CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. All
statements other than statements of historical fact are, or may be deemed to be,
forward-looking statements. Such forward-looking statements include statements
regarding, among others, (a) our expectations about possible business
combinations, (b) our growth strategies, (c) our future financing plans, and (d)
our anticipated needs for working capital. Forward-looking statements, which
involve assumptions and describe our future plans, strategies, and expectations,
are generally identifiable by use of the words "may," "will," "should,"
"expect," "anticipate," "approximate," "estimate," "believe," "intend," "plan,"
"budget," "could," "forecast," "might," "predict," "shall" or "project," or the
negative of these words or other variations on these words or comparable
terminology. This information may involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance,
or achievements expressed or implied by any forward-looking statements. These
statements may be found in this Annual Report.
Forward-looking statements are based on our current expectations and assumptions
regarding our business, potential target businesses, the economy and other
future conditions. Because forward-looking statements relate to the future, by
their nature, they are subject to inherent uncertainties, risks, and changes in
circumstances that are difficult to predict. Our actual results may differ
materially from those contemplated by the forward-looking statements as a result
of various factors, including, without limitation, the risks outlined under
"Risk Factors" in this Annual Report, changes in local, regional, national or
global political, economic, business, competitive, market (supply and demand)
and regulatory conditions and the following:
· Adverse economic conditions;
· Our ability to effectively execute our business plan;
· Inability to raise sufficient additional capital to operate our business;
· Our ability to manage our expansion, growth and operating expenses;
· Our ability to evaluate and measure our business, prospects and performance
metrics;
· Our ability to compete and succeed in highly competitive and evolving
industries;
· Our ability to respond and adapt to changes in technology and customer
behavior;
· Our ability to protect our intellectual property and to develop, maintain and
enhance a strong brand; and
· Other specific risks referred to in the section entitled "Risk Factors".
We caution you therefore that you should not rely on any of these
forward-looking statements as statements of historical fact or as guarantees or
assurances of future performance. All forward-looking statements speak only as
of the date of this Annual Report. We undertake no obligation to update any
forward-looking statements or other information contained herein unless required
by law.
Information regarding market and industry statistics contained in this Annual
Report is included based on information available to us that we believe is
accurate. It is generally based on academic and other publications that are not
produced for purposes of securities offerings or economic analysis. Forecasts
and other forward-looking information obtained from these sources are subject to
the same qualifications and the additional uncertainties accompanying any
estimates of future market size, revenue and market acceptance of products and
services. Except as required by U.S. federal securities laws, we have no
obligation to update forward-looking information to reflect actual results or
changes in assumptions or other factors that could affect those statements. See
the section entitled "Risk Factors" for a more detailed discussion of risks and
uncertainties that may have an impact on our future results.
In this Annual Report, the "Company," "ADRT," "we," "us" and "our" refer to Ault
Disruptive Technologies Corporation, a Delaware corporation.
Recent Developments
As of December 31, 2022, the Company had not commenced any operations. All
activity for the period from February 22, 2021 ("Inception") through December
31, 2022, relates to our formation, the Initial Public Offering held on December
20, 2021 and since the closing of the IPO, a search for a Business Combination
candidate. The Company will not generate any operating revenues until after the
completion of its initial business combination, at the earliest. The Company is
currently in the process of locating suitable targets for its initial business
combination. We intend to use the cash proceeds from the Initial Public Offering
and the sale of the Placement Warrants (defined below) as well as additional
issuances, if any, of our capital stock, debt or a combination of cash, stock
and debt to complete the initial business combination.
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The registration statement for the Company's Initial Public Offering was
declared effective on December 15, 2021. On December 20, 2021, the Company's
commenced the Initial Public Offering of 10,000,000 units at $10.00 per unit
(the "Unit"). Each Unit consisted of one share of common stock, par value $0.001
per share, and three-fourths of one redeemable warrant. Each whole warrant
entitles the holder to purchase one share of common stock at a price of $11.50
per share. On December 20, 2021, the underwriters exercised their full
over-allotment option and purchased the additional Units available to them. The
aggregate Units sold in the Initial Public Offering and subsequent
over-allotment were 11,500,000 and generated gross proceeds of $115,000,000.
