SOLUNA HOLDINGS(SLNHP) - 2023 Q3 - Quarterly Report

Capacity and Projects - The company operates at a 75-megawatt capacity across two sites, Project Sophie and Project Dorothy, with over 2 Gigawatts in the long-term pipeline[201]. - Project Dorothy has a total capacity of 100 MW, with the initial 50 MW phase fully energized[221][222]. - The company has 216 MW in two new data center projects: Project Dorothy 2 (50 MW) and Project Kati (166 MW)[201]. - Project Sophie has deployed over 8,000 machines for hosting customers, filling 25 MW of capacity, and has signed new hosting term sheets for an additional 15 MW[220]. - 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[243]. - Project Dorothy 1A has achieved full capacity with approximately 7,700 Bitcoin miners deployed, resulting in an installed hashrate of 950 PH/s and consuming over 2,500 MWh of curtailed energy[239]. - Project Dorothy 1B has deployed over 7,920 Bitcoin miners, achieving an installed hashrate of 816 PH/s and consuming over 1,500 MWh of curtailed energy[240]. Revenue Streams - The company plans to host AI customers at its data centers in the future, expanding its revenue streams beyond cryptocurrency mining[205]. - Data hosting revenue increased by 307% to $4.011 million in Q3 2023 from$0.985 million in Q3 2022[250]. - Cryptocurrency mining revenue decreased by 67% to $1.786 million in Q3 2023 from$5.387 million in Q3 2022[250]. - The transition from proprietary mining to data hosting at Project Sophie contributed approximately $991 thousand in data hosting revenue in Q3 2023[256]. - The company anticipates future revenues will include block rewards, transaction fees, and hosting revenues from cryptocurrency mining customers[309]. Financial Performance - Operating loss improved by 91$(3.736) million in Q3 2023 compared to $(41.716) million in Q3 2022[250]. - Net loss attributable to Soluna Holdings, Inc. decreased by 88$(6.662) million in Q3 2023 from $(55.892) million in Q3 2022[250]. - The company reported a gain of approximately$7.8 million from the sale of its subsidiary, MTI Instruments, for about $9.4 million in cash[246]. - The company had a net loss from continuing operations of$22.7 million for the nine months ended September 30, 2023, compared to a net loss of $79.4 million for the same period in 2022[289]. - Adjusted EBITDA for the three months ended September 30, 2023, was$405 thousand, while for the nine months ended September 30, 2023, it was a loss of $4.5 million[288]. Expenses and Cost Management - General and administrative expenses for the nine months ended September 30, 2023, decreased by 27$11.219 million from $15.441 million in the same period of 2022[252]. - Cost of cryptocurrency mining revenue, exclusive of depreciation, decreased by 60$4.451 million in the nine months ended September 30, 2023, from $11.092 million in the same period of 2022[252]. - Cost of data hosting increased to approximately$2.2 million for Q3 2023, up from $1.1 million in Q3 2022, primarily due to Project Dorothy 1A costs[260]. - General and administrative expenses for Q3 2023 were approximately$2.7 million, a decrease of 52% from $5.7 million in Q3 2022, mainly due to reduced salaries and consulting fees[263]. - Salaries, benefits, and other employee expenses decreased by approximately$589 thousand in Q3 2023 compared to Q3 2022, reflecting a reduction in headcount and recruitment costs[264]. Capital and Financing - The company has secured $35 million in project-level financing for the Dorothy Project, with$12.5 million specifically allocated for its development[229]. - The NYDIG facility has a financing agreement of approximately $14.4 million for equipment financing, which has faced challenges due to cash flow issues[208]. - The company plans to fund growth through project-level capital raising and equity sales, contingent on successfully raising capital[291]. - The company generated approximately$22.8 million in net cash from financing activities during the nine months ended September 30, 2023, including $19.7 million from non-controlling interest contributions[299]. Operational Challenges - The company has experienced financial challenges, including a default on a secured note receivable of$193 thousand as of September 30, 2023[206]. - The company experienced a negative working capital position and insufficient revenue to generate net income, raising substantial doubt about its ability to continue as a going concern within one year[292]. - The shutdown of Project Marie operations in February 2023 caused a revenue decline of approximately $3.4 million[256]. - The company is actively monitoring macroeconomic factors such as inflation and interest rates that could adversely affect its operations and financial condition[294]. Market Conditions and Risks - The average price of Bitcoin increased by approximately 32% for Q3 2023 compared to Q3 2022, while it declined by approximately 17% for the nine months ended September 30, 2023 compared to the same period in 2022[255]. - Block rewards are currently fixed at 6.25 Bitcoin per block, expected to halve to 3.125 Bitcoin in April 2024, which may negatively impact revenues[310]. - The company is subject to risks related to the fluctuating valuations of cryptocurrency and general economic conditions[308]. - The company faces potential adverse impacts from pending legal proceedings and strategic alliances not achieving their objectives[308].