S-1/A: Hyperscale Data Eyes $37.5 Million Capital Injection Through Preferred Stock Offering

Hyperscale Data, Inc. seeks to raise up to $37.5 million by offering 1,500,000 shares of its 13.00% Series D Cumulative Redeemable Perpetual Preferred Stock through a resale registration statement.

Summary

• Hyperscale Data, Inc., formerly Ault Alliance, Inc., is offering up to 1,500,000 shares of its Series D Preferred Stock for resale by Orion Equity Partners LLC.
• The company may receive up to $37.5 million in gross proceeds from sales of the Series D Preferred Stock to Orion Equity Partners, at its discretion, over a 36-month period.
• 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 intends to use any proceeds from the sale of Series D Preferred Stock to repay debt under the 2024 Credit Agreement, and thereafter for working capital purposes.
• Hyperscale Data operates as a holding company with investments in data centers, Bitcoin mining, and other diverse industries.
• The company is transitioning its data centers away from Bitcoin mining to high-performance computing (HPC) and AI purposes.
• The company's long-term objective is to maximize per share intrinsic value, with major investment decisions made by the Executive Committee.
• The company's business strategy includes managing existing subsidiaries, pursuing monetization opportunities, and considering public offerings or sales of partner companies.
• The company's subsidiaries include Sentinum, Alliance Cloud Services, BNI Montana, Ault Capital Group, RiskOn International, TurnOnGreen, Gresham Worldwide, and Avalanche International Corp.

Sentiment

Score: 5

Explanation: The document presents a mixed outlook. While the potential capital raise is positive, the risks associated with the company's business model, Bitcoin mining operations, and regulatory environment temper the overall sentiment. The dilution to existing shareholders and the lack of a credit rating for the preferred stock are also negative factors.

Positives

• The potential capital injection of up to $37.5 million could strengthen the company's balance sheet.
• The shift towards high-performance computing and AI applications may offer higher growth potential than Bitcoin mining.
• The company's diverse portfolio of subsidiaries provides diversification across multiple industries.
• The company has the option to redeem the Series D Preferred Stock, providing flexibility in capital management.
• The company has been making timely monthly dividend payments on the Series D Preferred Stock since June 2022.

Negatives

• The company will not receive any proceeds from the resale of shares by the Selling Stockholder.
• The company's inability to access a portion or the full amount available under the Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business.
• The sale and issuance of our Series D Preferred Stock to the Selling Stockholder will cause dilution to our existing stockholders of Series D Preferred Stock, and the sale of the shares of our Series D Preferred Stock acquired by the Selling Stockholder, or the perception that such sales may occur, could cause the price of our Series D Preferred Stock to fall.
• The Selling Stockholder will pay less than the then-prevailing market price for our Series D Preferred Stock, which could cause the price of our Series D Preferred Stock to decline.
• The Series D Preferred Stock ranks junior to all of the company's indebtedness and other liabilities.
• 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.
• The Series D Preferred Stock has not been rated by an independent rating agency.
• 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.
• 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.

Risks

• The company's evolving business model and reliance on senior management pose risks.
• The company's Bitcoin mining operations are subject to risks related to Bitcoin price volatility, regulatory changes, and environmental concerns.
• The company may be significantly impacted by developments and changes in laws and regulations.
• The company's Series D Preferred Stock price is volatile.
• 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.
• 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.
• 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 large expenditures in its Michigan Facility during 2024 and 2025 to facilitate the transition to support HPC and AI applications, which may initially increase Sentinum's loss unless costs can be passed on to customers.

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.
• We use a traditional methodology for valuing securities that primarily looks for deeply depressed prices.
• Upon making an investment, we often become actively involved in the companies we seek to acquire.

Industry Context

The company operates in the evolving data center and Bitcoin mining industries, facing competition from established metaverse platforms, gaming-focused platforms, and social media platforms integrating metaverse elements.

Comparison to Industry Standards

• The company's competitors in the metaverse space include Decentraland, The Sandbox, and Second Life, as well as companies that develop metaverse tools and platforms such as META.
• Gaming-focused platforms like Fortnite and Roblox, and social media platforms such as Facebook's Horizon Workrooms, also compete with the company.
• The company's Bitcoin mining operations compete with other miners globally, with hash rate and power efficiency being key factors for profitability.
• The company's data center operations compete with other hosting providers, with factors such as power capacity, cooling techniques, and security being important differentiators.

Related Party Transactions

• Ault & Company, a related party, borrowed $36 million from institutional lenders, with Hyperscale Data and its subsidiaries acting as guarantors.
• The company sold Series C Convertible Preferred Stock and warrants to Ault & Company for an aggregate purchase price of $45.7 million.

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of new Series D Preferred Stock.
• Employees may be affected by the company's transition towards high-performance computing and AI applications.
• Customers may benefit from the company's focus on providing reliable and scalable hosting solutions.
• Suppliers and creditors may be impacted by the company's use of proceeds to repay debt.

Next Steps

• The company will continue to manage its existing subsidiaries and pursue monetization opportunities.
• The company will consider public offerings or sales of partner companies to maximize stockholder value.
• The company will monitor and adapt to developments in laws and regulations affecting its business.
• The company will continue to evaluate sites, locations, and partnerships for additional and alternative support of future mining operations.
• The company will continue to evaluate opportunities to add HPC and AI applications.

Key Dates

Keywords

Series D Preferred Stock, Hyperscale Data, Committed Equity Financing, Bitcoin mining, Data centers, Preferred stock, Capital raise, AI, Dividends, RiskOn, Sentinum