Debt

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Debt

8. Debt

Convertible Notes

Debt consists of the following
(dollar in thousands):

	Maturity Date	Interest Rate			June 30, 2022		December 31, 2021
Convertible Note	October 25, 2022		8	%	$	13,585	$	14,927
Less: debt discount						349		967
Less: discount from issuance of warrants						2,408		5,747
Less: debt issuance costs						424		1,092
Total convertible notes, net of discount and issuance costs					$	10,404	$	7,121

On October 25, 2021, pursuant to a Securities Purchase Agreement (the “October SPA”), the Company issued to certain accredited investors (i) secured convertible notes in an aggregate principal amount of $16.3 million for an aggregate purchase price of $15 million (collectively, the “October Notes”), which are, subject to certain conditions, convertible at any time by the investors, into an aggregate of 1,776,073 shares (the “October 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 “October Warrants”) to purchase up to an aggregate of 1,776,073 shares of common stock, at an exercise price $12.50, $15 and $18 per share, respectively. The October Warrants are legally detachable and can be separately exercised immediately 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 SCI, Soluna MC, LLC and Soluna SW, LLC (both of which are wholly owned subsidiaries of SCI, and together with MTI Instruments and SCI, the “Subsidiary Guarantors”), and Collateral Services LLC (the “Collateral Agent”), as collateral agent for and the holders of the Notes (the “October 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 (the “October Purchasers”) signatory to the SPA (each, a “Subsidiary Guaranty”). On July 19, 2022, the Company entered into an Addendum with the Collateral Agent and the October Purchasers to amend certain terms of the October SPA and the October Security Agreement (the “Addendum”). See Note 17. Subsequent Events for additional information on the Addendum.

The fair value of the October Warrants, as of the issuance date, was $7.0 million and is recorded as equity with the offset recorded as debt discount against the net proceeds. The proceeds of $15.0 million were allocated between the October Notes and the October Warrants, in which the discount related to the warrants are being amortized based on the straight-line method over the twelve months term of the October Notes. For the three and six months ended June 30, 2022, the Company has recorded amortized debt discount related to the warrants, the amount of $1.6 million and $3.4 million which is included in interest expense. The Company has also recorded a debt discount on the October Notes as the difference between the face amount of the notes payable of $16.3 million and purchase price of $15.0 million of $1.3 million in which approximately $950 thousand has been amortized over the life of the notes. There was also debt issuance costs of approximately $1.3 million and approximately $900 thousand has been amortized over the life of the October Notes. All amortized costs are included in interest expense.

During the six months ended June 30, 2022 and year ended December 31, 2021, $13.6 million and $14.9 million, respectively, was remaining in the principal balance of the October Notes. For the six months ended June 30, 2022, approximately $1.3 million was converted into 146,165 shares of our common stock, respectively. Through June 30, 2022, a total of approximately $2.7 million was converted into 296,165 shares of our common stock, respectively.

Promissory Notes

On February 22, 2022, the Company issued to certain institutional lenders (the “Lenders”) promissory notes in an aggregate principal amount of $7.6 million for an aggregate purchase price of $7.6 million (collectively, the “First Tranche Notes”). The Notes were issued as the first tranche of an aggregate financing of $20.0 million. On March 10, 2022, the Company has issued to the lenders a second tranche of an aggregate principal amount of $2.4 million (the “Second Tranche Notes”). The Company issued to the Lenders a third tranche of promissory notes in an aggregate principal amount of $10.0 million for an aggregate purchase price of $10.0 million (the “Third Tranche Notes” and, together with the First Tranche Notes and Second Tranche Notes, the “Notes”) along with Class D common stock purchase warrants (collectively, the “Warrants”) to purchase up to an aggregate of 1,000,000 shares of common stock of the Company, at an exercise price of $11.50 per share on April 13, 2022. The Warrants are immediately exercisable for two years upon issuance, subject to applicable Nasdaq rules.

The exercise of the Warrants is subject to beneficial ownership limitations such that the Lenders may not exercise the Warrants to the extent that such exercise would result in each of the Lenders being the beneficial owner in excess of 4.99% (or, upon election of such Lender, 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 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. 

The total fair value of the Warrants, as of the issuance date, was $4.8 million and is recorded as equity with the offset recorded as debt discount against the net proceeds. The proceeds of $20.00 million were allocated between the Promissory Notes and the Warrants, in which the discount related to the warrants is being amortized based on the straight-line method through the date of Maturity. None of the Warrants have been exercised and exchanged for the Company’s common stock as of June 30, 2022.

