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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 June 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 August 10, 2022, the Registrant had 14,720,033 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 June 30, 2022 (Unaudited) and December 31, 2021 2
   
Condensed Consolidated Statements of Operations (Unaudited) For the Three and Six Months Ended June 30, 2022 and 2021 3
   
Condensed Consolidated Statements of Changes in Equity For the Year Ended December 31, 2021 and the Three and Six Months Ended June 30, 2022 (Unaudited) 4
   
Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 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 39
     
Item 4. Controls and Procedures 39
     
PART II. OTHER INFORMATION 40
   
Item 1. Legal Proceedings 40
     
Item 1A. Risk Factors 40
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
     
Item 3. Defaults Upon Senior Securities 40
     
Item 4. Mine Safety Disclosures 40
     
Item 5. Other Information 40
     
Item 6. Exhibits 41
     
SIGNATURES 43

 

1  

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements 

 

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

 

(Dollars in thousands, except per share)

 

    June 30,     December 31,  
    2022     2021  
Assets      
Current Assets:                
Cash   $ 4,626     $ 10,258  
Accounts receivable     688       531  
Prepaid expenses and other current assets     1,573       977  
Deposits on equipment     10,668       10,188  
Current assets associated with discontinued operations     -       3,028  
Total Current Assets     17,555       24,982  
Other assets     1,065       1,121  
Equity investment     750       750  
Property, plant and equipment, net     87,048       44,597  
Intangible assets, net     41,178       45,839  
Operating lease right-of-use assets     323       405  
Total Assets   $ 147,919     $ 117,694  
                 
Liabilities and Stockholders’ Equity                
Current Liabilities:                
Accounts payable   $ 4,840     $ 2,958  
Accrued liabilities     2,923       2,859  
Line of credit     1,000       1,000  
Notes payable     10,450       7,121  
Current portion of debt     7,526        
Deferred revenue     307       316  
Operating lease liability     196       184  
Income taxes payable     2       2  
Current liabilities associated with discontinued operations     -       1,243  
Total Current Liabilities     27,244       15,683  
                 
Other liabilities     509       509  
Long term debt     3,982        
Operating lease liability     142       237  
Deferred tax liability, net     9,476       10,277  
Total Liabilities     41,353       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 June 30, 2022 and 1,252,299 shares issued and outstanding as of December 31, 2021     3       1  
Common stock, par value $0.001 per share, authorized 75,000,000; 15,122,661 shares issued and 14,104,145 shares issued and outstanding as of June 30, 2022 and 14,769,699 shares issued and 13,754,206 shares issued and outstanding as of December 31, 2021     15       15  
Additional paid-in capital     258,863       227,790  
Accumulated deficit     (138,517 )     (123,054 )
Common stock in treasury, at cost, 1,018,516 shares at June 30, 2022 and 1,015,493 shares at December 31, 2021     (13,798 )     (13,764 )
Total Stockholders’ Equity     106,566       90,988  
                 
Total Liabilities and Stockholders’ Equity   $ 147,919     $ 117,694  

 

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

 

2  

 

 

Soluna Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021 

(Dollars in thousands, except per share) 

