UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _____to _____ |
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Commission File Number:
(Exact name of registrant as specified in its charter)
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State or other jurisdiction |
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(I.R.S. Employer |
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of incorporation or organization |
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Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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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 ☐
As of November 10, 2021, the Registrant had shares of common stock outstanding.
SOLUNA HOLDINGS, INC. AND SUBSIDIARIES
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1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Soluna Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 2021 (Unaudited) and December 31, 2020
| (Dollars in thousands, except per share) | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Other assets | ||||||||
| Deferred income taxes, net | ||||||||
| Equity investment | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Operating lease liability | ||||||||
| Income taxes payable | ||||||||
| Total Current Liabilities | ||||||||
| Other liabilities | ||||||||
| Operating lease liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Stockholders’ Equity: | ||||||||
| 9.0% Series A Cumulative Perpetual Preferred Stock, par value $ per share, $ | ||||||||
| Common stock, par value $ per share, authorized ; issued and outstanding as of September 30, 2021 and issued and outstanding as of December 31, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Common stock in treasury, at cost, shares in both 2021 and 2020 | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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 Nine Months Ended September 30, 2021 and 2020
| (Dollars in thousands, except per share) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cryptocurrency mining revenue | $ | $ | $ | $ | ||||||||||||
| Data hosting revenue | ||||||||||||||||
| Product revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of cryptocurrency mining revenue | ||||||||||||||||
| Cost of data hosting revenue | ||||||||||||||||
| Cost of product revenue | ||||||||||||||||
| Research and product development expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax (expense) benefit | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net loss per share (Basic) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net loss per share (Diluted) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average shares outstanding (Basic) | ||||||||||||||||
| Weighted average shares outstanding (Diluted) | ||||||||||||||||
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 (Unaudited)
For the Three and Nine-Month Period Ended September 30, 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 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance of shares – option exercises | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of shares – restricted stock | — | — | ||||||||||||||||||||||||||||||||||
| March 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance of shares – stock offering | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of shares – option exercises | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of shares – restricted stock | — | — | ||||||||||||||||||||||||||||||||||
| June 30, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||
| Preferred dividends | — | — | ( |
— | ( |
|||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance of shares – preferred offering | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of shares – option exercises | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of shares – warrant exercises | — | — | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Soluna
Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity (Unaudited)
For the Three and Nine-Month Period Ended September 30, 2020:
(Dollars in thousands, except per share)
| Common Stock | Treasury Stock | |||||||||||||||||||||||||||
| Shares | Amount | Additional
| Accumulated Deficit | Shares | Amount | Total Stockholders’ Equity | ||||||||||||||||||||||
| December 31, 2019 | $ | $ | $ | ( | ) | 1,015,493 | $ | ( | ) | $ | ||||||||||||||||||
| Net loss | — | ( | ) | — | ( | ) | ||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||
| March 31, 2020 | $ | $ | $ | ( | ) | 1,015,493 | $ | ( | ) | $ | ||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||
| June 30, 2020 | $ | $ | $ | ( | ) | 1,015,493 | $ | ( | ) | $ | ||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||
| September 30, 2020 | $ | $ | $ | ( | ) | 1,015,493 | $ | ( | ) | $ | ||||||||||||||||||
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 Nine Months Ended September 30, 2021 and 2020
(Dollars in thousands) | Nine Month Ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Operating Activities | ||||||||
Net (Loss) income | $ | ( | ) | $ | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | ||||||||
Stock based compensation | ||||||||
Consultant stock compensation | ||||||||
Recovery for excess and obsolete inventories | ( | ) | ( | ) | ||||
(Gain) loss on disposal of equipment | ( | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Inventories | ( | ) | ( | ) | ||||
Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
Other long-term assets | ( | ) | ( | ) | ||||
Accounts payable | ( | ) | ||||||
Deferred revenue | ||||||||
Operating lease, net | ||||||||
Other liabilities | ||||||||
Accrued liabilities | ||||||||
Net cash (used in) provided by operating activities | ( | ) | ||||||
| Investing Activities | ||||||||
Purchases of equipment | ( | ) | ( | ) | ||||
Purchase of stock in equity investment | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
Proceeds from equity offering | ||||||||
| Proceeds from preferred offering | ||||||||
Costs of equity offering | ( | ) | ||||||
Costs of preferred offering | ( | ) | ||||||
Cash dividends on preferred stock | ( | ) | ||||||
Proceeds from stock option exercises | ||||||||
Proceeds from common stock warrant exercises | ||||||||
Net cash provided by financing activities | ||||||||
Increase in cash | ||||||||
Cash - beginning of period | ||||||||
Cash - end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
Purchase of miner equipment using restricted stock | ( | ) | ||||||
| S-1 fees in accounts payable | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Soluna Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements (Unaudited)
| 1. | Nature of Operations |
Description of Business
Soluna Holdings, Inc., formerly known as Mechanical Technology, Incorporated (“SHI” or “the Company”), 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., following the completion of the Merger (as defined and further described below). The Company conducts two core businesses through its wholly-owned subsidiaries EcoChain, Inc. (“EcoChain”), which is engaged in cryptocurrency mining powered by renewable energy, and MTI Instruments, Inc. (“MTI Instruments”), which designs, manufactures and markets its products also at the Albany, New York location.
EcoChain was incorporated in Delaware on January 8, 2020. EcoChain has established a new business line focused on cryptocurrency mining and the blockchain ecosystem. In connection with the creation of the new business line, EcoChain has established a cryptocurrency mining facility that integrates with the cryptocurrency blockchain network in Washington State. EcoChain focuses on sites that can be powered by renewable energy sources. In connection with the establishment of the EcoChain business, MTI purchased Class A Preferred Shares of Harmattan Energy, Ltd. (“HEL”) (formerly 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.
MTI Instruments was incorporated in New York on March 8, 2000 and is a supplier of vibration measurement and balancing systems, precision linear displacement solutions, and wafer inspection tools. 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, the development and implementation of automated manufacturing and assembly.
On April 29, 2021, the Company
closed a public securities offering (the “April Offering”), pursuant to which the Company issued and sold
shares of the Company’s common stock and warrants to purchase up to
shares of common stock for gross proceeds of approximately $
On May 4, 2021, EcoChain Block, LLC, a Delaware limited liability company (“ECB”), a wholly-owned subsidiary of EcoChain, executed a ground lease with a power-providing cooperative with respect to an existing building and certain surrounding land (the “Building Lease”), and a 25-year ground lease with the same landlord with respect to certain vacant land adjacent thereto, both located in the Southeastern United States (the “Vacant Land Lease”, and together with the Building Lease, the “Ground Leases”). In addition, ECB and the landlord entered into a Power Supply Agreement (the “Power Supply Agreement”) whereby the landlord has agreed to supply power to the building leased under the Building Lease (the “Building Lease Premises”) and to the premises leased under the Vacant Land Lease (the “Vacant Land Premises”), some of which power, under certain circumstances, may be terminated by the landlord, on at least 6 months prior notice, any time after 12 months after the Building Commencement Date (as hereafter defined), in which case the landlord is required to reimburse ECB for all of its construction costs, subject to certain exceptions, relating to buildings and other improvements developed by ECB on the Vacant Land Premises. As of November 12, 2021, this lease has not commenced.
7
The Company is required to issue to the landlord shares of the Company’s common stock, in connection with the Vacant Land Lease, upon the effective date of the Vacant Land Lease, which may not occur prior to the Building Commencement Date. In addition, ECB and the landlord have entered into a memorandum of understanding providing ECB with a six-month exclusivity period to expand the Vacant Land Premises, including obtaining additional power, in connection therewith. ECB and the landlord have not agreed on any of the terms of such expansion other than the exclusivity period previously described. ECB and the landlord have also entered into a transition services agreement (the “Transition Services Agreement”) by which the landlord will provide certain transition services to ECB at a fee to be mutually agreed by the landlord and ECB. The Transition Services Agreement also requires the landlord to pay ECB an amount approximately equal to the landlord’s net profits received from the landlord’s other tenants operating out of the Building Lease Premises.
On June 24, 2021, the Company and American Stock Transfer & Trust Company, LLC entered into Amendment No. 2 to Rights Agreement (the “Amendment”) to a Rights Agreement, dated as of October 6, 2016, which was amended by Amendment No. 1 to Rights Agreement, dated as of October 20, 2016 (collectively, the “Rights Agreement”), pursuant to which, with the approval of the Board, the Final Expiration Date (as such term is defined in the Rights Agreement) was amended and accelerated from October 26, 2026 to June 24, 2021, and, as a result, the Rights Agreement was terminated effective as of June 24, 2021.
As a result of the termination of the Rights Agreement, certain stockholders of the Company, who, pursuant to the terms of the Rights Agreement, held certain rights entitling them, under certain circumstances, to be issued additional shares of the Company’s common stock in the event the Company issued shares of the Company’s common stock to any other person resulting in such person acquiring beneficial ownership of 4.99% or more of the Company’s outstanding shares of common stock, are no longer entitled to such rights. These rights were established in an effort to protect the Company’s ability to use the Company’s net operating loss carryforwards (“NOLs”). The Board, in connection with its authorization and approval of the Amendment, determined that keeping the Rights Agreement in effect was placing undue restrictions on the Company’s ability to raise capital, which it determined outweighed any benefits provided to protect the NOLs.
