Soluna Holdings, Inc. — FY2021 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2021; it does not provide separate fourth-quarter results. Soluna operated cryptocurrency mining and data-center hosting through Soluna Computing, alongside MTI Instruments, which was classified as discontinued operations and held for sale following a non-binding letter of intent announced in December 2021. The company completed its acquisition of Soluna Callisto in October 2021, adding a pipeline of mining projects. It changed its name from Mechanical Technology, Incorporated to Soluna Holdings in November 2021.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Continuing-operations revenue | $14.3 million | $0.6 million |
| Cryptocurrency mining revenue | $10.9 million | $0.6 million |
| Data-hosting revenue | $3.4 million | None reported |
| Gross margin, continuing operations | 44% | 32% |
| Operating loss | $4.5 million | $1.6 million |
| Net loss from continuing operations | $6.4 million | $1.2 million |
| Net income from discontinued operations | $1.1 million | $3.2 million |
| Consolidated net income (loss) | $(5.3) million | $1.9 million |
| Adjusted EBITDA, continuing operations (non-GAAP) | $1.5 million | $(1.4) million |
| Cash from continuing operating activities | $4.6 million | $(1.2) million |
| Capital expenditures | $45.8 million | $0.8 million |
| Cash and working capital at year-end | $10.3 million / $9.3 million | $2.6 million / $3.1 million |
Figures are in U.S. dollars; amounts are rounded. MTI Instruments, reported separately as discontinued operations, generated product revenue of $7.1 million in 2021 versus $9.0 million in 2020. Including that discontinued business, reported revenue across the two operations was approximately $21.5 million in 2021; the continuing-operations revenue line excludes MTI.
- Margins and costs: Mining gross margin was 48.5%; hosting margin was 28%. Hosting reduced the overall continuing-operations gross margin. SG&A rose to $10.8 million from $1.8 million, reflecting expansion, acquisition-related amortization and diligence, stock-based compensation, public-company costs, and added staffing.
- Debt and liquidity: At year-end, the company had a fully drawn $1.0 million unsecured line of credit and convertible notes with $14.9 million remaining principal; their reported net balance-sheet carrying value was $7.1 million after discounts and issuance costs. Total liabilities were $26.7 million and total assets were $117.7 million. The company reported $16.2 million of SCI capital-expenditure commitments.
- Cash flows and financing: Continuing operating activities provided $4.6 million, investing activities used $57.3 million, and financing activities provided $59.4 million. Financing included common and preferred offerings, notes, and warrant exercises. Preferred dividends paid were $0.6 million. The 9% Series A preferred stock had 1,252,299 shares outstanding at year-end; no common-stock dividend was planned.
Material changes versus the prior year
- Mining revenue increased substantially as operations expanded from roughly 2 MW at year-end 2020 to approximately 25 MW at year-end 2021; mining activity began in Washington in 2020, with Kentucky sites added in 2021. Hosting began in August 2021.
- At year-end, the company reported 19,116 miners purchased, received, or deployed; 13,240 were deployed, while 5,876 received miners were not yet deployed.
- Net loss replaced prior-year net income, principally due to higher SG&A, depreciation and amortization, and $1.9 million of interest expense. Continuing-operations depreciation and amortization rose to $3.7 million from $0.1 million.
- MTI Instruments revenue declined about 21%, and net income from discontinued operations fell to $1.1 million from $3.2 million, partly because fewer portable balancing systems were sold to the U.S. Air Force than in 2020.
- Property, plant and equipment increased to $44.6 million from $0.7 million, and intangible assets were $45.8 million, largely reflecting the mining build-out and the acquired project pipeline.
Outlook, risks, contingencies, and unusual items
- Management said available cash, projected 2022 cash flows, and anticipated proceeds from a potential MTI sale were expected to fund operations through at least the end of Q1 2023. This is management’s estimate, not a guarantee; growth capital expenditures were expected to rely on additional debt or equity financing.
- Management expected SG&A to increase as cryptocurrency operations expand and described plans for additional facilities, equipment, and a capital strategy combining debt and equity. The company discussed future green, zero-carbon computing, including potential uses such as AI and machine learning, but provided no quantified revenue or earnings guidance.
- The MTI sale remained uncertain: the LOI was non-binding, required due diligence and definitive agreements, and a sale required consent from holders of the secured convertible notes. If completed, Soluna would depend principally on SCI, a business with a limited operating history.
- Subsequent to year-end, the company drew approximately $4.6 million and $9.6 million under NYDIG equipment financing; the filing describes an equipment-financing framework of up to about $14.4 million and a 14% rate for the initial draw. It also issued $7.6 million and $2.4 million of promissory notes in February and March 2022 and expected a further $10.0 million tranche, with warrants. These financings add obligations and potential dilution.
- Significant risks include cryptocurrency price and mining-difficulty volatility, Bitcoin reward halvings, equipment obsolescence and availability, regulatory change, cybersecurity and irreversible transactions, access to affordable power, and the need for substantial expansion capital. The company also identified dependence on landlords for power and potential U.S. government forfeiture proceedings involving properties underlying certain ground leases.
- The 2021 Callisto acquisition was accounted for as an asset acquisition. Its strategic pipeline contract was valued at approximately $36.5 million including direct transaction costs; contingent share consideration was estimated at approximately $33.0 million using assumptions about future megawatt milestones and the company’s share price. The transaction valuation, warrant valuation, and deferred-tax-asset realizability were identified as critical audit matters. The independent auditor issued an unqualified opinion on the 2021 financial statements.
- The EPA sought approximately $358,000 plus interest in response costs concerning a Superfund site. Management considered a material adverse outcome remote. Management reported effective disclosure controls and internal control over financial reporting; the external auditor did not provide an ICFR attestation.
Most important facts for investors to verify
- Progress, financing terms, power arrangements, and actual deployment and utilization of the Kentucky facilities and miner fleet.
- Whether the MTI sale closes, its final consideration and conditions, and the impact on earnings, liquidity, and the business mix.
- Cash use against the company’s runway estimate, capital commitments, and the terms, repayment requirements, collateral, and dilution potential of subsequent financings.
- The assumptions and milestone conditions underlying the $45.8 million intangible-asset balance and contingent acquisition consideration.
- Exposure to Bitcoin prices, network difficulty, electricity costs, equipment supply, regulation, and the disclosed property-forfeiture and power-supply risks.