalty bids, whereby selling concessions
allowed to underwriters or dealers participating in any such
offering may be reclaimed if securities sold by them are
repurchased in connection with stabilization transactions. The
effect of these transactions may be to stabilize or maintain the
market price of the securities at a level above that which might
otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time. We make no
representation or prediction as to the direction or magnitude of
any effect that the transactions described above, if implemented,
may have on the price of our securities.
Trading Markets and Listing of Securities
Any common stock sold pursuant to a prospectus supplement will be
eligible for quotation and trading on the NYSE American. Any
underwriters to whom securities are sold by us for public offering
and sale may make a market in the securities, but such underwriters
will not be obligated to do so and may discontinue any market
making at any time without notice.
In compliance with the guidelines of the Financial Industry
Regulatory Authority (which we refer to as “FINRA”), the aggregate
maximum discount, commission, agency fees or other items
constituting underwriting compensation to be received by any FINRA
member or independent broker-dealer will not exceed 8% of the
offering proceeds from any offering pursuant to this prospectus and
any applicable prospectus supplement.
No FINRA member may participate in any offering of securities made
under this prospectus if such member has a conflict of interest
under FINRA Rule 5121, including if 5% or more of the net proceeds,
not including underwriting compensation, of any offering of
securities made under this prospectus will be received by a FINRA
member participating in the offering or affiliates or associated
persons of such FINRA members, unless a qualified independent
underwriter has participated in the offering or the offering
otherwise complies with FINRA Rule 5121.
In order to comply with the securities laws of some states, if
applicable, the securities offered pursuant to this prospectus will
be sold in those states only through registered or licensed brokers
or dealers. In addition, in some states securities may not be sold
unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or
qualification requirement is available and complied with.
LEGAL MATTERS
The validity of the securities offered by this prospectus is being
passed upon for us by our counsel, Olshan Frome Wolosky LLP, New
York, New York. If the securities are distributed in an
underwritten offering, certain legal matters will be passed upon
for the underwriters by counsel identified in the applicable
prospectus supplement.
EXPERTS
The consolidated financial statements incorporated in this
prospectus by reference from our Annual Report
on Form 10-K for the years ended
December 31, 2020 and 2019, and for each of the years in the
period ended December 31, 2020, have been so incorporated in
reliance on the report of Marcum, LLP, an independent registered
public accounting firm, incorporated herein by reference, given on
the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Enertec Systems 2001 LTD.,
as of December 31, 2020 and December 31, 2019, and for the year
ended December 31, 2020 incorporated by reference in this
prospectus have been so incorporated in reliance on the report of
BDO ZIV HAFT, an independent registered public accounting firm,
incorporated herein by reference, given on the authority of said
firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form
S-3 under the Securities Act, with respect to the securities
covered by this prospectus. This prospectus and any prospectus
supplement which form a part of the registration statement, does
not contain all of the information set forth in the registration
statement or the exhibits and schedules filed therewith. For
further information with respect to us and the securities covered
by this prospectus, please see the registration statement and the
exhibits filed with the registration statement. Any statements made
in this prospectus or any prospectus supplement concerning legal
documents are not necessarily complete and you should read the
documents that are filed as exhibits to the registration statement
or otherwise filed with the Commission for a more complete
understanding of the document or matter. A copy of the registration
statement and the exhibits filed with the registration statement
may be inspected without charge at the Public Reference Room
maintained by the Commission, located at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for more information about the operation of the
Public Reference Room. The Commission also maintains an internet
website that contains reports, proxy and information statements and
other information regarding registrants that file electronically
with the Commission. The address of the website is
http://www.sec.gov.
We file annual, quarterly and current reports, proxy statements and
other information with the Commission. You may read, without
charge, and copy the documents we file at the Commission’s public
reference room in Washington, D.C. at 100 F Street, N.E.,
Washington, D.C. 20549. You can request copies of these documents
by writing to the Commission and paying a fee for the copying cost.
Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our filings with the
Commission are available to the public at no cost from the SEC’s
website at http://www.sec.gov.
The reports and other information filed by us with the Commission
are also available at our website, www.aultglobal.com. Information
contained on our website or that can be accessed through our
website is not incorporated by reference into this prospectus or
any prospectus supplement and should not be considered to be part
of this prospectus or any prospectus supplement.
INCORPORATION OF DOCUMENTS BY REFERENCE
We have filed a registration statement on Form S-3 with the
Commission under the Securities Act. This prospectus is part of the
registration statement but the registration statement includes and
incorporates by reference additional information and exhibits. The
Commission permits us to “incorporate by reference” the information
contained in documents we file with the Commission, which means
that we can disclose important information to you by referring you
to those documents rather than by including them in this
prospectus. Information that is incorporated by reference is
considered to be part of this prospectus and you should read it
with the same care that you read this prospectus. Information that
we file later with the Commission will automatically update and
supersede the information that is either contained, or incorporated
by reference, in this prospectus, and will be considered to be a
part of this prospectus from the date those documents are filed. We
have filed with the Commission, and incorporate by reference in
this prospectus:
|
• |
Our Annual Report on Form 10-K for
the period ended December 31, 2020, filed with the SEC on April 15,
2021; |
|
• |
Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2021 and June 30, 2021; |
|
• |
Current Reports on Form 8-K filed
with the SEC on January 4, 2021, January 19, 2021, January 25,
2021, February 17, 2021, March 5, 2021, June 4, 2021, June 15,
2021, June 23, 2021, July 6, 2021, August 13, 2021 and September
15, 2021; |
|
• |
Our Definitive Proxy Statements
filed with the SEC on each of June 7, 2021 and June 16, 2021,
and |
|
• |
The description of our common stock
contained in our Form 8-A filed with the SEC on January 30,
1997. |
We also incorporate by reference all additional documents that we
file with the Securities and Exchange Commission under the terms of
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that are
made after the initial filing date of the registration statement of
which this prospectus is a part until the offering of the
particular securities covered by a prospectus supplement or term
sheet has been completed. We are not, however, incorporating, in
each case, any documents or information that we are deemed to
furnish and not file in accordance with Securities and Exchange
Commission rules.
We will provide you, without charge upon written or oral request, a
copy of any and all of the information that has been incorporated
by reference in this prospectus and that has not been delivered
with this prospectus. Requests should be directed to Ault Global
Holdings, Inc., 11411 Southern Highlands Parkway, Suite 240, Las
Vegas, NV 89141; Tel.: (949) 444-5464; Attention: Mr. Milton C.
(Todd) Ault III, Executive Chairman.
BITNILE HOLDINGS, INC.
120,000 Shares of
13.00% Series D Cumulative Redeemable Perpetual Preferred
Stock
$25.00 per Share
Liquidation Preference $25.00 per Share
PRELIMINARY PROSPECTUS SUPPLEMENT
Alexander Capital, L.P.
June ___, 2022
Ault Global (AMEX:DPW)
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