On August 23, 2021, the Company
issued and sold pursuant to a firm commitment public offering (the “Preferred Offering”) 720,000 shares of a new
series of the Company’s preferred shares known as the
Liquidity
The Company has historically incurred
significant losses primarily due to its past efforts to fund direct methanol fuel cell product development and commercialization
programs and had a consolidated accumulated deficit of approximately $ as of September 30, 2021. As of September
30, 2021, the Company had working capital of approximately $
Based on recent business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, the Company will require additional capital equipment in the foreseeable future. With respect to SHI and MTI Instruments, the Company has outstanding commitments of approximately $367 thousand related to purchase orders outstanding for various business needs as of September 30, 2021. As the Company has done historically, the Company expects to continue funding of SHI’s and MTI Instruments’ operations from the Company’s current cash position and the Company’s projected 2021 cash flows. If necessary, the Company may also seek to supplement its resources by increasing credit facilities to fund operational working capital and capital expenditure requirements. With respect to EcoChain, the Company expects to fund growth (additional cryptocurrency mining facilities and miners) through capital raise activities to the extent that the Company can successfully raise capital through additional securities sales. Any additional financing, if required, may not be available to the Company on acceptable terms or at all.
8
While it cannot be assured, management believes that, due in part to the Company’s current working capital level and projected cash requirements for operations and capital expenditures, its current available cash of approximately $15.8 million, and the Company’s projected 2021 cash flow pursuant to management’s plans, the Company will have adequate resources to fund operations and capital expenditures for SHI and MTI Instruments for the year ending December 31, 2021 and through at least the end of the fourth quarter of 2022. As noted above, the Company expects to fund capital expenditures for EcoChain through capital raises, while MTI Instrument’s operations will be funded through its cash flows. The Company has entered into a unsecured line of credit for $1.0 million to assist with possible future financing, which as of September 30, 2021, there was no outstanding balance. In addition, on October 20, 2021, the Company entered into the SPA (as defined in Note 14) pursuant to which the Company issued to the certain accredited investors secured convertible notes in the aggregate principal amount of approximately $16.3 million for an aggregate purchase price of $15 million. The notes are convertible, subject to certain conditions, at any time at the option the investors, into an aggregate of 1,776,073 shares of the Company’s common stock. The Company expects to have adequate resources to fund EcoChain’s operations for the year ending December 31, 2021 and through at least the fourth quarter of 2022.
| 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 United States of America’s Generally Accepted Accounting Principles (“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 Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“the Annual Report”).
The information presented in the accompanying condensed consolidated balance sheet as of December 31, 2020 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, 2021 and September 30, 2020.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Ecochain and MTI Instruments. All intercompany balances and transactions are eliminated in consolidation.
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.
| 3. | Accounts Receivable |
Accounts receivables consist of the following at:
(Dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
| U.S. and State Government | $ | $ | ||||||
| Commercial | ||||||||
| Data Hosting | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
For the three months ended September 30,
2021 and 2020, the largest commercial customer represented
The Company’s allowance for doubtful accounts was $
9
| 4. | Inventories |
Inventories consist of the following at:
| (Dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Total | $ | $ | ||||||
| 5. | Property, Plant and Equipment |
Property, plant and equipment consist of the following at:
| (Dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||||
| Land | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Vehicles | ||||||||
| Computers and related software | ||||||||
| Machinery and equipment | ||||||||
| Office furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense was $
| 6. | Income Taxes |
During the three and nine months ended
September 30, 2021, the Company’s effective income tax rate was
The Company provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur in accordance with accounting standards that address income taxes. Significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur. The Company has considered all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items, in determining its valuation allowance. In addition, the Company’s assessment requires us to schedule future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance which further requires the exercise of significant management judgment.
The Company believes that the accounting
estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing
the likely future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
The Company based the estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business
plans and other expectations about future outcomes. In the event that actual results differ from these estimates or the Company
adjusts these estimates in future periods, the Company may need to adjust the recorded valuation allowance, which could materially
impact the Company’s financial position and results of operations. The valuation allowance was $
| 7. | Stockholders’ Equity |
Preferred Stock
The Company has one series of preferred stock outstanding, the Series A Preferred
Stock, par value $ per share, with a $
10
Common Stock
The Company has one class of common stock, par value . Each share of the Company’s common stock is entitled to one vote on all matters submitted to stockholders. As of September 30, 2021 and December 31, 2020, there were and shares of common stock issued and outstanding, respectively.
Dividends
Dividends are recorded when declared by the Company’s Board of Directors. On August 27, 2021, the Company’s Board of Directors declared an initial dividend on its shares of Series A Preferred Stock. The dividend was paid on September 30, 2021, to holders of the Series A Preferred Stock of record as of the close of business on September 7, 2021, for the period from August 23, 2021 through September 30, 2021 for an amount of $175.5 thousand.
Subsequent to September 30, 2021, on October 8, 2021, the Company’s Board of Directors declared the regular monthly dividend on its shares of Series A Preferred Stock. The dividend was paid on October 31, 2021 to holders of the Series A Preferred Stock of record as of the close of business on October 18, 2021, for the month ended October 31, 2021 and, with respect to the Option Shares, for the period from September 28, 2021 through September 30, 2021. On November 5, 2021, the Company’s Board of Directors declared the regular monthly dividend on its shares of Series A Preferred Stock. The dividend will be payable on November 30, 2021, to holders of the Series A Preferred Stock of record as of the close of business on November 15, 2021, for the month ended November 30, 2021.
There were no dividends declared or paid on either the common or preferred stock during 2020.
Reservation of Shares
| Stock options outstanding | ||||
| Restricted stock units outstanding | ||||
Warrants outstanding | ||||
| Common stock available for future equity awards or issuance of options | ||||
| Number of common shares reserved |
Income (Loss) per Share
The Company computes basic income (loss) per common share by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted income (loss) per share reflects the potential dilution, if any, computed by dividing income (loss) by the combination of dilutive common stock equivalents, comprised of shares issuable under outstanding investment rights, warrants and the Company’s stock-based compensation plans, and the weighted average number of shares of common stock outstanding during the reporting period. Dilutive common stock equivalents include the dilutive effect of in-the-money stock options, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of a stock option and the amount of compensation cost, if any, for future service that the Company has not yet recognized are assumed to be used to repurchase shares in the current period.
Not included in the computation of earnings per share, assuming dilution, for the three and nine months ended September 30, 2021, were options to purchase shares and restricted stock units of the Company’s common stock, as well as warrants outstanding. These potentially dilutive items were excluded because the Company incurred a loss during the period and their inclusion would be anti-dilutive.
Not included in the computation of earnings per share, assuming dilution, for the three months ended September 30, 2020, were options to purchase shares of the Company’s common stock. These potentially dilutive items were excluded because the average market price of the shares of common stock exceeded the exercise price of the options. Not included in the computation of earnings per share, assuming dilution, for the nine months ended September 30, 2020, were options to purchase shares of the Company’s common stock. These potentially dilutive items were excluded because the average market price of the shares of common stock exceeded the exercise price of the options.
| 8. | Commitments and Contingencies |
Commitments:
Leases
The Company determines whether an arrangement is a lease at inception. The Company and its subsidiaries have operating leases for certain manufacturing, laboratory, office facilities and certain equipment. The leases have remaining lease terms of less than to less than . The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of September 30, 2021 and December 31, 2020, the Company has no assets recorded under finance leases.
Lease expense for these leases is recognized on a straight-line basis over the lease term. For the three and nine months ended September 30, total lease costs are comprised of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total net lease cost | $ | $ | $ | $ | ||||||||||||
11
Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.
Other information related to leases was as follows:
(Dollars in thousands) | Nine Months Ended September 30, 2021 | |||
| Weighted Average Remaining Lease Term (in years): | ||||
| Operating leases | ||||
| Weighted Average Discount Rate: | ||||
| Operating leases | % | |||
| (Dollars in thousands) | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||
| Supplemental Cash Flows Information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Non-Cash Activity Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | $ | ||||||
Maturities of noncancellable operating lease liabilities are as follows for the quarter ending September 30:
| (Dollars in thousands) | ||||
| 2021 | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease obligations | ||||
| Less: current obligations | ( | ) | ||
| Long-term lease obligations | $ | |||
As of September 30, 2021, except for the ground lease entered into as described in Note 1, there were no additional operating lease commitments that had not yet commenced.
12
Warranties
Product warranty liabilities are included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets. Below is a reconciliation of changes in product warranty liabilities:
| Nine Months Ended September 30, | ||||||||
| (Dollars in thousands) | 2021 | 2020 | ||||||
| Balance, January 1 | $ | $ | ||||||
| Accruals for warranties issued | ||||||||
| Accruals for pre-existing warranties | ||||||||
| Settlements made (in cash or in kind) | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
Contingencies:
Legal
The Company is subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. When applicable, the Company accrues for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.
The Company has been named as a party
in the December 19, 2019 United States Environmental Protection Agency (“EPA”) Demand Letter regarding the Malta Rocket
Fuel Area Superfund Site (“Site”) located in Malta and Stillwater, New York in connection with an alleged release
of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the
amount of approximately $
| 9. | Related Party Transactions |
MeOH Power, Inc.
