Soluna Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statement amounts are in U.S. dollars; amounts below are in millions unless otherwise stated. The filing is unaudited.
Business context
Soluna was shifting toward cryptocurrency mining and data-center hosting, with a strategy centered on modular facilities powered by renewable energy. Its mining operations were in Washington and Kentucky; the company also earned hosting revenue in Kentucky. MTI Instruments was classified as discontinued operations and was sold on April 11, 2022, after quarter-end, for approximately $9.25 million cash, subject to adjustments.
Financial performance and liquidity
- Revenue: Continuing-operations revenue was $9.316 million, up from $0.995 million a year earlier. Cryptocurrency mining contributed $7.812 million; data-center hosting contributed $1.504 million.
- Margins and expenses: Gross margin was approximately 5%, versus 67% in Q1 2021. Management attributed the decline mainly to increased depreciation on deployed miners and higher utility costs. Operating expenses included $7.255 million of SG&A; operating loss was $6.798 million.
- Profit/loss: Continuing-operations net loss was $9.132 million, versus $0.626 million. Including discontinued operations’ $0.226 million income, net loss was $8.906 million, or $0.69 per basic and diluted share, versus a $0.666 million loss, or $0.07 per share. Interest expense was $2.881 million.
- Cash flow: Continuing-operations operating cash flow was positive $0.801 million. Investing activities used $28.068 million, including $25.438 million of equipment purchases. Financing activities provided $19.326 million. Cash fell from $10.258 million at year-end to $2.827 million at March 31.
- Balance sheet and debt: Total assets were $136.337 million and total liabilities $48.755 million. Working capital was negative $10.120 million. Debt included a $1.0 million drawn line of credit, $8.230 million net convertible notes, $7.761 million net promissory notes, and $12.997 million of NYDIG equipment financing, of which $7.195 million was current.
- Capital needs: The company reported $37.3 million of outstanding capital-expenditure commitments and $14.861 million of equipment deposits. It paid $0.749 million in preferred dividends during the quarter.
Changes versus the prior comparable period
- Mining revenue grew substantially as Kentucky sites and mining capacity expanded; hosting revenue was new compared with Q1 2021. Management reported approximately 25 MW across the two Kentucky sites by the quarter.
- Cost of revenue rose with the expanded operations. Depreciation and amortization increased to $6.697 million from $0.075 million, including about $4.3 million of miner depreciation and $2.4 million of acquired-intangible amortization.
- SG&A increased to $7.255 million from $1.298 million, reflecting staffing, stock compensation, professional fees, and other costs associated with the business transition and growth.
- Interest expense and debt financing were significant new factors versus Q1 2021. MTI Instruments’ discontinued operations generated $0.226 million income, compared with a $0.040 million loss.
Outlook, risks, contingencies, and unusual items
- Management cited Bitcoin price volatility as a potential material negative to operations. It said it expected sufficient cash flow for the next 12 months and described resources as adequate through at least Q2 2023 in its liquidity discussion; another forward-looking statement refers to funding through at least Q1 2023. These are management expectations, not guarantees.
- The company expected SG&A to continue increasing as cryptocurrency operations expand. It anticipated funding growth and capital expenditures through additional debt or equity, but cautioned that financing may not be available on acceptable terms or at all; spending could be deferred if liquidity requires.
- After quarter-end, Soluna issued the third $10 million tranche of a $20 million promissory-note financing. On April 29, it issued 1,142,857 Series A preferred shares to satisfy $20 million of notes and raised approximately $8.56 million net from a separate preferred-stock offering.
- A May 3 framework agreement contemplated up to $35 million of project capital contributions from Spring Lane for green data-center projects. No projects or contributions were assured; they were subject to conditions, consents, project selection, and further agreements.
- The October 2021 asset acquisition included contingent consideration of up to 2.97 million common shares tied to project milestones and other conditions. The filing also describes transactions and relationships with Harmattan Energy (HEL), including affiliations involving directors and management.
- Soluna disclosed an EPA demand seeking approximately $358,000 plus interest relating to a Superfund site. Management considered a material adverse outcome remote. It reported $801,000 of continuing-operations operating cash flow but significant investment needs and negative working capital.
- COVID-19-related supply-chain disruption had caused some minor miner-shipment changes; management said it was monitoring potential effects. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether operating cash generation, available cash, and the proceeds from the MTI sale and subsequent offerings were sufficient relative to negative working capital and capital commitments.
- Actual mining and hosting economics, including gross margins, power costs, miner utilization, Bitcoin prices, and the pace and cost of deployments.
- Terms, repayment or conversion status, collateral, and dilution implications of the convertible notes, equipment financing, promissory notes, warrants, and preferred stock.
- Whether the Spring Lane commitment results in funded projects, and whether project milestones trigger issuance of contingent merger shares.
- The final MTI sale proceeds after adjustments and the effect of the sale on ongoing cash flows and reported results.
- The liquidity outlook contains different stated funding horizons—Q1 versus Q2 2023—which investors should reconcile with later filings and actual financing.