Soluna Holdings, Inc [SLNHP] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to _____

Commission File Number: 001-40261

Soluna Holdings, Inc.

(Exact name of registrant as specified in its charter)

Nevada		14-1462255
State or other jurisdiction		(I.R.S. Employer
of incorporation or organization		Identification No.)

325 Washington Avenue Extension, Albany, New York		12205
(Address of principal executive offices)		(Zip Code)

(518) 218-2550

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SLNH	The Nasdaq Stock Market LLC
9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share	SLNHP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 9, 2022, the Registrant had 17,535,662 shares of common stock outstanding.

SOLUNA HOLDINGS, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION	2

Item 1. Financial Statements	2

Condensed Consolidated Balance Sheets As of September 30, 2022 (Unaudited) and December 31, 2021	2

Condensed Consolidated Statements of Operations (Unaudited) For the Three and Nine Months Ended September 30, 2022 and 2021	3

Condensed Consolidated Statements of Changes in Equity For the Year Ended December 31, 2021 and the Three and Nine Months Ended September 30, 2022 (Unaudited)	4

Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2022 and 2021	6

Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3. Quantitative and Qualitative Disclosures About Market Risk	40

Item 4. Controls and Procedures	40

PART II. OTHER INFORMATION	41

Item 1. Legal Proceedings	41

Item 1A. Risk Factors	41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3. Defaults Upon Senior Securities	48

Item 4. Mine Safety Disclosures	48

Item 5. Other Information	48

Item 6. Exhibits	48

SIGNATURES	50

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2022 (Unaudited) and December 31, 2021

(Dollars in thousands, except per share)

	September 30,			December 31,
	2022			2021
Assets
Current Assets:
Cash	$	1,083		$	10,258
Accounts receivable		2,029			531
Prepaid expenses and other current assets		1,621			977
Deposits on equipment		1,175			10,188
Current assets associated with discontinued operations		—			3,028
Total Current Assets		5,908			24,982
Other assets		1,190			1,121
Equity investment		—			750
Property, plant and equipment, net		63,511			44,597
Intangible assets, net		38,842			45,839
Operating lease right-of-use assets		282			405
Total Assets	$	109,733		$	117,694

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	3,843		$	2,958
Accrued liabilities		2,477			2,859
Line of credit		650			1,000
Notes payable		13,281			7,121
Current portion of debt		6,462			—
Deferred revenue		434			316
Operating lease liability		186			184
Income taxes payable		2			2
Current liabilities associated with discontinued operations		—			1,243
Total Current Liabilities		27,335			15,683

Other liabilities		201			509
Long term debt		3,841			—
Operating lease liability		109			237
Deferred tax liability, net		8,929			10,277
Total Liabilities		40,415			26,706

Commitments and Contingencies (Note 10)		-

Stockholders’ Equity:
9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, $25.00 liquidation preference; authorized 6,040,000; 3,061,245 shares issued and outstanding as of September 30, 2022 and 1,252,299 shares issued and outstanding as of December 31, 2021		3			1
Series B Preferred Stock, par value $0.0001 per share, authorized 187,500; 62,500 shares issued and outstanding as of September 30, 2022 and 0 shares issued and outstanding as of December 31, 2021		—			—
Preferred Stock value		-			-
Common stock, par value $0.001 per share, authorized 75,000,000; 16,413,584 shares issued and 15,395,068 shares issued and outstanding as of September 30, 2022 and 14,769,699 shares issued and 13,754,206 shares issued and outstanding as of December 31, 2021		16			15
Additional paid-in capital		273,484			227,790
Accumulated deficit		(194,409	)		(123,054	)
Common stock in treasury, at cost, 1,018,516 shares at September 30, 2022 and 1,015,493 shares at December 31, 2021		(13,798	)		(13,764	)
Total Soluna Holdings, Inc. Stockholders’ Equity		65,296			90,988
Non-Controlling Interest		4,022			—
Total Stockholders’ Equity		69,318			90,988
Total Liabilities and Stockholders’ Equity	$	109,733		$	117,694

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands, except per share)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

Cryptocurrency mining revenue	$	5,387		$	2,018		$	20,696		$	4,670
Data hosting revenue		985			1,106			3,668			1,106
Total revenue		6,372			3,124			24,364			5,776
Operating costs:
Cost of cryptocurrency mining revenue, exclusive of depreciation		4,100			623			11,092			1,272
Depreciation costs associated with cryptocurrency mining		6,010			156			15,872			380
Total cost of cryptocurrency mining revenue		10,110			779			26,964			1,652
Cost of data hosting revenue		1,078			964			3,192			964
Operating expenses:
General and administrative expenses, exclusive of depreciation and amortization		5,686			2,316			15,441			6,118
Depreciation and amortization associated with general and administrative expenses		2,378			1			7,127			1
Total general and administrative expenses		8,064			2,317			22,568			6,119
Impairment on equity investment		750						750
Impairment on fixed assets		28,086			-			28,836			-
Operating loss		(41,716	)		(936	)		(57,946	)		(2,959	)
Interest expense		(1,671	)		-			(7,856	)		-
Loss on debt extinguishment and revaluation		(12,317	)		-			(12,317	)		-
Loss on sale of fixed assets		(988	)		-			(2,606	)		-
Other income, net		2			3			2			10
Loss before income taxes from continuing operations		(56,690	)		(933	)		(80,723	)		(2,949	)
Income tax benefit (expense) from continuing operations		547			-			1,344			(3	)
Net loss from continuing operations		(56,143	)		(933	)		(79,379	)		(2,952	)
(Loss) Income before income taxes from discontinued operations (including (loss) gain on sale of MTI Instruments of $(21) and $7,581 for three and nine months ended September 30, 2022)		(21	)		323			7,681			500
Income tax benefit from discontinued operations		-			-			70			-
Net (loss) income from discontinued operations		(21	)		323			7,751			500
Consolidated net loss		(56,164	)		(610	)		(71,628	)		(2,452	)
(Less) Net loss attributable to non-controlling interest		272			-			272			-
Net loss attributable to Soluna Holdings, Inc.	$	(55,892	)	$	(610	)	$	(71,356	)	$	(2,452	)