On December 18, 2013, MeOH Power, Inc.
and the Company executed a Senior Demand Promissory Note (the “Note”) in the amount of $
Legal Services
During the three and nine months ended
September 30, 2021, the Company incurred $
Harmattan Energy, Ltd. Transactions
On January 8, 2020, the Company formed
EcoChain as a wholly-owned subsidiary to pursue a new business line focused on cryptocurrency and the blockchain ecosystem. In
connection with this new business line, EcoChain established a facility to mine cryptocurrencies and integrate with the blockchain
network. Pursuant to an Operating and Management Agreement dated January 13, 2020, by and between EcoChain and HEL, HEL assisted
the Company, and later EcoChain, in developing, and is now operating, the cryptocurrency mining facility. The Operating and Management
Agreement requires, among other things, that HEL provide developmental and operational services, as directed by EcoChain, with
respect to the cryptocurrency mining facility in exchange for EcoChain’s payment to HEL of a one-time management fee of $
13
On November 19, 2020, EcoChain and HEL
entered into a second Operating and Management Agreement related to a potential location for a cryptocurrency mine in the Southeast
United States. In accordance with the terms of the agreement, which are consistent with the first Operating and Management
agreement noted above, HEL is entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation
and amortization of the mine. EcoChain paid HEL $
On December 1, 2020, EcoChain and HEL entered
into a third Operating and Management Agreement with respect to a potential location for a cryptocurrency mine in the Southwestern
United States. In accordance with the terms of the agreement, which are consistent with the first Operating and Management agreement
noted above, HEL is entitled to ongoing success payments of
On February 8, 2021, EcoChain and HEL entered
into a fourth Operating and Management Agreement related to a potential location for a cryptocurrency mine in the Southeast United
States. In accordance with the terms of the agreement, which are consistent with the first Operating and Management agreement
noted above, HEL is entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation and amortization
of the mine. EcoChain paid HEL $
Each Operating and Management Agreement requires that HEL provide project sourcing services to EcoChain, including acquisition negotiations and establishing an operating model, investments/financing timeline, and project development path.
Simultaneously with entering into the initial Operating and Management Agreement with HEL, the Company, pursuant to a purchase agreement it entered into with HEL, made a strategic investment in HEL by purchasing Class A Preferred Shares of HEL for an aggregate purchase price of $500 thousand on January 13, 2020. After acceptance of the Deliverables, as required by the terms of the purchase agreement, on March 23, 2020, the Company purchased an additional Class A Preferred Shares of HEL for an aggregate purchase price of $ thousand. The Company also has the right, but not the obligation, to purchase additional equity securities of HEL and its subsidiaries (including additional Class A Preferred Shares of HEL) if HEL secures certain levels or types of project financing with respect to its own wind power generation facilities. Each preferred share may be converted at any time and without payment of additional consideration, into Common shares. The Company has additionally entered into a Side Letter Agreement, dated January 13, 2020, with HEL Technologies Investment I, LLC, a Delaware limited liability company that owns, on a fully diluted basis, 57.9% of HEL and is controlled by a Brookstone Partners-affiliated director of the Company. The Side Letter Agreement provides for the transfer to the Company, without the payment of any consideration by the Company, of additional Class A Preferred Shares of HEL in the event HEL issues additional equity below agreed-upon valuation thresholds.
On August 11, 2021, the Company entered into (i) an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, SCI Merger Sub, Inc., the Company’s indirect wholly-owned subsidiary (“Merger Sub”), and Soluna Computing, Inc., a Delaware corporation (“SCI”) and (ii) a Termination Agreement by and among the Company, EcoChain and HEL (the transactions contemplated by the Merger Agreement and the Termination Agreement are hereinafter referred to as the “Soluna Transactions”). The purpose of the Soluna Transactions is to effect our acquisition of substantially all of the assets (other than those assets physically located in Morocco) formerly held by HEL; such assets consist solely of SCI’s existing pipeline of certain cryptocurrency mining projects that HEL previously transferred to SCI (the “Projects”), which was formed on May 18, 2021 expressly for this purpose. The Soluna Transactions also provide us, through EcoChain, with the opportunity to directly employ or retain the services of four individuals whose services are currently retained through HEL. Soluna Holdings US, LLC, a Delaware limited liability company, is the sole stockholder of SCI (“Soluna Parent”). Soluna Parent has the same ownership structure as HEL.
Pursuant to the Merger Agreement, subject to the terms and conditions thereof, Merger Sub will be merged with and into SCI, with SCI as the surviving corporation such that SCI becomes a wholly-owned subsidiary of EcoChain and an indirect wholly-owned subsidiary of SHI (the “Merger”). Under the terms of the Merger Agreement, each share of common stock of SCI issued and outstanding immediately prior to the effective time of the Merger, other than shares of SCI common stock owned by SCI, Merger Sub, SHI, or any of their subsidiaries, will be cancelled and converted into the right to receive a proportionate share of the Merger Consideration described immediately below.
The consideration (the “Merger Consideration”)
payable to the holders of SCI common stock as of immediately prior to the effective time of the Merger (the “Effective Time
Holders”), which we expect will be solely Soluna Parent, is an aggregate of up to
The Merger Agreement contains customary representations and warranties from both SHI and SCI, and each has agreed to customary covenants, including, among others, to use all commercially reasonable efforts to obtain any consents, waivers, and approvals required to be obtained in connection with the Merger and, with respect to SCI, covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the effective time of the Merger or termination of the Merger Agreement, as well as non-solicitation obligations relating to alternative acquisition proposals.
14
The obligation of SHI and Merger Sub, on the one hand, and SCI, on the other hand, to consummate the Merger is subject to a number of customary conditions, including (1) the accuracy of the representations and warranties of the other and (2) performance in all material respects by the other of its obligations under the Merger Agreement. In addition, each party’s obligation to consummate the Merger is subject to certain additional conditions, including: (1) SHI and the Effective Time Holders having entered into a mutually acceptable registration rights agreement with respect to the Merger Shares; (2) SHI and Soluna Parent having entered into a conversion agreement with respect to the shares of Soluna Parent’s preferred stock held by SHI; and (3) SHI, Brookstone Partners Acquisition, XXIV, LLC (“Brookstone XXIV”), and Soluna Parent having entered into a voting agreement pursuant to which, at the effective time of the Merger, John Belizaire, Chief Executive Officer of SCI and a director of SCI and HEL, and John Bottomley, a director of HEL and SCI, will be elected to SHI’s Board of Directors, and Brookstone XXIV will agree to vote all of its voting equity securities in SHI for the election of Messrs. Belizaire and Bottomley as directors of SHI. Further, SHI’s and Merger Sub’s obligation to consummate the Merger is also subject to, among other things: (1) the receipt of all required approvals of SHI’s stockholders, including approval of the Merger Agreement and the Merger by holders of at least a majority of the outstanding shares of the Company’s common stock that are not “interested stockholders,” as defined under Nevada law, of SHI, SCI, or an affiliate thereof; (2) the receipt of all required regulatory or third-party approvals and consents; (3) each of John Belizaire, Mohammed Larbi Loudiyi (through ML&K Contractor, a limited liability company organized under the laws of Morocco that is owned by Mr. Loudiyi and his wife), Vice President, Energy of SCI, Phillip Ng, Vice President, Corporate Development of SCI, and Dipul Patel, Chief Technology Officer of SCI, who currently provides developmental and operational services for EcoChain’s cryptocurrency mine located in Washington State and project sourcing services to EcoChain under certain Operating and Management Agreements between HEL and EcoChain, having entered into an employment or service agreement, a related proprietary rights agreement with EcoChain and an equity grant agreement with SHI; and (4) Soluna Parent being the sole record and beneficial owner of 100% of SCI’s outstanding equity interests.
In addition to providing that SHI and SCI can mutually agree to terminate the Merger Agreement, the Merger Agreement contains certain termination rights for both SHI and SCI, as the case may be, including: (1) if the Merger has not been consummated by October 31, 2021 (unless principally caused by a breach of the Merger Agreement by the party seeking to terminate); (2) if a governmental authority shall have issued a final, nonappealable order, decree, or ruling, or taken any other action, having the effect of permanently restraining, enjoining, or otherwise prohibiting the Merger; or (3) upon a breach of any representation, warranty, covenant, or agreement of the other or if any representation or warranty of the other has become untrue, in either case such that the closing conditions related thereto would not be satisfied, subject to a 30-day cure period.
Upon and subject to the terms and conditions of the Termination Agreement, including approval by the stockholders of SHI’s issuance of the Termination Shares (as hereinafter defined) five business days after such stockholder approval (the “Termination Effective Date”): (1) the existing Operating and Management Agreements between HEL and EcoChain will be terminated in all respects; and (2)(A) EcoChain will pay HEL $725,000, (B) SHI will issue to HEL 150,000 shares of the Company’s common stock (the “Termination Shares”), and (C) HEL and SHI will enter into an Amended and Restated Contingent Rights Agreement that, among other things, will amend the existing Contingent Rights Agreement by and between HEL and SHI, dated January 13, 2020, to provide SHI the right to invest directly in certain cryptocurrency mining opportunities being pursued by HEL. The Termination Agreement also provides that SHI will file a registration statement with the SEC to register the resale of the Termination Shares within 20 days of the Termination Effective Date.
The Merger closed on October 29, 2021. Please see Note 14 for additional information regarding the Merger and related transactions.
Several of HEL’s equityholders are affiliated with Brookstone Partners, the investment firm that holds an equity interest in the Company through Brookstone Partners Acquisition XXIV, LLC. The Company’s two Brookstone-affiliated directors also serve as directors and, in one case, as an officer, of HEL and also have ownership interest in HEL. In light of these relationships, the various transactions by and between the Company and EcoChain, on the one hand, and HEL, on the other hand, were negotiated on behalf of the Company and EcoChain via an independent investment committee of Board and separate legal representation. The transactions were subsequently unanimously approved by both the independent investment committee and the full Board.
Three of the Company’s directors have various affiliations with HEL.
15
In addition, one of the Company’s directors, Matthew E. Lipman, serves as a director and as acting Secretary and Treasurer of HEL. Mr. Lipman does not directly own any equity interest in Tera Joule, LLC, which owns 9.2% of HEL; however, as a result of his position as a director and officer of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests that Tera Joule owns in HEL. As a result, the approximate dollar value of the amount of Mr. Toporek’s and Mr. Lipman’s interest in the Company’s transactions with HEL through September 30, 2021, were $375 thousand and $0, respectively.
Finally, the Company’s director William P. Phelan serves as an observer on HEL’s board of directors on behalf of the Company.
