Business context and reporting period
Soluna Holdings, Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2022. The company now focuses on cryptocurrency mining and data-center hosting through Soluna Computing, Inc. It sold MTI Instruments on April 11, 2022 and reports that business as discontinued operations.
Financial performance and position
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $8.676 | $1.657 | $17.992 | $2.652 |
| Operating loss | $(9.432) | $(1.391) | $(16.230) | $(2.022) |
| Loss from continuing operations | $(14.104) | $(1.391) | $(23.236) | $(2.017) |
| Net loss, including discontinued operations | $(6.557) | $(1.174) | $(15.464) | $(1.840) |
| Adjusted EBITDA, non-GAAP | $0.296 | $(0.166) | $1.150 | $(0.415) |
- Q2 revenue included $7.497 million from cryptocurrency mining and $1.179 million from hosting. Six-month revenue comprised $15.309 million from mining and $2.683 million from hosting.
- Including depreciation, mining and hosting costs exceeded revenue by $1.433 million in Q2 and $0.976 million for the six-month period, equivalent to gross margins of approximately -16.5% and -5.4%. Mining alone generated a loss before corporate expenses in both periods.
- Net income from discontinued operations was $7.547 million for Q2 and $7.772 million for the first half, including a $7.602 million gain on the MTI sale. Thus, the reported net loss is materially cushioned by a one-time disposal gain.
- At June 30, cash was $4.626 million; current assets were $17.555 million and current liabilities $27.244 million, leaving negative working capital of $9.689 million. Total assets were $147.919 million and stockholders’ equity $106.566 million.
- Borrowings included a $1.0 million line of credit, $10.450 million of notes payable and $11.508 million of NYDIG equipment debt, of which $7.526 million was current and $3.982 million long-term. Preferred dividends paid in the first half were $2.131 million.
- For the six months, operating cash flow from continuing operations was $1.763 million; investing cash outflow was $50.629 million, mainly reflecting $52.618 million of equipment purchases; and financing cash inflow was $33.881 million. Cash declined from $10.258 million at year-end to $4.626 million.
Material changes versus the prior comparable period
- Revenue increased substantially as mining capacity expanded in Kentucky and hosting revenue began; management said deployed capacity at the two Kentucky sites had reached approximately 20 MW and 33 MW, respectively, by June 30.
- Costs and losses also rose sharply. Depreciation and amortization reached $7.914 million in Q2 and $14.611 million in the first half, versus $0.149 million and $0.225 million, respectively, a year earlier. Higher operating expenses, interest expense and asset-disposal losses contributed to the larger continuing-operations losses.
- Interest expense was $3.305 million in Q2 and $6.185 million in the first half, versus none reported in the comparable 2021 periods. The company also recorded a $0.750 million impairment charge on S-9 miners and a $1.618 million loss on miner disposals.
- The MTI Instruments sale generated approximately $9.0 million in net cash proceeds and a $7.602 million accounting gain; the former instrumentation business is no longer part of continuing operations.
Outlook, commentary and risks
- Management disclosed substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements, citing insufficient revenue to generate net income, negative working capital and Bitcoin price declines. It said continued operations depend on profitable operations and/or additional financing; there is no assurance its plans will succeed.
- Management intends to fund growth through debt, equity, project-level investment and partnerships. It expected G&A costs to continue increasing as mining operations expand. The filing provides no specific revenue, earnings or production guidance.
- After quarter-end, the company amended terms for its secured October notes, including discounted-price conversions and possible redemptions, and issued $5.0 million of Series B preferred stock with warrants. These arrangements may reduce debt but carry potential dilution, redemption costs and financing restrictions.
- Spring Lane had agreed to provide up to $35 million of project financing subject to conditions. An August 5 project agreement provided for up to $12.5 million from Spring Lane and up to approximately $26.3 million from Soluna; initial contributions were approximately $3.9 million and $8.1 million, respectively. Future funding remains conditional.
- Key risks include Bitcoin price and mining economics, energy and equipment costs, execution and financing of development projects, access to capital, dilution, debt maturities and security interests, inflation and interest rates. Management also cited possible supply-chain and broader economic effects. The company considers the EPA Superfund reimbursement matter—approximately $358,000 plus interest sought from all named parties—unlikely to have a material adverse outcome.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2022.
Important facts for investors to verify
- Whether available cash, project funding and additional financing are sufficient to meet operating needs, capital commitments and debt obligations, including the October notes.
- The actual conversion, redemption and dilution outcomes under the October-note addendum and Series B securities, including any required shareholder or Nasdaq approvals.
- Whether Spring Lane and Soluna make further project contributions, and whether Texas development milestones, budgets and operating plans are achieved.
- Mining economics and utilization: Bitcoin prices, power costs, deployed capacity, miner performance, hosting customer concentration and the ability to improve margins as depreciation and overhead rise.
- The final MTI sale working-capital adjustment and the extent to which ongoing results exclude the one-time sale gain and discontinued operations.