Basic and Diluted (loss) earnings per common share:
Net loss from continuing operations per share (Basic & Diluted)	$	(3.94	)	$	(0.09	)	$	(5.74	)	$	(0.27	)
Net income from discontinued operations per share (Basic & Diluted)	$	-		$	0.03		$	0.53		$	0.04
Basic & Diluted loss per share	$	(3.94	)	$	(0.06	)	$	(5.21	)	$	(0.23	)

Weighted average shares outstanding (Basic and Diluted)		14,698,013			12,702,393			14,494,356			11,413,678

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Year Ended December 31, 2021

(Dollars in thousands, except per share)


	Preferred Stock					Common Stock				Additional Paid-in			Accumulated			Treasury Stock						Total Stockholders’
	Shares		Amount			Shares		Amount		Capital			Deficit			Shares		Amount				Equity
December 31, 2020		—	$	—	-		10,750,100	$	11	$	137,462		$	(117,793	)		1,015,493	$	(13,764	)	-	$	5,916

Net loss		—		—			—		—		—			(666	)		—		—				(666	)

Stock-based compensation		—		—			—		—		34			—			—		—				34

Issuance of shares – option exercises		—		—			77,250		—		62			—			—		—				62

Issuance of shares – restricted stock		—		—			57,500		—		49			—			—		—		-		49

March 31, 2021		—	$	—	-		10,884,850	$	11	$	137,607		$	(118,459	)		1,015,493	$	(13,764	)	-	$	5,395

Net loss		—		—			—		—		—			(1,174	)		—		—		-		(1,174	)

Stock-based compensation		—		—			—		—		1,005			—			—		—				1,005

Issuance of shares – stock offering		—		—			2,782,258		3		15,400			—			—		—				15,403

Issuance of shares – option exercises		—		—			27,650		—		21			—			—		—				21

Issuance of shares – restricted stock		—		—			20,405		—		207			—			—		—				207

June 30, 2021		—	$	—	-		13,715,163	$	14	$	154,240		$	(119,633	)		1,015,493	$	(13,764	)	-	$	20,857

Net loss		—		—			—		—		—			(610	)		—		—		-		(610	)

Preferred dividends		—		—			—		—		(176	)		—			—		—				(176	)

Stock-based compensation		—		—			—		—		334			—			—		—				334

Issuance of shares – preferred offering		806,585		1			—		—		18,297			—			—		—				18,298

Issuance of shares – option exercises		—		—			16,500		—		18			—			—		—				18

Issuance of shares – warrant exercises		—		—			1,050		—		9			—			—		—				9

September 30, 2021		806,585	$	1	-		13,732,713	$	14	$	172,722		$	(120,243	)		1,015,493	$	(13,764	)	-	$	38,730

Net loss		—		—			—		—		—			(2,811	)		—		—		-		(2,811	)

Preferred dividends		—		—			—		—		(454	)		—			—		—				(454	)

Stock-based compensation		—		—			—		—		648			—			—		—				648

Issuance of shares – preferred offering		445,714		—			—		—		6,759			—			—		—				6,759

Issuance of shares – option exercises		—		—			2,000		—		1			—			—		—				1

Issuance of shares- restricted stock		—		—			154,426		—		—			—			—		—				—

Issuance of shares- Notes conversion		—		—			150,000		—		1,377			—			—		—				1,377

Issuance of shares- termination shares		—		—			150,000		—		1,917			—			—		—				1,917

Warrants issued in relation to debt financing		—		—			—		—		7,037			—			—		—				7,037

Share consideration of asset acquisition		—		—			—		—		33,000			—			—		—				33,000

Issuance of shares – warrant exercises		—		—			580,560		1		4,783			—			—		—				4,784

December 31, 2021		1,252,299	$	1			14,769,699	$	15	$	227,790		$	(123,054	)		1,015,493	$	(13,764	)	-	$	90,988

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Three and Nine Months Ended September 30, 2022 (Unaudited)

(Dollars in thousands, except per share)