The Company’s investment in HEL is
carried at the cost of investment and was $
10. | Stock Based Compensation |
2021 Plan
The Company’s 2021 Stock Incentive Plan (the “2021 Plan”) was adopted by the Board on February 12, 2021 and approved by the stockholders on March 25, 2021. The 2021 Plan authorizes the Company to issue shares of common stock upon the exercise of stock options, the grant of restricted stock awards, and the conversion of restricted stock units (collectively, the “Awards”). The Compensation Committee has full authority, subject to the terms of the 2021 Plan, to interpret the 2021 Plan and establish rules and regulations for the proper administration of the 2021 Plan. Subject to certain adjustments as provided in the 2021 Plan, the maximum aggregate number of shares of the Company’s common stock that may be issued under the 2021 Plan (i) pursuant to the exercise of stock options, (ii) as restricted stock, and (iii) as available pursuant to restricted stock units shall be limited to (A) during the Company’s fiscal year ending December 31, 2021 (the “2021 Fiscal Year”), 1,460,191 shares of common stock, and (B) beginning with the Company’s fiscal year ending December 31, 2022 (the “2022 Fiscal Year”), 15% of the number of shares of common stock outstanding. Subject to certain adjustments as provided in the 2021 Plan, (i) shares of the Company’s common stock subject to the 2021 Plan shall include shares of common stock forfeited in a prior year and (ii) the number of shares of common stock that may be issued under the 2021 Plan may never be less than the number of shares of the Company’s common stock that are then outstanding under outstanding Awards.
During the three months ended September 30, 2021, the Company did not grant any options to purchase shares of the Company’s common stock under the 2021 Plan or award restricted common stock or restricted stock units under the 2021 Plan.
During the nine months ended September 30, 2021, the Company granted options to purchase shares of the Company’s common stock under the 2021 Plan, of which shares immediately vested with an exercise price of $ per share, based on the closing price plus % of the Company’s common stock on the date of the grant. The remaining shares will vest in equal installments of 33 1/3% on each of the three anniversaries of the date of the grant. The weighted exercise price of these options is $ per share and was based on the closing market price of the Company’s common stock on the dates of grant. Using a Black-Scholes Option Pricing Model, the weighted average fair value of these options was $ per share and was estimated at the date of grant.
During the nine months ended September 30, 2021, the Company awarded shares of restricted common stock under the 2021 Plan, valued at $ per share based on the closing market price of the Company’s common stock on the date of the award. The shares will be restricted for one year, with the entire award vesting on the first anniversary of the award date.
During the nine months ended September 30, 2021, the Company awarded restricted stock units under the 2021 Plan, valued at $ per share based on the closing market price of the Company’s common stock on the date of the grant. 33 1/3% of such restricted stock units will vest on each of the first three anniversaries of the date of the grant.
| 11. | Effect of Recent Accounting Updates |
Accounting Updates Not Yet Effective
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standard updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considered the applicability and impact of all ASUs. ASUs not mentioned below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
16
In June 2016, the FASB issued ASU 2016-13 (Financial Instruments - Credit Losses (Topic 326)) and its subsequent amendments to the initial guidance within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02, respectively (collectively, Topic 326). Topic 326 changes how entities will measure credit losses for most financial assets and certain other instruments that are not accounted for at fair value through net income. This standard replaces the existing incurred credit loss model and establishes a single credit loss framework based on a current expected credit loss model for financial assets carried at amortized cost, including loans and held-to- maturity debt securities. The current expected loss model requires an entity to estimate credit losses expected over the life of the credit exposure upon initial recognition of that exposure when the financial asset is originated or acquired, which will generally result in earlier recognition of credit losses. This standard also requires expanded credit quality disclosures. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. This standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. This standard will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. ASU 2019-04 clarifies that equity instruments without readily determinable fair values for which an entity has elected the measurement alternative should be remeasured to fair value as of the date that an observable transaction occurred. ASU 2019-05 provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. This standard should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This standard will be effective for the Company for annual and interim reporting periods beginning on or after December 15, 2022, and while early adoption is permitted, the Company does not expect to elect that option. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements, including assessing and evaluating assumptions and models to estimate losses. Upon adoption of this standard on January 1, 2023, the Company will be required to record a cumulative effect adjustment to retained earnings for the impact as of the date of adoption. The impact will depend on the Company’s portfolio composition and credit quality at the date of adoption, as well as forecasts at that time.
Accounting Updates Recently Adopted by the Company
On January 1, 2021, the Company adopted ASU 2019-12 (Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes). This standard removes exceptions to the general principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
On January 1, 2021, the Company adopted ASU 2020-01 (Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)). This standard clarifies certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. This standard improves current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
There have been no other significant changes in the Company’s reported financial position or results of operations and cash flows as a result of its adoption of new accounting pronouncements or changes to its significant accounting policies that were disclosed in its consolidated financial statements for the Company’s fiscal year ended December 31, 2020 (the “2020 Fiscal Year”).
| 12. | Segment Information |
The Company operates in two business segments, Cryptocurrency and Test and Measurement Instrumentation. The Cryptocurrency segment is focused on cryptocurrency and the blockchain ecosystem.. The Test and Measurement Instrumentation segment designs, manufactures, markets and services computer-based balancing systems for aircraft engines, high performance test and measurement instruments and systems, and wafer characterization tools for the semiconductor and solar industries. The Company’s principal operations in both segments are located in North America
The accounting policies of the Cryptocurrency and Test and Measurement Instrumentation segments are similar to those described in the summary of significant accounting policies herein and in the Annual Report. The Company evaluates performance based on profit or loss from operations before income taxes, accounting changes, items management does not deem relevant to segment performance, and interest income and expense. Inter-segment sales and expenses are not significant.
17
Summarized financial information concerning the Company’s reportable segments is shown in the following table. The “Other” column includes corporate related items and items such as income taxes or unusual items, which are not allocated to reportable segments. In addition, segments’ non-cash items include any depreciation and amortization in reported profit or loss.
| (Dollars in thousands) | Cryptocurrency | Test and Measurement Instrumentation | Other | Condensed Consolidated Totals | ||||||||||||
| Three months ended September 30, 2021 | ||||||||||||||||
| Cryptocurrency mining revenue | $ | $ | $ | $ | ||||||||||||
| Data hosting revenue | ||||||||||||||||
| Product revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Research and product development expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Segment profit / (loss) from operations before income taxes | ( | ( | ) | ( | ) | |||||||||||
| Segment profit / (loss) | ( | ( | ) | ( | ) | |||||||||||
| Total assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Three months ended September 30, 2020 | ||||||||||||||||
| Cryptocurrency mining revenue | $ | $ | $ | $ | ||||||||||||
| Data hosting revenue | ||||||||||||||||
| Product revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Research and product development expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Segment profit / (loss) from operations before income taxes | ( | | ( | ) | ||||||||||||
| Segment profit / (loss) | ( | | ( | ) | ||||||||||||
| Total assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Nine months ended September 30, 2021 | ||||||||||||||||
| Cryptocurrency mining revenue | $ | $ | $ | $ | ||||||||||||
| Data hosting revenue | ||||||||||||||||
| Product revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Research and product development expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Segment profit / (loss) from operations before income taxes | ( | ) | ( | ) | ||||||||||||
| Segment profit / (loss) | ( | ) | ( | ) | ||||||||||||
| Total assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Nine months ended September 30, 2020 | ||||||||||||||||
| Cryptocurrency mining revenue | $ | $ | $ | $ | ||||||||||||
| Data hosting revenue | ||||||||||||||||
| Product revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Research and product development expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Segment profit / (loss) from operations before income taxes | ( | ) | ( | ) | ||||||||||||
| Segment profit / (loss) | ( | ) | ( | ) | ||||||||||||
| Total assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
18
The following table presents the details of “Other” segment loss:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Corporate and other (expenses) income: | ||||||||||||||||
| Salaries and Benefits | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income tax (expense) benefit | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total income (expense) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 13. | Line of Credit |
On September 13, 2021, the Company
entered into a $
| 14. | Subsequent Events |
Management has evaluated all events and transactions that occurred subsequent to September 30, 2021 through the date of issuance of these condensed consolidated financial statements.
Securities Purchase Agreement - Notes and Warrants
On October 20,
2021, the Company entered into a Securities Purchase Agreement (the “SPA”) for an aggregate financing of $
The Notes, subject
to an original issue discount of
The conversion of the Notes and the exercise
of the Warrants are each subject to beneficial ownership limitations such that the Investors may not convert the Notes or exercise
the Warrants to the extent that such conversion or exercise would result in each of
Pursuant to the SPA, for so long as any amount in excess of $1,500,000 in the aggregate for all Investors remains outstanding on a Note, Investors who have acquired Notes having a principal amount of not less than $3,000,000, have a right to participate in any issuance (a “Subsequent Financing”) by the Company or any of its subsidiaries of Common Stock, Common Stock Equivalents (as defined in the SPA) for cash consideration, Indebtedness (as defined in the SPA) or a combination thereof, other than (i) a rights offering to all holders of Common Stock, or (ii) an Exempt Issuance (as defined in the SPA), up to an amount equal to fifty percent (50%) of the Subsequent Financing, unless the Subsequent Financing is an underwritten public offering, in which case the Company will notify each Investor of such public offering when it is lawful for the Company to do so, but no Investor will be entitled to purchase any particular amount of such public offering without the approval of the lead underwriter of such underwritten public offering.
The Company has agreed to register with the U.S. Securities and Exchange Commission (the “SEC”) the resale of the Warrant Shares and Conversion Shares pursuant to the Registration Rights Agreement, dated as of October 25, 2021, by and among the Company and the purchasers signatory to the SPA (the “Registration Rights Agreement”).
