Item 1. Legal Proceedings
ITEM 1. LEGAL PROCEEDINGS
Litigation Matters
The Company is involved in litigation arising
from other matters in the ordinary course of business. We are regularly subject to claims, suits, regulatory and government investigations,
and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government
investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding matters include
speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable that a loss has
been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of
loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount
of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments
as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related
to such matters.
Arena Litigation
Arena Investors, LP (ROI Litigation)
On May 30, 2024, Arena Investors, LP (“Arena”),
in its capacity as collateral agent for five noteholders, filed a filed a Complaint (the “ROI Complaint”) in the Supreme Court
of the State of New York, County of New York against the Company and ROI, in action captioned Arena Investors, LP v. Ault Alliance,
Inc. and RiskOn International, Inc. , Index No. 652792/2024.
The ROI Complaint asserts a cause of action
for breach of contract against the Company based on a Guaranty, dated April 27, 2023, and entered into, amongst others, the Company and
Arena, and seeks damages in the amount of in excess of $3.75 million, plus interest, attorneys’ fees, costs, expenses, and disbursements.
The ROI Complaint also asserts a cause of
action for breach of contract against ROI based on an alleged breach of that certain Security Agreement, dated April 27, 2023, and entered
into among ROI and Arena. In connection with this cause of action, Arena seeks, among other things, costs and expenses from the Company
and ROI.
On July 31, 2024, the Company and ROI filed
a motion to dismiss seeking to partially dismiss the ROI Complaint, as against the Company, and to dismiss the Compliant, in its entirety,
as against ROI.
The Motion has been fully briefed and is
currently pending before the Court.
Based on the Company’s assessment
of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably
estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion
of the notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results
of operations.
Arena Investors, LP (Gresham Litigation)
On June 6, 2024, Arena, in its capacity
as collateral agent for Arena and Walleye Opportunities Master Fund Ltd. (“Walleye”), filed a Complaint (the “Complaint”)
in the Supreme Court of the State of New York, County of New York against the Company and GIGA, in action captioned Arena Investors,
LP v. Gresham Worldwide, Inc. f/k/a Giga-Tronics Incorporated and Ault Alliance, Inc. , Index No. 652898/2024.
On July 8, 2024, Arena filed an Amended
Complaint (the “Amended Complaint”) in the above-referenced action. The Amended Complaint asserts a cause of action
against the Company for declaratory and injunctive relief seeking an injunction enjoining the Company, and its agent, affiliates, servants,
and employees from taking actions in breach of that certain Subordination Agreement, dated January 9, 2023, and entered into among Walleye,
Arena, and the Company.
16
The Amended Complaint also asserts causes
of action for breach of contract against GIGA based on two discrete convertible promissory notes (the “Notes”) that GIGA entered
into with each of Arena and Walleye, as well as a claim for breach duty of good faith and fair dealing, against GIGA, and seeks, among
other things, monetary damages in excess of $4.2 million, with interest thereon, attorneys’ fees, costs, and disbursements.
The Amended Complaint further asserts another cause of action against GIGA for breach of contract seeking declaratory and injunctive relief
based on alleged inspection rights contained in a Security Agreement, dated January 9, 2023 (the “Security Agreement”), and
entered into between the Walleye, Arena, and GIGA, which seeks the issuance of an injunction related to such alleged inspection rights,
plus the costs and out-of-pocket expenses associated with the enforcement of same.
On July 12, 2024, the Court granted injunctive
relief to Arena and ordered GIGA to comply with the inspection rights provision of the Security Agreement by July 17, 2024.
On July 19, 2024, Arena voluntarily discontinued
its cause of action for breach duty of good faith and fair dealing claim against GIGA.
On July 29, 2024, the Company and GIGA filed
a motion to dismiss, strike, and for sanctions (the “Motion”), in response to the Amended Complaint, on the grounds that,
amongst other things, the underlying Notes are criminally usurious under New York.
On August 14, 2024, GIGA filed a petition
for reorganization under Chapter 11 of the bankruptcy laws
On November 12, 2024, GIGA removed the state
court action to the United States District Court for the Southern District of New York.
Based on the Company’s assessment
of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably
estimate the potential loss or range of loss that may result from this action. Notwithstanding, the Company has recorded the unpaid portion
of the Notes. An unfavorable outcome may have a material adverse effect on the Company’s business, financial condition and results
of operations.
Other Litigation Matters
With respect to our other outstanding matters,
based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in aggregate,
have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome
of such matters is inherently unpredictable and subject to significant uncertainties.
ITEM 1A. RISK FACTORS
There are no updates or changes
to the risk factors set forth in our Annual Report on Form 10-K/A for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.