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Subsequent Events
 9 Months Ended
Sep. 30, 2021
Subsequent Events [Abstract]  
Subsequent Events

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 $15 million with certain accredited investors (the “Investors”). At the closing under the SPA, which occurred on October 25, 2021 (“SPA Closing”), the Company issued to the Investors (i) secured convertible notes in the aggregate principal amount of $16,304,348 for an aggregate purchase price of $15 million (collectively, the “Notes”), which are, subject to certain conditions, convertible at any time by the Investors, into an aggregate of 1,776,073 shares (the “Conversion Shares”) of the Company’s common stock, at a price per share of $9.18 (the “Fixed Conversion Price”); and (ii) Class A, Class B and Class C common stock purchase warrants (collectively, the “Warrants”) to purchase up to an aggregate of 1,776,073 shares of the Company’s common stock (the “Warrant Shares” and collectively with the Notes, the Conversion Shares, and the Warrants, the “Securities”), at an exercise price $12.50, $15 and $18 per share, respectively. The Warrants are immediately exercisable for five years upon issuance, subject to applicable Nasdaq rules.

 

The Notes, subject to an original issue discount of 8%, have a maturity date of October 25, 2022 (the “Maturity Date”), upon which the Notes shall be payable in full. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default (as defined in the Notes), interest on the Notes will accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. If any Event of Default or a Fundamental Transaction (as defined in the Notes) or a Change of Control (as defined in the Notes) occurs, the outstanding principal amount of the Notes, liquidated damages and other amounts owing in respect thereof through the date of acceleration, will become, at the Investor’s election, immediately due and payable in cash at the Mandatory Default Amount (as defined in the Notes). The Notes may not be prepaid, redeemed or mandatory converted without the consent of the Investors. The obligations of the Company pursuant to the Notes are (i) secured to the extent and as provided in the Security Agreement, dated as of October 25, 2021, by and among the Company, MTI Instruments and EcoChain, EcoChain Block LLC and EcoChain Wind LLC (both of which are wholly owned subsidiaries of EcoChain, and together with MTI Instruments and EcoChain, the “Subsidiary Guarantors”), and Collateral Services LLC, as collateral agent for and the holders of the Notes (the “Security Agreement”); and (ii) guaranteed jointly and severally by the Subsidiary Guarantors pursuant to each Subsidiary Guaranty, dated as of October 25, 2021, by and among each Subsidiary Guarantor and the purchasers signatory to the SPA (each, a “Subsidiary Guaranty”).

 

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 the Investors being the beneficial owner in excess of 4.99% (or, upon election of such Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

 

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”).

 

 

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. As a result of the Merger, 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, was cancelled and converted into the right to receive a proportionate share of up to 2,970,000 Merger Shares, payable upon the achievement of certain milestones within five years after the effective date in the Merger, as set forth in the Merger Agreement and the schedules thereto. Based on the closing sales price of the SHI Common Stock on the Nasdaq Capital Market on October 29, 2021, assuming the issuance of all of the Merger Shares, the aggregate Merger Consideration would have a value of approximately $34.8 million.

 

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 $10,000 per year, with additional consideration for the lead independent director of $5,000 per year (as an employee of EcoChain, Mr. Belizaire will not receive these payments). Directors are also eligible for equity grants as may be authorized by the Compensation Committee of SHI’s Board of Directors.

 

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 1,460,191 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.

 

 

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.

  

 

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.

 

 

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.

  

 

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.

 

 

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.

 

 

Liquidity and Capital Resources

 

Several key indicators of our liquidity are summarized in the following table:

 

(Dollars in thousands)

 

Nine Months
Ended or As of
September 30,
2021

 

 

Nine Months
Ended or As of
September 31,
2020

 

 

Year Ended or
As of
December 31,
2020

 

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.

