8-K: Hyperscale Data Secures $5 Million in Convertible Note Financing

Hyperscale Data, Inc. has entered into securities purchase agreements to issue $5 million in convertible promissory notes for $4 million in gross proceeds.

Summary

• Hyperscale Data, Inc. entered into securities purchase agreements on April 15, 2025, to issue convertible promissory notes totaling $5 million to Target Capital 14 LLC and Secure Net Capital LLC.
• The company received $4 million in gross consideration before placement agent fees and expenses of approximately $460,000.
• The notes have a 20% original issue discount, meaning they were issued for $4 million but have a face value of $5 million.
• The notes do not accrue interest unless an event of default occurs, at which point they accrue interest at 20% per annum.
• The notes mature on September 30, 2025.
• The notes are convertible into the company'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 80% of the lowest closing price of the common stock during the five trading days before conversion.
• The company cannot issue conversion shares exceeding 19.99% of the outstanding common stock as of the closing date without stockholder approval.
• The company agreed to file a preliminary proxy statement to obtain stockholder approval within 15 days of the closing date.
• The company is obligated to file a resale registration statement with the SEC within 15 days of the closing date and have it declared effective within 60 days (or 75 days if a full review is required).
• The company is prohibited from entering into variable rate transactions while the notes are outstanding.
• Events of default include failure to pay amounts due, failure to deliver conversion shares, default in covenants, bankruptcy events, delisting of common stock, failure to file required reports, and failure to file the preliminary proxy statement.
• Upon an event of default, the principal amount increases by 10%, and the company must pay the investor an additional 10% of the outstanding principal in cash.
• The notes are subordinate to the security interests granted by the Company to JGB Collateral, as administrative agent and collateral for the lenders pursuant to the loan and guaranty agreement, dated as of December 15, 2023, as amended.

Sentiment

Score: 4

Explanation: The sentiment is neutral to slightly negative. While the financing provides needed capital, the high discount and default interest rate suggest financial strain and higher risk for investors.

Positives

• The financing provides Hyperscale Data with $4 million in gross proceeds.
• The notes do not accrue interest unless an event of default occurs.
• The company has the ability to convert the debt into equity, which could reduce its debt burden in the future.
• The company can prepay the amounts due under the Note at any time without penalty.

Negatives

• The company only received $4 million for a $5 million note due to the 20% original issue discount.
• The notes will accrue interest at a rate of 20% per annum upon an event of default.
• The company is restricted from entering into variable rate transactions while the notes are outstanding.
• The company is required to use 50% of the net proceeds of any subsequent offering to redeem the Notes in full if the closing stock price of the Common Stock is below the Floor Price or at any time after 90 days from the Issuance Date, the Registration Statement is not effective.

Risks

• Failure to meet obligations under the notes could trigger events of default, leading to increased principal and interest payments.
• The company may not be able to obtain stockholder approval for issuing more than 19.99% of common stock upon conversion.
• Delays in filing or having the resale registration statement declared effective could negatively impact the investors.
• The conversion price could be significantly lower than the current market price if the stock price declines.
• The notes are subordinate to the security interests granted by the Company to JGB Collateral, as administrative agent and collateral for the lenders pursuant to the loan and guaranty agreement, dated as of December 15, 2023, as amended.

Future Outlook

The company intends to use the proceeds from the financing for general corporate purposes. The company is required to file a resale registration statement and obtain stockholder approval for the issuance of conversion shares.

Industry Context

Many companies, especially smaller ones, use convertible notes as a way to raise capital quickly. The terms of these notes, including the conversion price and interest rates, can vary widely depending on the company's financial health and market conditions.

Comparison to Industry Standards

• The 20% original issue discount is relatively high, suggesting that investors perceive a higher risk associated with Hyperscale Data.
• The 20% default interest rate is also high, indicating a significant penalty for failing to meet obligations.
• Comparable companies raising capital through convertible notes often have lower discounts and default interest rates, but this depends on their credit rating and financial stability.
• For example, a larger, more established company might secure convertible financing with a 5-10% discount and a default interest rate closer to 10-15%.

Stakeholder Impact

• Shareholders may experience dilution if the notes are converted into common stock.
• The company's employees and customers may be affected by the company's financial performance and ability to execute its business plan.
• The company's suppliers and creditors may be impacted by the company's ability to meet its financial obligations.

Next Steps

• File a preliminary proxy statement (PRE 14A) with the SEC within 15 days.
• File a resale registration statement with the SEC within 15 days.
• Obtain stockholder approval for the issuance of conversion shares.
• Have the resale registration statement declared effective within 60-75 days.
• Comply with NYSE American rules and regulations.

Key Dates

Keywords

convertible notes, financing, securities purchase agreement, common stock, Hyperscale Data, default, conversion, registration statement