                             
  Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
                         
Cryptocurrency mining revenue   $ 7,497     $ 1,657     $ 15,309     $ 2,652  
Data hosting revenue     1,179       -       2,683       -  
     Total revenue     8,676       1,657       17,992       2,652  
Operating costs:                                
     Cost of cryptocurrency mining revenue, exclusive of depreciation     3,596       396       6,992       650  
     Depreciation costs associated with cryptocurrency mining     5,538       149       9,862       225  
         Total cost of cryptocurrency mining revenue     9,134       545       16,854       875  
     Cost of data hosting revenue     975       -       2,114       -  
Operating expenses:                        
     General and administrative expenses, exclusive of depreciation and amortization     4,873       2,503       9,755       3,799  
     Depreciation and amortization associated with general and administrative expenses     2,376       -       4,749       -  
            Total general and administrative expenses     7,249       2,503       14,504       3,799  
Impairment on fixed assets     750         -     750       -  
Operating loss     (9,432 )     (1,391 )     (16,230 )     (2,022 )
Interest expense     (3,305 )     -       (6,185 )     -  
Loss on sale of fixed assets     (1,618 )     -       (1,618 )     -
Other income, net     -       3       -       8  
Loss before income taxes from continuing operations     (14,355 )     (1,388 )     (24,033 )     (2,014 )
Income tax benefit (expense) from continuing operations     251       (3 )     797       (3 )
Net loss from continuing operations     (14,104 )     (1,391 )     (23,236 )     (2,017 )
Income before income taxes from discontinued operations (including gain on sale of MTI Instruments of $7,602 for three and six months ended June 30, 2022)     7,477       217       7,702       177  
Income tax benefit from discontinued operations     70       -       70       -  
    Net income from discontinued operations     7,547       217       7,772       177  
Net loss   $ (6,557 )   $ (1,174 )   $ (15,464 )   $ (1,840 )
                                 
Basic (loss) earnings per common share:                                
Net loss from continuing operations per share (Basic)   $ (1.11 )   $ (0.12 )   $ (1.82 )   $ (0.19 )
Net income from discontinued operations per share (Basic)   $ 0.54     $ 0.02     $ 0.56     $ 0.02  
      Basic loss per share   $ (0.57 )   $ (0.10 )   $ (1.26 )   $ (0.17 )
                                 
Diluted (loss) earnings per common share:                                
Net loss from continuing operations per share (Diluted)   $ (1.11 )   $ (0.12 )   $ (1.82 )   $ (0.19 )
Net Income from discontinued operations per share (Diluted)   $ 0.54     $ 0.02     $ 0.56     $ 0.02  
      Diluted loss per share   $ (0.57 )   $ (0.10 )   $ (1.26 )   $ (0.17 )
                                 
Weighted average shares outstanding (Basic and Diluted)     14,048,253       11,709,851       13,958,437       10,758,641  

 

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

 

3  

 

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

 

4  

 

 

Soluna Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity
For the Three and Six Months Ended June 30, 2022 (Unaudited)

 

(Dollars in thousands, except per share)

                                                           
    Preferred Stock     Common Stock                 Treasury Stock        
      Shares       Amount       Shares       Amount       Additional
Paid-in
Capital
      Accumulated
Deficit
      Shares       Amount       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  

 

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

 

5  

 

Soluna Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June, 2022 and 2021

(Dollars in thousands)

               
 

Six Months Ended 

June 30,

 
    2022     2021  
Operating Activities                
Net loss   $ (15,464 )   $ (1,840 )
Net income from discontinued operations (including gain on sale of MTI Instruments of $7,602 for the six months ended June 30, 2022)     (7,772 )     (177 )
Net loss from continuing operations     (23,236 )     (2,017 )
                 
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     14,611       225  
Stock-based compensation     1,952       1,039  
Consultant stock compensation     67       49  
Deferred income taxes     (797 )     -  
Impairment on fixed assets     750       -  
Amortization of operating lease asset     100       76  
Amortization on deferred financing costs and discount on notes     5,353       -  
Loss on sale of fixed assets     1,618       -  
Changes in operating assets and liabilities:                
Accounts receivable     (157 )     (27 )
Prepaid expenses and other current assets     (393 )     (371 )
Other long-term assets     56       (2 )
Accounts payable     1,882       1,507  
Deferred revenue     (9 )     -  
Operating lease liabilities     (98 )     (73 )
Other liabilities     -       61  
Accrued liabilities     64       328  
Net cash provided by operating activities     1,763       795  
Net cash provided by operating activities- discontinued operations     328       301  
Investing Activities                
Purchases of equipment     (52,618 )     (1,319 )
Purchases of intangible assets     (79 )     -  
Proceeds from disposal on equipment     465       -  
Deposits of equipment, net     1,603       (6,133 )
Net cash used in investing activities     (50,629 )     (7,452 )
Net cash provided by (used in) investing activities- discontinued operations     9,025       (17 )
Financing Activities                
Proceeds from preferred offering     11,657       -  
Proceeds from common stock offering     -       17,250  
Proceeds from notes and debt issuance     29,736       -  
Costs of preferred offering     (1,904 )     -  
Costs of common stock offering     -       (1,495 )
Costs of notes and short term debt issuance     (4,333 )     -  
Cash dividend distribution on preferred stock     (2,131 )     -  
Proceeds from stock option exercises     77       84  
Proceeds from common stock warrant exercises     779       -  
Net cash provided by financing activities     33,881       15,839  
                 