The Company's Sponsor is Ault Disruptive Technologies Company, LLC (the
"Sponsor").
Simultaneously with the consummation of the Initial Public Offering, the Company
consummated the private placement of 7,100,000 warrants (the "Placement
Warrants") to the Sponsor, at a price of $1.00 per Placement Warrant. The sale
of the Placement Warrants in connection with the Initial Public Offering and
subsequent over-allotment option exercise generated gross proceeds of
$7,100,000.
On December 13, 2022, we received notice from our Sponsor of the Sponsor's
intention to deposit $1,150,000 into the trust account established in connection
with our IPO (the "First Deposit"). The First Deposit was required to extend the
period of time we have to consummate our initial business combination by three
months from the initial deadline of December 20, 2022 (12 months from the date
of the IPO) until March 20, 2023. On March 15, 2023, we received notice from our
Sponsor of the Sponsor's intention to deposit another $1,150,000 into the trust
account established in connection with our IPO (the "Second Deposit" and
together with the First Deposit, the "Deposits"). The Second Deposit was
required to extend the period of time we have to consummate our initial business
combination by three months from the first extension deadline of March 20, 2023
until June 20, 2023. The Sponsor intends to make the Deposits, and when each
Deposit is received, the Sponsor will receive 1,150,000 private placement
warrants in connection with each such Deposit, or 2,300,000 private placement
warrants in total.
Overview
We are a newly-organized blank check company incorporated as a Delaware
corporation and formed for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to as our initial
business combination throughout this Annual Report. While our efforts to
identify a target business may span many industries and regions worldwide, we
are likely to focus our search for prospects within the technology sector, which
has experienced significant disruption from new and emerging products and
services. We have not selected any specific business combination target and we
have not, nor has anyone on our behalf, initiated any substantive discussions,
directly or indirectly, with any business combination target. We intend to
effectuate our initial business combination using cash from the proceeds of the
Initial Public Offering and the sale of the Placement Warrants, the proceeds of
the sale of our shares in connection with our initial business combination
(including pursuant to backstop agreements we may enter into), shares issued to
the owners of the target, debt issued to bank or other lenders or the owners of
the target, or a combination of the foregoing.
While we may pursue an initial business combination opportunity in any business,
industry, sector or geographical location, we intend to focus on opportunities
to acquire companies with innovative and emerging technologies, products or
services that have the potential to transform major industries and radically
impact society. We intend to acquire a target business or businesses with
disruptive technologies that our management team believes can achieve mainstream
adoption and create opportunities for long-term appreciation in value.
We are not prohibited from pursuing an initial business combination with a
business that is owned by the Sponsor or any of the related companies, or making
the acquisition through a joint venture or other form of shared ownership with
any of them.
Our executive offices are located at 11411 Southern Highlands Parkway, Suite
240, Las Vegas, Nevada 89141, and our telephone number is (949) 444-5464.
Results of Operations
Our entire activity since Inception through December 31, 2022, relates to our
formation, the IPO and since the closing of the IPO, a search for a Business
Combination candidate. We will not be generating any operating revenues until
the closing and completion of our initial Business Combination, at the earliest.
For the year ended December 31, 2022, we had a net loss of $128,392, compared to
a net loss of $29,535 for the period from Inception through December 31, 2021.
Net loss for the year ended December 31, 2022 consisted of $1,682,956 in income
from investments held in the Trust Account, offset by $1,396,032 in operating
costs, $407,941 of income tax expense and $7,375 of interest expense. Net loss
for the period from Inception through December 31, 2021 consisted primarily of
formation and operating costs.
