S-1/A: Hyperscale Data Eyes $25 Million Capital Injection Through Series D Preferred Stock Offering

Hyperscale Data, Inc. aims to raise up to $25 million by offering 1,500,000 shares of its 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, primarily to fund debt repayment and working capital.

Summary

• Hyperscale Data, Inc., formerly Ault Alliance, Inc., is registering 1,500,000 shares of its 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock for potential resale by Orion Equity Partners LLC.
• The company may receive up to $25 million in gross proceeds from sales of the Series D Preferred Stock to Orion over a 36-month period, contingent on the SEC declaring the registration statement effective and other conditions.
• The primary use of any proceeds will be to repay debt under the 2024 Credit Agreement, and thereafter for working capital purposes.
• The Series D Preferred Stock pays cumulative cash dividends at a rate of 13.00% per annum, equivalent to $3.25 per share annually.
• The company has made timely monthly dividend payments on the Series D Preferred Stock since June 30, 2022, totaling $2,146,622.
• Hyperscale Data operates as a holding company with investments in data centers, Bitcoin mining, and various technology and finance ventures.
• Recent corporate actions include a reverse stock split, debt financing agreements, and a terminated merger agreement with Gresham Worldwide, Inc.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While it highlights potential capital raising and revenue growth in mining operations, it also acknowledges significant risks, debt obligations, and potential dilution for investors. The company's future success is highly dependent on volatile cryptocurrency markets and regulatory developments.

Positives

• The company has consistently paid dividends on the Series D Preferred Stock since its issuance.
• The company has secured a commitment for up to $25 million in funding through the Purchase Agreement with Orion Equity Partners LLC.
• The company's mining operations generated net income of $2.8 million and revenue of $19.9 million during the six months ended June 30, 2024 compared to a net loss of $0.5 million and revenue of $8.5 million during the six months ended June 30, 2023.

Negatives

• The company may not receive the full $25 million commitment from Orion Equity Partners LLC.
• The company's stock price is volatile.
• The company's Series D Preferred Stock ranks junior to all of the company's indebtedness and other liabilities.
• The company may redeem the Series D Preferred Stock, which may have an adverse economic effect on investors.
• The company may not be able to pay dividends on the Series D Preferred Stock if it has insufficient cash in the future to make dividend payments.

Risks

• The company may not be able to access the full amount available under the Purchase Agreement.
• The sale of Series D Preferred Stock to Orion could cause dilution to existing stockholders.
• The company's management team has broad discretion over the use of the net proceeds.
• The Series D Preferred Stock ranks junior to all of the company's indebtedness and other liabilities.
• The company 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.
• Market interest rates may materially and adversely affect the value of the Series D Preferred Stock.
• The company may not be able to pay dividends on the Series D Preferred Stock if it has insufficient cash in the future to make dividend payments.
• 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.
• The Series D Preferred Stock has not been rated by an independent rating agency.
• The company may redeem the Series D Preferred Stock, which may have an adverse economic effect on investors.
• The market price of the company's Series D Preferred Stock could be substantially affected by various factors.
• The market for the company's Series D Preferred Stock may not provide investors with adequate liquidity.
• As a holder of Series D Preferred Stock, you will have extremely limited voting rights.
• If the company does not continue to satisfy the NYSE American continued listing requirements, its Series D Preferred Stock could be delisted from NYSE American.
• The Series D Preferred Stock is not convertible into the company's common stock except under certain limited circumstances, and investors will not realize a corresponding upside if the price of the company's common stock increases.

Future Outlook

The company anticipates returning value to stockholders after satisfying its debt obligations and working capital needs, and will consider initiatives including 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.

Management Comments

• The Company's long-term objective is to maximize per share intrinsic value.
• All major investment and capital allocation decisions are made for us by Mr. Ault and the Executive Committee.
• 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.

Industry Context

The document highlights Hyperscale Data's involvement in the cryptocurrency mining industry, which is subject to volatility, regulatory scrutiny, and environmental concerns. The company is also expanding into AI-focused data centers, aligning with the growing demand for high-performance computing.

Comparison to Industry Standards

• The document mentions several competitors in the Bitcoin mining industry, including Argo Blockchain PLC, Bit Digital, Inc., and Marathon Digital Holdings, Inc.
• The company's net cost of power was between approximately $42 to $62 per megawatt-hour (MWh) in the second half of 2023 to present, and we expect that our blended power cost upon the relocation of approximately 6,500 miners to our Montana facilities, once fully operational, will be approximately $55 per MWh.
• The company's strategy includes identifying less expensive, clean power for its Bitcoin mining operations, with approximately 85% of the energy used sourced from nuclear, wind, or solar power.

Related Party Transactions

• On December 14, 2023, the company, along with its wholly owned subsidiaries, entered into a Loan and Guaranty Agreement with institutional lenders, pursuant to which Ault & Company, Inc. (Ault & Company), a related party, borrowed $36 million and issued secured promissory notes to the lenders in the aggregate amount of $38.9 million.
• On each of March 7, 2024, March 8, 2024, March 18, 2024, March 19, 2024 and April 17, 2024 pursuant to the securities purchase agreement we entered into with Ault & Company, dated as of November 6, 2023 (the November 2023 SPA), we sold to Ault & Company 500 shares of Series C Convertible Preferred Stock and warrants to purchase 147,820 shares of common stock to the Purchaser, for a purchase price of $500,000.
• On August 2, 2024, pursuant to the November 2023 SPA we entered into with Ault & Company, we sold 300 shares of Series C Convertible Preferred Stock and warrants to purchase 88,692 shares of common stock to Ault & Company, for a purchase price of 300,000.

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of new shares.
• Employees may be affected by changes in the company's strategic direction and operational focus.
• Customers of the company's various subsidiaries may see changes in product offerings and service delivery.
• Suppliers and creditors may be impacted by the company's financial performance and debt repayment strategies.

Next Steps

• The company will continue to manage and financially support its existing subsidiaries and partner companies.
• The company will consider initiatives including 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.
• The company will continue to evaluate other sites, locations, and partnerships for additional and alternative support of future mining operations.

Key Dates

Keywords

Series D Preferred Stock, Hyperscale Data, Orion Equity Partners, Committed Equity Financing, Bitcoin Mining, Data Centers, Preferred Stock, Dividends, Redemption, Risk Factors