Business Context and Reporting Period
This Form 8-K Current Report was filed by Ault Alliance, Inc. (not Hyperscale Data, Inc.) on July 19, 2024. The report discloses the entry into a material definitive agreement involving a registered direct offering of a convertible promissory note to an institutional investor.
Key Financial Metrics and Transaction Details
- Instrument: 10% OID Convertible Promissory Note.
- Principal Face Amount: $5,390,000 (includes $490,000 original issue discount).
- Purchase Price: $4,900,000.
- Interest Rate: 15% per annum (increases to 18% per annum upon an event of default).
- Maturity Date: October 19, 2024.
- Conversion Price: $0.22 per share of Class A Common Stock.
- Conversion Trigger: Convertible at any time after NYSE American approval of the Supplemental Listing Application.
- Issuance Limit: Conversion is capped at 19.99% of total outstanding shares unless stockholder approval is obtained.
Material Changes and Adjustments
The filing details a specific price adjustment mechanism: If the closing bid price of the Common Stock is lower than the conversion price on September 2, 2024 (the "Adjustment Date"), the conversion price will be reduced to 85% of that closing bid price. This adjustment date may be extended if the investor converts a portion of the note up to the NYSE limit prior to obtaining stockholder approval.
Outlook, Risks, and Contingencies
- Closing Date: The offering is expected to close on July 19, 2024.
- Regulatory Requirements: The Company must file a proxy or information statement to obtain stockholder approval for issuances exceeding the 19.99% NYSE limit.
- Events of Default: Include failure to pay, covenant defaults, bankruptcy, failure to obtain stockholder approval, or suspension/delisting of Common Stock.
- Financial Impact: The transaction creates a direct financial obligation and potential dilution to existing shareholders upon conversion.
Investor Verification Checklist
- Verify the status of the Supplemental Listing Application (SLAP) with NYSE American to determine conversion eligibility.
- Confirm the current closing bid price of Ault Alliance Common Stock relative to the $0.22 conversion price and the potential September 2, 2024, adjustment.
- Review the upcoming proxy statement for stockholder approval regarding the 19.99% issuance cap.
- Assess the Company's liquidity position given the short-term maturity date of October 19, 2024.
- Examine the full text of the Note Purchase Agreement (Exhibit 10.1) for specific covenants and default triggers.