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Liquidity and Capital Resources
On December 20, 2021, we consummated the IPO of 11,500,000 units at a price of
$10.00 per Unit, which includes the full exercise by the underwriters of the
over-allotment option, at $10.00 per Unit, generating gross proceeds of
$115,000,000. Simultaneously with the closing of the IPO, we consummated the
sale of 7,100,000 Private Placement Warrants to the sponsor at a price of $1.00
per warrant, generating gross proceeds of approximately $7,100,000.
Following the IPO, the exercise of the over-allotment option and the sale of the
Private Placement Warrants, a total of $116,725,000 was placed in the trust
account. We incurred $7,087,891 in transaction costs, including $6,338,333 of
underwriting fees ($3,450,000 consisted of deferred underwriting fees) and
$749,558 of other costs.
As of December 31, 2022 and 2021, we had cash and marketable securities held in
the trust account of $118,193,123 and $116,725,166 (including approximately
$1,682,956 and $163 of income from investments held in trust account),
respectively, consisting of U.S. government securities with a maturity of 185
days or less or in money market funds meeting certain conditions under Rule 2a-7
under the Investment Company Act of 1940, as amended which invest only in direct
U.S. government treasury obligations. Investment and interest income on the
balance in the trust account may be used by us to pay taxes. Through December
31, 2022, we withdrew $215,000 of investment income from the trust account to
pay our income and franchise tax obligations. The prepaid balance of $391,443
primarily consists of prepaid directors and officers insurance attributed to our
two-year policy.
For the year ended 2022, cash used in operating activities was $1,858,152,
primarily related to operating costs, payables and income taxes paid. For the
period from Inception through December 31, 2021, cash provided by operating
activities was $33,043, primarily related to deference of formation and
operating costs. Changes in operating assets and liabilities used $46,804 of
cash for operating activities for the year ended 2022. Changes in operating
assets and liabilities provided $62,744 of cash for operating activities for the
period from Inception through December 31, 2021.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing income earned on the trust account (less
deferred underwriting commissions and taxes payable), to complete our initial
business combination. To the extent that our capital stock or debt is used, in
whole or in part, as consideration to complete our business combination, the
remaining proceeds held in the trust account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
As of December 31, 2022, we had cash of $206,527 held outside of the trust
account. We anticipate that this cash held outside of the trust account coupled
with the cash that the Sponsor is expected to deposit in the trust account in
connection with the Deposits, will be sufficient to allow us to operate until we
consummate a business combination or are forced to wind up operations if a
business combination is not consummated before any applicable extensions expire.
We intend to use the funds held outside the trust account, and any additional
Working Capital Loans (as defined below) from our Sponsor, an affiliate of our
Sponsor or certain of our directors and officers, primarily to identify and
evaluate target businesses, perform business due diligence on prospective target
businesses, travel to and from the offices or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, structure, negotiate
and complete a business combination. If we are unable to raise additional
capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of a potential transaction, and reducing overhead
expenses. We cannot provide any assurance that new financing will be available
to us on commercially acceptable terms, if at all.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, the initial stockholders or their
affiliates may, but are not obligated to, loan us funds as may be required
("Working Capital Loans"). If we complete a business combination, we would repay
such loaned amounts. In the event that a business combination does not close, we
may use a portion of the working capital held outside the trust account to repay
such loaned amounts but no proceeds from our trust account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
identical to the Private Placement Warrants, at a price of $1.00 per warrant at
the option of the lender. As of December 31, 2022 and 2021 there were no
outstanding Working Capital Loans.
We may need to raise additional capital through loans or additional investments
from our Sponsor, stockholders, officers, directors, or third parties. Our
officers, directors and our Sponsor may, but are not obligated to, loan us
funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion, to meet our working capital needs. Accordingly, we may
not be able to obtain additional financing. If we are unable to raise additional
capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of a potential transaction, and reducing overhead
expenses. We cannot provide any assurance that new financing will be available
to it on commercially acceptable terms, if at all. We will provide our public
stockholders with the opportunity to redeem all or a portion of their shares of
our Common Stock upon the consummation of our initial Business Combination,
subject to the limitations described herein. In addition, as we were unable to
consummate our initial Business Combination within 12 months following the
effectiveness of the IPO, which was December 20, 2021, we extended the period of
time to complete an initial Business Combination by an additional three months
and further extended it for an additional three months in March 2023. If we do
not complete the initial Business Combination by the end of the second extension
period, we will be required to cease all operations except for the purpose of
winding up. These conditions raise substantial doubt about our ability to
continue as a going concern for the remainder of the extended period. The
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should we be unable to continue as a going concern.