	Preferred Stock								Common Stock											Treasury Stock
	Series A Shares		Amount		Series B Shares		Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Shares		Amount			Non-Controlling Interest			Total Stockholders’ Equity
December 31, 2021		1,252,299	$	1		—		—		14,769,699	$	15	$		227,790		$	(123,054	)		1,015,493	$	(13,764	)		—		$	90,988

Net loss		—		—		—		—		—		—			—			(8,906	)		—		—			—			(8,906	)

Preferred dividends distribution		—		—		—		—		—		—			-749			—			—		—			—			(749	)

Stock-based compensation		—		—		—		—		—		—			955			—			—		—			—			955

Issuance of shares – preferred offering		66,857		—		—		—		—		—			957			—			—		—			—			957

Restricted stock units vested		—		—		—		—		14,301		—			—			—			—		—			—			—

Issuance of shares – warrant exercises		—		—		—		—		89,500		—			738			—			—		—			—			738

Issuance of shares- Notes conversion		—		—		—		—		146,165		—			1,342			—			—		—			—			1,342

Warrants issued in relation to debt financing		—		—		—		—		—		—			2,257			—			—		—			—			2,257

March 31, 2022		1,319,156	$	1		—	$	—		15,019,665	$	15		$	233,290		$	(131,960	)		1,015,493	$	(13,764	)	$	—		$	87,582

Net loss		—		—		—		—		—		—			—			(6,557	)		—		—			—			(6,557	)

Preferred dividends distribution		—		—		—		—		—		—			-1,382			—			—		—			—			(1,382	)

Stock-based compensation		—		—		—		—		—		—			1,064			—			—		—			—			1,064

Issuance of shares – option exercises		—		—		—		—		91,050		—			77			—			—		—			—			77

Issuance of shares – preferred offering		599,232		1		—		—		—		—			8,796			—			—		—			—			8,797

Issuance of shares-restricted stock		—		—		—		—		3,250		—			23			—			—		—			—			23

Restricted stock units vested		—		—		—		—		3,696		—			—			—			—		—			—			—

Issuance of shares – warrant exercises		—		—		—		—		5,000		—			41			—			—		—			—			41

Promissory note conversion to preferred shares		1,142,857		1		—		—		—		—			13,894			—			—		—			—			13,895

Warrants issued in relation to debt financing		—		—		—		—		—		—			3,060			—			—		—			—			3,060

Treasury Shares conversion		—		—		—		—		—		—			—			—			3,023		(34	)		—			(34	)

June 30, 2022		3,061,245	$	3		—	$	—		15,122,661	$	15		$	258,863		$	(138,517	)		1,018,516	$	(13,798	)	$	—		$	106,566
Balance		3,061,245	$	3		—	$	—		15,122,661	$	15		$	258,863		$	(138,517	)		1,018,516	$	(13,798	)	$	—		$	106,566

Net loss		—		—		—		—		—		—			—			(55,892	)		——		—			(272	)		(56,164	)

Preferred dividends distribution		—		—		—		—		—		—			(1,722	)		—			—		—			—			(1,722	)

Stock-based compensation		—		—		—		—		—		—			879			—			—		—			—			879

Issuance of shares – option exercises		—		—		—		—		86,375		—			76			—			—		—			—			76

Issuance of shares – preferred offering		—		—		62,500		—		—		—			4,994			—			—		—			—			4,994

Issuance of shares-restricted stock		—		—		—		—		3,250		—			11			—			—		—			—			11

Restricted stock units vested		—		—		—		—		921		—			—			—			—		—			—			—

Surrender of warrants for common shares		—		—		—		—		726,576		1			(347	)		—			—		—			—			(346	)

Issuance of shares- notes conversion		—		—		—		—		293,350		—			1,099			—			—		—			—			1,099

Warrants and valuation issued in relation to debt financing		—		—		—		—		—		—			9,631			—			—		—			—			9,631

Issuance of common shares in relation to preferred offering		—		—		—		—		180,451		—			—			—			—		—			—			—

Contribution to Non-Controlling interest		—		—		—		—		—		—			—			—			—		—			4,294			4,294

September 30, 2022		3,061,245	$	3		62,500	$	—		16,413,584	$	16		$	273,484		$	(194,409	)		1,018,516	$	(13,798	)	$	4,022		$	69,318
Balance		3,061,245	$	3		62,500	$	—		16,413,584	$	16		$	273,484		$	(194,409	)		1,018,516	$	(13,798	)	$	4,022		$	69,318

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands)


