8-K: Hyperscale Data Issues $4.9 Million Convertible Note in Exchange for Prior Debt

Hyperscale Data, Inc. issued a $4.9 million convertible promissory note to SJC Lending, LLC in exchange for the cancellation of several prior notes.

Summary

• Hyperscale Data, Inc. issued a convertible promissory note with a principal amount of $4,909,410.96 to SJC Lending, LLC on March 21, 2025.
• The note was issued in exchange for the cancellation of prior notes held by SJC Lending, LLC totaling $4,909,410.96 in principal and accrued interest.
• The note matures on December 31, 2025, and accrues interest at a rate of 15% per annum, increasing to 18% upon an event of default.
• The note is convertible into shares of Hyperscale Data's Class A common stock after NYSE American approval of the Supplemental Listing Application.
• The conversion price is the greater of $0.40 per share or a discounted VWAP, subject to a maximum price of $10.00 per share.
• Conversion is limited to ensure the holder does not exceed a 4.99% beneficial ownership, which can be increased to 9.99% with notice.
• The company must reserve enough shares to cover potential conversions.
• The company agreed to file a proxy or information statement to obtain stockholder approval for the issuance of shares exceeding 19.99% of the outstanding common stock as of the closing date.
• The company must seek stockholder approval within 90 days of the effective date, and every three months thereafter until approval is obtained or the note is no longer outstanding.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company is refinancing debt, the high interest rate and potential dilution are concerns. The need for stockholder approval adds uncertainty.

Positives

• The exchange simplifies Hyperscale Data's debt structure by consolidating multiple notes into a single convertible note.
• The company can prepay the note at any time without penalty.
• The holding period of the new note tacks to the holding period of the original notes for purposes of Rule 144.

Negatives

• The high interest rate of 15%, increasing to 18% upon default, could strain Hyperscale Data's finances.
• The conversion of the note could dilute existing shareholders' equity.
• The beneficial ownership limitation could restrict the holder's ability to convert the note fully.

Risks

• Failure to obtain stockholder approval for the issuance of conversion shares could limit the company's ability to meet its obligations under the note.
• Events of default, such as failure to pay amounts due or bankruptcy proceedings, could accelerate the maturity of the note and trigger higher interest rates.
• The conversion price is subject to adjustment for stock splits and combinations, which could impact the number of shares issued upon conversion.
• The company's ability to issue shares upon conversion is limited by the rules and regulations of the NYSE American, LLC.

Future Outlook

The company needs to obtain stockholder approval for the issuance of shares exceeding 19.99% of the outstanding common stock. The company will file a proxy statement to obtain this approval.

Industry Context

Convertible notes are a common financing tool for companies, especially smaller ones, as they offer flexibility and can be attractive to investors. The terms of this note, including the interest rate and conversion price, will be compared to similar deals in the market to assess its favorability.

Comparison to Industry Standards

• The interest rate of 15% is relatively high compared to investment grade debt, reflecting the higher risk associated with Hyperscale Data.
• The conversion price of $0.40 provides a floor for the conversion, protecting the investor from significant downside risk.
• The beneficial ownership limitation is a standard provision to prevent the investor from gaining control of the company without a formal takeover bid.
• Comparable companies in the technology sector often use convertible notes with similar terms to raise capital.

Stakeholder Impact

• Shareholders may experience dilution if the note is converted into common stock.
• The company's financial stability could be impacted by the high interest rate on the note.
• The company's ability to raise future capital could be affected by the terms of the note.

Next Steps

• Hyperscale Data needs to obtain NYSE American approval of the Supplemental Listing Application.
• The company must file a proxy statement and seek stockholder approval for the issuance of conversion shares exceeding 19.99% of outstanding common stock.
• The company must reserve enough shares to cover potential conversions.

Key Dates

Keywords

convertible note, promissory note, debt, conversion, SJC Lending, Hyperscale Data, financing, equity, NYSE American, stockholder approval