SOLUNA HOLDINGS(SLNHP) - 2023 Q2 - Quarterly Report

Company Operations - Soluna Holdings, Inc. operates through its subsidiary Soluna Computing, Inc., focusing on cryptocurrency mining using renewable energy sources[186]. - The company is focused on developing green, zero-carbon computing and cryptocurrency mining facilities following the sale of its MTI Instruments business in April 2022[261]. Project Developments - Project Marie, a 20 MW facility, faced financial challenges due to Bitcoin price declines, leading to a default on a $14.4 million loan from NYDIG[193][189]. - Project Sophie transitioned to a hosting model for Bitcoin miners, deploying over 7,600 machines and achieving an installed hash rate of approximately 812 PH/s[198][199]. - Project Dorothy, a 100 MW modular data center, has secured hosting agreements totaling 25 MW and deployed over 7,000 machines as of June 2023[205][206]. - The Company plans to concentrate resources on the Dorothy facility after impairing assets at the Marie facility due to financial difficulties[195]. - The Company plans to begin energization of Dorothy 1B in Q3 2023, having purchased over 8,250 mining machines[218]. - The Company entered into a partnership with Navitas for Project Dorothy 1B, with Navitas contributing$12.1 million for a 49% ownership stake[209]. - The Dorothy Facility is being developed in phases, with a peak demand of 50 MW for the first two phases and a potential total of 150 MW if all four phases are completed[211]. - The Kati Project is a new 166 MW modular data center co-located with a 300 MW wind farm, currently progressing through ERCOT interconnection studies[219]. Financial Performance - Cryptocurrency mining revenue decreased by 88% to $915,000 in Q2 2023 compared to$7.5 million in Q2 2022[224]. - Operating loss improved by 25% to $7.1 million in Q2 2023 from$9.4 million in Q2 2022[224]. - Net loss attributable to Soluna Holdings, Inc. was $8.8 million in Q2 2023, a 34$6.6 million in Q2 2022[224]. - Cryptocurrency mining revenue decreased by approximately $11.6 million or 76$3.7 million compared to $15.3 million for the same period in 2022[226]. - Data hosting revenue for the six months ended June 30, 2023 was approximately$1.4 million, a decline of $1.2 million or 46$2.7 million for the same period in 2022[226]. - Operating loss improved by $2.1 million or 13$14.1 million for the six months ended June 30, 2023, compared to $16.2 million for the same period in 2022[226]. - Net loss from continuing operations decreased by$6.5 million or 28%, amounting to $16.7 million for the six months ended June 30, 2023, compared to$23.2 million for the same period in 2022[226]. - General and administrative expenses for the six months ended June 30, 2023 were approximately $8.5 million, a decrease of$1.3 million or 13% compared to $9.8 million for the same period in 2022[240]. - The Company recognized a gain of approximately$7.8 million from the sale of its subsidiary, MTI Instruments, in 2022[221]. - The Company reported a net loss of $16.7 million for the six months ended June 30, 2023, with approximately$3.8 million used in operations[265]. Costs and Expenses - Salaries, benefits, and other employee expenses decreased by approximately $1.6 million for the six months ended June 30, 2023, primarily due to reduced recruitment fees and bonuses[241]. - Cost of cryptocurrency mining revenue, exclusive of depreciation, decreased by approximately$3.6 million or 51% for the six months ended June 30, 2023, totaling $3.4 million compared to$7.0 million for the same period in 2022[231]. - Depreciation costs associated with cryptocurrency and data hosting revenue significantly declined to approximately $1.2 million for the six months ended June 30, 2023, compared to$9.9 million for the same period in 2022[233]. - Stock-based compensation increased by approximately $917 thousand for the six months ended June 30, 2023, due to the acceleration of grants and awards in May 2023[244]. Debt and Interest - Interest expense for the three months ended June 30, 2023, was$439 thousand, a significant decrease from $3.3 million for the same period in 2022[247]. - For the six months ended June 30, 2023, interest expense totaled$1.8 million, down from $6.2 million in the prior year[248]. - The Company reported a net loss on debt extinguishment and revaluation of$1.6 million for the six months ended June 30, 2023, primarily due to a new debt agreement with convertible noteholders[249]. - The company incurred approximately $651 thousand in accrued interest and penalties related to a$10.5 million principal balance due to NYDIG as of June 30, 2023[271]. - As of June 30, 2023, the company had an outstanding principal balance of approximately $12.9 million on secured convertible notes[270]. Cash Flow and Working Capital - Cash used in investing activities was approximately$9.6 million for the six months ended June 30, 2023, primarily due to capital expenditures of $2.9 million and equipment purchases of$7.9 million[267]. - Net cash provided by financing activities was approximately $21.8 million during the six months ended June 30, 2023, mainly from cash contributions for non-controlling interest of$19.4 million[268]. - The company has a cash position that it plans to use to fund operations and may seek additional credit facilities if necessary[262]. - As of June 30, 2023, the Company had positive working capital of approximately $6.1 million and$12.9 million in outstanding principal notes payable[260]. - The company experienced a significant increase in accounts payable, with a rise of $696 thousand as of June 30, 2023[265]. Market Conditions and Future Outlook - The average price of Bitcoin decreased approximately 31$28,478 in March 2023 to $30,477 as of June 30, 2023, following a decline from$45,539 in March 2022 to $19,784 on June 30, 2022[281]. - Current block rewards are fixed at 6.25 Bitcoin per block, expected to halve to 3.125 Bitcoin in April 2024, potentially impacting revenues negatively[281]. - Miners collect transaction fees for confirming transactions, which may vary based on network consensus, unlike fixed block rewards[282]. - As Bitcoin availability declines, the mining incentive structure is expected to shift towards a higher reliance on transaction confirmation fees[283]. - Transaction fees are anticipated to become a larger proportion of revenues for miners as the Bitcoin network expands[283]. - The company is actively monitoring macroeconomic factors such as inflation and interest rates that could adversely affect its operations and financial condition[264]. Revenue Composition - Revenues are expected to comprise block rewards in Bitcoin, transaction fees, and hosting revenues from cryptocurrency mining customers[279].