	Nine Months Ended September 30,
	2022			2021
Operating Activities
Net loss	$	(71,628	)	$	(2,452	)
Net income from discontinued operations (including gain on sale of MTI Instruments of $7,581 for the nine months ended September 30, 2022)		(7,751	)		(500	)
Net loss from continuing operations		(79,379	)		(2,952	)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		22,999			381
Stock-based compensation		2,747			1,373
Consultant stock compensation		121			49
Deferred income taxes		(1,344	)		-
Impairment on fixed assets		28,836			-
Amortization of operating lease asset		151			121
Impairment on equity investment		750			-
Loss on debt extinguishment and revaluation		12,317			-
Amortization on deferred financing costs and discount on notes		6,630			-
Loss (gain) on sale of fixed assets		2,606			(6	)
Changes in operating assets and liabilities:
Accounts receivable		(1,498	)		(108	)
Prepaid expenses and other current assets		(154	)		(628	)
Other long-term assets		(69	)		(754	)
Accounts payable		884			3,590
Deferred revenue		118			183
Operating lease liabilities		(148	)		(111	)
Other liabilities		(306	)		306
Accrued liabilities		(382	)		937
Net cash (used in) provided by operating activities		(5,121	)		2,381
Net cash provided by operating activities- discontinued operations		369			496
Investing Activities
Purchases of equipment		(61,867	)		(17,632	)
Purchases of intangible assets		(114	)		-
Proceeds from disposal on equipment		2,525			-
Deposits of equipment, net		6,441			(5,656	)
Net cash used in investing activities		(53,015	)		(23,288	)
Net cash provided by (used in) investing activities- discontinued operations		9,004			(37	)
Financing Activities
Proceeds from preferred offering		16,658			20,165
Proceeds from common stock offering		-			17,250
Proceeds from notes and debt issuance		29,736			-
Costs of preferred offering		(1,910	)		(1,867	)
Costs of common stock offering		-			(1,847	)
Costs of notes and short term debt issuance		(6,269	)		-
Cash dividend distribution on preferred stock		(3,852	)		(176	)
Contributions from non-controlling interest		4,293			-
Proceeds from stock option exercises		153			101
Proceeds from common stock warrant exercises		779			9
Net cash provided by financing activities		39,588			33,635

(Decrease) increase in cash-continuing operations		(18,548	)		12,728
Increase in cash- discontinued operations		9,373			459
Cash – beginning of period		10,258			2,630
Cash – end of period	$	1,083		$	15,817

Supplemental Disclosure of Cash Flow Information
Noncash equipment financing		4,620			-
Interest paid on NYDIG loans		1,148			-
Proceed receivable from sale of MTI Instruments		205			-
Notes converted to common stock		2,441			-
Warrant consideration in relation to promissory notes and convertible notes		14,602			-
Promissory note conversion to preferred shares		15,236			-
Noncash proceed on sale of equipment		290			-
Purchase of miner equipment using restricted stock		-			(207	)
Registration fees in prepaids and accounts payable		-			(8	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Soluna Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Operations

Description of Business

Unless the context requires otherwise in these notes to the consolidated financial statements, the terms “SHI,” the “Company,” “we,” “us,” and “our” refer to Soluna Holdings, Inc. together with its consolidated subsidiaries, “SCI” refers to Soluna Computing, Inc., formerly known as EcoChain, Inc., and “MTI Instruments” refers to MTI Instruments, Inc.

SHI currently conducts our business through our wholly-owned subsidiary, SCI. SCI is engaged in the mining of cryptocurrency through data centers that can be powered by renewable energy sources. Recently, SCI has built, and intends to continue to develop and build, modular data centers that are used for cryptocurrency mining and that in the future can be used for computing intensive, batchable applications, such as artificial intelligence and machine learning, with the goal of providing a cost-effective alternative to battery storage or transmission lines. Headquartered in Albany, New York, the Company uses technology and intentional design to solve complex, real-world challenges.

SCI was incorporated in Delaware on January 8, 2020 as EcoChain, Inc., which operates a cryptocurrency mining facility that integrates with the cryptocurrency blockchain network. Through the October 2021 acquisition by EcoChain, Inc. of an entity at the time named Soluna Computing, Inc., SCI also has a pipeline of certain cryptocurrency mining projects previously owned by Harmattan Energy, Ltd. (“HEL”) (formerly known as Soluna Technologies, Ltd.), a Canadian corporation incorporated under the laws of the Province of British Colombia that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining (“prop mining”) and cutting-edge blockchain applications. Following such acquisition, on November 15, 2021, SCI completed its conversion and redomicile to Nevada and changed its name from “EcoChain, Inc.” to “Soluna Computing, Inc.”. The following day, the acquired entity, Soluna Computing, Inc., changed its name to “Soluna Callisto Holdings Inc.” (“Soluna Callisto”). We earn revenue from this business as the mined cryptocurrencies are converted into U.S. dollars. SCI has also began mining operations in fiscal year 2021 in Murray, Kentucky and Calvert City, Kentucky. The mining facility in Calvert City currently performs hosting services and prop mining in which 10 megawatts is used for hosting services and 10 megawatts is used for prop mining. The mining facility in Murray, Kentucky operates fully on prop mining with a capacity of 25 megawatts. On September 17, 2022, SCI sold specified assets consisting mainly of mining equipment and other general equipment items to a buyer at its Wenatchee, Washington location. In addition, SCI entered into a management and hosting services agreement with the buyer to host several mining equipment now owned by the buyer. We have a development site in Texas (“Project Dorothy”) for a potential of up to 100 megawatts to be built at a wind farm with initial energization of 50 megawatts anticipated to begin in the first quarter of 2023, subject to Electric Reliability Council of Texas (“ERCOT”) approval and with ramp up likely to continue in fiscal year 2023.