19
The SPA, Notes and Warrants each contain customary events of default, representations, warranties, agreements of the Company and the Investors and customary indemnification rights and obligations of the parties thereto, as applicable. The Company did not engage in general solicitation or advertising with regard to the issuance and sale of the Securities. Each of the Investors represented that he/she/it is an accredited investor and purchased the Securities for investment and not with a view to distribution. The Notes and the Warrants were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), based on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder.
Univest Securities LLC served as the placement agent (the “Placement Agent”) for the Company in connection with the Offering. In connection with the foregoing, the Company entered into a placement agency agreement with the Placement Agent, dated October 21, 2021 (the “Placement Agency Agreement”), and agreed to pay to the Placement Agent (i) a cash fee equal to 8% of the gross proceeds received by the Company from the sale of Securities at Closing, (ii) a cash fee equal to 7% of the gross proceeds received by the Company from any exercise of the Warrants, and issue the Placement Agent (x) a warrant to purchase up to 8% of the aggregate number of Conversion Shares (the “Placement Agent Warrant #1”), which is exercisable, in whole or in part, on a cashless basis, for a period of five years, commencing on the final Closing Date (as defined in the Placement Agency Agreement), and (y) a warrant to purchase up to 7% of the aggregate number of Warrant Shares that are exercised (the “Placement Agent Warrant #2”, and together with Placement Agent Warrant #1, the “Placement Agent Warrants”), which is exercisable after 6 months upon issuance on a cashless basis for a period of five years. In addition, the Placement Agent Warrant includes a registration rights provision granting the Placement Agent the same registration rights granted to the Investors pursuant to the SPA. The Placement Agency Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties thereto, and termination provisions.
SCI Merger Acquisition
On October 29, 2021, the Company consummated the Merger pursuant
to the Merger Agreement.
Also, as a result of the Merger, the employees of SCI became employees of, or in one case a consultant to, EcoChain pursuant to employment agreements EcoChain entered into as of October 29, 2021 with such employees and a consulting agreement EcoChain entered into as of October 29, 2021 with an entity wholly-owned by the consultant and his wife.
In addition, as the result of the approval by the Company’s stockholders of the issuance of the Company’s common stock at its Special Meeting of Stockholders held on October 29, 2021, pursuant to the Termination Agreement the Company issued to HEL the Termination Shares and EcoChain paid HEL the Cash Consideration, and the existing Operating and Management Agreements between HEL and EcoChain terminated in all respects. In addition, pursuant to the terms of the Termination Agreement, on November 5, 2021, HEL and SHI entered into an Amended and Restated Contingent Rights Agreement that, among other things, amended the existing Contingent Rights Agreement by and between HEL and SHI, dated January 13, 2020, to provide SHI the right to invest directly in certain cryptocurrency mining opportunities being pursued by HEL.
Pursuant to the Voting Agreement by and among Soluna Parent,
SHI, and Brookstone Partners, the execution of which was a condition to the closing of the Merger, upon the effectiveness of the
Merger on October 29, 2021, the Company’s Board of Directors elected John Belizaire, who served as Chief Executive Officer
and a director of SCI until the effective time of the Merger, a director of HEL, and President and Chief Executive Officer of EcoChain,
and John Bottomley, a director of HEL and a director of SCI until the effective time of the Merger, to the Board of Directors of
SHI. SHI’s Board of Directors has not yet determined on which committees of the Board of Directors these individuals will
serve. As directors, Messrs. Belizaire and Bottomley are entitled to compensation in such capacity on the same basis as SHI’s
other directors. Currently, each non-employee director of SHI receives cash compensation of $
Name Change of the Company
Following the closing of the Merger, the Company changed its name from “Mechanical Technology, Incorporated” to “Soluna Holdings, Inc.”, effective November 2, 2021. The Company also changed its ticker symbol for its common stock from “MKTY” to “SLNH” and for its preferred stock from “MKTYP” to “SLNHP”. The ticker symbol change became effective on November 4, 2021.
2021 Amended and Restated Stock Incentive Plan
At the 2021 Special Meeting of Stockholders of the Company held on October 29, 2021, the Company’s shareholders approved the Soluna Holdings, Inc. Amended and Restated 2021 Stock Incentive Plan (the “2021 Amended and Restated Plan”) which, among other things, eliminates certain limitations on the number of shares of the Company’s common stock that may be issued pursuant to awards under the 2021 Plan and to provide for the validity, construction and effect of the 2021 Amended and Restated Plan in accordance with the laws of the State of Nevada, in lieu of the State of New York as provided by the 2021 Plan, consistent with the Company’s reincorporation as a Nevada corporation on March 24, 2021.
The total number of shares of the Company’s common stock authorized to be issued under the 2021 Amended and Restated Plan (i) pursuant to the exercise of options, (ii) as restricted stock and (iii) as available pursuant to restricted stock units shall be limited to 1,460,191 shares during the 2021 Fiscal Year. On the first trading day of each new fiscal year commencing on January 1, 2022, the number of shares of common stock reserved for issuance under the 2021 Amended and Restated Plan will automatically increase by fifteen percent (15%) of the number of shares of common stock outstanding on such date (the “Evergreen Provision”).
On October 29, 2021, the Company filed a Form S-8 Registration Statement to register shares of the Company’s common stock to be offered to participants under the 2021 Amended and Restated Plan in the 2021 Fiscal Year and 1,024,000 shares of common stock anticipated to be available for issuance pursuant to future awards under the 2021 Amended and Restated Plan pursuant to the Evergreen Provision.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context requires otherwise, the terms “SHI,” “the Company”, “we,” “us,” and “our” refer to Soluna Holdings, Inc., “EcoChain” refers to EcoChain, Inc. and “MTI Instruments” refers to MTI Instruments, Inc.
The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and the related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2020 contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021.
In addition to historical information, the following discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements. Important factors that could cause actual results to differ include those set forth in Part I Item 1A-Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and elsewhere in this Quarterly Report on Form 10-Q. Readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q. Please see “Statement Concerning Forward-Looking Statements” below.
Overview
SHI conducts its business through its wholly-owned subsidiaries, Ecochain and MTI Instruments.
EcoChain, a Delaware corporation incorporated in January 2020, is engaged in cryptocurrency mining powered by renewable energy. Related to this new core business, we made a strategic investment, and hold an equity position, in “HEL, a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications. Through HEL, we currently operate a mining facility in Wenatchee, Washington, that houses the majority of our cryptocurrency miners, which are the cryptocurrency assets, consisting of hardware and software, that perform the computations needed to mine cryptocurrencies. We purchased additional miners in April and May 2021, and in May 2021 entered into two ground leases for a building located in the Southeast region of the United States that will be EcoChain’s second cryptocurrency mining facility, which includes surrounding land for potential additional capacity. The ground leases will not be effective until certain conditions set forth therein are met, and in the meantime the miners we purchased in April are located in this facility. We are paying the owner of that facility, at a flat fee per miner, for the space, electricity, and anything else needed for the miners to operate, an arrangement known as “hosting”; this arrangement will terminate upon the effective date of the ground leases, at which time HEL will commence operating this facility pursuant to an operations and management agreement between HEL and EcoChain. The primary cryptocurrencies that EcoChain mines are Bitcoin and, to a lesser degree, Ethereum and LiteCoin. EcoChain recognizes revenue when its mined cryptocurrencies are transferred to its account at a cryptocurrency exchange (i.e. a platform that facilitates the exchange of cryptocurrencies for other assets, such as conventional money or other digital currencies). The applicable exchange converts the cryptocurrencies held in our account to U.S. dollars daily. The Company intends to continue to grow EcoChain through acquisitions of existing cryptocurrency mining facilities and properties that can be repurposed to operate cryptocurrency mining facilities, as well as through constructing our own cryptocurrency mining facilities, along with purchases of any real property, equipment, and miners necessary to do so.
MTI Instruments, incorporated in New York in 2000, is 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, serving markets that require 1) engine balancing and vibration analysis systems for both military and commercial aircraft, 2) the precise measurements and control of products and processes in automated manufacturing, assembly, and consistent operation of complex machinery, and 3) metrology tools for semiconductor and solar wafer characterization.
21
Consolidated Results of Operations
Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2021 Compared to the Three and Nine Months Ended September 30, 2020.
