8-K: Hyperscale Data Secures $4.19 Million Convertible Note from Orchid Finance, Refinancing Existing Debt

Hyperscale Data, Inc. refinances existing debt by issuing a $4.19 million convertible promissory note to Orchid Finance LLC, due June 30, 2025, with a 15% interest rate.

Summary

• Hyperscale Data, Inc. entered into an Exchange Agreement with Orchid Finance LLC on March 14, 2025.
• Under the agreement, Hyperscale Data issued a convertible promissory note with a principal amount of $4,193,314.54 to Orchid Finance.
• This note refinances three existing notes issued to Orchid Finance in May 2024 and February 2025, totaling $4,193,314.54 in principal and accrued interest.
• The new note matures on June 30, 2025, and carries an interest 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 a supplemental listing application.
• The conversion price is the greater of $0.40 per share or 75% of the VWAP of the common stock during the five trading days prior to the issuance or conversion date.
• Conversion is limited to 19.99% of the outstanding shares unless stockholder approval is obtained.
• Hyperscale Data agreed to file a proxy statement to seek stockholder approval for conversions exceeding this limit.
• The agreement includes standard events of default, such as failure to pay amounts due or deliver conversion shares.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company is refinancing debt, the high interest rate and conversion limitations suggest potential financial challenges. The need for stockholder approval adds uncertainty.

Positives

• Hyperscale Data refinanced existing debt, potentially streamlining its financial obligations.
• The new note provides Orchid Finance with the option to convert the debt into equity, aligning their interests with the company's success.
• The company has the option to prepay the note at any time without penalty.

Negatives

• The 15% interest rate is relatively high, potentially indicating a higher risk profile for Hyperscale Data.
• An event of default triggers an increase in the interest rate to 18%, further straining the company's finances.
• Conversion is capped at 19.99% of outstanding shares unless stockholder approval is obtained, which may limit Orchid Finance's ability to convert the note fully.

Risks

• Failure to obtain stockholder approval for conversions exceeding 19.99% could limit Orchid Finance's ability to convert the note.
• Events of default could trigger an increased interest rate and accelerate the repayment of the principal amount.
• The conversion price is subject to market fluctuations, potentially impacting the number of shares Orchid Finance receives upon conversion.
• The company's ability to issue conversion shares is contingent on NYSE American approval of a supplemental listing application.

Future Outlook

The company will seek stockholder approval to issue conversion shares exceeding 19.99% of the outstanding shares. The company will file a proxy statement within 30 days of the effective date to obtain the necessary approvals.

Industry Context

Convertible notes are a common financing tool for companies, particularly smaller ones, as they offer flexibility and can be attractive to investors seeking potential equity upside. The terms of the note, including the interest rate and conversion price, will be influenced by the company's financial health and market conditions.

Comparison to Industry Standards

• The interest rate of 15% is relatively high compared to investment-grade corporate debt, suggesting a higher risk profile.
• The conversion price mechanism, using a floor price and a percentage of VWAP, is a standard feature in convertible notes.
• The 19.99% conversion cap is a common provision to avoid triggering certain regulatory requirements or shareholder votes.

Stakeholder Impact

• Shareholders: Potential dilution if the note is converted into equity.
• Employees: The refinancing could provide financial stability, but high interest payments could impact resources.
• Creditors: The new note impacts the company's debt structure and repayment obligations.

Next Steps

• Hyperscale Data needs to obtain NYSE American approval of the Supplemental Listing Application.
• Hyperscale Data must file a proxy statement to seek stockholder approval for conversions exceeding 19.99% of outstanding shares.
• Orchid Finance will monitor the company's performance and may choose to convert the note into equity based on market conditions and the company's progress.

Key Dates