Until the Sale (as defined below), we also operated though our wholly owned subsidiary, MTI Instruments, an instruments business engaged in the design, manufacture and sale of vibration measurement and system balancing solutions, precision linear displacement sensors, instruments and system solutions, and wafer inspection tools. MTI Instruments was incorporated in New York on March 8, 2000. MTI Instruments’ products consisted of engine vibration analysis systems for both military and commercial aircraft and electronic gauging instruments for position, displacement and vibration application within the industrial manufacturing markets, as well as in the research, design and process development markets. These systems, tools and solutions were developed for markets and applications that require consistent operation of complex machinery and the precise measurements and control of products, processes, and the development and implementation of automated manufacturing and assembly. On December 17, 2021, we announced that we had entered into a non-binding letter of intent with a potential buyer (the “Buyer”) regarding the potential sale of MTI Instruments (the “LOI”) to an unrelated third party. Pursuant to the LOI, the Buyer would acquire 100% of the issued and outstanding common stock of MTI Instruments. As a result of the foregoing, the MTI Instruments business was reported as discontinued operations in our consolidated financial statements as of December 31, 2021 and prior periods included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022 (the “Annual Report”), as well as in these consolidated financial statements as of September 30, 2022 and prior periods. On April 11, 2022, we consummated the Sale, MTI Instruments ceased to be our wholly-owned subsidiary and, as a result, we have exited the instruments business. See Note 14 for additional information on the Sale.

Soluna Holdings, Inc., formerly known as Mechanical Technology, Incorporated was incorporated in Nevada on March 24, 2021, and is the successor to Mechanical Technology, Inc., which was incorporated in the State of New York in 1961, as a result of a merger which became effective on March 29, 2021, and is headquartered in Albany, New York. Effective November 2, 2021, the Company changed its name from “Mechanical Technology, Incorporated” to “Soluna Holdings, Inc.”

On April 11, 2022, SHI entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with NKX Acquiror, Inc. (the “Purchaser”), pursuant to which the Company sold on such date all of the issued and outstanding shares of capital stock of its wholly-owned subsidiary, MTI Instruments, for approximately $9.25 million in cash, subject to certain adjustments as set forth in the Stock Purchase Agreement (the “Sale”). The consideration paid by the Purchaser to the Company was based on an aggregate enterprise value of approximately $10.75 million. The Company recognized a gain on sale of approximately $7.6 million.

Going Concern and Liquidity

The Company’s financial statements as of September 30, 2022 have been prepared using generally accepted accounting principles in the United States of America (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company did not generate sufficient revenue to generate net income, and has negative working capital as of September 30, 2022. In addition, the Company has seen a decline in the price of Bitcoin due its volatility, which could have a material and negative impact to our operations. These factors, among others indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after issuance of these financial statements as of September 30, 2022, or November 14, 2022.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. In the near term, management is evaluating and implementing different strategies to obtain financing to fund the Company’s expenses and growth to achieve a level of revenue adequate to support the Company’s current cost structure. Financing strategies may include, but are not limited to, stock issuances, project level equity, debt borrowings, partnerships and/or collaborations. If the Company is unable to meet its financial obligations, it could be forced to restructure or refinance, seek additional equity capital or sell its assets. The Company might then be unable to obtain such financing or capital or sell its assets on satisfactory terms. There can be no assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially reasonable terms. If the Company is not able to obtain the additional financing on a timely basis, if and when it is needed, it will be forced to delay or scale down some or all of its development activities or perhaps even cease the operation of its business.

In addition, as discussed above and further in Notes 14, and 15, the Company sold the MTI Instruments business in April 2022 to focus on developing and monetizing green, zero-carbon computing and cryptocurrency mining facilities. The Company received approximately $9.0 million in cash, net of transaction costs, from the Sale.

To further implement management’s strategy, the Company entered into transactions to (i) recapitalize and negotiate revised terms with senior secured lenders, which released collateral (thus enabling execution of the project financing strategy), (ii) provide a means for Noteholders (as defined in Note 8) to reduce the Company’s debt through the equity markets, including by entering into the Addendum and Addendum Amendment (as defined in Note 8), which was intended to allow the Company to convert up to $3.3 million notes into common stock and redeem up to $6.6 million of notes payable, and (iii) issue and sell $5.0 million in a new series of preferred stock. In addition, in May 2022, SCI entered into a structural understanding with Soluna SLC Fund I Projects Holdco LLC (“Spring Lane”), a Delaware limited liability company, pursuant to which Spring Lane agreed to provide up to $35.0 million in project financing subject to various milestones and conditions precedent; following the recapitalization and restructuring discussed above, and in August 2022, the Company entered into an agreement with Spring Lane for an initial funding of up to $12.5 million from the previously agreed-upon $35.0 million commitment from Spring Lane for Project Dorothy. As of September 30, 2022, the Company has received $4.3 million worth of contributions from Spring Lane. Although we are currently in discussions with NYDIG to potentially modify the repayment schedule under the NYDIG Facility, for the months of September 2022 and October 2022, the Company received a waiver to make interest-only payments which has delayed the Company’s future monthly principal and interest payments by two months, there is no assurance that the Company will be able to modify the repayment schedule under the NYDIG facility for future payments. In October 2022, the Company issued a convertible promissory note to Spring Lane (the “Spring Lane Note”) with an aggregate principal amount of $850 thousand. Upon closing of the October 2022 Offering (as defined herein), the Company issued to Spring Lane an aggregate of 593,065 shares of common stock upon the automatic conversion of the Spring Lane Note, equal to the aggregate principal amount of $850,000 and accrued and unpaid interest thereon at the same price per share as the October 2022 Offering. See Note 18.

