SCHEDULE: Ault & Company Boosts Hyperscale Data Stake

Ault & Company, Inc. and Milton C. Ault III have significantly increased their beneficial ownership in Hyperscale Data, Inc. through a stock purchase agreement financed by a promissory note.

Summary

• This filing is an amendment to a Schedule 13D, detailing changes in beneficial ownership of Hyperscale Data, Inc. (HYPERSCALE DATA) Class A Common Stock.
• Ault & Company, Inc. (Ault & Company) and Milton C. Ault III, along with other reporting persons, have increased their holdings.
• A significant transaction involved Ault & Company purchasing 10,000,000 Class A Shares and 389,404 Class B Shares from SJC Lending, LLC for $0.50 per share.
• This purchase was financed by a promissory note issued by Ault & Company to SJC Lending, LLC for $5,194,702, with a maturity date of September 30, 2028, and an interest rate of 9% per annum.
• The reporting persons collectively beneficially own a substantial portion of Hyperscale Data, Inc.'s voting power, with Ault & Company holding 63.9% and Mr. Ault holding 64.1%.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as having a negative sentiment due to the significant debt financing involved in the stock purchase, indicating potential financial strain or reliance on external funding for strategic acquisitions.

Positives

• Ault & Company and Milton C. Ault III have substantially increased their beneficial ownership in Hyperscale Data, Inc., indicating strong conviction in the company's future.
• The acquisition of shares at $0.50 per share, while financed by debt, represents a potentially attractive entry point for a significant block of stock.
• The reporting persons collectively hold a controlling interest (over 63%) in the company's voting power, which could lead to more stable governance and strategic direction.

Negatives

• The acquisition of 10,000,000 Class A Shares and 389,404 Class B Shares by Ault & Company was financed by a $5,194,702 promissory note to SJC Lending, LLC, introducing significant debt.
• The promissory note accrues interest at 9% per annum and matures in September 2028, creating a future financial obligation for Ault & Company.
• The reliance on debt financing for this substantial share acquisition may indicate a lack of readily available equity capital or a strategic decision to leverage debt.

Risks

• The significant debt incurred by Ault & Company to finance the stock purchase could strain its financial resources, potentially impacting its ability to meet other obligations.
• The 9% interest rate on the promissory note represents a fixed cost that could become burdensome if the company's performance does not improve or if interest rates rise.
• The maturity of the promissory note in September 2028 requires a substantial repayment, which could necessitate further financing or asset sales.

Future Outlook

The filing does not contain explicit forward-looking statements or guidance from Hyperscale Data, Inc. regarding its future performance. The focus is on the change in beneficial ownership and the financing of a stock acquisition.

Management Comments

• "For purposes of this Schedule 13D filing, the calculations for the number of Class A Shares issuable upon conversion of the Series C Convertible Preferred Stock, Series G Convertible Preferred Stock and Series H Convertible Preferred Stock are based upon a conversion price of $0.165."
• "Each share of Series C Convertible Preferred Stock, Series G Convertible Preferred Stock and Series H Convertible Preferred Stock has a stated value of $1,000.00 and is convertible into shares of Class A Common Stock at a conversion price equal to the greater of (i) $0.10 per share and (ii) 105% of the volume weighted average price of the Class A Common Stock during the ten trading days immediately prior to the date of conversion."
• "The Promissory Note accrues interest at the rate of 9% per annum, unless an event of default (as defined in the Promissory Note) occurs, at which time the holder of the Promissory Note may by written notice to Ault & Company declare the entire outstanding principal amount together with all interest accrued and unpaid thereon to be immediately due and payable."
• "The Promissory Note matures in full on September 30, 2028 and may be prepaid any time prior to maturity by Ault & Company."
• "Seller acknowledges that Purchaser and its affiliates... may possess material non-public information regarding the Company or the Shares... Seller is proceeding on the assumption that the Purchaser is in possession of Excluded Information and agrees that no Covered Person has any duty to disclose Excluded Information to Seller..."

Industry Context

StockSavvy.ai notes that significant stake acquisitions, especially when financed by debt, are common in industries undergoing consolidation or where strategic control is being consolidated. The focus on Class A and Class B common stock, along with convertible preferred stock and warrants, suggests a complex capital structure typical of growth-stage technology or data companies.

Comparison to Industry Standards

• The acquisition of 10 million Class A shares and 389,404 Class B shares at $0.50 per share by Ault & Company is a substantial transaction. For context, typical venture capital or private equity investments in similar stage companies might involve larger sums but often with more equity dilution or different financing structures.
• The use of a promissory note for $5.19 million at 9% interest is a significant debt load. Industry standards for such debt financing vary widely, but a 9% rate is moderate to high, depending on the perceived risk of the issuer and the overall interest rate environment.
• The overall beneficial ownership by Ault & Company and Mr. Ault exceeding 63% of the voting power indicates a strong control position, which is often sought by activist investors or strategic acquirers aiming to influence company direction.

Related Party Transactions

• The acquisition of shares by Ault & Company from SJC Lending, LLC, financed by a promissory note from Ault & Company to SJC Lending, LLC, constitutes a significant transaction between related entities or parties involved in financing and investment.

Stakeholder Impact

• Shareholders: The increased control by Ault & Company and Mr. Ault could lead to significant strategic shifts, potentially benefiting or harming minority shareholders depending on the direction taken.
• Creditors of Ault & Company: The $5.19 million promissory note represents a new debt obligation, impacting Ault & Company's creditworthiness and financial flexibility.
• SJC Lending, LLC: As the holder of the promissory note, SJC Lending, LLC has a significant financial interest in Ault & Company's ability to repay the debt.

Next Steps

• Ault & Company and SJC Lending, LLC are to use best efforts to establish and implement a weekly payment plan by December 31, 2026, to commence in January 2027 for reducing the principal amount of the promissory note.
• The promissory note matures on September 30, 2028, at which point the full principal and accrued interest will be due.
• The Class B Shares purchased by Ault & Company are to be transferred by October 8, 2026.

Key Dates

Recommendation

StockSavvy.ai recommends a 'hold' due to the mixed signals. While the increased stake by Ault & Company suggests confidence, the significant debt financing for this acquisition introduces financial risk. Further analysis of Hyperscale Data, Inc.'s underlying business performance and Ault & Company's ability to service the debt is required before considering a buy or sell.

Keywords

Schedule 13D, Beneficial Ownership, Stock Purchase Agreement, Promissory Note, Class A Common Stock, Class B Common Stock, Convertible Preferred Stock, Warrants