The following table summarizes changes in the various components of our net loss during the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
| (Dollars in thousands) | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | $ Change | % Change | ||||||||||||
| Cryptocurrency mining revenue | $ | 2,018 | $ | 176 | $ | 1,842 | 1,046.6 | % | ||||||||
| Data hosting revenue | $ | 1,106 | $ | — | $ | 1,106 | 100.0 | % | ||||||||
| Product revenue | $ | 1,949 | $ | 3,511 | $ | (1,562 | ) | (44.5 | %) | |||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of cryptocurrency mining revenue | $ | 779 | $ | 248 | $ | 531 | 214.1 | % | ||||||||
| Cost of data hosting revenue | $ | 964 | $ | — | $ | 964 | 100.0 | % | ||||||||
| Cost of product revenue | $ | 661 | $ | 631 | $ | 30 | 4.8 | % | ||||||||
| Research and product development expenses | $ | 404 | $ | 363 | $ | 41 | 11.3 | % | ||||||||
| Selling, general and administrative expenses | $ | 2,893 | $ | 990 | $ | 1,903 | 192.2 | % | ||||||||
| Operating (loss) income | $ | (628 | ) | $ | 1,455 | $ | (2,083 | ) | (143.2 | %) | ||||||
| Other income, net | $ | 18 | $ | 55 | $ | (37 | ) | (67.3 | %) | |||||||
| (Loss) income before income taxes | $ | (610 | ) | $ | 1,510 | $ | (2,120 | ) | (140.4 | %) | ||||||
| Income tax expense | $ | — | $ | (3 | ) | $ | 3 | 100.0 | % | |||||||
| Net (loss) income | $ | (610 | ) | $ | 1,507 | $ | (2,117 | ) | (140.5 | %) | ||||||
The following table summarizes changes in the various components of our net loss during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
| (Dollars in thousands) | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | $ Change | % Change | ||||||||||||
| Cryptocurrency mining revenue | $ | 4,670 | $ | 226 | $ | 4,444 | 1,966.4 | % | ||||||||
| Data hosting revenue | $ | 1,106 | $ | — | $ | 1,106 | 100.0 | % | ||||||||
| Product revenue | $ | 4,933 | $ | 7,484 | $ | (2,551 | ) | (34.1 | %) | |||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of cryptocurrency mining revenue | $ | 1,652 | $ | 248 | $ | 1,404 | 566.10 | % | ||||||||
| Cost of data hosting revenue | $ | 964 | $ | — | $ | 964 | 100.0 | % | ||||||||
| Cost of product revenue | $ | 1,616 | $ | 1,790 | $ | (174 | ) | (9.7 | %) | |||||||
| Research and product development expenses | $ | 1,196 | $ | 1,127 | $ | 69 | 6.1 | % | ||||||||
| Selling, general and administrative expenses | $ | 7,761 | $ | 2,632 | $ | 5,129 | 194.9 | % | ||||||||
| Operating (loss) income | $ | (2,480 | ) | $ | 1,913 | $ | (4,393 | ) | (229.6 | %) | ||||||
| Other income, net | $ | 31 | $ | 59 | $ | (28 | ) | (47.5 | %) | |||||||
| (Loss) income before income taxes | $ | (2,449 | ) | $ | 1,972 | $ | (4,421 | ) | (224.2 | %) | ||||||
| Income tax (expense) benefit | $ | (3 | ) | $ | — | $ | (3 | ) | (100.0 | %) | ||||||
| Net (loss) income | $ | (2,452 | ) | $ | 1,972 | $ | (4,424 | ) | (224.3 | %) | ||||||
Cryptocurrency Mining Revenue: Cryptocurrency revenue consists of revenue recognized from EcoChain’s cryptocurrency mining operations.
Cryptocurrency revenue was $2.0 million for the three months ended September 30, 2021, compared to $176 thousand for the three months ended September 30, 2020. Cryptocurrency revenue was $4.7 million for the nine months ended September 30, 2021, compared to $226 thousand for the nine months ended September 30, 2020. EcoChain did not commence its cryptocurrency mining operations until the second quarter of 2020, and therefore there was no material cryptocurrency revenue for the nine months ended September 30, 2020. This revenue represents the cash received upon the daily sale of the various cryptocurrencies mined at EcoChain’s mining facility during the nine months ended September 30, 2021. The Company has seen increases in growth in expected hashrate and mining site usage of MegaWatts between these periods.
Data Hosting Revenue: In August 2021, EcoChain began cryptocurrency hosting services in which EcoChain provides energized space and operating services to third-party mining companies who locate their mining hardware at one of EcoChain’s mining locations, in which they receive a fee per miner installed and if additional services are rendered, an additional service fee is charged to the outside parties. The Company’s revenue was $1.1 million for the three and nine months ended September 31, 2021, with no comparable services noted for the 2020 Fiscal Year 2020.
Product Revenue: Product revenue consists of revenue recognized from sales of MTI Instruments’ products and the provision of related maintenance and repair services.
22
Product revenue for the three months ended September 30, 2021 decreased by $1.6 million, or 44.5%, to $1.9 million from $3.5 million for the three months ended September 30, 2020. The primary reason for this decrease was a $1.6 million decline in portable balancing systems (“PBS”) revenue due to lower new PBS sales, of which the majority of the difference was driven by a decrease in the number of units sold to the United States Air Force, in which there were 20 less units sold for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
Product revenue for the nine months ended September 30, 2021 decreased by $2.55 million, or 34.1%, to $4.9 million from $7.5 million during the nine months ended September 30, 2020. The primary reason for the decrease was a $2.5 million decline in PBS revenue due to lower new PBS sales, of which $2.4 million was driven by the sale of 35 fewer units to the United States Air Force compared to the nine months ended September 30, 2020. The decrease was primarily due to a large order placed in 2020.
Information regarding government contracts included in product revenue is as follows:
| (Dollars in thousands) | Revenues for the Three Months Ended | ||||||||||
| September 30, | |||||||||||
| Contract(1) | Expiration | 2021 | 2020 | ||||||||
| $9.35 million U.S. Air Force Systems, Accessories and Maintenance | 06/30/2021 | (2) | $ | 484 | $ | 2,025 | |||||
(Dollars in thousands)
| Revenues for the Nine Months Ended | Contract Revenues to Date | Total Contract Orders Received To Date | ||||||||||||||||
| September 30, | Sept. 30, | September 30, | |||||||||||||||||
| Contract(1) | Expiration | 2021 | 2020 | 2021 | 2021 | ||||||||||||||
| $9.35 million U.S. Air Force Systems, Accessories and Maintenance | 06/30/2021 | (2) | $ | 1,299 | $ | 3,695 | $ | 10,492 | $ | 10,808 | |||||||||
| (1) | Contract values represent maximum potential values at time of contract placement and may not be representative of actual results. |
| (2) | Date represents expiration of contract, including the exercise of option extensions. |
We are in discussions with the U.S. Air Force regarding renewing their current contract, which expired as of June 30, 2021. We do not anticipate any issues with the renewal of the contract and we expect to enter into a renewed contract with the U.S. Air Force by the end of the year. As a result, we do not expect that there will be any material impact on our results of operations, cash flows, liquidity, or financial condition as a result of the pending expiration of our current contract with the U.S. Air Force.
23
Cost of Cryptocurrency Revenue: Cost of cryptocurrency revenue includes direct utility costs as well as overhead costs that relate to the operations of EcoChain’s cryptocurrency mining facility. Going forward, cost of cryptocurrency revenue will also include any costs related to the hosting of our miners in third-party facilities as well as the costs of operations of any additional EcoChain cryptocurrency mining facilities, including the anticipated Southeast region facility, discussed above, once the ground leases become effective.
Cost of cryptocurrency revenue was $779 thousand and $248 thousand for the three months ended September 30, 2021 and 2020, respectively, a $531 thousand increase. Cost of cryptocurrency revenue was $1.6 million for the nine months ended September 30, 2021 compared to $248 thousand for the nine months ended September 30, 2020. As noted above, EcoChain did not commence cryptocurrency mining operations until the second quarter of 2020, and therefore there was no material cryptocurrency revenue or associated costs during the nine months ended September 30, 2020. As the Company began increasing their storage capacity, the associated costs began to increase.
Cost of Data Hosting Revenue: As noted above within the Data Hosting Revenue, EcoChain began hosting services in August 2021 in which expenses are allocated based on the cost driving activity. As such, there were no related charges in the 2020 Fiscal Year as this was a new operation in the third quarter of 2021.
Cost of Product Revenue; Gross Margin: Cost of product revenue includes the direct material and labor cost as well as an allocation of overhead costs that relate to the manufacturing of products that we sell. Cost of product revenue also includes the labor and material costs incurred for product maintenance, replacement parts, and service under our contractual obligations.
Cost of product revenue for the three months ended September 30, 2021 increased by $30 thousand, or 4.8%, to $661 thousand from $631 thousand for the three months ended September 30, 2020. This increase was primarily due to the lower production cost of the new PBS products which contributed to a higher gross margin of approximately 80%. The mix of volume for the three months ended September 30, 2021 was unfavorable (lower volume of PBS sales combined with other products being sold with lower gross margin), contributing to an increase in cost of product revenue for the three months ended September 2021 compared to 2020. Cost of product revenue for the nine months ended September 30, 2021 decreased by $174 thousand, or 9.7%, to $1.6 million from $1.8 million for the nine months ended September 30, 2020. This decrease was primarily due to the decrease in product sales compared to the nine months ended September 30, 2020, as discussed above in “Product Revenue”, offset by an unfavorable mix of the volume of products sales, with more units being sold that had higher gross margins in the nine months ended September 30, 2020 compared to 2021.
Cost as a percentage of product revenue was unfavorable comparable for the nine months ended September 30, 2021 comparable to the nine months ended September 30, 2020, decreasing to, as a percentage of product revenue, 33% during the year to date of 2021 compared to 24% in the comparable 2020 period. This was due to a mix change (lower volume in sales in the higher margin products) from the decrease in the PBS sales and lower proportion to total sales.
Research and Product Development Expenses: Research and product development expenses includes the costs of materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies consumed, facility-related costs such as computer and network services, and other general overhead costs associated with our research and development activities, to the extent not reimbursed by our customers.
Research and product development expenses for the nine months ended September 30, 2021 increased $69 thousand, or 6.1%, to $1.2 million from $1.1 million for the nine months ended September 30, 2020. This increase was primarily due to higher material costs associated with the development of engineering prototypes.
Selling, General and Administrative Expenses: Selling, general and administrative expenses includes cash and non-cash compensation, benefits and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology, and legal services.
Selling, general and administrative expenses for the three months ended September 30, 2021 increased by $1.9 million, or 192.2%, to $2.9 million from $990 thousand for the three months ended September 30, 2020. This increase was a result of both expenses incurred in 2021 for which there was no comparable expense in 2020 as well as from changes in a number of our traditional selling, general and administrative expenses. Expenses for which there was no comparable outlay in 2020 consisted non-cash stock option grants of $330 thousand to our Chief Executive Officer (“CEO”) and Board of Directors, and $1 million related to other outside related expenses in conjunction with pipeline acquisition diligence and operating and management agreements with HEL.
Investor relations expenses incurred during the three months ended September 30, 2021, and for which there were no comparable expenses during the three months ended September 30, 2020, were $70 thousand, consisting primarily of media and investor advisory relation services of $55 thousand and $15 thousand in connection with SEC filing and Nasdaq registration fees.