In addition to the proceeds from the foregoing transactions and together with the Company’s cash on hand of approximately $1.1 million as of September 30, 2022 the Company will need additional capital raising activities, to meet its outstanding commitments relating to capital expenditures as of September 30, 2022 of $0.9 million and other operational needs, and management continues to evaluate different strategies to obtain financing to fund operations. However, management cannot provide any assurances that the Company will be successful in accomplishing additional financing or any of its other plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The COVID-19 global pandemic has been unprecedented and unpredictable, and the impact is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. Although the Company has experienced some minor changes to our miner shipments due to disruptions in the global supply chain, the Company does not expect any material impact on our long-term strategic plans, our operations, or our liquidity due to the impacts of COVID-19. Further, various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions. For instance, inflation could negatively impact the Company by increasing our labor costs, through higher wages and higher interest rates. If inflation or other factors were to significantly increase our business costs, our ability to develop our current projects may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital in order to fund our operations. However, the Company is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and the industry.

2. Basis of Presentation

In the opinion of management, the Company’s condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the periods presented in accordance with U.S. GAAP. The results of operations for the interim periods presented are not necessarily indicative of results for the full year.

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report.

The information presented in the accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from the Company’s audited consolidated financial statements. All other information has been derived from the Company’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 and September 30, 2021.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, SCI, as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021, also include the accounts of our then wholly-owned subsidiary, MTI Instruments. All intercompany balances and transactions are eliminated in consolidation.

Variable Interest Entities

Variable Interest Entities (“VIEs”) are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.

The Company consolidates the accounts of Soluna DVSL ComputeCo, LLC (“DVSL”), a VIE, in which the Company holds a 67.8% equity interest, and which was created in order to construct, own, operate and maintain multi-purpose data centers in order to support the mining of cryptocurrency assets, batch processing and other non-crypto related activities. DVSL was designed by Soluna to create an entity for outside investors to invest in specific projects. The creation of DVSL resulted in Soluna, through its equity interest in DVSL, absorbing operational risk that the entity was created to create and distribute, resulting in Soluna having a variable interest in DVSL. Soluna is the primary beneficiary of DVSL, due to its role as the manager handling the day-to-day activities of DVSL and its majority ownership of Class B Units of DVSL, and thus has the power to direct the activities of DVSL that most significantly impact the performance of DVSL and has the obligation to absorb losses or gains of DVSL that could be significant to Soluna. DVSL is a VIE of Soluna as DVSL is structured with non-substantive voting rights.

Non-Controlling Interests

The ownership interest held by owners other than the Company in less than wholly-owned subsidiaries are classified as non-controlling interests. The value attributable to the non-controlling interests is presented on the unaudited condensed consolidated balance sheets separately from the equity attributable to the Company. Net income (loss) attributable to non-controlling interests are presented separately on the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income, respectively.

Change in Par Value

Unless otherwise noted, all capital values, share and per share amounts in the condensed consolidated financial statements have been retroactively restated for the effects of the Company’s change in par value from $0.01 to $0.001, which became effective after the reincorporation to the State of Nevada on March 29, 2021.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets. The reclassifications relate to the presentation of discontinued operations and a correction of an error.

Correction of an Error

The Company recorded cash preferred dividend distributions of $630 thousand in the Annual Report presentation as an increase within accumulated deficit. However, in the absence of retained earnings, cash dividends should generally be charged to Additional-Paid-in Capital (“APIC”). This treatment is supported by Accounting Standards Codification (“ASC”) 480-10-S99-2, which requires accretion of redeemable preferred stock to be charged to APIC in the absence of retained earnings. As the Company did not have accumulated profit (i.e.: absence of retained earnings), the preferred cash dividends should have been charged to APIC.

The following tables present the effects of the correction of the prior period error to the Condensed Consolidated Statement of Equity:


	Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Treasury Stock					Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Shares		Amount			Equity

September 30, 2021		806,585	$	1		13,732,713	$	14	$	172,898		$	(120,419	)		1,015,493	$	(13,764	)	$	38,730

Adjustment for correction of an error-Preferred dividends		—		—		—		—		(176	)		176			—		—			—
Balance September 30, 2021-as adjusted		806,585	$	1		13,732,713	$	14	$	172,722		$	(120,243	)		1,015,493	$	(13,764	)	$	38,730

December 31, 2021		1,252,299	$	1		14,769,699	$	15	$	228,420		$	(123,684	)		1,015,493	$	(13,764	)	$	90,988
Balance		1,252,299	$	1		14,769,699	$	15	$	228,420		$	(123,684	)		1,015,493	$	(13,764	)	$	90,988

Adjustment for correction of an error-Preferred dividends		—		—		—		—		(630	)		630			—		—			—