On April 29, 2022, the Company issued in a concurrent registered direct offering 1,142,857 shares of Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, of the Company (the “Series A Preferred Stock”) to the Lenders, at an offering price of $17.50 per share, the same price as the public offering price of the shares of Series A Preferred Stock in the underwritten public offering, in full satisfaction of the Company’s obligations under the outstanding Notes in an aggregate amount of $20 million. The only remaining balance as of June 30, 2022 was $46 thousand in interest payable to the lenders.

NYDIG Financing

	Maturity Dates	Interest Rate	June 30, 2022
NYDIG Loans #1-11	April 25, 2023 thru January 25, 2027	12% thru 15%	$	14,387
Less: principal payments				2,590
Less: debt issuance costs				289
Total outstanding debt				11,508
Less: current portion of debt				7,526
Total Long term debt			$	3,982

On December 30, 2021, Soluna MC Borrowing 2021-1 LLC (“Borrower”), an indirect wholly owned subsidiary of the Company entered into a Master Equipment Finance Agreement (the “Master Agreement”) with NYDIG ABL LLC (“NYDIG”) as lender, servicer and collateral agent. The Master Agreement outlined the framework for a financing up to approximately $14.4 million in aggregate equipment financing. Subsequently, the parties negotiated the specific terms of each equipment financing transaction as well as the terms upon which the investors in our October 2021 Senior Secured Convertible Notes (the “Convertible Investors”) would consent to the transactions contemplated by the Master Agreement.

On January 14, 2022, the Borrower effected an initial drawdown under the Master Agreement in the aggregate principal amount of approximately $4.6 million that bore interest at 14% and will be repaid over 24 months. On January 26, 2022, the Borrower had a subsequent drawdown of $9.6 million. As part of the transactions contemplated under the Master Agreement, (i) the Company’s indirect wholly owned subsidiary, Soluna MC LLC, formerly EcoChain Block LLC (“Guarantor”), which is the owner of 100% of the equity interests of Borrower, executed a Guaranty Agreement in favor of NYDIG, as lender, dated as of December 30, 2021 (the “Guaranty Agreement”), (ii) Borrower has granted a lien on, and security interest in, all of its assets to NYDIG, as collateral agent, (iii) Guarantor entered into an equipment financing arrangement on assets purchased with the borrowed funds, (iv) Borrower will borrow from NYDIG the loans as forth in certain loan schedules (the “Specified Loans”), and (v) Borrower has executed a Digital Asset Account Control Agreement (the “ACA Wallet Agreement”) with NYDIG, as collateral agent and secured party, and NYDIG Trust Company LLC, as custodian, dated as of December 30, 2021, as well as such other agreements related to the foregoing as mutually agreed (collectively, the “NYDIG Transactions”).

In connection with the NYDIG Transactions, on January 13, 2022, the Company entered into a Consent and Waiver Agreement, dated as of January 13, 2022 (the “Consent”), with the Convertible Investors, in connection with the SPA, pursuant to which the Convertible Investors agreed to waive any lien on, and security interest in, certain assets, provided various contingencies are fulfilled, and each Investor who acquired on the Closing Date Notes having a principal amount of not less than $3,000,000 agreed to waive its rights under Section 4.17 of the SPA to participate in Subsequent Financings with respect to the NYDIG Transactions and any additional loans under the MEFA that only finance the purchase of equipment from NYDIG, in order to consent to the NYDIG Transactions. Pursuant to the Consent, the Investors also waived the current requirement of the SPA and the other Transaction Documents (collectively, the “SPA Documents”) that the Borrower become an Additional Debtor (as defined in the Security Agreement) and execute an Additional Debtor Joinder (as defined in the Security Agreement) for so long as the Specified Loans are outstanding, and NYDIG not entering into a subordination or intercreditor agreement with respect to the Guaranty. Further, pursuant to the Consent, the Purchasers waived the right to accelerate the Maturity Date of the Notes and the right to charge a default rate of interest on such Notes, in each case, with respect to certain changes in names of, and jurisdiction of incorporation, of the Debtors (as defined in the SPA Documents), which waiver does not waive any other Event of Default (as defined in any of the SPA Documents), known or unknown, as of the date of Consent.

Promptly after the date of the Consent, the Company issued warrants to purchase up to 85,000 shares of common stock to the Convertible Investor holding the largest outstanding principal amount of Notes as of the date of the Consent. Such warrants are substantially in form similar to the other Warrants held by the Convertible Investors. Such warrants are exercisable for three years from the date of the Consent at an exercise price per share of the Company’s common stock, equal to 130% of the closing price per share of the common stock as of the date of the Consent.

Line of Credit

On September 13, 2021, the Company entered into a $1.0 million unsecured line of credit with 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 + 0.75% per annum (5.5% interest rate as of June 30, 2022). Accrued interest is due monthly and principal is due in full following lender’s demand. As of June 30, 2022 and December 31, 2021, the entire line of credit of $1.0 million was drawn and outstanding.