Filing summary
Entity and period: The supplied filing is Mechanical Technology, Incorporated’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not a filing under the name Soluna Holdings, Inc. The company operated through MTI Instruments and EcoChain; it held an approximately 1.83% fully diluted interest in Soluna Technologies, Ltd.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Revenue | $3.304 million | $5.636 million |
| Operating income (loss) | $(1.179) million | $(1.850) million |
| Net income (loss) | $(1.174) million | $(1.840) million |
| Net loss per share, basic and diluted | $(0.10) | $(0.17) |
- Q2 revenue comprised $1.647 million of product revenue and $1.657 million of cryptocurrency revenue. Six-month amounts were $2.984 million and $2.652 million, respectively.
- Gross margin, calculated from reported revenue and direct costs, was approximately 68% for both Q2 and the first half. Six-month product revenue cost was 68.0% of product revenue; cryptocurrency revenue had $873,000 of direct costs.
- At June 30, cash was $12.096 million, working capital $16.849 million, total assets $25.559 million, and total liabilities $4.702 million. The company reported no debt outstanding. A $300,000 secured credit line was undrawn.
- Six-month operating cash flow was $(5.037) million; investing cash flow was $(1.336) million, including equipment purchases; financing cash flow was $15.839 million, primarily from the equity offering. Cash increased $9.466 million from year-end 2020.
- Backlog was $1.097 million at June 30, versus $555,000 at December 31, 2020. The company reported an accumulated deficit of $119.6 million.
Changes versus the prior comparable period
- Q2 revenue increased 35% year over year, while first-half revenue increased 40%, primarily due to the expansion of cryptocurrency mining. Cryptocurrency revenue was $50,000 in each comparable 2020 period.
- Product revenue declined 31% in Q2 and 25% for the first half, mainly reflecting fewer portable balancing system sales, including lower U.S. Air Force shipments and, for the half year, weaker Asia sales amid COVID-related travel and communication challenges.
- Despite higher revenue, the company shifted from operating income of $600,000 in Q2 2020 and $458,000 in first-half 2020 to losses in 2021. SG&A rose $2.183 million in Q2 and $3.225 million for the first half, offsetting cryptocurrency contribution margin of approximately $1.1 million and $1.7 million, respectively.
- Management attributed much of the SG&A increase to stock-based compensation, legal and due-diligence work, investor-relations costs, new staff, and public-company compliance expenses. It estimated approximately $1.5 million of Q2 and $2.2 million of first-half SG&A increases were one-time; certain added public-company costs were expected to continue.
Outlook, risks and unusual items
- Management believed available resources could fund MTI and MTI Instruments operations and capital expenditures, and EcoChain operations, through at least the end of Q3 2022. EcoChain expansion capital expenditures were expected to depend on successful additional securities sales; financing might not be available on acceptable terms or at all.
- For 2021, the company expected approximately $300,000 of computer equipment and software spending and $1.6 million of MTI/MTI Instruments R&D spending. EcoChain had $8.3 million of outstanding capital-expenditure commitments.
- EcoChain’s planned Southeastern U.S. facility involved 25-year ground leases and a power-supply agreement, but the leases had not commenced as of August 10, 2021. Disclosed obligations included a $500,000 payment at building commencement, up to $4 million in vacancy payments, and 100,000 shares related to the vacant-land lease. The company guaranteed the vacancy payments.
- Facility risks include reliance on the landlord for power and potential interruption or added costs if supply fails. The leased properties were referenced in pending U.S. government forfeiture complaints concerning the landlord’s owners; seizure could disrupt operations and require substantial expenditure. The filing states the government had not filed a forfeiture action against the properties themselves.
- The U.S. Air Force contract expired June 30, 2021. Management said renewal discussions were underway, expected a renewal in September, and did not anticipate material effects from the pending renewal.
- Other key risks include cryptocurrency price and regulatory volatility, mining profitability and scale-up, customer concentration, government-contract dependence, and COVID-related effects. The EPA sought approximately $358,000 plus interest in response costs in a Superfund matter; management considered a material adverse outcome remote. No material subsequent events were reported.
- The April 2021 public offering and over-allotment generated approximately $15.755 million in aggregate net proceeds and included warrants, creating potential dilution. The company also terminated its shareholder rights agreement in June, citing restrictions on capital raising.
Most important facts for investors to verify
- Confirm the registrant identity and relationship, if any, to Soluna Holdings, Inc.; this filing names Mechanical Technology, Incorporated as registrant.
- Track renewal and revenue contribution of the U.S. Air Force contract, and whether product demand and Asia sales recover.
- Verify Southeastern facility lease commencement, total capital needs, power reliability, landlord-related forfeiture developments, and funding sources for EcoChain expansion.
- Assess whether the asserted runway through Q3 2022 remains adequate given operating cash use, commitments, and availability of new financing.
- Monitor cryptocurrency mining economics, including revenue, direct power and hosting costs, and sensitivity to crypto prices and regulation.
- Review dilution from offering warrants, equity compensation, and any lease-related share issuance; reconcile share counts, including treasury shares.