 

 

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:

 

 

 

2021

 

 

2020

 

 

Change

 

Inventory turnover

 

 

2.1

 

 

 

2.3

 

 

 

(0.2

)

Average accounts receivable days outstanding

 

 

42

 

 

 

37

 

 

 

5

 

 

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:

 

 

●

management’s strategy and planned initiatives, including anticipated growth;

 

●

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; 

 

●

the expected impact of recent accounting updates;

 

●

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;

 

●

our expectations regarding increases in certain selling, general and administrative expenses, including from increased business travel going forward;

 

●

potential acquisitions by EcoChain;

 

●

our expectations with respect to future capital raises;

 

●

our expectations with respect to pending legal proceedings;

 

●

future capital expenditures and spending on research and development; and

 

●

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:

 

 

●

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;

 

 

  ● 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;

 

●

sales revenue growth may not be achieved or maintained;  

 

●

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;

 

●

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;  

 

●

our inability to build and maintain relationships with our customers;  

 

●

our inability to develop and utilize new products and technologies that address the needs of our customers;

 

●

our inability to retain existing or obtain new credit facilities;

 

●

the cyclical nature of the electronics and military industries;  

 

●

the impact of future exchange rate fluctuations;  

 

●

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;  

 

●

the loss of services of one or more of our key employees or the inability to hire, train, and retain key personnel;

 

●

risks related to protection and infringement of intellectual property;  

 

●

our occasional dependence on sole suppliers or a limited group of suppliers;

 

●

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

 

●

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.

 

 

(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.

 

 

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.

 

 

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

 

Exhibit No. Description
2.1 Agreement and Plan of Merger dated August 11, 2021, by and among Mechanical Technology, Incorporated, SCI Merger Sub, Inc., and Soluna Computing, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2021).
3.1 Articles of Incorporation (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.2 Articles of Merger filed with the Secretary of State of Nevada on March 29, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.3 Certificate of Merger filed with the Department of State of New York on March 29, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021).
3.4 Certificate of Amendment filed with the Secretary of State of Nevada dated June 9, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
3.5 Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of Nevada on November 2, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 4, 2021).
4.1 Rights Agreement, dated as of October 6, 2016, between Mechanical Technology, Incorporated and American Stock Transfer & Trust Company, LLC, as Rights Agent (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2016).
4.2 Amendment No. 1 to Registration Rights Agreement, dated as of October 20, 2016, by and between Mechanical Technology, Incorporated and American Stock Transfer & Trust Company, LLC, as Rights Agent (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 21, 2016).
4.3 Amendment No. 2 to Registration Rights Agreement, dated as of June 24, 2021, by and between Mechanical Technology, Incorporated and American Stock Transfer & Trust Company, LLC (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2021).
4.4 Form of Common Purchase Warrant (Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021).
4.5 Form of Underwriters’ Warrant (Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021).
4.6 Form of Pre-Funded Warrant (Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on April 12, 2021).
4.7 Form of Warrant Agent Agreement between Mechanical Technology, Incorporated and American Stock Transfer & Trust Company, LLC (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2021).
4.8 Certificate of Designations, Preferences and Rights of 9.0% Series A Cumulative Perpetual Preferred Stock filed with the Secretary of State of the State of Nevada on August 18, 2021 (Incorporated by reference to the Company’s Form 8-A, filed with the SEC on August 19, 2021).
4.9 Form of 9.0% Series A Cumulative Perpetual Preferred Stock Certificate (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 23, 2021).
4.10 Form of Secured Convertible Note issued by the Company pursuant to and in accordance with the Securities Purchase Agreement dated as of October 20, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2021).
4.11 Form of Class A Common Stock Purchase Warrant issued by the Company pursuant to and in accordance with the Securities Purchase Agreement dated as of October 20, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2021).

 

 

4.12 Form of Class B Common Stock Purchase Warrant issued by the Company pursuant to and in accordance with the Securities Purchase Agreement dated as of October 20, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2021).
4.13 Form of Class C Common Stock Purchase Warrant issued by the Company pursuant to and in accordance with the Securities Purchase Agreement dated as of October 20, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2021).
10.1 Termination Agreement dated as of August 11, 2021, by and among Mechanical Technology, Incorporated, EcoChain, Inc., and Harmattan Energy, Ltd. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2021).
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

All other exhibits for which no other filing information is given are filed herewith.

 

 

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.

 

 

 

      Soluna Holdings, Inc.


Date: November 12, 2021

 

By: 


/s/ Michael Toporek

 

 

 

Michael Toporek
Chief Executive Officer

 

 

By: 


/s/ Jessica L. Thomas

 

 

 

Jessica L. Thomas
Chief Financial Officer