Nature of Operations

12 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

1. Nature of Operations

Description of Business

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

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

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

SCI was incorporated in Delaware on January 8, 2020 as EcoChain, Inc., which has a cryptocurrency mining facility that integrates with the cryptocurrency blockchain network in the State of Washington. Through the October 2021 acquisition by EcoChain, Inc. of an entity at the time named Soluna Computing, Inc., SCI also has a pipeline of certain cryptocurrency mining projects previously owned by Harmattan Energy, Ltd. (“HEL”) (formerly known as Soluna Technologies, Ltd.), a Canadian corporation incorporated under the laws of the Province of British Colombia that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications. Following such acquisition, on November 15, 2021, SCI completed its conversion and redomicile to Nevada and changed its name from “EcoChain, Inc.” to “Soluna Computing, Inc.” The following day, the acquired entity, Soluna Computing, Inc., changed its name to “Soluna Callisto Holdings Inc.” (“Soluna Callisto”).

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 December 17, 2021, we announced that we had entered into a non-binding letter of intent with a potential buyer (the “Buyer”) regarding the potential sale of MTI Instruments (the “LOI”) to an unrelated third party. Pursuant to the LOI, the Buyer would acquire 100% of the issued and outstanding common stock of MTI Instruments (the “Sale”). The LOI only represents a mutual indication of interest regarding the Sale and the terms of the Sale are subject to a number of contingencies, including the completion of customary due diligence and the negotiation and execution of definitive agreements. If the Sale is completed, the Company expects that we will exit the instrumentation business and that we will be focused on developing and monetizing green, zero-carbon computing and cryptocurrency mining facilities. As a result of the foregoing, the MTI Instruments business is being held as discontinued operations in our consolidated financial statements as of December 31, 2021 and prior periods and until it is sold, we will continue to operate the MTI Instruments business.

On April 29, 2021, the Company closed a public securities offering (the “April Offering”), pursuant to which the Company issued and sold 2,419,355 shares of the Company’s common stock and warrants to purchase up to 604,839 shares of common stock for gross proceeds of approximately $15.0 million, less underwriting discounts of 7.0% ($1.05 million) and other offering expenses of $225 thousand, resulting in aggregate net proceeds to the Company of approximately $13.7 million. In addition, on May 27, 2021, the underwriter, exercised its over-allotment option, in full, in connection with the April Offering, pursuant to which the Company issued and sold an additional 362,903 shares of common stock and warrants to purchase up to an additional 90,726 shares of common stock, on the same terms as the securities sold in the April Offering, resulting in additional aggregate gross proceeds of approximately $2.25 million, less underwriter discounts of 7.0% ($157.5 thousand) and other offering expenses of $62.5 thousand, resulting in net proceeds to the Company of $2.03 million. The Company also incurred additional legal and other filing expenses of $350 thousand, resulting in aggregate net proceeds for the April Offering, including the over-allotment option, of approximately $15.4 million. The warrants have an initial exercise price of $8.24, subject to certain adjustments, per whole share of common stock and expire five years from their date of issuance. In connection with the April Offering, the Company also issued to the underwriter, as a portion of its compensation, warrants to purchase up to 139,113 shares of Common Stock, at an initial exercise price of $6.82 per share, subject to certain adjustments.

On May 4, 2021, Soluna MC LLC , formally EcoChain Block, LLC, (“Soluna MC”), a wholly owned subsidiary of SCI, executed a 25-year 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, Soluna MC 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 Soluna MC for all of its construction costs, subject to certain exceptions, relating to buildings and other improvements developed by Soluna MC on the Vacant Land Premises. As of December 31, 2021, this lease has not commenced.

Soluna MC has agreed to pay rent to the landlord of $500,000 on the effective date of the Building Lease (such date, the “Building Commencement Date”) and the sum of $4,000,000 in periodic payments (the “Vacancy Payments”). The Company executed a guaranty in favor of the landlord with respect to the Vacancy Payments (the “Guaranty of Rent”). The amount of each Vacancy Payment is determined based on the percentage of the building that has been vacated by existing tenants and available for use by Soluna MC. The final Vacancy Payment is due within 60 days after the building has been completely vacated by the existing tenants, which date is contractually scheduled to be no later than March 31, 2022. Soluna MC has the option of making the Vacancy Payments in cash or by the Company’s issuance of common stock in an amount that equals the Vacancy Payment then due based on the prior day’s closing price (any such shares, “Vacancy Payment Shares”). If Soluna MC elects to make any payment in Vacancy Payment Shares, then the landlord has an option to accept such Vacancy Payment Shares or require such shares to be converted to cash as more fully provided in the Building Lease. The Building Lease also includes provisions relating to the issuance of additional shares of the Company’s common stock, which may be applied as an advance against future Vacancy Payments, all as fully provided in the Building Lease.