Salaries and benefits expenses increased by $165 thousand during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, $75 thousand of which related to the salary of the CEO who was hired full time in November 2020, $40 thousand of which related to the hiring of a Financial Reporting Manager and Compliance Manager in the third quarter of 2021, and $50 thousand of which related to the salary, recruiting fees and benefits of the new President of MTI Instruments, who was originally hired as Director of Marketing in the third quarter of 2019 and promoted to Chief Operating Officer of MTI Instruments in May 2020 and President of MTI Instruments in September 2020, in addition to adding an HR manager. Compensation expense for Board members increased by $20 thousand due to the Company’s change in Board compensation and adding two Directors to the Board in February 2021. Directors and officers insurance premiums increased by $80 thousand during the three months ended September 30, 2021, compared to the three months ended September 30, 2020. This is due to our status as an SEC reporting company and the cryptocurrency business unit. Digital and other marketing expenses increased approximately $110 thousand with the Company continuing to build out its market to the public.
24
Selling, general and administrative expenses for the nine months ended September 30, 2021 increased by $5.1 million, or 194.9%, to $7.7 million from $2.6 million for the nine months ended September 30, 2020. This increase was a result of both expenses incurred in 2021 for which there was no comparable expense in 2020 as well as from changes in a number of our traditional selling, general and administrative expenses. Expenses for which there was no comparable outlay in 2020 consisted of non-cash stock option grants of $1.3 million to our CEO and Board of Directors, $1.3 million related to other outside related expenses in conjunction with pipeline acquisition diligence and operating and management agreements with HEL, and $375 thousand in expenses related to investor relations matters. The increase of $560 thousand in legal fees for the nine months ended September 30, 2021 was primarily due to $290 thousand of legal fees related to the transaction to lease the building for EcoChain’s new cryptocurrency mining facility and the surrounding land located in the Southeast region of the U.S., discussed above, and $270 thousand in corporate legal expenses mainly related to the Company’s reincorporation in Nevada, the preparation and adoption of the Plan, preparation of the Special Meeting of Stockholders we held on March 25, 2021, at which the Company’s stockholders approved (among another matter) the reincorporation and the adoption of the 2012 Plan, the annual meeting held in May 2021 and preparation for the Special Meeting of Stockholders held on October 29, 2021 as well as other due diligence matters. In addition, there was a $300 thousand increase in consultant fees for the year related to CEO and Board compensation consultation and the annual stockholders meeting, the initial listing of our common stock on The Nasdaq Stock Market LLC (“Nasdaq”), due diligence matters of the Company, expenses related to the Company’s EcoChain operations, and assistance in connection with other SEC filings, primarily our Annual Report on Form 10-K for the year ended December 31, 2020 and Form 8-K filings, which we did not have to file during the quarter ended September 30, 2020 as we were not then subject to the filing requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Investor relations expenses incurred during the nine months ended September 30, 2021, and for which there was no comparable expense during the nine months ended September 30, 2020, were $375 thousand, consisting primarily of $88 thousand for Nasdaq registration fees in connection with the initial listing of our common stock, $135 thousand related to our retention of an investor relations consulting firm to assist us with creating a more formal investor relations strategy given our status as an SEC reporting and Nasdaq-listed company, $55 thousand related to the Special Meeting of Stockholders held on March 25, 2021, including the fees and expenses of the proxy solicitor we retained in connection therewith, and $50 thousand in conjunction with the Company’s annual stockholders meeting.
Salaries and benefits expenses increased by $420 thousand during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, $300 thousand of which is related to the salary and benefits of our Chief Financial Officer (hired in July 2020), Chief Executive Officer (hired in November 2020), Compliance Manager (hired in November 2020), and Financial Reporting Manager (hired in July 2021), $120 thousand of which is related to the salary and benefits of the new President of MTI Instruments, who was originally hired as Director of Marketing in the third quarter of 2019 and promoted to Chief Operating Officer of MTI Instruments in May 2020 and President of MTI Instruments in September 2020, in addition to adding an HR manager. In addition, compared to the nine months ended September 30, 2020, we experienced an increase of $108 thousand in audit and tax fees due to having to be conducted in accordance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”) in the nine months ended September 30, 2021. During the nine months ended September 30, 2020 we did not file reports with the SEC and therefore the annual audit of our financial statements did not need to comply with PCAOB requirements, which resulted in lower audit fees for the 2020 period. Directors and officers insurance premiums increased by $175 thousand during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. This is due to our status as an SEC reporting company and the cryptocurrency business unit.
The Company also expects selling, general and administrative expenses to continue to increase for the remainder of 2021 and generally going forward as a result of its resumption of filing periodic reports, annual proxy statements, and other filings with the SEC following the effectiveness of its Form 10 registration statement in November 2020.
Operating Loss:
Operating loss was $628 thousand for the three months ended September 30, 2021, compared to a profit of $1.5 million during the comparable 2020 period. This decrease was the result of the $1.9 million increase in selling, general and administrative expenses, as well as MTI Instruments contribution margin (i.e. the aggregate incremental revenue generated from product revenue after deducting direct costs) of $1.6 million. The increase in loss was partially offset by the EcoChain contribution margin (i.e. the aggregate incremental revenue generated from cryptocurrency revenue after deducting the direct costs) of $1.4 million for the three months ended September 30, 2021 compared to almost no margin for the comparative three months of 2020 as EcoChain was a relatively new business in fiscal year 2020.
Operating loss was $2.5 million for the nine months ended September 30, 2021 compared to a profit of $2.0 million during the comparable 2020 period. This decrease was the result of the $5.1 million increase in selling, general and administrative expenses, as well as MTI Instruments contribution margin (i.e. the aggregate incremental revenue generated from product revenue after deducting direct costs) of $2.4 million. The increase in loss was partially offset by the EcoChain contribution margin (i.e. the aggregate incremental revenue generated from cryptocurrency revenue after deducting the direct costs) of $3.1 million for the nine months ended September 30, 2021 compared to almost no margin for the comparative nine months of 2020 as EcoChain was a relatively new business in fiscal year 2020.
25
Liquidity and Capital Resources
Several key indicators of our liquidity are summarized in the following table:
(Dollars in thousands) |
|
Nine Months |
|
|
Nine Months |
|
|
Year Ended or |
|
|||
Cash |
|
$ |
15,817 |
|
|
$ |
2,894 |
|
|
$ |
2,630 |
|
Working capital |
|
|
18,013 |
|
|
|
3,832 |
|
|
|
3,142 |
|
Net (loss) income |
|
|
(2,452 |
) |
|
|
1,972 |
|
|
|
1,946 |
|
Net cash (used in) provided by operating activities |
|
|
(2,778 |
) |
|
|
1,516 |
|
|
1,622 |
|
|
Purchase of property, plant and equipment |
|
|
(11,670 |
) |
|
|
(382 |
) |
|
|
(835 |
) |
The Company has historically incurred significant losses primarily due to its past efforts to fund direct methanol fuel cell product development and commercialization programs and had a consolidated accumulated deficit of approximately $120.4 million as of September 30, 2021. As of September 30, 2021, the Company had working capital of approximately $18.0 million, no debt, outstanding commitments related to EcoChain for $6.2 million for capital expenditures and termination of the Company’s operating and management agreements, and approximately $15.8 million of cash available to fund our operations.
Based on business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, we will require additional capital equipment in the foreseeable future. With respect to SHI and MTI Instruments, we have outstanding commitments of $367 thousand related to purchase orders outstanding for various business needs as of September 30, 2021. As we have done historically, we expect to continue funding their operations from our current cash position and our projected 2021 cash flows pursuant to management’s plans. If necessary, we may also seek to supplement our resources by increasing credit facilities to fund operational working capital and capital expenditure requirements. With respect to EcoChain, we expect to fund growth (additional cryptocurrency mining facilities and miners) through capital raise activities, to the extent that we can successfully raise capital through additional securities sales. Any additional financing, if required, may not be available to us on acceptable terms or at all.
While it cannot be assured, management believes that, due in part to our current working capital level and projected cash requirements for operations and capital expenditures, its current available cash of approximately $15.8 million, and our projected 2021 cash flow pursuant to management’s plans, the Company will have adequate resources to fund operations and capital expenditures for SHI and MTI Instruments for the year ending December 31, 2021 and through at least the end of the fourth quarter of 2022. As noted above, the Company expects to fund capital expenditures for EcoChain through capital raises, while MTI Instrument’s operations will be funded through its cash flows. The Company has entered into a unsecured line of credit for $1.0 million to assist with possible future financing, which as of September 30, 2021, there was no outstanding balance. In addition, on October 20, 2021, the Company entered into the SPA pursuant to which the Company issued to the Investors secured convertible notes in the aggregate principal amount of approximately $16.3 million for an aggregate purchase price of $15.0 million. The notes are convertible, subject to certain conditions, at any time at the option of the Investors, into an aggregate of 1,776,073 shares of the Company’s common stock. The Company expects to have adequate resources to fund EcoChain’s operations for the year ending December 31, 2021 and through at least the fourth quarter of 2022.
If our revenue estimates are off either in timing or amount, or if cash generated from operations is insufficient to satisfy the operational working capital and capital expenditure requirements, the Company may need to implement additional steps to ensure liquidity including, but not limited to, the deferral of planned capital spending and/or delaying existing or pending product development initiatives, or the Company may be required to obtain credit facilities or other loans, if available, to fund these initiatives. The Company has no other formal commitments for funding its future needs at this time and any additional financing we may require during the year ending December 31, 2021, may not be available to us on acceptable terms or at all. Any one or more of such steps, if required, could potentially have a material and adverse effect on our business, results of operations, and financial condition.