December 31, 2021-as adjusted		1,252,299	$	1		14,769,699	$	15	$	227,790		$	(123,054	)		1,015,493	$	(13,764	)	$	90,988
Balance		1,252,299	$	1		14,769,699	$	15	$	227,790		$	(123,054	)		1,015,493	$	(13,764	)	$	90,988

3. Accounts Receivable

Accounts receivables consist of the following at:

(Dollars in thousands)	September 30, 2022		December 31, 2021
Data Hosting	$	27		450
Other receivable		2,002		81
Total	$	2,029	$	531

The Company’s allowance for doubtful accounts was $0 as of September 30, 2022 and December 31, 2021. The Company had a $442 thousand balance as of September 30, 2022 in Other receivable related to a reimbursement fee for Project Dorothy, and a $1.56 million balance in Other receivable as of September 30, 2022 in relation to the sale of fixed assets at the end of September 2022, which funds were not received until October 2022. The outstanding balances as of September 30, 2022 in Other receivables was not part of the Company’s normal business activities. There were no comparable Other receivables as of December 31, 2021.

Employee Receivables

Certain employees have a receivable due to the Company related to the vesting of stock awards, in which $123 thousand and $0 were outstanding as of September 30, 2022 and December 31, 2021, respectively. The balance is currently included within Prepaid and other assets in the condensed consolidated financial statements.

4. Property, Plant and Equipment

Property, plant and equipment consist of the following at:

Schedule of Plant And Equipment

(Dollars in thousands)	September 30, 2022			December 31, 2021
Land	$	52		$	52
Land improvements		488			238
Buildings		7,262			5,650
Leasehold improvements		187			317
Vehicles		15			15
Computers and related software		41,769			30,890
Machinery and equipment		4,754			2,588
Office furniture and fixtures		22			22
Construction in progress		26,388			7,590
Property, plant and equipment gross		80,937			47,362
Less: Accumulated depreciation		(17,426	)		(2,765	)
Property, plant and equipment	$	63,511		$	44,597

Depreciation expense was $6.0 million and $157 thousand for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense was $15.9 million and $381 thousand for the nine months ended September 30, 2022 and 2021, respectively.

The Company incurred a $1.0 million and $2.6 million loss for the three and nine months ended September 30, 2022 in connection with the disposal of miners and equipment with a net book value of approximately $3.3 million and $5.4 million for the three and nine months ended September 30, 2022 in which the Company received proceeds of $2.35 million and $2.8 million for the three and nine months ended September 30, 2022. There were no such disposals on equipment for the three and nine months ended September 30, 2021.

During the three and nine months ended September 30, 2022, the Company concluded that there were impairment indicators on property, plant and equipment associated with the S-9 and L3 miners in storage. As a result, a quantitative impairment analysis was required as of September 30, 2022. As such, the Company reassessed its estimates and forecasts as of September 30, 2022, to determine the fair values of the S-9 and L3 miners held in storage. As a result of the analysis, as of September 30, 2022, the Company concluded the carrying amount of the property, plant and equipment associated with the S-9 and L3 miners exceeded its fair value, which resulted in impairment charges of $1.2 million and $2.0 million on the condensed consolidated statements of operations for the three and nine months ended September 30, 2022.

In addition, the Company assessed the active miners in operations and determined there has been a decline in the market value of the active miners in the Company’s operations. As a result, a quantitative impairment analysis was required as of September 30, 2022. As such, the Company reassessed its estimates and forecasts as of September 30, 2022, to determine the undiscounted cash flows to determine whether the miners would be recoverable. It was determined based on the analysis, that the undiscounted cash flow with residual value was less than the net book value as of September 30, 2022, confirming the existence of a triggering event, and therefore required an impairment to be recognized. Based on the fair value of the active miners compared to the net book value, the Company determined that an impairment of approximately $26.8 million to be recognized for the three and nine months ended September 30, 2022.

5. Asset Acquisition

As discussed above in Note 1, on October 29, 2021, the Company completed the Soluna Callisto acquisition pursuant to an Agreement and Plan of Merger dated as of August 11, 2021, by and among the Company, SCI and Soluna Callisto (the “Merger Agreement”). The purpose of the transaction was (i) for SCI to acquire substantially all of the assets (other than those assets physically located in Morocco) formerly held by HEL, which assets consisted of Soluna Callisto’s existing pipeline of certain cryptocurrency mining projects that HEL previously transferred to Soluna Callisto and (ii) to provide SCI with the opportunity to directly employ or retain the services of four individuals whose services it had retained through HEL prior to the merger. As a result of the merger, each share of common stock of Soluna Callisto issued and outstanding immediately prior to the effective time of the merger, other than shares owned by the Company or any of our subsidiaries, was cancelled and converted into the right to receive a proportionate share of up to 2,970,000 shares (the “Merger Shares”) of the Company’s common stock payable upon the achievement of certain milestones within five years after the effective date in the merger, as set forth in the merger agreement and the schedules thereto (the “Merger Consideration”). See Note 11 for further information regarding our relationship with HEL.