The Company is required to issue to the landlord 100,000 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, Soluna MC and the landlord have entered into a memorandum of understanding providing Soluna MC with a six-month exclusivity period to expand the Vacant Land Premises, including obtaining additional power, in connection therewith. Soluna MC and the landlord have not agreed on any of the terms of such expansion other than the exclusivity period previously described. Soluna MC 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 Soluna MC at a fee to be mutually agreed by the landlord and Soluna MC. The Transition Services Agreement also requires the landlord to pay Soluna MC 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 August 23, 2021, the Company issued and sold pursuant to a firm commitment public offering (the “August Preferred Offering”) 720,000 shares of a new series of the Company’s preferred shares known as the 9.0% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, having a $25.00 liquidation preference per share (the “Series A Preferred Stock”), resulting in aggregate gross proceeds of $18.0 million less underwriting discounts of 6.0% ($1.08 million) and other offering fees and expenses of $640 thousand, resulting in aggregate net proceeds to the Company of approximately $16.2 million. In connection with the August Preferred Offering, the Company granted the underwriter a 45-day option and right to purchase up to an additional 108,000 shares of Series A Preferred Stock (the “Option Shares”), on the same terms as the securities sold in the Offering, including the public offering price of $25.00 per share (the “Over-Allotment Option”). In connection with the August Preferred Offering, the Company’s Series A Preferred Stock was approved for listing on the Nasdaq Capital Market under the symbol “SLNHP” and began trading on August 20, 2021. On September 28, 2021, the Company issued and sold to the underwriter 86,585 Option Shares, pursuant to its partial exercise of the Over-Allotment Option, resulting in additional aggregate gross proceeds of approximately $2.16 million, less applicable underwriter discounts and estimated offering expenses of $140 thousand, resulting in aggregate net proceeds to the Company of $2.0 million. Dividends on the Series A Preferred Stock will be payable when, as and if declared by the Board of Directors monthly in arrears on the final day of each month or the next business day at an annual rate of 9.0% of the $25.00 liquidation preference per share.

On December 28, 2021, the Company issued and sold pursuant to a firm commitment public offering (the “December Preferred Offering”) 445,714 shares of the Series A Preferred Stock for aggregate gross proceeds of approximately $7.8 million less underwriting discounts of 7.0% ($546,000) and other offering fees and expenses of approximately ($500,000), resulting in aggregate net proceeds to the Company of approximately $6.7 million. In connection with the December Preferred Offering,, the Company granted the underwriters a 45-day option to purchase up to an additional 66,587 shares (the “Option Shares”) of the Series A Preferred Stock on the same terms as the shares sold in the December preferred Offering (the “Over-Allotment Option”). . The Over-Allotment Option was exercised by the underwriters in full on January 5, 2022, resulting in additional aggregate gross proceeds of approximately $1.17 million less applicable underwriter discounts and other offering fees and expenses.

Liquidity

The Company has historically incurred significant losses primarily due to our past efforts to fund direct methanol fuel cell product development and commercialization programs and had a consolidated accumulated deficit of approximately $123.7 million as of December 31, 2021. As of December 31, 2021, the Company had working capital of approximately $9.3 million, a line of credit outstanding of $1.0 million, $7.1 million outstanding note payable that can be converted to common stock, outstanding commitments related to SCI for $16.2 million for capital expenditures, approximately $4.6 million in cash provided by operating activities for continuing operations, and approximately $10.3 million of cash available to fund our operations.

During the year ended December 31, 2021, the Company paid approximately $45.8 million in capital expenditures and had approximately $10.0 million in deposits for equipment. Subsequent to the year ended December 31, 2021, the Company received additional equipment financing for up to $14.6 million, as well as received financing of approximately $10.0 million from promissory notes. Please refer to Footnote 18 “Subsequent Events”, for further details.

The COVID-19 global pandemic has been unprecedented and unpredictable and our impact is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. Although the Company has experienced some minor changes to its miner shipments due to disruptions in the global supply chain, the Company however does not expect any material impact on its long-term strategic plans, our operations, or our liquidity due to the impacts of COVID-19. However, the Company is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and the industry.