Debt
On September 13, 2021, the Company entered into a $1 million unsecured line of credit from KeyBank National Association, that will, among other things, allow the Company to request loans and to use the proceeds of such loans for working capital and other general corporate purposes. The line of credit may be drawn at the discretion of the Company and bears interest at a rate of Prime +.75% per annum. Accrued interest is due monthly, and principal is due in full following the lender’s demand. MTI Instruments, Inc. previously held a secured line of credit with Pioneer Bank in the amount of $300 thousand. The secured line of credit was closed on September 10, 2021 with no outstanding amounts. As of September 30, 2021, there were no amounts outstanding under the line of credit.
26
We had no additional credit facilities available or debt outstanding at either September 30, 2021 or December 31, 2020.
Backlog, Inventory and Accounts Receivable
At September 30, 2021, our order backlog was $1,203 thousand compared to $555 thousand at December 31, 2020. The increase in backlog from December 2020 was due to four large orders placed at the end of 2021 third quarter and one large order expected to be delivered during Fiscal Year 2022.
Our inventory turnover ratios and average accounts receivable days outstanding for the trailing 12 month periods and their changes at September 30, 2021 and 2020 are as follows:
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2021 |
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2020 |
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Change |
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Inventory turnover |
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2.1 |
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2.3 |
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(0.2 |
) |
Average accounts receivable days outstanding |
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42 |
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37 |
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5 |
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Critical Accounting Policies and Significant Judgments and Estimates
The above discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Note 2, Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 includes a summary of our most significant accounting policies. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, income taxes and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Periodically, our management reviews our critical accounting estimates with the Audit Committee of our Board of Directors.
Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities and Section 21E of the Exchange Act. Any statements contained in this Form 10-Q that are not statements of historical fact may be forward-looking statements. When we use the words “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” “should,” “could,” “may,” “will” and similar words or phrases, we are identifying forward-looking statements. Such forward-looking statements include, but are not limited to, statements regarding:
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management’s strategy and planned initiatives, including anticipated growth; |
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management’s belief that it will have adequate resources to fund SHI’s and MTI Instruments’ operations and capital expenditures and EcoChain’s operations for the year ending December 31, 2021 and through the end of the fourth quarter of 2022; |
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the expected impact of recent accounting updates; |
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our expectations regarding the renewal of our contract with the U.S. Air Force which expired on June 30, 2021 and the expected impact thereof; |
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our expectations regarding increases in certain selling, general and administrative expenses, including from increased business travel going forward; |
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potential acquisitions by EcoChain; |
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our expectations with respect to future capital raises; |
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our expectations with respect to pending legal proceedings; |
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future capital expenditures and spending on research and development; and |
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expected funding of future cash expenditures. |
Forward-looking statements involve risks, uncertainties, estimates and assumptions that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Important factors that could cause these differences include the following:
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the course of the COVID-19 pandemic in the United States and internationally, particularly in Asia and, to a lesser extent, in Europe, and the related uncertainty of the U.S. and global economy as a result thereof; |
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| ● | the risks related to EcoChain’s development efforts with respect to its current cryptocurrency mining facility and the construction of additional operational cryptocurrency mines; |
| ● | the risks related to the volatility in the EcoChain business and cryptocurrency mining facilities, including that they may not achieve or maintain profitability in our expected timeframe or at all depending on numerous uncertainties, including the costs of operation, the future price of cryptocurrencies and fluctuations in such prices, government and quasi-government regulation of cryptocurrencies and their use, restrictions on or regulation of access to and operation of blockchain networks or similar systems, and the availability and popularity of other forms or methods of buying and selling goods and services, including government-backed cryptocurrencies; |
| ● | risks related to scaling EcoChain’s cryptocurrency operations to larger-scale (multiple) cryptocurrency mining operations; |
| ● | the general risk that the EcoChain business may not be successful; |
| ● | uncertainty regarding EcoChain’s ability to consistently monetize cryptocurrency; |
| ● | fluctuating valuations of cryptocurrency; |
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sales revenue growth may not be achieved or maintained; |
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the dependence of our business on a small number of customers and potential loss of government contracts - particularly in light of potential cuts that may be imposed as a result of U.S. government budget appropriations; |
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our lack of long-term purchase commitments from our customers and the ability of our customers to cancel, reduce, or delay orders for our products; |
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our inability to build and maintain relationships with our customers; |
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our inability to develop and utilize new products and technologies that address the needs of our customers; |
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our inability to retain existing or obtain new credit facilities; |
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the cyclical nature of the electronics and military industries; |
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the impact of future exchange rate fluctuations; |
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failure of our strategic alliances to achieve their objectives or perform as contemplated and the risk of cancellation or early termination of such alliance by either party; |
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the loss of services of one or more of our key employees or the inability to hire, train, and retain key personnel; |
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risks related to protection and infringement of intellectual property; |
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our occasional dependence on sole suppliers or a limited group of suppliers; |
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risks related to the limitation of the use, for tax purposes, of our net historical operating losses in the event of certain ownership changes; and |
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other factors discussed under the heading “Risk Factors” in this report and in our Annual Report on Form 10-K for the 2020 Fiscal Year. |
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
The certifications of our Chief Executive Officer and Chief Financial Officers are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q include, in paragraph 4 of such certification, information concerning our disclosure controls and procedures and internal control over financial reporting. Such certification should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certification.
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of SHI’s disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and we necessarily apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
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(b) Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
At any point in time, we may be involved in various lawsuits or other legal proceedings. Such lawsuits could arise from the sale of products or services or from other matters relating to our regular business activities, compliance with various governmental regulations and requirements, or other transactions or circumstances.
We have been named as a party in the December 19, 2019 United States Environmental Protection Agency (“EPA”) Demand Letter regarding the Malta Rocket Fuel Area Superfund Site (“Site”) located in Malta and Stillwater, New York, in connection with an alleged release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the amount of approximately $358 thousand plus interest in connection with the investigation and disposal activities associated with the various drum caches discovered at the Site, issuance of the Explanation of Significant Differences (“ESD”) of the Site, and implementation of the work contemplated by the ESD. We consider the likelihood of a material adverse outcome with respect to this matter to be remote and do not currently anticipate that any expense or liability that we may incur as a result of this matter in the future will be material to the Company’s business or financial condition. Further, we are not presently involved in any other litigation that we believe is likely, individually or in the aggregate, to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors
Part II, Item 1A (Risk Factors) of our most recently filed Annual Report on Form 10-K with the SEC, filed on March 31, 2021, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Except as to the risk factors set forth below and to the extent that information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters described in Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations – Statement Concerning Forward Looking Statements)), there have been no material changes to our risk factors disclosed in our most recently filed Annual Report on Form 10-K. Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results, however, and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities.
In connection with the ground leases for our new cryptocurrency mining operations, we rely on the landlord to sell us the power required for our operations, and any failure of the landlord to supply such power, whether as a result of its failure to pay the Tennessee Valley Authority (“TVA”) or otherwise, would materially impact our operations.
EcoChain Block, a wholly-owned subsidiary of EcoChain, entered into the Power Supply Agreement, in connection with the ground leases executed on May 4, 2021. Under the terms of the Power Supply Agreement, EcoChain Block will purchase the power for its cryptocurrency mining operations from the landlord, who purchases such power directly from the TVA. The rates payable by EcoChain Block to the landlord will be at the same pre-negotiated rates paid by landlord, which are less than EcoChain could obtain directly from the TVA. Landlord’s failure to provide power to EcoChain, as a result of the termination of such power supply to the landlord by the TVA, as a result of the landlord’s failure to pay the TVA for such power, or otherwise, would, in all likelihood, result in our inability to obtain the power we need for our cryptocurrency mining operations, unless and until we were able to obtain such power directly from the TVA, which would result in a significant interruption to our business. We may also incur significant costs associated with negotiating and entering into a new agreement with the TVA to supply power to EcoChain Block’s cryptocurrency mining facilities, and with setting up the corresponding infrastructure to receive such power directly. Further, there can be no assurance that EcoChain Block will be able to negotiate a power supply agreement with the TVA on equally favorable terms as the landlord, if at all.
The properties on which certain of our ground leases are located are subject to possible forfeiture to the U.S. government, and, if seized, would, in all likelihood, require us to spend significant funds to maintain our cryptocurrency mining rights.
In August 2020, the United States Department of Justice’s Money Laundering & Asset Recovery Section (“DOJ”), together with the U.S. Attorney’s Office for the Southern District of Florida, filed civil asset forfeiture complaints against parties related to the landlord (the “Landlord Owners”) in connection with certain real properties, including the real properties that are the subject of the Ground Leases (the “Subject Properties”). The complaints, which are all currently pending before a federal judge, alleged that the funds used by Landlord Owners to purchase the Subject Properties were traceable to the proceeds of a bank fraud purportedly committed internationally in Ukraine by the Landlord Owners. Though the DOJ has not filed a civil forfeiture action against the Subject Properties, the complaint the government submitted in support of its asset forfeiture requests against certain properties, including the Subject Properties, included a description of the Ukrainian bank fraud and the various properties located in the United States that the DOJ believes were purchased with the proceeds of that international bank fraud, including the Subject Properties. In the event that the Subject Properties are seized by the U.S. government, EcoChain Block may be required to negotiate with the U.S. government for the supply of power which EcoChain was receiving from the landlord pursuant to the Power Supply Agreement. Additionally, the U.S. government, in all likelihood, would place the Subject Properties for sale at an auction, or otherwise, and we would likely be required to purchase the Subject Properties to assure the continuation of our cryptocurrency mining operations at such facility, all of which would require our expenditure of significant funds and could have a material adverse impact on our results of operations.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits
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All other exhibits for which no other filing information is given are filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Soluna Holdings, Inc. |
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By: |
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Michael Toporek |
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By: |
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Jessica L. Thomas |
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