Nature of Operations

9 Months Ended

Sep. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

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 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, EcoChain Block, LLC, a Delaware limited liability company (“ECB”), a wholly-owned subsidiary of EcoChain, 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, 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.

ECB 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 ECB. 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. ECB 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 ECB 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, 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 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 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 Offering, the Company’s Series A Preferred Stock was approved for listing on the Nasdaq Capital Market under the symbol “MKTYP” 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.

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 $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 payments in connection with certain operating and management agreements discussed below, and approximately $15.8 million of cash available to fund operations.

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.

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.