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Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a monthly fee of $10,000 for office space,
administrative and support services to the Company. We began incurring these
fees on January 1, 2022 and will continue to incur these fees monthly until the
earlier of the completion of the business combination or our liquidation.
The underwriters of the IPO are entitled to a deferred fee of $3,450,000 in the
aggregate. The deferred fee will be waived by the underwriters in the event that
we do not complete a business combination, subject to the terms of the
underwriting agreement.
Prior to the completion of the IPO, our liquidity needs had been satisfied
through a capital contribution from the Sponsor of $25,000, to cover certain
offering costs, for the founder shares, and the loan under an unsecured
promissory note in the principal amount of $1,500,000 from our sponsor. Such
promissory note bears no interest and is repayable in full at the date on which
we consummate an initial business combination as contemplated by our amended and
restated certificate of incorporation. Subsequent to the consummation of the IPO
and Private Placement, our liquidity needs have been satisfied through the
proceeds from the consummation of the Private Placement not held in the Trust
Account.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our shares of common stock subject to possible redemption in
accordance with the guidance in accounting standards codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Shares of common stock subject to
mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) is classified as temporary equity. At all other times, common stock
is classified as stockholders' equity. Our common stock features certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, the common stock subject
to possible redemption is presented as temporary equity, outside of the
stockholders' deficit section of our audited balance sheet.
Net Loss per Share of Common Stock
We comply with accounting and disclosure requirements of the Financial
Accounting Standards Board ('FASB") ASC Topic 260, Earnings Per Share. Net loss
per share is computed by dividing net loss by the weighted average number of
shares of common stock outstanding during the period, excluding common stock
subject to forfeiture. Remeasurement associated with the redeemable shares of
common stock is excluded from net loss per share as the redemption value
approximates fair value. At December 31, 2022 and 2021, we did not have any
dilutive securities and other contracts that could, potentially, be exercised or
converted into shares of common stock and then share in our earnings. As a
result, diluted loss per share is the same as basic loss per share for the
period presented.
Derivatives
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC 815-15. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is reassessed
at the end of each reporting period.
We accounted for the 8,625,000 Warrants and the 7,100,000 Private Placement
Warrants issued in connection with the IPO and Private Placement in accordance
with the guidance contained in ASC 480, "Distinguishing Liabilities from Equity"
and ASC 815 "Derivatives and Hedging". The assessment considers whether the
instruments are freestanding financial instruments pursuant to ASC 480, meet the
definition of a liability pursuant to ASC 480, or whether the instruments meet
all of the requirements for equity classification under ASC 815, including
whether the instruments are indexed to our common stock and whether the holders
could potentially require "net cash settlement" in a circumstance outside of our
control, among other conditions for equity classification. The Public and
Private Placement Warrants were deemed to meet equity classification.
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Accounting Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events.
Accordingly, a significant accounting estimate included in these financial
statements is the valuation of the warrant liability. Such estimates may be
subject to change as more current information becomes available.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06,
Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06")
to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash
conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an
entity's own equity. The new standard also introduces additional disclosures for
convertible debt and freestanding instruments that are indexed to and settled in
an entity's own equity. ASU 2020-06 amends the diluted earnings per share
guidance, including the requirement to use the if-converted method for all
convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be
applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. The amendments are effective for smaller reporting
companies for fiscal years beginning after December 15, 2023, including interim
periods within those fiscal years. The Company adopted ASU 2020-06 early on
January 1, 2022 and the adoption did not have an impact on its financial
position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
financial statements.
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