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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
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 | |
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 | |
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:
Schedule
of Error Correction in 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:
Schedule
of Accounts Receivable
(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:
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1a)
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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. |
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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); |
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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; |
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iii. |
No
Merger Shares will be issued to HEL without our prior written consent; |
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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; |
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