(Decrease) increase in cash-continuing operations     (14,985 )     9,182  
Increase in cash- discontinued operations     9,353       284  
Cash – beginning of period     10,258       2,630  
Cash – end of period   $ 4,626     $ 12,096  
                 
Supplemental Disclosure of Cash Flow Information                
Noncash equipment financing     4,620          
Interest paid on NYDIG loans     770          
Proceed receivable from sale of MTI Instruments     205          
Notes converted to common stock     1,342          
Warrant consideration in relation to promissory notes     5,317          
Promissory note conversion to preferred shares     15,236          
Purchase of miner equipment using restricted stock             (207 )
Registration fees in prepaids and accounts payable             352  

 

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

 

6  

 

 

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 incorporated in Delaware on January 8, 2020 as EcoChain, Inc., which operates a cryptocurrency mining facility that integrates with the cryptocurrency blockchain network in the State of Washington. 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 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”). 

 

Until the April 11, 2022 sale described 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 consist 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 are 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 (the “Sale”). 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 (our “Annual Report”), as well as in these consolidated financial statements as of June 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 June 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 June 30, 2022. In addition, the Company has seen a decline in the price of Bitcoin due its volatility, which could have 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 June 30, 2022, or August 15, 2022.

 

7  

 

 

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 issuance, project level equity, debt borrowings, partnerships and/or collaborations.

 

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 and expects to receive another $0.2 million following Purchaser’s approval of the final working capital.

 

Following June 30, 2022, to further implement management’s strategy, the Company entered into various transactions as further described in Note 17 to recapitalize and negotiate revised terms with senior secured lenders, which released collateral (thus enabling execution of the project financing strategy) and to provide a means for holders of the secured obligations to reduce their debt through the equity markets, including entering into the Addendum (as defined in Note 17) to allow the Company to convert $3.3 million in notes payable to common stock and redeem up to $6.6 million of notes payable, the issuance and sale of $5.0 million in a new series of preferred stock. In addition, also as further described in Note 17, in May 2022, SCI entered into a structural understanding with Soluna SLC Fund I Projects Holdco LLC, a Delaware limited liability company (“Spring Lane”), pursuant to which Spring Lane agreed to provide up to $35.0 million in project financing subject to various milestones and conditions precedent and following the recapitalization and restructuring discussed above, in August 2022, the Company entered into an agreement with Spring Lane for an initial funding of up to $12.5 million of the up to $35.0 million commitment for the Company’s development site in Texas. Management will continue to evaluate different strategies to obtain financing to fund operations, but believes that these transactions, and the availability of up to $7.1 million in additional equipment financing with a third party lender, together with the Company’s cash on hand of approximately $4.6 million as of June 30, 2022 and proceeds from potential capital raising activities and/or increasing the available under our credit facilities, will allow the Company to meet its outstanding commitments relating to capital expenditures as of June 30, 2022 of $1.5 million and other operational needs. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its 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 our 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 six months ended June 30, 2022 and June 30, 2021.

 

Principles of Consolidation

 

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

 

8  

 

 

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 redomestication 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                 Treasury Stock        
                                                       
    Shares     Amount     Shares     Amount     Additional
Paid-in
Capital
    Accumulated
Deficit
    Shares     Amount     Total
Stockholders’
Equity
 
                                                                         
September 30, 2021     806,585     $ 1       13,732,713     $ 14     $ 172,898     $ (120,419 )     1,015,493     $