The acquisition was accounted for, for purposes of U.S. GAAP, using the asset acquisition method of accounting under the ASC 805-50. We determined that we acquired in the acquisition a group of similar identifiable assets (primarily, the “strategic pipeline contract” of certain cryptocurrency mining projects), which it classified as an intangible asset for accounting purposes. As a result, our acquisition of the set of assets and activities constituted an asset acquisition, as opposed to a business acquisition, under ASC 805. ASC 805-50 provides that assets acquired in an asset acquisition are measured based on the costs of the acquisition, which is the consideration that the acquirer transfers to the seller, and includes direct transaction costs related to the acquisition. We include Soluna Callisto’s results of operations in our results of operations beginning on the effective date of the acquisition.

Termination Consideration

In connection with the Soluna Callisto acquisition, effective as of October 29, 2021, pursuant to the terms of a termination agreement (the “Termination Agreement”) dated as of August 11, 2021 by and among the Company, SCI, and HEL, on November 5, 2021, SCI paid HEL $725,000 and SHI issued to HEL 150,000 shares of our common stock (the “Termination Shares”). SCI also reimbursed $75,000 to HEL for transaction-related fees and expenses. SHI included the termination costs as part of asset acquisition per ASC 805-50. Based on the closing price of SHI common stock on The Nasdaq Stock Market LLC (“Nasdaq”) on November 5, 2021, SHI has valued the aggregate termination consideration at approximately $1.9 million.

Merger Consideration

The fair value of the Merger Consideration includes various assumptions, including those related to the allocation of the estimated value of the maximum number of Merger Shares (2,970,000 shares) issuable as Merger Consideration, which issuance is contingent on the achievement of certain milestones of generating active Megawatts from Qualified Projects in which the Cost Requirement is satisfied within five years after the effective date of the merger, as set forth in the Merger Agreement and the schedules thereto, as set forth below. The Merger Consideration and the timing of the payment thereof is subject to the following qualifications and limitations:

1a)

Upon the Company achieving each one active MegaWatts (“Active MWs”) from the projects in which the cost requirement is satisfied, SHI shall issue to HEL 19,800 shares for each one MW up to a maximum 150 Active MW.

	i.	If, on or before June 30, 2022, SCI or Soluna Callisto directly or indirectly achieves at least 50 active MWs from one or more of three current projects as set forth in the Merger Agreement that satisfy the Cost Requirement as defined within the Merger Agreement, then the Merger Shares will be issued at an accelerated rate of 29,700 Merger Shares for each of such first 50 Active MW, such that the Merger Shares in respect of the remaining 100 Active MWs (if any) will be issued at a reduced rate of 14,850 Merger Shares per Active MW (as of September 30, 2022, the Company did not achieve this milestone);

	ii.	If, by June 30, 2023, SCI or Soluna Calisto fail to achieve directly or indirectly (other than pursuant to a Portfolio Acquisition) at least 50 Active MW from Projects that satisfy the Cost Requirement, then the maximum aggregate number of Merger Shares shall be reduced from 2,970,000 to 1,485,000;

	iii.	No Merger Shares will be issued to HEL without our prior written consent;

	iv.	Issuance of the Merger Shares will also be subject to the continued employment with or engagement by SCI or the surviving corporation of (A) John Belizaire and (B) at least two of Dipul Patel, Mohammed Larbi Loudiyi, (through ML&K Contractor), and Phillip Ng at the time that such Merger Shares are earned. If both (A) and (B) cease to be satisfied on or prior to the date that all Merger Shares are earned (such date, a “Trigger Date”), then “Qualified Projects” for purposes of determining Merger Shares shall only apply to those Qualified Projects that are in the pipeline as of the Trigger Date. For these purposes, if any such individual’s employment or service relationship with SCI is terminated without cause, as a result of his death or disability, or with good reason (as such terms are defined in the employment and consulting agreements), such individual shall be deemed to continue to be employed or engaged by SCI for these purposes;

Soluna Holdings, Inc [SLNHP] Filings
Soluna Holdings, Inc [SLNH] Filings
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-16]
10-K	[2022-03-31]
10-Q	[2021-11-12]
10-Q	[2021-08-10]
S-1	[2021-06-22]
10-Q	[2021-05-17]
10-K	[2021-03-31]
S-1	[2021-03-10]
10-K	[2018-03-29]
10-Q	[2017-11-02]
10-Q	[2017-08-03]
10-Q	[2017-05-04]
S-1	[2017-04-18]
10-K	[2017-03-02]
10-Q	[2016-10-27]
10-Q	[2016-08-04]
10-Q	[2016-05-05]
10-K	[2016-03-30]
10-Q	[2015-11-05]
10-Q	[2015-08-06]
10-Q	[2015-05-07]
10-K	[2015-03-05]
10-Q	[2014-11-07]
10-Q	[2014-08-07]
10-Q	[2014-05-08]
10-K	[2014-03-06]
10-Q	[2013-11-07]
10-Q	[2013-08-08]
10-Q	[2013-05-07]
10-K	[2013-03-21]
10-Q	[2012-11-08]
10-Q	[2012-08-09]
10-Q	[2012-05-10]
10-K	[2012-03-27]

Soluna Holdings, Inc [SLNHP] Filings

Soluna Holdings, Inc [SLNH] Filings